15.

EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS

We sponsor various defined benefit and defined contribution retirement plans, including various employee savings and profit sharing plans, and contribute to various multiemployer pension plans on behalf of our employees. Substantially all full-time union and non-union employees who have completed one or more years of service and have met other requirements pursuant to the plans are eligible to participate in one or more of these plans. During 2013, 2012 and 2011, our retirement and profit sharing plan expenses were as follows:


	Year Ended December 31
	2013		2012		2011
	(In thousands)
Defined benefit plans	$	10,400	$	12,969	$	12,129
Defined contribution plans		17,619		17,637		21,482
Multiemployer pension and certain union plans		29,148		27,016		24,612

Total	$	57,167	$	57,622	$	58,223

Defined Benefit Plans — The benefits under our defined benefit plans are based on years of service and employee compensation. Our funding policy is to contribute annually the minimum amount required under ERISA regulations plus additional amounts as we deem appropriate.

Included in accumulated other comprehensive income at December 31, 2013 and 2012 are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service costs of $3.5 million ($2.1 million net of tax) and $4.3 million ($2.6 million net of tax) and unrecognized actuarial losses of $86.8 million ($53.1 million net of tax) and $157.9 million $97.0 million net of tax). Prior service costs and actuarial losses included in accumulated other comprehensive income and expected to be recognized in net periodic pension cost during the year ended December 31, 2014 are $787,150 ($481,972 net of tax) and $5.1 million ($3.1 million net of tax), respectively.

The reconciliation of the beginning and ending balances of the projected benefit obligation and the fair value of plan assets for the years ended December 31, 2013 and 2012, and the funded status of the plans at December 31, 2013 and 2012 is as follows:


	December 31
	2013			2012
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	347,798		$	318,422
Service cost		3,692			3,068
Interest cost		12,496			13,890
Plan participants’ contributions		12			13
Plan amendments		—			318
Actuarial (gain) loss		(45,076	)		33,212
Benefits paid		(25,072	)		(21,125	)
Plan settlements		—			—
Exchange rate changes		—			—

Benefit obligation at end of year		293,850			347,798
Change in plan assets:
Fair value of plan assets at beginning of year		251,094			224,519
Actual return on plan assets		32,558			30,766
Employer contributions		11,531			16,921
Plan participants’ contributions		12			13
Benefits paid		(25,072	)		(21,125	)
Plan settlements		—			—
Exchange rate changes		—			—

Fair value of plan assets at end of year		270,123			251,094

Funded status at end of year	$	(23,727	)	$	(96,704	)

The underfunded status of the plans of $23.7 million at December 31, 2013 is recognized in our Consolidated Balance Sheet and includes $0.8 million classified as a current accrued pension liability. We do not expect any plan assets to be returned to us during the year ended December 31, 2014. We expect to contribute $12.4 million to the pension plans in 2014.

A summary of our key actuarial assumptions used to determine benefit obligations as of December 31, 2013 and 2012 follows:


	December 31
	2013			2012
Weighted average discount rate		4.90	%		3.70	%
Rate of compensation increase		4.00	%		4.00	%

A summary of our key actuarial assumptions used to determine net periodic benefit cost for 2013, 2012 and 2011 follows:


	Year Ended December 31
	2013			2012			2011
Weighted average discount rate		3.70	%		4.50	%		5.28	%
Expected return on plan assets		7.50	%		7.67	%		7.67	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%


	Year Ended December 31
	2013			2012			2011
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	3,692		$	3,068		$	2,839
Interest cost		12,496			14,001			15,213
Expected return on plan assets		(18,531	)		(17,413	)		(16,966	)
Amortizations:
Unrecognized transition obligation		—			112			112
Prior service cost		791			759			763
Unrecognized net loss		11,759			11,667			9,060
Effect of curtailment		—			—			—
Effect of settlement		(136	)		—			969
Other		329			774			139

Net periodic benefit cost	$	10,400		$	12,968		$	12,129

The overall expected long-term rate of return on plan assets is a weighted-average expectation based on the targeted and expected portfolio composition. We consider historical performance and current benchmarks to arrive at expected long-term rates of return in each asset category.

The amortization of unrecognized net loss represents the amortization of investment losses incurred. The effect of settlement costs in 2013, 2012 and 2011 represents the recognition of net periodic benefit cost related to pension settlements reached as a result of plant closures.

Pension plans with an accumulated benefit obligation in excess of plan assets follows:


	December 31
	2013		2012
	(In millions)
Projected benefit obligation	$	282.6	$	347.8
Accumulated benefit obligation		279.4		340.8
Fair value of plan assets		258.3		251.1

The accumulated benefit obligation for all defined benefit plans was $290.6 million and $340.8 million at December 31, 2013 and 2012, respectively.

