14.Pension and Severance Plans

Korean Severance Plan

Our subsidiary in Korea maintains an unfunded severance plan that covers certain employees that were employed prior to August 1, 2015. 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 for service provided prior to August 1, 2015. Factors used to determine severance benefits include employees' length of service, seniority and rate of pay. The employees' length of service and seniority are fixed as of July 31, 2015. The employees' rate of pay is adjusted to the 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. On August 1, 2015, our subsidiary in Korea began sponsoring a defined benefit pension plan and a defined contribution plan. For future service benefits, existing employees have the option of choosing either a defined benefit pension plan or a defined contribution plan and new employees will be enrolled in a defined contribution plan.

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



	For the Year Ended December 31,
	2015			2014			2013
	(In thousands)
Balance at the beginning of year	$	146,880		$	145,373		$	126,762
Provision of severance benefits	21,088			17,593			26,550
Severance payments	(15,021		)	(10,160		)	(10,402		)
(Gain) loss on foreign currency	(9,796		)	(5,926		)	2,463
	143,151			146,880			145,373
Payments remaining with the National Pension Fund	(192		)	(219		)	(241		)
Total severance obligation balance at the end of year	142,959			146,661			145,132
Less current portion of accrued severance obligation (Note 12)	14,306			13,226			11,197
Non-current portion of severance obligation	$	128,653		$	133,435		$	133,935

Foreign Defined Benefit Pension Plans

Our subsidiaries in Japan, Korea, Malaysia, the Philippines and Taiwan sponsor defined benefit plans (the “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, 2015 and 2014.



	For the Year Ended December 31,
	2015			2014
	(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	74,009		$	81,572
Service cost	12,481			5,042
Interest cost	2,954			3,051
Benefits paid	(3,924		)	(2,620		)
Actuarial (gains) losses	(2,631		)	3,514
Acquisition (Note 3)	31,859			—
Divestiture (Note 3)	—			(14,814		)
Foreign exchange gain	(5,053		)	(1,736		)
Projected benefit obligation at end of year	109,695			74,009
Change in plan assets:
Fair value of plan assets at beginning of year	54,771			50,304
Actual gain on plan assets	1,564			4,149
Employer contributions	12,190			3,756
Acquisition (Note 3)	13,935			—
Benefits paid	(3,924		)	(2,620		)
Foreign exchange loss	(2,494		)	(818		)
Fair value of plan assets at end of year	76,042			54,771
Funded status of the Plans at end of year	$	(33,653	)	$	(19,238	)

The accrued benefit liability, included in pension and severance obligations in the Consolidated Balance Sheets, as of December 31, 2015 and 2014 was $33.7 million and $19.2 million, respectively. The accumulated benefit obligation as of December 31, 2015 and 2014 was $77.6 million and $44.1 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, 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	)
Amortization included in net periodic pension cost	20		68			88
Net gain arising during period	—		1,012			1,012
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income	20		1,080			1,100
Balance at December 31, 2015, net of tax	$	560	$	(1,985	)	$	(1,425	)

Estimated amortization of cost to be included in 2016 net periodic pension cost	$	35	$	94		$	129

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



	December 31,
	2015		2014
	(In thousands)
Plans with underfunded or non-funded projected benefit obligation:
Aggregate projected benefit obligation	$	101,832	$	74,044
Aggregate fair value of plan assets	67,622		54,771
Plans with underfunded or non-funded accumulated benefit obligation:
Aggregate accumulated benefit obligation	40,428		11,854
Aggregate fair value of plan assets	13,944		—

The following table summarizes net periodic pension costs:



	For the Year Ended December 31,
	2015			2014			2013
	(In thousands)
Components of net periodic pension cost and total pension expense:
Service cost	$	12,481		$	5,042		$	5,909
Interest cost	2,954			3,051			3,170
Expected return on plan assets	(3,330		)	(3,094		)	(3,508		)
Amortization of prior service cost	34			116			231
Recognized actuarial loss	91			141			142
Net periodic pension cost	12,230			5,256			5,944
Curtailment gain	—			—			(176		)
Settlement loss (gain)	27			97			(120		)
Total pension expense	$	12,257		$	5,353		$	5,648

As a result of the adoption of a defined benefit pension plan in Korea beginning on August 1, 2015, our net periodic pension cost has increased from the prior period.

The following table summarizes the weighted-average assumptions used in computing the net periodic pension cost and projected benefit obligation at December 31, 2015, 2014 and 2013:



	For the Year Ended December 31,
	2015		2014		2013
Discount rate for determining net periodic pension cost	4.2	%	3.9	%	3.9	%
Discount rate for determining benefit obligations at year end	3.3	%	4.2	%	3.9	%
Rate of compensation increase for determining net periodic pension cost	4.7	%	4.1	%	4.1	%
Rate of compensation increase for determining benefit obligations at year end	3.9	%	4.7	%	4.1	%
Expected rate of return on plan assets for determining net periodic pension cost	6.2	%	6.2	%	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. One of our defined benefit pension plans in Japan and our defined benefit pension plan in Malaysia are non-funded plans, and as such, no assets exist related to these plans. Our investment strategies for our other defined benefit plan in Japan and our defined benefit plans in Korea and the Philippines, are based on long-term, sustained asset growth through low to medium risk investments. The current rate of return assumption targets are based on asset allocation strategies as follows:



	Allocation
	Debt		Equity		Other
Japan defined benefit plan	55	%	43	%	2	%
Korean defined benefit plan	40	%	50	%	10	%
Philippine defined benefit plan	38	%	57	%	5	%

Philippine plan assets included Amkor common stock totaling $0.6 million and $0.7 million at December 31, 2015, and December 31, 2014, respectively.

The fair value of our pension plan assets, by asset category utilizing the fair value hierarchy as discussed in Note 16, is as follows:



	December 31,
	2015		2014
	(In thousands)
Cash and cash equivalents (Level 1)	$	14,944	$	5,742
Equity securities
Foreign securities (Level 1)	10,689		3,035
U.S. securities (Level 1)	19,498		19,790
U.S. securities (Level 3)	3		—
	30,190		22,825
Fixed income funds (Level 1)	3,492		4,321
Bonds
U.S. government bonds (Level 1)	2,187		—
U.S. government bonds (Level 2)	—		2,840
Foreign government bonds (Level 1)	880		—
Foreign government bonds (Level 2)	8,092		—
Foreign government bonds (Level 3)	842		—
Foreign treasury notes (Level 1)	6,665		10,156
	18,666		12,996
Taiwan retirement fund (Level 1)	8,621		8,632
Other (Level 2)	129		255
Total	$	76,042	$	54,771

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 and are invested in a mix of cash, domestic and foreign equity securities and domestic and foreign debt securities.

We expect to make contributions of $24.1 million during 2016. 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)
2016	$	3,480
2017	5,284
2018	6,397
2019	8,975
2020	11,188
2021 to 2025	86,941

Defined Contribution Plans

We sponsor defined contribution plans in Korea, Malaysia, Taiwan and the U.S. Total defined contribution expense was $8.6 million, $6.8 million and $5.2 million for 2015, 2014 and 2013, respectively.