EMPLOYEE BENEFITS

Pension and Postretirement Plans

The Company provides a qualified defined benefit pension plan covering all eligible domestic employees hired before March 1, 2004. The plan bases benefits upon both years of service and earnings through June 15, 2009. The policy is to fund at least an amount necessary to satisfy the minimum funding requirements of ERISA. For the foreign plans, contributions are made on a monthly basis and are governed by their governmental regulations. Each foreign plan requires employer contributions. Additionally, one of the Swiss plans requires employee contributions. In 2010, the accrual of benefits under the domestic plan and one of the foreign plans were permanently frozen.

Domestic employees hired on or after March 1, 2004 have retirement benefits under the 401(k) defined contribution plan. After the completion of one year of service, the Company will contribute 4% of an employee's pay and will further match 25% of the first 4% that the employee contributes. For employees participating in the domestic 401(k) plan, the Company made contributions of $1.8 million, $1.7 million, and $2.0 million in 2017, 2016, and 2015, respectively. In conjunction with the permanent freeze of benefit accruals under the domestic defined benefit pension plan, employees that were actively participating in the domestic defined benefit pension plan became eligible to receive company contributions in the 401(k) plan. Additionally, upon reaching age 50, employees who were age 40 or older as of January 1, 2011 and were participants in the domestic defined benefit pension plan are provided enhanced employer contributions in the 401(k) plan to compensate for the loss of future benefit accruals under the defined benefit pension plan. In December 2017 the Company approved an amendment to the 401(k) plan to phase out this enhanced employer contribution. In 2018 employees who are eligible for the enhanced employer contributions will earn half the amount previously earned. This benefit will be eliminated beginning as of January 1, 2019. The Company recognized $1.7 million, $1.6 million, and $2.0 million of expense for the domestic defined contribution plan in 2017, 2016, and 2015, respectively. Employees may contribute additional funds to the plan for which there is no required company match. All employer and employee contributions are invested at the direction of the employees in a number of investment alternatives, one being Hardinge Inc. common stock.

In 2017, lump sum benefits paid out of the Switzerland Kellenberger Stiftung plan exceeded the settlement threshold of current fiscal year service cost plus interest cost. As a result, a $0.1 million settlement charge was recognized as of April 30, 2017 in the 2017 net periodic benefit cost. The 2017 net periodic benefit cost was re-measured to take account of the discharge of liability. In 2016, as a result of a significant lump sum benefit paid out of the Switzerland Kellenberger Stiftung Plan, a $0.6 million settlement charge was recognized as of January 31, 2016 in the 2016 net periodic benefit cost. The annual 2016 net periodic benefit cost for this plan was re-measured as a result of the settlement. In 2015, as a result of a voluntary early retirement program that provided a temporary enhancement under the qualified domestic pension plan, a $0.2 million special termination benefit was recognized in the net periodic benefit cost.

The Company provides a contributory retiree health plan covering all eligible domestic employees who retire on or after age 65 with at least 10 years of service (the years of service requirement does not apply to individuals hired before 1993). Employees who elect early retirement on or after reaching age 55 are eligible for the medical coverage if they have 15 years of service at retirement. Benefit obligations and funding policies are at the discretion of management. Increases in the cost of the retiree health plan are paid by the participants. The Company also provides a non-contributory life insurance plan to individuals who retire on or after age 65 (or on or after age 55 if they have 15 years of service at retirement). Because the amount of liability relative to this plan is insignificant, it is combined with the health plan for purposes of this disclosure.

The discount rate for determining benefit obligations in the postretirement benefits plans was 3.90% and 4.38% at December 31, 2017 and 2016, respectively. The change in the discount rate increased the accumulated postretirement benefit obligation as of December 31, 2017 by $0.1 million.

