12. 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. In December 2014, the Company amended the Japan Plan, which will be terminated in the first quarter of 2015. Upon termination, the plan assets will be transferred to each employee’s deferred contribution plan account. The accrued retirement allowance amount calculated by Japanese retirement benefit rules on a voluntary retirement basis as of March 1, 2015 (excess of plan assets) will be transferred over 4 years to each employee’s new defined contribution plan account.

Pension 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 current and other long term liabilities in the accompanying consolidated balance sheets. The current and long term portions of pension plan liabilities are $0.1 million and $6.0 million, respectively, for the year ended December 31, 2014. The Company continues to fund each plan in sufficient amounts to meet current benefits as well as to fund a portion of future benefits as permitted by regulatory authorities.

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

	U.K. Plan									Japan Plan
	2014			2013			2012			2014			2013			2012
Components of the net periodic pension cost:
Service cost	$	—		$	—		$	—		$	101		$	99		$	121
Interest cost		1,589			1,403			1,359			13			10			15
Expected return on plan assets		(1,958	)		(1,595	)		(1,270	)		(6	)		(7	)		—
Amortization of the unrecognized transition obligation		—			—			—			29			14			37
Amortization of prior service cost		—			—			—			18			12			3
Amortization of actuarial losses		374			668			392			—			—			—
Other		—			—			—			18			—			—
Net periodic pension cost	$	5		$	476		$	481		$	173		$	128		$	176

The actuarial assumptions used to compute the net periodic pension cost for the years ended December 31, 2014, 2013 and 2012, respectively, for the U.K. Plan and the Japan Plan were as follows:

	U.K. Plan									Japan Plan
	2014			2013			2012			2014			2013			2012
Weighted-average discount rate		4.6	%		4.3	%		4.9	%		1.0	%		1.3	%		1.2	%
Weighted-average rate of compensation increase		—			—			—			3.0	%		3.0	%		3.0	%
Weighted-average long-term rate of return on plan assets		5.9	%		5.7	%		5.0	%		1.0	%		1.0	%		—

The actuarial assumptions used to compute the funded status as of December 31, 2014 and 2013, respectively, for the U.K. Plan and the Japan Plan were as follows:

	U.K. Plan						Japan Plan
	2014			2013			2014		2013
Weighted-average discount rate		3.5	%		4.6	%		—		1.0	%
Weighted-average rate of compensation increase		—			—			—		3.0	%
Rate of inflation		3.6	%		2.7	%		—		—

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
	2014			2013			2014			2013
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	35,193		$	34,713		$	1,123		$	1,613
Service cost		—			—			101			99
Interest cost		1,589			1,403			13			10
Actuarial (gains) losses		6,060			(889	)		(49	)		(58	)
Benefits paid		(1,006	)		(688	)		(340	)		(928	)
Plan curtailments		—			—			(252	)		—
Foreign currency exchange rate changes		(2,415	)		654			145			387
Projected benefit obligation at end of year	$	39,421		$	35,193		$	741		$	1,123
Accumulated benefit obligation at end of year	$	39,421		$	35,193		$	741		$	833
Change in plan assets:
Fair value of plan assets at beginning of year	$	33,457		$	28,629		$	537		$	801
Actual return on plan assets		2,234			3,903			3			4
Employer contributions		1,000			847			253			521
Benefits paid		(1,006	)		(688	)		(340	)		(928	)
Foreign currency exchange rate changes		(2,075	)		766			(41	)		139
Fair value of plan assets at end of year	$	33,610		$	33,457		$	412		$	537
Funded status at end of year	$	(5,811	)	$	(1,736	)	$	(329	)	$	(586	)
Amounts included in accumulated other comprehensive loss not yet recognized in net periodic pension cost
Net actuarial (loss) gain	$	(11,890	)	$	(7,142	)	$	—		$	2
Prior service cost	$	—		$	—		$	—		$	(211	)
Net transition obligation	$	—		$	—		$	—		$	(163	)
Amounts expected to be amortized from accumulated other comprehensive loss into net periodic cost over the next fiscal year consists of:
Net actuarial (loss) gain	$	892		$	386		$	—		$	—
Prior service cost	$	—		$	—		$	—		$	12
Net transition obligation	$	—		$	—		$	—		$	19

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, 2014 (in thousands):

	U.K. Plan		Japan Plan
2015	$	827	$	514
2016		974		76
2017		1,092		76
2018		900		75
2019		1,290		-
2020-2024		8,097		-
Total	$	13,180	$	741

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 2015 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 60% to funds investing in global equities, approximately 23% to funds investing in global bonds, approximately 7% to alternative assets (including private equity and debt, real estate and hedge funds), and approximately 10% 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, 2014 by asset category (in thousands):

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Asset Category
U.K. Plan
Mutual Funds:
Balanced (1)	$	16,287	$	—	$	16,287	$	—
Growth (2)		17,149		—		17,149		—
Cash		174		174		—		—
Total	$	33,610	$	174	$	33,436	$	—
Japan Plan
Insurance contracts (3)	$	412	$	—	$	412	$	—
Total	$	412	$	—	$	412	$	—

(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 (54%), bonds (32%), other assets (5%) and cash (9%).

(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 (67%), bonds (15%), other assets (8%) and cash (10%).

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

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

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Asset Category
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)	$	537	$	—	$	537	$	—
Total	$	537	$	—	$	537	$	—

(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%), bonds (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%), other assets (14%), bonds (9%), and cash (7%).

(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, as these investments have quoted prices in inactive markets; and significant other observable inputs which can be corroborated by observable market data for substantially the full term of the plan assets.

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 $2.6 million, $1.7 million and $1.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.