SAE INTERNATIONAL AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Continued) Note 8 - Employee Benefit Plans (Continued) Defined Benefit Pension Plan (Continued) The following are the weighted-average assumptions used to determine net periodic pension cost for the years ended December 31: Discount rate Expected long-term rate of return on assets 2012 5% 8% 2011 5¾% 8% SAE's expected rate of return on plan assets is determined by the plan assets' historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class. The accumulated benefit obligation for the plan was $60,447,161 at December 31, 2012 and $51,585,344 at December 31, 2011. The plan's asset allocations by asset category are as follows: 2012 Equities Fixed income Other investment policy. 2011 51% 59% 38% 30% 11% 11% The plan's investment assets are held at various financial institutions and brokers. Finance Committee has established a formal The The policy was amended in October 2011. Under the current policy and investment guidelines, SAE uses a liability-driven investment strategy to maximize returns and minimize risk of the portfolio relative to the liabilities that the portfolio is intended to cover. As the funding ratio of the retirement plan improves, the asset allocation will move away from equities and toward longer duration fixed income. Page 27 53