NOTE 12 – EMPLOYEE BENEFIT PLANS

Defined Benefit Plan

In connection with the Zetex acquisition, we adopted a contributory defined benefit plan that covers certain employees in the U.K. The defined benefit plan is closed to new entrants and frozen with respect to future benefit accruals. The retirement benefit is based on the final average compensation and service of each eligible employee. We determined the fair value of the defined benefit plan assets and utilize an annual measurement date of December 31. At subsequent measurement dates, defined benefit plan assets will be determined based on fair value. Defined benefit plan assets consist of a diverse range of listed and unlisted securities including corporate bonds and mutual funds and are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. The net pension and supplemental retirement benefit obligations and the related periodic costs are based on, among other things, assumptions of the discount rate, estimated return on plan assets and mortality rates. These obligations and related periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method used to compute the pension liabilities and related expenses. All unrecognized actuarial gains and losses, prior service costs and accumulated other comprehensive income are eliminated and the balance sheet liability is set equal to the funded status of the defined benefit plan at acquisition date.

The table below sets forth net periodic benefit costs of the plan for the years ended December 31, 2017 and 2016:

	Defined Benefit Plan

	2017			2016
Components of net periodic benefit cost:
Service cost	$	258		$	270
Interest cost		4,228			5,151
Recognized actuarial loss		1,325			993
Expected return on plan assets		(6,506	)		(6,210	)
Net periodic benefit cost	$	(695	)	$	204

The table below sets forth the benefit obligation, the fair value of plan assets, and the funded status as of December 31:

	Defined Benefit Plan

	2017			2016
Change in benefit obligation:
Beginning balance	$	146,801		$	145,019
Service cost		258			270
Interest cost		4,228			5,151
Actuarial loss		4,910			29,793
Benefits paid		(4,313	)		(6,816	)
Currency changes		14,179			(26,616	)
Benefit obligation at December 31	$	166,063		$	146,801

Change in plan assets:
Beginning balance - fair value	$	118,658		$	116,386
Employer contribution		2,974			2,105
Actual return on plan assets		5,454			28,422
Benefits paid		(4,313	)		(6,816	)
Currency changes		11,461			(21,439	)
Fair value of plan assets at December 31	$	134,234		$	118,658
Underfunded status at December 31	$	(31,829	)	$	(28,143	)

Based on an actuarial study performed as of December 31, 2017, the plan is underfunded by approximately $31.8 million and the liability is reflected in our consolidated balance sheets as a noncurrent liability and the amount recognized in accumulated other comprehensive loss was approximately $44.0 million.

We apply the “10% corridor” approach to amortize unrecognized actuarial gains (losses). Under this approach, only actuarial gains (losses) that exceed 10% of the greater of the projected benefit obligation or the market-related value of the plan assets are amortized. For the twelve months ended December 31, 2017, the plan’s total recognized loss increased by approximately $4.8 million. The variance between the actual and expected return to plan assets during 2017 decreased the total unrecognized net loss by approximately $1.1 million. The total unrecognized net loss is more than 10% of the projected benefit obligation and 10% of the plan assets. Therefore, the excess amount will be amortized over the average term to retirement of plan participants not yet in receipt of pension, which as of December 31, 2017 the average term was approximately 13 years. The following weighted-average assumptions were used to determine net periodic benefit costs for the twelve months ended December 31:

	2017		2016
Discount rate		2.8%	2.8%
Expected long-term return on plan assets		5.4%	5.4%

The following weighted-average assumption was used to determine the benefit obligations at December 31:

	2017			2016
Discount rate	2.6%			2.8%

The expected long-term return on plan assets was determined based on historical and expected future returns of the various asset classes. The plan’s investment policy includes a mandate to diversify assets and invest in a variety of asset classes to achieve its expected long-term return and is currently invested in a variety of funds representing most standard equity and debt security classes. Trustees of the plan may make changes at any time. The table below sets forth the plan asset allocations of the assets in the plan and expected long-term return by asset category:

Asset category	Expected long-term return			Asset allocation
Growth assets		7.7	%		64	%
Hedging assets		1.8	%		34	%
Cash		0.5	%		2	%
Total		5.5	%		100	%

Benefit plan payments are primarily made from funded benefit plan trusts and current assets. The table below sets forth the expected future benefit payments, including future benefit accrual, as of December 31, 2017:

2018	$	3,845
2019		3,998
2020		4,376
2021		4,871
2022		5,267
2023-2026		24,455

We adopted a payment plan with the trustees of the defined benefit plan, in which we would make annual contributions each year through 2030, of approximately GBP 2 million (approximately $2.8 million based on a GBP:USD exchange rate of 1.4). The annual contributions were expected to meet the deficit disclosed in the plan as of April 5, 2013 by December 31, 2030. The trustees are required to review the funding position every three years, and a further review was carried out as of April 5, 2016. The outcome of the review, as agreed with the trustees during the first quarter of 2017, was that contributions would continue at the existing level until December 31, 2029.

