N. RETIREMENT PLANS

ASC 715, “Compensation—Retirement Benefits” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation at December 31.

Defined Benefit Pension Plans

Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “IRC”), as well as unfunded qualified foreign plans.

Teradyne uses a December 31 measurement date for all of its plans. The December 31 balances of these defined benefit pension plans assets and obligations are shown below:


	2013			2012
*Assets and Obligations*		(in thousands)
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	376,498		$	390,278
Service cost		3,427			2,787
Interest cost		13,266			15,670
Actuarial (gain) loss		(32,279	)		31,912
Benefits paid		(16,169	)		(65,650	)
Plan participants’ contributions		95			108
Non-U.S. currency movement		1,256			1,393

End of year		346,094			376,498

Change in plan assets:
Fair value of plan assets:
Beginning of year		302,899			339,580
Company contributions		4,260			3,306
Plan participants’ contributions		95			108
Actual return on plan assets		(9,373	)		24,621
Benefits paid		(16,169	)		(65,650	)
Non-U.S. currency movement		417			934

End of year		282,129			302,899

Funded status	$	(63,965	)	$	(73,599	)

During the year ended December 31, 2012, Teradyne offered to certain former U.S. employees the option to receive their vested pension benefit as a one-time, lump sum payment. Approximately 2,000 former employees elected to receive a lump sum payment. Total lump sum payments were approximately $52.0 million.

The following table provides amounts recorded within the account line items of the statement of financial position as of December 31:


	2013			2012
	(in thousands)
Retirement plans assets	$	9,342		$	3,282
Accrued employees’ compensation and withholdings		(2,924	)		(2,810	)
Retirement plans liabilities		(70,383	)		(74,071	)

Funded status	$	(63,965	)	$	(73,599	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:


	2013		2012
	(in thousands)
Prior service cost	$	493	$	656
Deferred taxes		380		321

Total recognized in other comprehensive income, net of tax	$	873	$	977

The estimated portion of prior service cost remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic pension cost in 2014 is $0.1 million.

The accumulated benefit obligation for all defined benefit pension plans was $331.2 million and $360.4 million at December 31, 2013 and 2012, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31:


	2013		2012
	(in millions)
Projected benefit obligation	$	74.2	$	75.6
Accumulated benefit obligation		65.5		65.7
Fair value of plan assets		0.9		0.8

Expense

For the years ended December 31, 2013, 2012 and 2011, Teradyne’s net periodic pension (income) cost was comprised of the following:


	2013			2012			2011
	(in thousands)
Components of Net Periodic Pension (Income) Cost:
Service cost	$	3,427		$	2,787		$	2,735
Interest cost		13,266			15,670			17,466
Expected return on plan assets		(14,591	)		(15,946	)		(15,602	)
Amortization of prior service cost		164			232			621
Net actuarial (gain) loss		(8,315	)		23,237			12,583
Settlement loss		—			—			1,567

Total net periodic pension (income) cost	$	(6,049	)	$	25,980		$	19,370

Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service cost		(164	)		(232	)		(621	)

Total recognized in other comprehensive income		(164	)		(232	)		(621	)

Total recognized in net periodic pension (income) cost and other comprehensive income	$	(6,213	)	$	25,748		$	18,749

Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1


	United States Plans									Foreign Plans
	2013			2012			2011			2013			2012			2011
Discount rate		3.6	%		4.2	%		5.3	%		3.7	%		4.9	%		5.0	%
Expected return on plan assets		5.0			5.0			5.5			3.7			3.1			3.5
Salary progression rate		3.0			3.0			4.0			3.5			3.4			4.0

Weighted Average Assumptions to Determine Pension Obligations at December 31


	United States Plans						Foreign Plans
	2013			2012			2013			2012
Discount rate		4.5	%		3.6	%		3.8	%		3.7	%
Salary progression rate		3.0			3.0			3.5			3.5

In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their review of asset class return expectations. Based on this review, Teradyne believes that 5.0% was an appropriate rate to use for fiscal 2013 for the U.S. Qualified Pension Plan (“U.S. Plan”).

Effective January 1, 2012, Teradyne elected to immediately recognize net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. In addition, Teradyne used to calculate the expected return on plan assets using a calculated market-related value of plan assets. Effective January 1, 2012, Teradyne elected to calculate the expected return on plan assets using the fair value of the plan assets.

The discount rate utilized to determine future pension obligations for the U.S. Plan is based on Citigroup Pension Index adjusted for the plan’s expected cash flows and was 4.5% at December 31, 2013, up from 3.6% at December 31, 2012.

