13. Employee Benefit Plans

Defined Benefit Plans

The Company maintains a defined benefit pension plan in the United Kingdom (the “U.K. Plan”). In 1997, membership to the U.K. Plan was closed. In 2003, the Company was allowed to stop accruing additional benefits to the participants. Benefits under the U.K. Plan were based on the employees’ years of service and compensation as of 2003.

The Company also maintains a tax qualified pension plan in Japan (the “Japan Plan”) that covers certain of the Company’s Japanese employees. Benefits are based on years of service and compensation at retirement. Employees with less than twenty years of service to the Company receive a lump sum benefit payout. Employees with twenty or more years of service to the Company receive a benefit that is guaranteed for a certain number of years. Participants may, under certain circumstances, receive a benefit upon termination of employment.

Pension and other benefit costs reflected in the accompanying consolidated statements of operations are based on a projected benefit method of valuation. The funded status of pension plan liabilities are included in other long term liabilities in the accompanying consolidated balance sheets. The Company continues to fund each plan in sufficient amounts to meet current benefits as well as fund a portion of future benefits as permitted by regulatory authorities.

The net periodic pension cost for the U.K. Plan and Japan Plan included the following components (in thousands):


	U.K. Plan									Japan Plan
	2013			2012			2011			2013			2012		2011
Components of the net periodic pension cost:
Service cost	$	—		$	—		$	—		$	147		$	121	$	106
Interest cost		1,403			1,359			1,486			22			15		18
Expected return on plan assets		(1,595	)		(1,270	)		(1,576	)		(8	)		—		—
Amortization of the unrecognized transition obligation		—			—			—			33			37		40
Amortization of prior service cost		—			—			—			20			3		2
Amortization of actuarial losses		668			392			224			—			—		—
Other		—			—			—			38			—		—

Net periodic pension cost	$	476		$	481		$	134		$	252		$	176	$	166

The actuarial assumptions used to compute the net periodic pension cost for the years ended December 31, 2013, 2012 and 2011, respectively, for the U.K. Plan and the Japan Plan were as follows:


	U.K. Plan									Japan Plan
	2013			2012			2011			2013			2012			2011
Weighted-average discount rate		4.3	%		4.9	%		5.3	%		1.3	%		1.2	%		1.3	%
Weighted-average rate of compensation increase		—			—			—			3.0	%		3.0	%		3.0	%
Weighted-average long-term rate of return on plan assets		5.7	%		5.0	%		5.9	%		—			—			—

The actuarial assumptions used to compute the funded status as of December 31, 2013 and 2012, respectively, for the U.K. Plan and the Japan Plan were as follows:


	U.K. Plan						Japan Plan
	2013			2012			2013			2012
Weighted-average discount rate		4.6	%		4.3	%		1.0	%		1.3	%
Weighted-average rate of compensation increase		—			—			3.0	%		3.0	%
Rate of inflation		2.7	%		2.5	%		—			—

The discount rates used are derived on (AA) corporate bonds that have maturities approximating the terms of the related obligations. In estimating the expected return on plan assets, the Company considered the historical performance of the major asset classes held and current forecasts of future rates of return for these asset classes.

The following table provides a reconciliation of benefit obligations and plan assets of the U.K. Plan and the Japan Plan (in thousands):


	U.K. Plan						Japan Plan
	2013			2012			2013			2012
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	34,713		$	27,335		$	1,865		$	1,401
Service cost		—			—			147			121
Interest cost		1,403			1,359			22			15
Amendments and transfers		—			—			—			417
Actuarial (gains) losses		(889	)		5,008			(65	)		89
Benefits paid		(688	)		(582	)		(1,119	)		(140	)
Foreign currency exchange rate changes		654			1,593			527			(38	)

Projected benefit obligation at end of year	$	35,193		$	34,713		$	1,377		$	1,865

Accumulated benefit obligation at end of year	$	35,193		$	34,713		$	1,006		$	1,539

Change in plan assets:
Fair value of plan assets at beginning of year	$	28,629		$	24,590		$	827		$	582
Actual return on plan assets		3,903			2,461			5			9
Employer contributions		847			793			628			324
Benefits paid		(688	)		(582	)		(1,119	)		(140	)
Foreign currency exchange rate changes		766			1,367			213			52

Fair value of plan assets at end of year	$	33,457		$	28,629		$	554		$	827

Funded status at end of year	$	(1,736	)	$	(6,084	)	$	(823	)	$	(1,038	)

