15.

EMPLOYEE BENEFIT PLANS

The Company provides retirement and other post-retirement benefits to certain of its employees through defined benefit pension plans (the “pension plans”) and, in the U.S., a partially funded contributory post-retirement plan covering qualifying U.S. employees (the “medical plan” and together with the pension plans, the “post-retirement plans”). Assumptions for the valuation of benefit plan obligations include the life expectancy of the plans’ participants. During 2014, the Society of Actuaries (“SOA”) published new mortality tables to reflect current actuarial expectations of life expectancy in the U.S. On December 31, 2014, the Company incorporated the new mortality tables, which show longer life expectancy, into its valuation assumptions for the U.S. benefit plans. The Company also offers defined contribution plans to its employees. The post-retirement plans generally provide benefits to participants based on average levels of compensation. Expenses related to the Company’s employee benefit plans are included in “compensation and benefits” expense on the consolidated statements of operations.

Employer Contributions to Pension Plans—The Company’s funding policy for its U.S. and non-U.S. pension plans is to fund when required or when applicable upon an agreement with the plans’ trustees (the “Trustees”). Management also evaluates from time to time whether to make voluntary contributions to the plans.

On April 30, 2012, the Company and the Trustees of the U.K. pension plans concluded the December 31, 2010 triennial valuations of the plans. In connection with such valuations and a previously negotiated agreement with the Trustees, the Company and the Trustees agreed upon pension funding terms (the “agreement”) pursuant to which the Company agreed to make plan contributions of 1 million British pounds during each year from 2012 through 2020 inclusive and to make annual contributions of 1 million British pounds into an account security arrangement during each year from 2014 through 2020 inclusive. It was further agreed that, to the extent that the value of the plans’ assets falls short of the funding target for June 1, 2020 that has been agreed upon with the Trustees, the assets from the account security arrangement would be released into the plans at that date. Additionally, the Company agreed to fund the expenses of administering the plans, including certain regulator levies and the cost of other professional advisors to the plans. The terms of the agreement are subject to adjustment based on the results of subsequent triennial valuations, the first of which is underway. The aggregate amount in the account security arrangement was approximately $17,500 and $16,900 at December 31, 2014 and 2013, respectively, and has been recorded in “cash deposited with clearing organizations and other segregated cash” on the accompanying consolidated statements of financial condition. Income on the account security arrangement accretes to the Company and is recorded in interest income.

The Company does not expect to make a contribution to the U.S. pension plans during the year ending December 31, 2015. The Company expects to contribute approximately $1,600 to the U.K. pension plans and approximately $4,200 to the other non-U.S. pension plans during the year ending December 31, 2015.

The following table summarizes the changes in the benefit obligations, the fair value of the assets, the funded status and amounts recognized in the consolidated statements of financial condition for the post-retirement plans. The Company uses December 31 as the measurement date for its post-retirement plans.


	Pension Plans						Medical Plan
	2014			2013			2014			2013
Change in benefit obligation
Benefit obligation at beginning of year	$	709,850		$	656,025		$	5,080		$	5,668
Service cost		971			940			33			53
Interest cost		30,041			27,219			194			182
Actuarial (gain) loss		97,495			32,329			428			(647	)
Benefits paid		(29,663	)		(23,258	)		(221	)		(176	)
Foreign currency translation and other adjustments		(44,525	)		16,595

Benefit obligation at end of year		764,169			709,850			5,514			5,080

Change in plan assets
Fair value of plan assets at beginning of year		643,844			607,705
Actual return on plan assets		91,829			41,353
Employer contributions		7,648			2,274			221			176
Benefits paid		(28,877	)		(23,258	)		(221	)		(176	)
Foreign currency translation and other adjustments		(41,868	)		15,770

Fair value of plan assets at end of year		672,576			643,844			–			–

Funded (deficit) at end of year	$	(91,593	)	$	(66,006	)	$	(5,514	)	$	(5,080	)

Amounts recognized in the consolidated statements of financial condition at December 31, 2014 and 2013 consist of:
Prepaid pension asset (included in “other assets”)	$	–		$	148
Accrued benefit liability (included in “other liabilities”)		(91,593	)		(66,154	)	$	(5,514	)	$	(5,080	)

Net amount recognized	$	(91,593	)	$	(66,006	)	$	(5,514	)	$	(5,080	)

Amounts recognized in AOCI (excluding tax benefits of $37,567 and $30,448 at December 31, 2014 and 2013, respectively) consist of:
Actuarial net loss (gain)	$	186,637		$	159,575		$	360		$	(597	)
Prior service cost		5,235			8,901			–			–

