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Pension and Profit Sharing

12 Months Ended

Dec. 31, 2018

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.

In accordance with the adoption of ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, the Company has retrospectively revised the presentation of the non-service components of periodic pension cost of $87,000 to “Other expense” in the consolidated statement of operations for the twelve months ended December 31, 2017, while service cost remains in “Selling, general and administrative expenses.”

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 2018, the Company contributed $25,107 to the plan.

The plan asset weighted average allocation at December 31, 2018 and December 31, 2017, by asset category, were as follows:

Asset Category:	2018			2017
Equity Securities		65	%		67	%
Fixed Income Securities		33	%		32	%
Other Securities / Investments		2	%		1	%
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, 2018 and 2017:

2018	Level 1		Level 2		Level 3		Total
Money Market Fund	$	4	$	17,320	$	—	$	17,324
Equity Common and Collected Funds		99,616		564,341		—		663,957
Fixed Income Common and Collected Funds		83,211		249,309		—		332,520
Total:	$	182,831	$	830,970	$	—	$	1,013,801

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

Other disclosures related to the pension plan follow:

	2018			2017
Assumptions used to determine benefit obligation:
Discount rate		3.87	%		3.14	%
Changes in benefit obligation:
Benefit obligation at beginning of year	$	(1,362,867	)	$	(1,499,798	)
Interest cost		(39,851	)		(48,161	)
Service cost		(33,000	)		(36,000	)
Actuarial gain (loss)		71,338			(20,289	)
Benefits and plan expenses paid		203,450			241,381
Benefit obligation at end of year:	$	(1,160,930	)	$	(1,362,867	)

Changes in plan assets:
Fair value of plan assets at beginning of year	$	1,249,825		$	1,294,727
Actual return on plan assets		(57,651	)		196,479
Employer contribution		25,107			—
Benefits and plan expenses paid		(203,450	)		(241,381	)
Fair value of plan assets at end of year		1,013,831			1,249,825
Funded status:	$	(147,099	)	$	(113,042	)

Amounts recognized in Accumulated Other Comprehensive Income:
Net actuarial loss	$	880,370	$	913,870
Prior service cost		1,082		1,625
Total:	$	881,452	$	915,495

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

	2018			2017
Assumptions used to determine net periodic benefit cost:
Discount rate		3.14	%		3.40	%
Expected return on plan assets		6.00	%		6.00	%
Components of net benefit expense:
Interest cost	$	39,851		$	48,161
Service cost		33,000			36,000
Expected return on plan assets		(67,547	)		(69,465	)
Amortization of prior service costs		543			543
Amortization of actuarial loss		87,360			108,052
Net periodic benefit cost:	$	93,207		$	123,291

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:

	2018			2017
Balance at beginning of the year	$	915,495		$	1,130,815
Change in net loss		53,860			(106,725	)
Amortization of actuarial loss		(87,360	)		(108,052	)
Amortization of prior service cost		(543	)		(543	)
Change recognized in other comprehensive income		(34,043	)		(215,320	)
Total recognized in other comprehensive income	$	881,452		$	915,495

The Company anticipates that in 2019, net periodic benefit cost will include approximately $87,000 of net actuarial loss and $543 of prior service cost.

The following benefits are expected to be paid:

2019	$ 168,000
2020	152,000
2021	136,000
2022	122,000
2023	108,000
Years 2024 - 2028	387,000

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, 2018 and 2017, 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 $271,541 in 2018 and $236,993 in 2017.