The Company and its subsidiaries sponsor a number of defined benefit pension plans, which cover eligible employees, including certain employees in foreign countries. These plans are generally noncontributory. Pension benefits earned are generally based on years of service and compensation during active employment. The cash contributions for the Company’s defined benefit pension plans were $120.7 million and $325.8 million in 2013 and 2012, respectively.

The following tables summarize the net periodic benefit cost information and the related assumptions used to measure the net periodic benefit cost for the years ended December 31:



	2013			2012			2011
Components of net periodic benefit cost:
Service cost	$	38.5		$	34.7		$	32.2
Interest cost	134.7			151.1			158.6
Expected return on plan assets	(232.0		)	(221.1		)	(214.9		)
Amortization of prior service cost	4.5			9.3			9.4
Amortization of net actuarial loss	116.8			83.3			56.0
Pension curtailments and settlements	7.2			11.6			—
Net periodic benefit cost	$	69.7		$	68.9		$	41.3



Assumptions	2013		2012		2011
U.S. Plans:
Discount rate	4.00	%	5.00	%	5.75	%
Future compensation assumption	2.00% to 3.00%		2.00% to 3.00%		2.00% to 3.00%
Expected long-term return on plan assets	8.00	%	8.25	%	8.50	%
International Plans:
Discount rate	2.75% to 9.0%		4.75% to 9.50%		4.75% to 9.00%
Future compensation assumption	2.30% to 8.00%		2.5% to 8.00%		2.50% to 8.84%
Expected long-term return on plan assets	3.25% to 8.50%		3.25% to 9.00%		3.50% to 9.00%

The discount rate assumption is based on current rates of high-quality long-term corporate bonds over the same period that benefit payments will be required to be made. The expected rate of return on plan assets assumption is based on the weighted-average expected return on the various asset classes in the plans’ portfolio. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance.

For expense purposes in 2013, the Company applied a discount rate of 4.00% to its U.S. defined benefit pension plans. For expense purposes in 2014, the Company will apply a discount rate of 5.02% to its U.S. defined benefit pension plans. A 0.25 percentage point decrease in the discount rate would increase pension expense by approximately $5.3 million for 2014.

For expense purposes in 2013, the Company applied an expected rate of return of 8.00% for the Company’s U.S. pension plan assets. For expense purposes in 2014, the Company will apply an expected rate of return on plan assets of 7.25%. A 0.25 percentage point reduction in the expected rate of return would increase pension expense by approximately $6.6 million for 2014.

The following tables set forth the change in benefit obligation, change in plan assets, funded status and amounts recognized on the Consolidated Balance Sheets for the defined benefit pension plans as of December 31, 2013 and 2012:



	2013			2012
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,496.3		$	3,124.6
Service cost	38.5			34.7
Interest cost	134.7			151.1
Amendments	—			(0.3		)
Actuarial (gains) losses	(274.4		)	394.1
Employee contributions	0.2			0.2
International plan exchange rate change	5.3			18.2
Curtailment loss	—			9.5
Benefits paid	(267.1		)	(235.8		)
Benefit obligation at end of year	$	3,133.5		$	3,496.3



Change in plan assets:
Fair value of plan assets at beginning of year	$	3,098.4		$	2,631.9
Actual return on plan assets	334.0			361.7
Employee contributions	0.2			0.2
Company contributions / payments	120.7			325.8
International plan exchange rate change	4.4			14.6
Benefits paid	(267.1		)	(235.8		)
Fair value of plan assets at end of year	3,290.6			3,098.4
Funded status at end of year	$	157.1		$	(397.9	)



Amounts recognized on the Consolidated Balance Sheets:
Non-current assets	$	342.6		$	0.3
Current liabilities	(6.5		)	(6.8		)
Non-current liabilities	(179.0		)	(391.4		)
	$	157.1		$	(397.9	)



Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss	$	989.1	$	1,489.4
Net prior service cost	19.0		23.5
Accumulated other comprehensive loss	$	1,008.1	$	1,512.9



Changes in plan assets and benefit obligations recognized in accumulated other comprehensive loss (AOCL):	2013			2012
AOCI at beginning of year	$	1,512.9		$	1,348.2
Net actuarial (gain) loss	(376.3		)	263.1
Prior service cost	—			(0.3		)
Recognized net actuarial loss	(116.8		)	(83.3		)
Recognized prior service cost	(4.5		)	(9.3		)
Loss recognized due to curtailment	(7.2		)	(11.6		)
Foreign currency impact	—			6.1
Total recognized in accumulated other comprehensive loss at December 31	$	1,008.1		$	1,512.9

The presentation in the above tables for amounts recognized in accumulated other comprehensive loss on the Consolidated Balance Sheets is before the effect of income taxes.