Plan Assets

As of December 31, 2013, the fair value of Teradyne’s pension plans’ assets totaled $282.1 million of which $256.4 million was related to the U.S. Plan, $24.8 million was related to the U.K. defined benefit pension plan, and $0.9 million was related to the Taiwan defined benefit pension plan. Teradyne’s pension plans’ assets consisted primarily of investments in fixed-income and equity securities. Substantially all our pension plan assets are held in individual trusts, which were established for the investment of assets of Teradyne’s sponsored retirement plans.

Teradyne’s weighted average pension asset allocation at December 31, 2013 and 2012, by asset category is as follows:


	United States Plan						Foreign Plans
	2013			2012			2013			2012
Fixed Income Securities		86.7	%		85.8	%		77.1	%		49.2	%
Equity Securities		12.1			13.0			21.6			49.6
Other		1.2			1.2			1.3			1.2

		100.0	%		100.0	%		100.0	%		100.0	%

The assets of the U.S. Plan are overseen by the Teradyne Fiduciary Committee which is comprised of members of senior management drawn from appropriate diversified levels of the management team. The Fiduciary Committee is responsible for setting the policy that provides the framework for management of the U.S. Plan assets. In accordance with its responsibilities, the Fiduciary Committee meets on a regular basis to review the performance of the U.S. Plan assets and compliance with the investment policy. The policy sets forth an investment structure for managing U.S. Plan assets, including setting the asset allocation ranges, which are expected to provide an appropriate level of overall diversification required to maximize the long-term return on plan assets for a prudent and reasonable level of risk given prevailing market conditions, total investment return over the long term, and preservation of capital, while maintaining sufficient liquidity to pay the benefits of the U.S. Plan. The investment portfolio will not, at any time, have a direct investment in Teradyne stock. It may have indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock. In developing the asset allocation ranges, third party asset allocation studies are periodically performed that consider the current and expected positions of the plan assets and funded status. Based on this study and other appropriate information, the Fiduciary Committee establishes asset allocation ranges taking into account acceptable risk targets and associated returns. The investment return objectives are to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified below. The manager’s investment performance is reviewed at least annually. Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices and the Policy Index.

The target asset allocation and the index for each asset category for the U.S. Plan, per the investment policy, is as follows:


Asset Category:	Policy Index:	Target Allocation
Passive and Active Fixed Income	Barclays U.S. Long Government/Credit Bond Index	90%
Equity (Large cap)	S&P 500 Stock Index	7
International Equity	MSCI EAFE Index	3

The assets of Teradyne’s foreign pension plans are invested in funds which seek to combine long-term growth potential offered through equity exposure with the relative security provided by bonds, and are governed locally by local management in accordance with specific jurisdictional requirements. Investments in the non-U.S. plans consist primarily of fixed-income and equity securities. These investments are valued using significant observable inputs (Level 2). The fair market value of assets for the international pension plans was $25.7 million as of December 31, 2013. There were no investments with significant unobservable inputs (Level 3) in the non-U.S. pension plans. During the years ended December 31, 2013 and 2012, there were no transfers of pension assets in or out of Level 1, Level 2 or Level 3.

Teradyne’s U.S. Plan invests primarily in common trust funds and fixed income securities. Units held in the common trust funds are valued at the unit price as reported by the investment managers based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities. Substantially all of these investments are valued using significant observable inputs (Level 2). The fair market value of assets for the U.S. Plan was $256.4 million as of December 31, 2013. There were no investments with significant unobservable inputs (Level 3) in the U.S. Plan. During the years ended December 31, 2013 and 2012, there were no transfers of pension assets in or out of Level 1, Level 2 or Level 3.

The fair value of pension plan assets by asset category and by level at December 31, 2013 and December 31, 2012 were as follows:


	December 31, 2013
	Level 1		Level 2		Level 3		Total
			(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	156,860	$	—	$	156,860
U.S. government securities		21,415		41,140		—		62,555
U.K. government securities		—		19,610		—		19,610
Asset backed securities		—		2,919		—		2,919
U.S. equity (large cap)		—		21,309		—		21,309
International equity		—		14,803		—		14,803
Guarantee annuity contract		—		2,985		—		2,985
Other		—		906		—		906
Cash and cash equivalents		146		36		—		182

