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. Existing employees at that time were given the option of choosing either a defined benefit pension plan or a defined contribution plan for their future benefits and new employees since that date are enrolled in a defined contribution plan.

The changes to the balance of our accrued severance plan obligations are as follows:



	For the Year Ended December 31,
	2018			2017			2016
	(In thousands)
Balance at January 1	$	153,920		$	136,396		$	143,151
Provision of severance benefits	1,939			11,714			6,746
Severance payments	(7,611		)	(11,787		)	(9,429		)
Foreign currency (gain) loss	(5,950		)	17,597			(4,072		)
Balance at December 31	142,298			153,920			136,396
Payments remaining with the National Pension Fund	(172		)	(185		)	(182		)
Total accrued severance plan obligations at December 31	142,126			153,735			136,214
Less current portion of accrued severance plan obligations (Note 10)	13,179			15,190			14,053
Non-current portion of accrued severance plan obligations	$	128,947		$	138,545		$	122,161

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 changes to the Plans’ benefit obligations, fair value of the Plans’ assets and the funded status of the Plans at December 31, 2018 and 2017:



	For the Year Ended December 31,
	2018			2017
	(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at January 1	$	158,466		$	131,416
Service cost	32,913			33,823
Interest cost	4,867			4,067
Benefits paid	(6,137		)	(15,183		)
Actuarial (gain) loss	(5,991		)	(1,387		)
Effects of curtailment	—			573
Settlement	(5,055		)	(2,496		)
Foreign exchange (gain) loss	(3,351		)	7,653
Projected benefit obligation at December 31	175,712			158,466
Change in plan assets:
Fair value of plan assets at January 1	115,725			91,471
Actual gain (loss) on plan assets	(4,210		)	8,559
Employer contributions	26,899			28,073
Settlement	(5,055		)	(2,496		)
Benefits paid	(6,137		)	(15,183		)
Foreign exchange gain (loss)	(3,852		)	5,301
Fair value of plan assets at December 31	123,370			115,725
Funded status of the Plans at December 31	$	(52,342	)	$	(42,741	)



	December 31,
	2018			2017
	(In thousands)
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost (included in non-current assets)	$	2,740		$	656
Accrued benefit liability (included in pension and severance obligations)	(55,082		)	(43,397		)
Net amount recognized at year end	$	(52,342	)	$	(42,741	)

The accumulated benefit obligation as of December 31, 2018 and 2017 was $132.9 million and $113.6 million, respectively.

The following table summarizes, by component, the change in accumulated other comprehensive income (loss), net of tax related to our Plans:



	Prior Service Cost			Actuarial Net Gain (Loss)			Total
	(In thousands)
Balance at December 31, 2016	$	582		$	556		$	1,138
Amortization included in net periodic pension cost	21			69			90
Net gain (loss) arising during period	—			5,075			5,075
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income (loss)	21			5,144			5,165
Balance at December 31, 2017	603			5,700			6,303
Amortization and settlement gain included in net periodic pension cost	(1		)	(1,735		)	(1,736		)
Net gain (loss) arising during period	—			(1,908		)	(1,908		)
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income (loss)	(1		)	(3,643		)	(3,644		)
Balance at December 31, 2018	$	602		$	2,057		$	2,659
Estimated amortization of cost to be included in 2019 net periodic pension cost	$	—		$	(374	)	$	(374	)

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



	December 31,
	2018		2017
	(In thousands)
Plans with underfunded or non-funded projected benefit obligation:
Aggregate projected benefit obligation	$	135,967	$	119,708
Aggregate fair value of plan assets	80,885		76,313
Plans with underfunded or non-funded accumulated benefit obligation:
Aggregate accumulated benefit obligation	63,274		53,720
Aggregate fair value of plan assets	20,094		18,970

The following table summarizes total pension expense:



	For the Year Ended December 31,
	2018			2017			2016
	(In thousands)
Components of net periodic pension cost and total pension expense:
Service cost	$	32,913		$	33,823		$	33,854
Interest cost	4,867			4,067			3,641
Expected return on plan assets	(5,640		)	(4,537		)	(3,788		)
Amortization of prior service cost	6			30			35
Recognized actuarial (gain) loss	(147		)	84			94
Net periodic pension cost	31,999			33,467			33,836
Curtailment loss	—			574			—
Settlement (gain) loss	(1,639		)	383			128
Total pension expense	$	30,360		$	34,424		$	33,964

The components of net periodic pension cost other than the service cost component are included in other (income) expense, net in our Consolidated Statements of Income.

The following table summarizes the weighted-average assumptions used in computing the net periodic pension cost and projected benefit obligations:



	For the Year Ended December 31,
	2018		2017		2016
Discount rate for determining net periodic pension cost	3.2	%	3.1	%	3.3	%
Discount rate for determining benefit obligations at December 31	3.1	%	3.2	%	3.1	%
Rate of compensation increase for determining net periodic pension cost	3.8	%	3.8	%	3.9	%
Rate of compensation increase for determining benefit obligations at December 31	3.6	%	3.8	%	3.8	%
Expected rate of return on plan assets for determining net periodic pension cost	4.9	%	4.9	%	5.0	%

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. Our defined benefit pension plan in Malaysia is a non-funded plan, and as such, no asset exists related to this plan. Our investment strategies for our defined benefit plans in Japan, 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	60	%	37	%	3	%
Korea defined benefit plan	40	%	50	%	10	%
Philippine defined benefit plan	33	%	63	%	4	%

The fair value of our pension plan assets, by asset category utilizing the fair value hierarchy as discussed in Note 14, is as follows:



	December 31,
	2018		2017
	(In thousands)
Cash and cash equivalents (Level 1)	$	6,640	$	1,098
Equity securities
U.S. securities (Level 1)	15,069		16,854
Foreign securities (Level 1)	10,162		16,826
Foreign mutual funds (Level 1)	25,236		22,193
	50,467		55,873
Debt securities
U.S. government bonds (Level 1)	—		2,188
U.S. government bonds (Level 2)	1,039		830
U.S. corporate bonds (Level 1)	—		2,144
U.S. corporate bonds (Level 2)	29		5
Foreign government bonds (Level 1)	4,427		5,211
Foreign government bonds (Level 2)	9,545		6,270
Foreign corporate bonds (Level 1)	5,713		520
Foreign corporate bonds (Level 2)	1,951		3,058
Foreign treasury notes (Level 1)	2,587		4,686
Foreign mutual funds (Level 1)	11,188		8,787
	36,479		33,699
Foreign guaranteed investment contracts (Level 2)	18,120		14,138
Taiwan retirement fund (Level 1)	10,451		10,094
Other (Level 1)	680		584
Other (Level 2)	533		239
Total fair value of pension plan assets	$	123,370	$	115,725

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 approximately $23 million during 2019. 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)
2019	$	7,922
2020	10,369
2021	12,229
2022	14,979
2023	16,341
2024 to 2028	129,703

Defined Contribution Plans

We sponsor defined contribution plans in Korea, Malaysia, Taiwan and the U.S. Total defined contribution expense was $12.2 million, $10.4 million and $8.8 million for 2018, 2017 and 2016, respectively.