15.Pension and Severance Plans

Defined Contribution Plans

We sponsor defined contribution plans in Malaysia, Taiwan and the U.S. Total defined contribution expense was $6.8 million, $5.2 million and $4.1 million for 2014, 2013 and 2012, respectively.

Korean Severance Plan

Our subsidiary in Korea participates in an accrued severance plan that covers employees with at least one year of service. To the extent eligible employees are terminated, our subsidiary in Korea would be required to make lump-sum severance payments on behalf of these eligible employees based on their length of service, seniority and rate of pay at the time of termination. Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date. Our contributions to the National Pension Plan of the Republic of Korea are deducted from accrued severance benefit liabilities.

The changes to the balance of our severance accrual are as follows:



	For the Year Ended December 31,
	2014			2013			2012
	(In thousands)
Balance at the beginning of year	$	145,373		$	126,762		$	106,715
Provision of severance benefits	17,593			26,550			19,667
Severance payments	(10,160		)	(10,402		)	(8,520		)
(Gain) loss on foreign currency	(5,926		)	2,463			8,900
	146,880			145,373			126,762
Payments remaining with the National Pension Fund	(219		)	(241		)	(249		)
Total severance obligation balance at the end of year	146,661			145,132			126,513
Less current portion of accrued severance obligation (Note 13)	13,226			11,197			9,516
Non-current portion of severance obligation	$	133,435		$	133,935		$	116,997

Foreign Defined Benefit Pension Plans

Our subsidiaries in Japan, Malaysia, the Philippines and Taiwan sponsor defined benefit plans (the “Plans”) that cover substantially all of their respective employees who are not covered by statutory plans. Charges to expense are based upon actuarial analyses.

The following table summarizes the Plans’ benefit obligations, fair value of the Plans’ assets and the funded status of the Plans at December 31, 2014 and 2013.



	For the Year Ended December 31,
	2014			2013
	(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	81,572		$	80,528
Service cost	5,042			5,909
Interest cost	3,051			3,170
Benefits paid	(2,620		)	(1,602		)
Actuarial losses (gains)	3,514			(2,513		)
Acquisition (Note 3)	—			13,017
Divestiture (Note 4)	(14,814		)	—
Effects of curtailment	—			(176		)
Settlement	—			(8,701		)
Foreign exchange gain	(1,736		)	(8,060		)
Projected benefit obligation at end of year	74,009			81,572
Change in plan assets:
Fair value of plan assets at beginning of year	50,304			58,146
Actual gain on plan assets	4,149			5,159
Employer contributions	3,756			1,120
Settlement	—			(8,701		)
Benefits paid	(2,620		)	(1,602		)
Foreign exchange loss	(818		)	(3,818		)
Fair value of plan assets at end of year	54,771			50,304
Funded status of the Plans at end of year	$	(19,238	)	$	(31,268	)

The accrued benefit liability, included in pension and severance obligations in the Consolidated Balance Sheets, as of December 31, 2014 and 2013 was $19.2 million and $31.3 million, respectively. The accumulated benefit obligation as of December 31, 2014 and 2013 was $44.1 million and $55.9 million, respectively.

The following table summarizes, by component, the change in accumulated other comprehensive income related to our Plans:



	Prior Service Cost		Actuarial Net (Loss) Gain			Total
	(In thousands)
Balance at December 31, 2012, net of tax	$	188	$	(5,561	)	$	(5,373	)
Amortization included in net periodic pension cost	250		114			364
Net gain arising during period	—		3,996			3,996
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income	250		4,110			4,360
Balance at December 31, 2013, net of tax	$	438	$	(1,451	)	$	(1,013	)
Amortization included in net periodic pension cost	102		110			212
Net gain arising during period	—		(1,724		)	(1,724		)
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income	102		(1,614		)	(1,512		)
Balance at December 31, 2014, net of tax	$	540	$	(3,065	)	$	(2,525	)

Estimated amortization of cost to be included in 2015 net periodic pension cost	$	34	$	84		$	118

Information for pension plans with benefit obligations in excess of plan assets are as follows:



	December 31,
	2014		2013
	(In thousands)
Plans with underfunded or non-funded projected benefit obligation:
Aggregate projected benefit obligation	$	74,044	$	73,326
Aggregate fair value of plan assets	54,771		41,957
Plans with underfunded or non-funded accumulated benefit obligation:
Aggregate accumulated benefit obligation	11,854		24,877
Aggregate fair value of plan assets	—		—