Almost 90% of our defined benefit plan obligations are frozen as to future participation or increases in projected benefit obligation. Many of these obligations were acquired in prior strategic transactions. As an alternative to defined benefit plans, we offer defined contribution plans for eligible employees.

The weighted average discount rate reflects the rate at which our defined benefit plan obligations could be effectively settled. The rate, which is updated annually with the assistance of an independent actuary, uses a model that reflects a bond yield curve. The weighted average discount rate was increased from 3.70% at December 31, 2012 to 4.90% at December 31, 2013.

Substantially all of our qualified pension plans are consolidated into one master trust. The investments held in the master trust are managed by an established Investment Committee with assistance from independent investment advisors. On July 1, 2009, the Investment Committee adopted a new long-term investment policy for the master trust that targets investments in equity securities at 59% of the portfolio, fixed income at 37%, cash equivalents at 3% and other investments of 1%. Policy objectives include maximizing long-term return at acceptable risk levels, diversifying among asset classes, if appropriate, and among investment managers, as well as establishing relevant risk parameters within each asset class. The investment policies permit variances from the targets within certain parameters. The investment policy prohibits investments in non-marketable or exotic securities, such as short-sale contracts; letter stock; commodities and private placements, without the Investment Committee’s prior approval. At December 31, 2013, our master trust was invested as follows: investments in equity securities were at 62%; investments in fixed income were at 36%; cash equivalents were at 2% and other investments were less than 1%. Equity securities of the plan did not include any investment in our common stock at December 31, 2013 or 2012. In recognition of the changing liability characteristics of our defined benefit plans, we are adopting a de-risking strategy in 2014, which is intended to dynamically decrease each plan’s allocation to equities and shift to less volatile fixed income assets as the funded status in each plan improves. We anticipate this process will occur over several years and will be dependent upon market conditions and plan characteristics. We expect that the higher fixed income allocation will better match the changing liability characteristics of our plans.

Estimated pension plan benefit payments to participants for the next ten years are as follows:


2014		$17.7 million
2015		18.3 million
2016		18.4 million
2017		19.0 million
2018		19.6 million
Next five years		101.2 million

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value of our defined benefit plans’ consolidated assets as follows:

•

Level 1 — Quoted prices for identical instruments in active markets.

•

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.

•

Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The fair values by category of inputs as of December 31, 2013 were as follows (in thousands):


	Fair Value as of December 31, 2013		Level 1		Level 2		Level 3
Equity Securities:
Common Stock	$	177	$	177	$	—	$	—
Index Funds:
U.S. Equities(a)		133,763		—		133,763		—
International Equities(b)		27,571		—		27,571		—
Equity Funds(c)		8,712		—		8,712		—

Total Equity Securities		170,223		177		170,046		—
Fixed Income:
Bond Funds(d)		92,103		—		92,103		—
Diversified Funds(e)		3,093		—		0		3,093

Total Fixed Income		95,196		—		92,103		3,093
Cash Equivalents:
Short-term Investment Funds(f)		3,840		—		3,840		—

Total Cash Equivalents		3,840		—		3,840		—
Other Investments:
Partnerships/Joint Ventures(g)		864		—		—		864

Total Other Investments		864		—		—		864

Total	$	270,123	$	177	$	265,989	$	3,957

(a)	Represents a pooled/separate account that tracks the Dow Jones U.S. Total Stock Market Index.

(b)	Represents a pooled/separate account that tracks the MSCI EAFE Index.

(c)	Represents a pooled/separate account comprised of approximately 90% U.S. large-cap stocks and 10% in international stocks.

(d)	Represents a pooled/separate account which tracks the overall performance of the Barclays Capital Long Term Government/Credit Index.

(e)	Represents a pooled/separate account investment in the General Investment Account of an investment manager. The account primarily invests in fixed income debt securities, such as high grade corporate bonds, government bonds and asset-backed securities.

(f)	Investment is comprised of high grade money market instruments with short-term maturities and high liquidity.

(g)	The majority of the total partnership balance is a partnership comprised of a portfolio of two limited partnership funds that invest in public and private equity.