The following table summarizes assumptions used to measure the benefit obligation for the defined benefit pension plans at December 31:



Assumptions	2013		2012
U.S. Plans:
Discount rate	5.02	%	4.00	%
Future compensation assumption	2.00% to 3.00%		2.00% to 3.00%
International Plans:
Discount rate	3.25% to 9.75%		2.75% to 9.5%
Future compensation assumption	2.30% to 8.00%		2.3% to 8.0%

Defined benefit pension plans in the United States represent 84% of the benefit obligation and 87% of the fair value of plan assets as of December 31, 2013.

Certain of the Company’s defined benefit pension plans were overfunded as of December 31, 2013. As a result, $342.6 million and $0.2 million at December 31, 2013 and 2012, respectively, are included in non-current pension assets on the Consolidated Balance Sheets. The current portion of accrued pension cost, which is included in salaries, wages and benefits on the Consolidated Balance Sheets, was $6.5 million and $6.7 million at December 31, 2013 and 2012, respectively. In 2013, the current portion of accrued pension cost relates to unfunded plans and represents the actuarial present value of expected payments related to the plans to be made over the next 12 months.

The accumulated benefit obligation at December 31, 2013 exceeded the market value of plan assets for several of the Company’s pension plans. For these plans, the projected benefit obligation was $600.6 million, the accumulated benefit obligation was $585.8 million and the fair value of plan assets was $415.6 million at December 31, 2013.

The total pension accumulated benefit obligation for all plans was $3.0 billion and $3.4 billion at December 31, 2013 and 2012, respectively.

Due to significant increases in global capital markets in 2013, investment performance increased the value of the Company’s pension assets by 10.8%.

As of December 31, 2013 and 2012, the Company’s defined benefit pension plans did not directly hold any of the Company’s common shares.

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $71.0 million and $3.9 million, respectively.

Plan Assets:

The Company’s target allocation for pension plan assets, as well as the actual pension plan asset allocations as of December 31, 2013 and 2012, was as follows:



	Current Target Allocation			Percentage of Pension Plan Assets at December 31,
Asset Category				2013	2012
Equity securities	35%	to	52%	43%	47%
Debt securities	35%	to	50%	45%	40%
Other	9%	to	19%	12%	13%
Total				100%	100%

The Company recognizes its overall responsibility to ensure that the assets of its various defined benefit pension plans are managed effectively and prudently and in compliance with its policy guidelines and all applicable laws. Preservation of capital is important; however, the Company also recognizes that appropriate levels of risk are necessary to allow its investment managers to achieve satisfactory long-term results consistent with the objectives and the fiduciary character of the pension funds. Asset allocations are established in a manner consistent with projected plan liabilities, benefit payments and expected rates of return for various asset classes. The expected rate of return for the investment portfolio is based on expected rates of return for various asset classes, as well as historical asset class and fund performance.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The FASB provides accounting rules that classify the inputs used to measure fair value into the following hierarchy:


Level 1 -	Unadjusted quoted prices in active markets for identical assets or liabilities.


Level 2 -	Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.


Level 3 -	Unobservable inputs for the asset or liability.

The following table presents the fair value hierarchy for those investments of the Company’s pension assets measured at fair value on a recurring basis as of December 31, 2013:



	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	364.0	$	3.3	$	360.7	$	—
Government and agency securities	188.4		175.0		13.4		—
Corporate bonds - investment grade	301.1		—		301.1		—
Corporate bonds - non-investment grade	110.1		—		110.1		—
Equity securities - U.S. companies	300.6		299.2		1.4		—
Equity securities - international companies	311.5		311.5		—		—
Asset backed securities	38.2		—		38.2		—
Common collective funds - domestic equities	195.6		—		195.6		—
Common collective funds - international equities	387.5		—		387.5		—
Common collective funds - fixed income	625.4		—		625.4		—
Common collective funds - other	87.2		—		87.2		—
Limited partnerships	78.8		—		—		78.8
Real estate partnerships	145.6		—		124.5		21.1
Mutual funds - real estate	155.9		155.9		—		—
Other assets	0.7		—		0.7		—
Total Assets	$	3,290.6	$	944.9	$	2,245.8	$	99.9