Total	$	21,561	$	260,568	$	—	$	282,129


	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	157,263	$	—	$	157,263
U.S. government securities		23,712		58,962		—		82,674
U.K. government securities		—		8,593		—		8,593
Asset backed securities		—		2,042		—		2,042
U.S. equity (large cap)		—		23,832		—		23,832
International equity		—		23,990		—		23,990
Guarantee annuity contract		—		3,108		—		3,108
Other		—		839		—		839
Cash and cash equivalents		—		558		—		558

Total	$	23,712	$	279,187	$	—	$	302,899

Contributions

Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2013, Teradyne contributed $1.7 million to the U.S. supplemental executive defined benefit pension plan and $2.5 million to certain qualified plans for non-U.S. subsidiaries. During 2012, Teradyne contributed $1.7 million to the U.S. supplemental executive defined benefit pension plan and $1.6 million to certain qualified plans for non-U.S. subsidiaries.

Expected Future Pension Benefit Payments

Future benefit payments are expected to be paid as follows:


	United States		Foreign
	(in thousands)
2014	$	14,607	$	1,177
2015		16,124		1,085
2016		16,636		959
2017		17,370		1,085
2018		18,011		1,140
2019-2023		98,269		8,946

Postretirement Benefit Plans

In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes death, and medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

Teradyne uses a December 31 measurement date for its plan. The December 31 balances of the postretirement assets and obligations are shown below:


	2013			2012
	(in thousands)
*Assets and Obligations*
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	11,907		$	12,793
Service cost		75			67
Interest cost		342			437
Actuarial (gain) loss		(2,025	)		82
Benefits paid		(1,280	)		(1,472	)

End of year		9,019			11,907

Change in plan assets:
Fair value of plan assets:
Beginning of year		—			—
Company contributions		1,280			1,472
Benefits paid		(1,280	)		(1,472	)

End of year		—			—

Funded status	$	(9,019	)	$	(11,907	)

The following table provides amounts recorded within the account line items of financial position as of December 31:


	2013			2012
	(in thousands)
Accrued employees’ compensation and withholdings	$	(1,042	)	$	(1,322	)
Retirement plans liability		(7,977	)		(10,585	)

Funded status	$	(9,019	)	$	(11,907	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:


	2013			2012
	(in thousands)
Prior service credit	$	(2,829	)	$	(3,427	)

Total recognized in other comprehensive income before tax		(2,829	)		(3,427	)

Deferred taxes		(664	)		(445	)

Total recognized in other comprehensive income, net of tax	$	(3,493	)	$	(3,872	)

The estimated portion of prior service credit remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic postretirement benefit cost in 2014 is $(0.6) million.

Expense

For the years ended December 31, 2013, 2012 and 2011, Teradyne’s net periodic postretirement benefit (income) cost was comprised of the following:


	2013			2012			2011
	(in thousands)
Components of Net Periodic Postretirement Benefit (Income) Cost:
Service cost	$	75		$	67		$	59
Interest cost		342			437			539
Amortization of prior service cost		(598	)		(599	)		(598	)
Net actuarial (gain) loss		(2,025	)		83			981

Total net periodic postretirement benefit (income) cost		(2,206	)		(12	)		981

Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service credit		598			599			598

Total recognized in other comprehensive income		598			599			598

Total recognized in net periodic postretirement benefit (income) cost and other comprehensive income	$	(1,608	)	$	587		$	1,579

Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Cost as of January 1


	2013			2012			2011
Discount rate		3.1	%		3.7	%		4.5	%
Initial Health Care Cost Trend Rate		8.5			9.0			8.5
Ultimate Health Care Cost Trend Rate		5.0			5.0			5.0
Year in which Ultimate Health Care Cost Trend Rate is reached		2020			2020			2018

Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31


	2013			2012			2011
Discount rate		4.1	%		3.1	%		3.7	%
Initial Medical Trend		8.0			8.5			9.0
Ultimate Health Care Trend		5.0			5.0			5.0
Medical cost trend rate decrease to ultimate rate in year		2020			2020			2020

Assumed health care trend rates could have a significant effect on the amounts reported for health care plans. A one percentage point change in the assumed health care cost trend rates for the year ended December 31, 2013, would have the following effects:


	1 Percentage Point Increase		1 Percentage Point Decrease
	(in thousands)
Effect on total service and interest cost components	$	13	$	(12	)
Effect on postretirement benefit obligations		244		(229	)

Expected Future Benefit Payments

Future benefit payments are expected to be paid as follows:


	Benefits Payments
	(in thousands)
2014	$	1,042
2015		981
2016		969
2017		853
2018		818
2019-2023		3,051