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Pension and Profit Sharing

12 Months Ended

Dec. 31, 2017

6. Pension and Profit Sharing

United States employees, hired prior to July 1, 1993, are covered by a funded, defined benefit pension plan. The benefits of this pension plan are based on years of service and the average compensation of the highest three consecutive years during the last ten years of employment. In December 1995, the Company's Board of Directors approved an amendment to the United States pension plan that terminated all future benefit accruals as of February 1, 1996, without terminating the pension plan.

The Company’s funding policy with respect to its qualified plan is to contribute at least the minimum amount required by applicable laws and regulations. In 2017, the Company did not contribute to the plan.

The plan asset weighted average allocation at December 31, 2017 and December 31, 2016, by asset category, were as follows:

Asset Category	2017	2016
Equity Securities	67%	65%
Fixed Income Securities	32%	32%
Other Securities / Investments	1%	3%
Total	100%	100%

The Company’s investment policy for the pension plan is to minimize risk by balancing investments between equity securities and fixed income securities. Plan funds are invested in long-term obligations with a history of moderate to low risk.

The pension plan asset information included below is presented at fair value. ASC 820 establishes a framework for measuring fair value and requires disclosures about assets and liabilities measured at fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 – Inputs to the valuation methodology based on unadjusted quoted market prices in active markets that are accessible at the measurement date.

Level 2 – Inputs to the valuation methodology that include quoted market prices that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following tables present the pension plan assets by level within the fair value hierarchy as of December 31, 2017 and 2016:

2017	Level 1		Level 2		Level 3		Total
Money Market Fund	$	—	$	10,774	$	—	$	10,774
Equity Common and Collected Funds		125,451		711,143		—		836,594
Fixed Income Common and Collected Funds		100,430		302,001		—		402,431
Total	$	225,881	$	1,023,918	$	—	$	1,249,799

2016	Level 1		Level 2		Level 3		Total
Money Market Fund	$	19,327	$	19,897	$	—	$	39,224
Equity Common and Collected Funds		131,737		705,523		—		837,260
Fixed Income Common and Collected Funds		104,491		313,752		—		418,243
Total	$	255,555	$	1,039,172	$	—	$	1,294,727

Other disclosures related to the pension plan follow:

	2017			2016
Assumptions used to determine benefit obligation:
Discount rate		3.14	%		3.40	%
Changes in benefit obligation:
Benefit obligation at beginning of year	$	(1,499,798	)	$	(1,776,788	)
Interest cost		(48,161	)		(55,811	)
Service cost		(36,000	)		(36,000	)
Actuarial (loss) gain		(20,289	)		99,019
Benefits and plan expenses paid		241,381			269,782
Benefit obligation at end of year		(1,362,867	)		(1,499,798	)

Changes in plan assets:
Fair value of plan assets at beginning of year		1,294,727			1,417,572
Actual return on plan assets		196,479			146,937
Employer contribution
Benefits and plan expenses paid		(241,381	)		(269,782	)
Fair value of plan assets at end of year		1,249,825			1,294,727
Funded status	$	(113,042	)	$	(205,071	)

Amounts recognized in Accumulated Other Comprehensive Income:
Net actuarial loss	$	913,870		$	1,128,647
Prior service cost		1,625			2,168
Total	$	915,495		$	1,130,815

Accrued benefits costs are included in other accrued liabilities (non-current).

	2017			2016
Assumptions used to determine net periodic benefit cost:
Discount rate		3.40	%		3.50	%
Expected return on plan assets		6.00	%		6.00	%
Components of net benefit expense:
Interest cost	$	48,161		$	55,811
Service cost		36,000			36,000
Expected return on plan assets		(69,465	)		(76,138	)
Amortization of prior service costs		543			543
Amortization of actuarial loss		108,052			124,854
Net periodic benefit cost	$	123,291		$	141,070

The Company employs a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equity securities and fixed income securities are preserved consistent with the widely-accepted capital market principle that assets with higher volatility generate higher returns over the long run. Our expected 6% long-term rate of return on plan assets is determined based on long-term historical performance of plan assets, current asset allocation and projected long-term rates of return.

The following table discloses the change recorded in other comprehensive income related to benefit costs:

	2017			2016

Balance at beginning of the year	$	1,130,815		$	1,426,030
Change in net loss		(106,725	)		(169,818	)
Amortization of actuarial loss		(108,052	)		(124,854	)
Amortization of prior service cost		(543	)		(543	)
Change recognized in other comprehensive income		(215,320	)		(295,215	)
Total recognized in other comprehensive income	$	915,495		$	1,130,815

The Company anticipates that in 2018, net periodic benefit cost will include approximately $86,000 of net actuarial loss and $1,000 of prior service cost.

The following benefits are expected to be paid:

2018	$	186,000
2019		169,000
2020		152,000
2021		137,000
2022		122,000
Years 2023 - 2027		439,000

The Company also has a qualified, profit sharing plan covering substantially all of its United States employees. Annual Company contributions to this profit sharing plan are determined by the Company’s Compensation Committee. For the years ended December 31, 2017 and 2016, the Company contributed 50% of employee’s contributions, up to the first 6% contributed by each employee. Total contribution expense under this profit sharing plan was $236,993 in 2017 and $188,518 in 2016.