The table below sets forth a summary of changes in the fair value of the level 3 assets by fund for the year ended December 31, 2013:



	Limited Partnerships			Real Estate			Total
Beginning balance, January 1	$	79.9		$	16.3		$	96.2
Purchases	5.3			3.5			8.8
Sales	(11.5		)	(0.6		)	(12.1		)
Realized losses	(6.2		)	(0.1		)	(6.3		)
Unrealized gains	11.3			2.0			13.3
Ending balance, December 31	$	78.8		$	21.1		$	99.9

The following table presents the fair value hierarchy for those investments of the Company’s pension assets measured at fair value on a recurring basis as of December 31, 2012:



	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	80.0	$	3.1	$	76.9	$	—
Government and agency securities	226.2		193.9		32.3		—
Corporate bonds - investment grade	263.7		—		263.7		—
Corporate bonds - non-investment grade	103.9		—		103.9		—
Equity securities - U.S. companies	347.6		347.2		0.4		—
Equity securities - international companies	273.6		273.6		—		—
Asset backed securities	55.4		—		55.4		—
Common collective funds - domestic equities	350.1		—		350.1		—
Common collective funds - international equities	365.3		—		365.3		—
Common collective funds - fixed income	620.1		—		620.1		—
Common collective funds - other	39.7		—		39.7		—
Limited partnerships	79.9		—		—		79.9
Real estate partnerships	128.6		—		112.3		16.3
Mutual funds - real estate	163.6		163.6		—		—
Other assets	0.7		—		0.7		—
Total Assets	$	3,098.4	$	981.4	$	2,020.8	$	96.2

The table below sets forth a summary of changes in the fair value of the level 3 assets by fund for the year ended December 31, 2012:



	Limited Partnerships			Real Estate			Total
Beginning balance, January 1	$	83.6		$	6.6		$	90.2
Purchases	7.1			11.3			18.4
Sales	(8.5		)	(1.5		)	(10.0		)
Realized losses	(3.4		)	—			(3.4		)
Unrealized gains (losses)	1.1			(0.1		)	1.0
Ending balance, December 31	$	79.9		$	16.3		$	96.2

Cash and cash equivalents are valued at redemption value. Government and agency securities are valued at the closing price reported in the active market in which the individual securities are traded. Certain corporate bonds are valued at the closing price reported in the active market in which the bond is traded. Equity securities (both common and preferred stock) are valued at the closing price reported in the active market in which the individual security is traded. Common collective funds are valued based on a net asset value per share. Asset-backed securities are valued based on quoted prices for similar assets in active markets. When such prices are unavailable, the plan trustee determines a valuation from the market maker dealing in the particular security.

Limited partnerships include investments in funds that invest primarily in private equity, venture capital and distressed debt. Limited partnerships are valued based on the ownership interest in the net asset value of the investment, which is used as a practical expedient to fair value, per the underlying investment fund, which is based upon the general partner's own assumptions about the assumptions a market participant would use in pricing the assets and liabilities of the partnership. Real estate investments include funds that invest in companies that primarily invest in commercial and residential properties, commercial mortgage-backed securities, debt and equity securities of real estate operating companies, and real estate investment trusts. Mutual funds – real estate are valued based on the closing price reported in the active market in which the individual security is traded. Other real estate investments are valued based on the ownership interest in the net asset value of the investment, which is used as a practical expedient to fair value per the underlying investment fund, which is based on appraised values and current transaction prices.

Cash Flows:



Employer Contributions to Defined Benefit Plans
2012	$	325.8
2013	120.7
2014 (planned)	20.0

Future benefit payments are expected to be as follows:



Benefit Payments
2014	$	233.4
2015	253.9
2016	223.7
2017	224.0
2018	231.9
2019-2023	1,094.4

Employee Savings Plans:

The Company sponsors defined contribution retirement and savings plans covering substantially all employees in the United States and employees at certain non-U.S. locations. The Company has contributed Timken common shares to certain of these plans based on formulas established in the respective plan agreements. At December 31, 2013, the plans held 5,701,671 of the Company’s common shares with a fair value of $314.0 million. Company contributions to the plans, including performance sharing, were $28.5 million in 2013, $24.9 million in 2012 and $26.4 million in 2011. The Company paid dividends totaling $5.5 million in 2013, $6.3 million in 2012 and $5.7 million in 2011 to plans holding the Company’s common shares.