Amounts included in accumulated other comprehensive loss not yet recognized in net periodic pension cost
Net actuarial (loss) gain	$	(7,142	)	$	(11,197	)	$	2		$	(110	)
Prior service cost	$	—		$	—		$	(211	)	$	(281	)
Net transition obligation	$	—		$	—		$	(163	)	$	(237	)
Amounts expected to be amortized from accumulated other comprehensive loss into net periodic cost over the next fiscal year consists of:
Net actuarial gain	$	386		$	702		$	—		$	—
Prior service cost	$	—		$	—		$	20		$	16
Net transition obligation	$	—		$	—		$	33		$	26

The following table reflects the total expected benefit payments to plan participants and have been estimated based on the same assumptions used to measure the Company’s benefit obligations as of December 31, 2013 (in thousands):


	U.K. Plan		Japan Plan
2014	$	1,065	$	142
2015		852		42
2016		1,007		45
2017		1,132		49
2018		930		53
2019-2023		7,897		560

Total	$	12,883	$	891

In the U.K., funding valuations are conducted every three years in order to determine the future level of contributions. The Company’s latest funding valuation was completed in August 2013. Based on the results of the valuation, the Company’s annual contributions to the U.K. Plan are $1.0 million per year. The Company anticipates that contributions for 2014 will be $1.0 million for the U.K. Plan and $0.1 million for the Japan Plan.

Fair Value of Plan Assets

In the U.K., the Company’s overall objective is to invest plan assets in a portfolio of diversified assets, primarily through the use of institutional collective funds, to achieve long-term growth. The strategic asset allocation uses a combination of risk controlled and index strategies in fixed income and global equities. The target allocations are approximately 61% to funds investing in global equities, approximately 23% to funds investing in global bonds, approximately 9% to alternative assets (including commodities, private equity and debt, real estate, infrastructure, hedge funds and currency funds), and approximately 7% in cash.

In Japan, the investment strategy is primarily focused on the preservation of principal invested in insurance contracts.

The following table summarizes the fair values of Plan assets as of December 31, 2013 by asset category (in thousands):


Asset Category	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
U.K. Plan
Mutual Funds:
Balanced (1)	$	16,260	$	—	$	16,260	$	—
Growth (2)		17,060		—		17,060		—
Cash		137		137		—		—

Total	$	33,457	$	137	$	33,320	$	—

Japan Plan
Insurance contracts (3)	$	554	$	—	$	554	$	—

Total	$	554	$	—	$	554	$	—

(1)	This class comprises a diversified portfolio of global investments which seeks a balanced return between capital growth and fixed income and is allocated on a weighted average basis as follows: equities (51%), debt (33%), other assets (8%) and cash (8%).

(2)	This class comprises a diversified portfolio of global investments which seeks long-term capital growth and is allocated on a weighted average basis as follows: equities (70%), debt (14%), other assets (9%) and cash (7%).

(3)	This class represents funds invested in insurance contracts.

The following table summarizes the fair values of Plan assets as of December 31, 2012 by asset category (in thousands):


Asset Category	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
U.K. Plan
Mutual Funds:
Balanced (1)	$	14,266	$	—	$	14,266	$	—
Growth (2)		14,244		—		14,244		—
Cash		119		119		—		—

Total	$	28,629	$	119	$	28,510	$	—

Japan Plan
Insurance contracts (3)	$	827	$	—	$	827	$	—

Total	$	827	$	—	$	827	$	—

(1)	This class comprises a diversified portfolio of global investments which seeks a balanced return between capital growth and fixed income and is allocated on a weighted average basis as follows: equities (47%), debt (41%), other assets (9%) and cash (3%).

(2)	This class comprises a diversified portfolio of global investments which seeks long-term capital growth and is allocated on a weighted average basis as follows: equities (68%), other assets (10%), debt (21%), and cash (1%).

(3)	This class represents funds invested in insurance contracts.

The tables above present the fair value of plan assets in accordance with the fair value hierarchy. Certain pension plan assets are measured using net asset value per share (or its equivalent) and are reported as a level 2 investment above due to the Company’s ability to redeem its investments either at the balance sheet date or within limited time restrictions.

Defined Contribution Plans

The Company has defined contribution employee savings plans in the U.K. and the U.S. The Company matches the contributions of participating employees on the basis of percentages specified in each plan. Company matching contributions to the plans were $1.8 million, $1.5 million and $1.8 million in 2013, 2012 and 2011, respectively.