Our overall defined benefit plan investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types and fund strategies. The target allocations for plan assets are 48% equity securities, 40% corporate bonds and government securities, and 12% to absolute return funds. Equity securities primarily include investments in large-cap and mid-cap companies primarily located in the U.K. Fixed income securities include corporate bonds of companies from diversified industries, and U.K. government bonds. The absolute return fund is mainly invested in a mixture of equities and bonds.

The plan’s trustees appoint fund managers to carry out all the day-to-day functions relating to the management of the fund and its administration. The fund managers must invest their portion of the plan’s assets in accordance with their investment manager agreement agreed by the trustees. The trustees are responsible for agreeing these investment manager agreements and for deciding on the portion of the plan’s assets that will be invested with each fund manager. When making decisions, the trustees take advice from experts including the plan’s actuary and also have the option to consult with the Company.

The following table summarizes the major categories of the plan assets:

December 31, 2017
Asset category	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	2,182	$	4,915	$	-	$	7,097
Equity securities:
U.K.		-		2,787		-		2,787
North America		-		16,082		-		16,082
Europe (excluding U.K.)		-		5,713		-		5,713
Japan		-		2,703		-		2,703
Pacific Basin (excluding Japan)		-		1,372		-		1,372
Emerging markets		-		4,448		-		4,448
Fixed income securities:
Corporate bonds		-		3,682		-		3,682
Others		-		5,731		-		5,731
Index linked securities:
Others		-		203		-		203
Other types of investments:
Absolute return funds		-		1,291		-		1,291
Hedge funds		-		27,355		-		27,355
Development REITS		-		6,004		-		6,004
Insurance linked securities		-		4,117		-		4,117
Liability driven investments		-		45,450		-		45,450
Other		-		199		-		199
Total	$	2,182	$	132,052	$	-	$	134,234

Fair value is taken to mean the bid value of securities, as supplied by the fund managers. All the plan’s securities are publically traded and highly liquid. The plan does not hold any Level 3 securities. See Note 2 for additional information regarding fair value and Levels 1, 2 and 3.

The investment manager agreements require the fund managers to invest in a diverse range of stocks and bonds across each particular asset class. The stocks held by the plan in a particular asset class should therefore match closely the underlying stocks in the relevant index. We believe that this leads to minimal concentration of risk within each asset class; although we recognize that some asset classes are inherently more risky than others.

We also have pension plans in Asia for which the benefit obligation, fair value of the plan assets and the funded status amounts are immaterial and therefore, not included in the amounts or assumptions above.

401(k) Retirement Plan

We maintain a 401(k) retirement plan (“the Plan”) for the benefit of qualified employees at our U.S. locations. Employees who participate may elect to make salary deferral contributions to the Plan up to 100% of the employees’ eligible payroll subject to annual Internal Revenue Code maximum limitations. We currently make a matching contribution of $1 for every $2 contributed by the participant up to 6% (3% maximum matching) of the participant’s eligible payroll, which vests over an initial four years. In addition, we may make a discretionary contribution to the entire qualified employee pool, in accordance with the Plan.

As stipulated by the regulations of China, we maintain a retirement plan pursuant to the local municipal government for the employees in China. We are required to make contributions to the retirement plan at a rate between 10% and 22% of the employee’s eligible payroll. Pursuant to the Taiwan Labor Standard Law and Factory Law, we maintain a retirement plan for the employees in Taiwan, whereby we make contributions at a rate of 6% of the employee’s eligible payroll.

For the years ended December 31, 2017, 2016 and 2015, total amounts expensed under these plans were approximately $14.8 million, $13.9 million and $14.0 million, respectively.

Deferred Compensation Plan

We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees and members of the Board of Directors (the “Board”). The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. We offset our obligations under the Deferred Compensation Plan by investing in the actual underlying investments. These investments are classified as trading securities and are carried at fair value. At December 31, 2017, these investments totaled approximately $8.8 million. All gains and losses in these investments are materially offset by corresponding gains and losses in the deferred compensation plan liabilities.