The fair values by category of inputs as of December 31, 2012 were as follows (in thousands):


	Fair Value as of December 31, 2012		Level 1		Level 2		Level 3
Equity Securities:
Common Stock	$	112	$	112	$	—	$	—
Index Funds:
U.S. Equities(a)		119,377		—		119,377		—
International Equities(b)		22,373		—		22,373		—
Equity Funds(c)		7,320		—		7,320		—

Total Equity Securities		149,182		112		149,070		—
Fixed Income:
Bond Funds(d)		93,200		—		93,200		—
Diversified Funds(e)		2,938		—		—		2,938

Total Fixed Income		96,138		—		93,200		2,938
Cash Equivalents:
Short-term Investment Funds(f)		4,327		—		4,327		—

Total Cash Equivalents		4,327		—		4,327		—
Other Investments:
Partnerships/Joint Ventures(g)		1,447		—		—		1,447

Total Other Investments		1,447		—		—		1,447

Total	$	251,094	$	112	$	246,597	$	4,385

(a)	Represents a pooled/separate account that tracks the Dow Jones U.S. Total Stock Market Index.

(b)	Represents a pooled/separate account that tracks the MSCI EAFE Index.

(c)	Represents a pooled/separate account comprised of approximately 90% U.S. large-cap stocks and 10% in international stocks.

(d)	Represents a pooled/separate account which tracks the overall performance of the Barclays Capital Long Term Government/Credit Index.

(e)	Represents a pooled/separate account investment in the General Investment Account of an investment manager. The account primarily invests in fixed income debt securities, such as high grade corporate bonds, government bonds and asset-backed securities.

(f)	Investment is comprised of high grade money market instruments with short-term maturities and high liquidity.

(g)	The majority of the total partnership balance is a partnership comprised of a portfolio of two limited partnership funds that invest in public and private equity.

Inputs and valuation techniques used to measure the fair value of plan assets vary according to the type of security being valued. The common stock investments held directly by the plans are actively traded and fair values are determined based on quoted prices in active markets and are therefore classified as Level 1 inputs in the fair value hierarchy.

Fair values of equity securities held through units of pooled or index funds are based on net asset value (NAV) of the units of the funds as determined by the fund manager. These funds are similar in nature to retail mutual funds, but are typically more efficient for institutional investors than retail mutual funds. The fair value of pooled funds is determined by the value of the underlying assets held by the fund and the units outstanding. The values of the pooled funds are not directly observable, but are based on observable inputs and, accordingly, have been classified as Level 2 in the fair value hierarchy.

Fair values of fixed income bond funds are typically determined by reference to the values of similar securities traded in the marketplace and current interest rate levels. Multiple pricing services are typically employed to assist in determining these valuations. These investments are classified as Level 2 in the fair value hierarchy as all significant inputs into the valuation are readily observable in the marketplace. Investments in diversified funds and investments in partnerships/joint ventures are classified as Level 3 in the fair value hierarchy as their fair value is dependent on inputs and assumptions which are not readily observable in the marketplace.

A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant unobservable inputs (Level 3) during the years ended December 31, 2013 and 2012 is as follows (in thousands):


	Diversified Funds			Partnerships/ Joint Ventures			Total
Balance at December 31, 2011	$	3,266		$	1,580		$	4,846
Actual return on plan assets:
Relating to instruments still held at reporting date		(212	)		131			(81	)
Purchases, sales and settlements (net)		(695	)		—			(695	)
Transfers in and/or out of Level 3		579			(264	)		315

Balance at December 31, 2012	$	2,938		$	1,447		$	4,385
Actual return on plan assets:
Relating to instruments still held at reporting date		119			(306	)		(187	)
Purchases, sales and settlements (net)		(828	)		—			(828	)
Transfers in and/or out of Level 3		864			(277	)		587

Balance at December 31, 2013	$	3,093		$	864		$	3,957

Defined Contribution Plans — Certain of our non-union personnel may elect to participate in savings and profit sharing plans sponsored by us. These plans generally provide for salary reduction contributions to the plans on behalf of the participants of between 1% and 20% of a participant’s annual compensation and provide for employer matching and profit sharing contributions as determined by our Board of Directors. In addition, certain union hourly employees are participants in company-sponsored defined contribution plans, which provide for salary reduction contributions according to several schedules, including as a percentage of salary, various cents per hour and flat dollar amounts. Additionally, employer contributions are sometimes, although not always, provided according to various schedules ranging from flat dollar contributions to matching contributions as a percent of salary based on the employees deferral election.

Multiemployer Pension Plans — Certain of our subsidiaries contribute to various multiemployer pension and other postretirement benefit plans which cover a majority of our full-time union employees and certain of our part-time union employees. Such plans are usually administered by a board of trustees composed of labor representatives and the management of the participating companies. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

•

Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;

•

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and

•

If we choose to stop participating in one or more of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

At this time, we have not established any significant liabilities because withdrawal from these plans is not probable or reasonably possible.