Net amount recognized	$	191,872		$	168,476		$	360		$	(597	)

The following table summarizes the fair value of plan assets, the accumulated benefit obligation and the projected benefit obligation at December 31, 2014 and 2013:


	U.S. Pension Plans As Of December 31,				Non-U.S. Pension Plans As Of December 31,				Total As Of December 31,
	2014		2013		2014		2013		2014		2013
Fair value of plan assets	$	26,766	$	26,200	$	645,810	$	617,644	$	672,576	$	643,844
Accumulated benefit obligation	$	37,035	$	29,427	$	727,134	$	680,423	$	764,169	$	709,850
Projected benefit obligation	$	37,035	$	29,427	$	727,134	$	680,423	$	764,169	$	709,850

The following table summarizes the components of net periodic benefit cost (credit), the return on the Company’s post-retirement plan assets, benefits paid, contributions and other amounts recognized in AOCI for the years ended December 31, 2014, 2013 and 2012:


	Pension Plans For The Year Ended December 31,									Medical Plan For The Year Ended December 31,
	2014			2013			2012			2014			2013			2012
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	971		$	940		$	670		$	33		$	53		$	60
Interest cost		30,041			27,219			27,636			194			182			211
Expected return on plan assets		(32,607	)		(27,078	)		(26,657	)
Amortization of:
Prior service cost		2,841			2,843			2,751
Net actuarial loss (gain)		4,360			3,691			1,658			(529	)
Settlement loss (a)		–			–			1,135

Net periodic benefit cost (credit)	$	5,606		$	7,615		$	7,193		$	(302	)	$	235		$	271


Actual return on plan assets	$	91,829		$	41,353		$	33,882
Employer contributions	$	7,648		$	2,274		$	8,221		$	221		$	176		$	275
Benefits paid	$	28,877		$	23,258		$	26,420		$	221		$	176		$	275
Other changes in plan assets and benefit obligations recognized in AOCI (excluding tax benefit of $7,119, $4,459 and $11,805 during the years ended December 31, 2014, 2013 and 2012, respectively):
Net actuarial (gain) loss	$	41,082		$	17,251		$	50,209		$	428		$	(647	)	$	310
Reclassification of prior service (cost) credit to earnings		(2,841	)		(2,843	)		(2,751	)
Reclassification of actuarial gain (loss) to earnings		(4,360	)		(3,691	)		(2,793	)		529
Currency translation and other adjustments		(10,485	)		3,284			2,729

Total recognized in AOCI	$	23,396		$	14,001		$	47,394		$	957		$	(647	)	$	310

Net amount recognized in total periodic benefit cost and AOCI	$	29,002		$	21,616		$	54,587		$	655		$	(412	)	$	581

(a)

During the year ended December 31, 2012, the Company’s pension plans in the U.S. made lump sum benefit payments in excess of the plans’ annual service and interest costs, which, under U.S. GAAP, requires that the plans’ obligations and assets be remeasured. The remeasurement of the plans resulted in the recognition of actuarial losses totaling $2,167 recorded in “other comprehensive income (loss), net of tax” (“OCI”), which, combined with a settlement loss of $1,135 recognized in “compensation and benefits” expense, resulted in a net charge to OCI of $1,032.

The amounts in AOCI on the consolidated statement of financial condition as of December 31, 2014 that are expected to be recognized as components of net periodic benefit cost (credit) for the year ending December 31, 2015 are as follows:


	Pension Plans		Medical Plan		Total
Prior service cost	$	2,600	$	–	$	2,600
Net actuarial loss (gain)	$	4,821	$	–	$	4,821

The assumptions used to develop actuarial present value of the projected benefit obligation and net periodic pension cost as of or for the years ended December 31, 2014, 2013 and 2012 are set forth below:


	Pension Plans December 31,							Medical Plan December 31,
	2014		2013		2012			2014		2013		2012
Weighted average assumptions used to determine benefit obligations:
Discount rate		3.4%		4.3%		4.6	%		3.7%		4.3%		3.4%
Weighted average assumptions used to determine net periodic benefit cost:
Discount rate		2.0%		3.3%		3.2	%		4.3%		3.4%		4.1%
Expected long-term rate of return on plan assets		5.1%		4.7%		4.7	%		–		–		–
Healthcare cost trend rates used to determine net periodic benefit cost:
Initial									7.5%		8.0%		8.0%
Ultimate									5.0%		5.0%		6.0%
Year ultimate trend rate achieved									2019		2019		2016

Generally, the Company determined the discount rates for its defined benefit plans by utilizing indices for long-term, high-quality bonds and ensuring that the discount rate does not exceed the yield reported for those indices after adjustment for the duration of the plans’ liabilities.