The following table summarizes net periodic pension costs:



	For the Year Ended December 31,
	2014			2013			2012
	(In thousands)
Components of net periodic pension cost and total pension expense:
Service cost	$	5,042		$	5,909		$	6,362
Interest cost	3,051			3,170			3,270
Expected return on plan assets	(3,094		)	(3,508		)	(3,188		)
Amortization of prior service cost	116			231			291
Recognized actuarial loss	141			142			225
Net periodic pension cost	5,256			5,944			6,960
Curtailment (gain) loss	—			(176		)	1,089
Settlement loss (gain)	97			(120		)	(100		)
Total pension expense	$	5,353		$	5,648		$	7,949

The following table summarizes the weighted-average assumptions used in computing the net periodic pension cost and projected benefit obligation at December 31, 2014, 2013 and 2012:



	For the Year Ended December 31,
	2014		2013		2012
Discount rate for determining net periodic pension cost	3.9	%	3.9	%	4.2	%
Discount rate for determining benefit obligations at year end	4.2	%	3.9	%	4.0	%
Rate of compensation increase for determining net periodic pension cost	4.1	%	4.1	%	4.5	%
Rate of compensation increase for determining benefit obligations at year end	4.7	%	4.1	%	4.1	%
Expected rate of return on plan assets for determining net periodic pension cost	6.2	%	6.3	%	6.3	%

The measurement date for determining the Plans’ assets and benefit obligations is December 31, each year. Discount rates are generally derived from yield curves constructed from high-quality corporate or foreign government bonds, for which the timing and amount of cash outflows approximate the estimated payouts.

The expected rate of return assumption is based on weighted-average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets and include input from our actuaries. We have no control over the direction of our investments in our defined benefit plans in Taiwan as the local Labor Standards Law Fund mandates such contributions into a cash account balance at the Bank of Taiwan. The defined benefit pension plans in Japan and Malaysia are non-funded plans, and as such, no assets exist related to these plans. Our investment strategy for our Philippine defined benefit plan is based on long-term, sustained asset growth through low to medium risk investments. The current rate of return assumption targets are based on an asset allocation strategy for our Philippine plan assets of 55% debt securities (primarily Philippines and U.S.) and 45% equity securities (primarily U.S., Philippines and Europe). Philippine plan assets included Amkor common stock totaling $0.7 million and $0.6 million at December 31, 2014, and December 31, 2013, respectively.

The fair value of our pension plan assets at December 31, 2014, by asset category utilizing the fair value hierarchy as discussed in Note 17, is as follows:



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
	(In thousands)
Cash and cash equivalents	$	5,742	$	—	$	5,742
Equity securities
Foreign securities	3,035		—		3,035
U.S. securities	19,790		—		19,790
	22,825		—		22,825
U.S. fixed income funds	4,321		—		4,321
Bonds
U.S. government bonds	—		2,840		2,840
Foreign treasury notes	10,156		—		10,156
	10,156		2,840		12,996
Taiwan retirement fund	8,632		—		8,632
Other	—		255		255
Total	$	51,676	$	3,095	$	54,771

The fair value of our pension plan assets at December 31, 2013, by asset category utilizing the fair value hierarchy as discussed in Note 17, is as follows:



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
	(In thousands)
Cash and cash equivalents	$	4,542	$	—	$	4,542
Equity securities
Foreign securities	1,950		—		1,950
U.S. securities	18,223		—		18,223
	20,173		—		20,173
U.S. fixed income funds	4,186		—		4,186
Bonds
U.S. government bonds	—		2,087		2,087
Foreign treasury notes	10,374		—		10,374
	10,374		2,087		12,461
Taiwan retirement fund	8,840		—		8,840
Other	—		102		102
Total	$	48,115	$	2,189	$	50,304

The Taiwan retirement fund category of our plan assets represents accounts that our subsidiaries in Taiwan have in a government labor retirement fund in the custody of the Bank of Taiwan. The accounts earn a minimum guaranteed rate of return. We have no control over the investment decisions of the fund which is invested in a mix of cash, domestic and foreign equity securities and domestic and foreign debt securities.

We expect to make contributions of $1.7 million during 2015. We closely monitor the funded status of the Plans with respect to legislative requirements. We intend to make at least the minimum contribution required by law each year.

The estimated future benefit payments related to our foreign defined benefit plans are as follows:



	Payments
	(In thousands)
2015	$	1,384
2016	2,019
2017	1,869
2018	2,430
2019	3,710
2020 to 2024	28,694