Our participation in these multiemployer plans for the year ended December 31, 2013 is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act (“PPA”) Zone Status available in 2013 and 2012 is for the plans’ year-end at December 31, 2012 and December 31, 2011, respectively. The zone status is based on information that we obtained from each plan’s Form 5500, which is available in the public domain and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. Federal law requires that plans classified in the yellow zone or red zone adopt a funding improvement plan or rehabilitation plan, respectively, in order to improve the financial health of the plan. The “Extended Amortization Provisions” column indicates plans which have elected to utilize the special 30-year amortization rules provided by the Pension Relief Act of 2010 to amortize its losses from 2008 as a result of turmoil in the financial markets. The last column in the table lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject.

Pension Fund

Employer
Identification
Number

Pension
Plan
Number

PPA Zone Status

FIP /
RP Status
Pending/
Implemented

Extended
Amortization
Provisions

Expiration
Date of
Associated
Collective-
Bargaining
Agreement(s)

2013

2012

Western Conference of Teamsters Pension Plan(1)

91-6145047

001

Green

N/A

May 31, 2014 –
October 31, 2016

Central States, Southeast and Southwest Areas Pension Plan(2)

36-6044243

001

Red

Implemented

March 31, 2014 –
March 11, 2017

Retail, Wholesale & Department Store International Union and Industry Pension Fund(3)

63-0708442

001

Green

N/A

Yes

February 1, 2014 –
August 27, 2017

Dairy Industry – Union Pension Plan for Philadelphia Vicinity(4)

23-6283288

001

Red

Implemented

Yes

June 30, 2014 –
September 30,
2017

(1)

We are party to approximately 30 collective bargaining agreements that require contributions to this plan. These agreements cover a large number of employee participants and expire on various dates between 2014 and 2016. We do not believe that any one agreement is substantially more significant than another as none of these agreements individually represent greater than 15% of the total employee participants covered under this plan.

(2)

There are approximately 30 collective bargaining agreements that govern our participation in this plan. The agreements expire on various dates between 2014 and 2017. The agreements expiring in 2015 represent approximately 30% of our total employee participants in this plan, and the agreements expiring in 2016 represent approximately 43% of our total participants in the plan. The remaining agreements have a wide variety of expiration dates between 2014 and 2017 and do not individually represent a significant percentage of our overall participants to this plan.

(3)	We are subject to approximately 10 collective bargaining agreements with respect to this plan. Approximately 25% and 53% of our employee participants in this plan are covered by the agreements expiring in 2014 and 2015, respectively.

(4)	We are party to three collective bargaining agreements with respect to this plan. The agreement expiring in September 2017 is the most significant as more than 85% of our employee participants in this plan are covered by that agreement.

Information regarding our contributions to our multiemployer pension plans is shown in the table below. There are no changes which materially affected the comparability of our contributions to each of these plans during the years ended December 31, 2013, 2012 and 2011.


Pension Fund	Employer Identification Number		Pension Plan Number		Dean Foods Company Contributions (in millions)
Pension Fund	Employer Identification Number		Pension Plan Number		2013		2012		2011		Surcharge Imposed(3)
Western Conference of Teamsters Pension Plan		91-6145047		001	$	13.5	$	12.7	$	13.1		No
Central States, Southeast and Southwest Areas Pension Plan		36-6044243		001		11.1		9.5		8.6		No
Retail, Wholesale & Department Store International Union and Industry Pension Fund(1)		63-0708442		001		1.3		1.3		1.2		No
Dairy Industry – Union Pension Plan for Philadelphia Vicinity(1)		23-6283288		001		1.8		1.8		1.5		Yes
Other Funds(2)						1.4		1.7		0.2

Total Contributions					$	29.1	$	27.0	$	24.6

(1)	During the 2012 and 2011 plan years, our contributions to these plans exceeded 5% of total plan contributions. At the date of filing of this Annual Report on Form 10-K, Forms 5500 were not available for the plan years ending in 2013.

(2)	Amounts shown represent our contributions to all other multiemployer pension and other postretirement benefit plans, which are immaterial both individually and in the aggregate to our Consolidated Financial Statements.

(3)

Federal law requires that contributing employers to a plan in Critical status pay to the plan a surcharge to help correct the plan’s financial situation. The amount of the surcharge is equal to a percentage of the amount we would otherwise be required to contribute to the plan and ceases once our related collective bargaining agreements are amended to comply with the provisions of the rehabilitation plan.