In selecting the expected long-term rate of return on plan assets, the Company considered the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of the plan, giving consideration to expected returns on different asset classes held by the plans in light of prevailing economic conditions as well as historical returns. This basis is consistent for all years presented.

The assumed cost of healthcare has an effect on the amounts reported for the Company’s medical plan. A 1% change in the assumed healthcare cost trend rate would increase (decrease) our cost and obligation as follows:


	1% Increase				1% Decrease
	2014		2013		2014			2013
Cost	$	29	$	33	$	(22	)	$	(24	)
Obligation	$	779	$	675	$	(580	)	$	(494	)

Expected Benefit Payments—The following table summarizes the expected benefit payments for the Company’s post-retirement plans for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter:


	Pension Plans		Medical Plan
2015	$	24,059	$	358
2016		25,103		364
2017		25,619		366
2018		27,551		368
2019		29,077		371
2020-2024		160,294		1,847

Plan Assets—The following tables present the categorization of our pension plans’ assets as of December 31, 2014 and 2013, measured at fair value, into a fair value hierarchy in accordance with fair value measurement disclosure requirements:


	As of December 31, 2014
	Level 1		Level 2		Level 3		Total
Asset Category
Cash	$	13,226	$	–	$	–	$	13,226
Debt		52,439		–		–		52,439
Equities		31,253		–		–		31,253
Funds:
Alternative investments		457		304		578		1,339
Debt		13,570		357,522		1,793		372,885
Equity		194,898		6,536		–		201,434

Total	$	305,843	$	364,362	$	2,371	$	672,576


	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
Asset Category
Cash	$	5,835	$	–	$	–	$	5,835
Debt		43,764		–		–		43,764
Equities		27,762		–		–		27,762
Funds:
Alternative investments		907		43,123		698		44,728
Debt		11,942		323,812		2,222		337,976
Equity		183,779		–		–		183,779

Total	$	273,989	$	366,935	$	2,920	$	643,844

Activity in the fair value of the pension plans’ Level 3 debt and alternative investment funds for the years ended December 31, 2014 and 2013 consisted of net unrealized/realized gains (losses) of $(379) and $434, respectively and favorable (unfavorable) foreign currency translation adjustments of $(170) and $58, respectively.

Included in Level 1 and 2 equity funds are $70,490 and $81,633 as of December 31, 2014 and 2013, respectively, that are invested in funds managed by LAM.

Consistent with the plans’ investment strategies, at December 31, 2014 and 2013, the Company’s U.S. pension plan had 49% and 54%, respectively, of the plans’ assets invested in Level 1 and Level 2 equity funds and 51% and 46%, respectively, invested in Level 1 debt funds. The Company’s non-U.S. pension plans at December 31, 2014 and 2013 had 34% and 32%, respectively, of the plans’ assets invested in equities and equity funds that are primarily Level 1 assets; 64% and 60%, respectively of the plans’ assets invested in debt and debt funds that are primarily Level 2 assets, and 2% and 8%, respectively, of the plans’ assets invested in cash, which is a Level 1 asset, or in alternative investment funds that are primarily Level 1 and Level 2 assets.

Investment Policies and Strategies—The primary investment goal is to ensure that the plans remain well funded, taking account of the likely future risks to investment returns and contributions. As a result, a portfolio of assets is maintained with appropriate liquidity and diversification that can be expected to generate long-term future returns that minimize the long-term costs of the pension plans without exposing the trust to an unacceptable risk of under-funding. The Company’s likely future ability to pay such contributions as are required to maintain the funded status of the plans over a reasonable time period is considered when determining the level of risk that is appropriate. The fair value of plan investments classified as Level 1 assets are based on market quotes. The fair value of plan assets classified as Level 2 assets are primarily valued based on inputs other than quoted prices that are directly observable or derived principally from, or corroborated by, market data. The fair value of plan investments classified as Level 3 assets are primarily based on NAV determined based on information provided by external fund administrators.

Defined Contribution Plans—Pursuant to certain matching contributions, the Company contributes to employer sponsored defined contribution plans. Such contributions amounted to $11,904, $11,778 and $13,070 for the years ended December 31, 2014, 2013 and 2012, respectively, which are included in “compensation and benefits” expense on the consolidated statements of operations.