A summary of the pension and postretirement benefits plans' funded status and amounts recognized in the Consolidated Balance Sheets is as follows (in thousands):



	Pension Benefits						Postretirement Benefits
	December 31,						December 31,
	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	235,826		$	234,350		$	1,729		$	1,683
Service cost	1,949			2,178			12			11
Interest cost	6,019			6,624			73			76
Plan participants' contributions	1,581			1,516			283			292
Actuarial loss (gain)	5,769			7,117			(15		)	67
Foreign currency impact	6,437			(4,686		)	—			—
Benefits and administrative expenses paid	(9,514		)	(8,579		)	(381		)	(400		)
Settlements	(921		)	(2,694		)	—			—
Benefit obligation at end of year	247,146			235,826			1,701			1,729

Change in plan assets:
Fair value of plan assets at beginning of year	180,748			180,007			—			—
Actual return on plan assets	20,099			10,347			—			—
Employer contributions	4,618			4,214			98			108
Plan participants' contributions	1,581			1,516			283			292
Foreign currency impact	5,737			(4,063		)	—			—
Benefits and administrative expenses paid	(9,514		)	(8,579		)	(381		)	(400		)
Settlements	(921		)	(2,694		)	—			—
Fair value of plan assets at end of year	202,348			180,748			—			—
Funded status of plans	$	(44,798	)	$	(55,078	)	$	(1,701	)	$	(1,729	)

Amounts recognized in the Consolidated Balance Sheets consist of:
Non-current assets	$	2,956		$	2,387		$	—		$	—
Current liabilities	(264		)	(260		)	(105		)	(126		)
Non-current liabilities	(47,490		)	(57,205		)	(1,596		)	(1,603		)
Net amount recognized	$	(44,798	)	$	(55,078	)	$	(1,701	)	$	(1,729	)

Amounts recognized in Accumulated Other Comprehensive (Loss) consists of:
Net actuarial (loss) gain	$	(72,842	)	$	(80,837	)	$	552		$	581
Prior service credit	1,228			1,474			—			—
Accumulated other comprehensive (loss) income	(71,614		)	(79,363		)	552			581
Accumulated contributions in excess (deficit) of net periodic benefit cost	26,816			24,285			(2,253		)	(2,310		)
Net deficit recognized in Consolidated Balance Sheets	$	(44,798	)	$	(55,078	)	$	(1,701	)	$	(1,729	)

The projected benefit obligations for the foreign pension plans included in the amounts above were $129.4 million and $120.2 million at December 31, 2017 and 2016, respectively. The plan assets for the foreign pension plans included above were $120.5 million and $105.1 million at December 31, 2017 and 2016, respectively.

The accumulated benefit obligations for the foreign and domestic pension plans were $243.5 million and $232.5 million at December 31, 2017 and 2016, respectively.

The following information is presented for pension plans where the projected benefit obligations exceeded the fair value of plan assets (in thousands):



	Pension Benefits
	December 31,
	2017		2016
Projected benefit obligations	$	242,309	$	230,724
Fair value of plan assets	194,554		173,259
Excess of projected benefit obligations over plan assets	$	47,755	$	57,465

The following information is presented for pension plans where the accumulated benefit obligations exceeded the fair value of plan assets (in thousands):



	Pension Benefits
	December 31,
	2017		2016
Accumulated benefit obligations	$	238,368	$	227,145
Fair value of plan assets	193,848		172,641
Excess of accumulated benefit obligations over plan assets	$	44,520	$	54,504

A summary of the components of net periodic benefit cost for the Company, which includes an executive supplemental pension plan, is presented below (in thousands):



	Pension Benefits									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2017			2016			2015			2017			2016			2015
Service cost	$	1,949		$	2,178		$	1,953		$	12		$	11		$	12
Interest cost	6,019			6,624			6,676			73			76			74
Expected return on plan assets	(8,508		)	(9,025		)	(9,555		)	—			—			—
Amortization of prior service credit	(311		)	(311		)	(318		)	—			—			—
Amortization of transition asset	—			(214		)	(258		)	—			—			—
Settlement loss	118			633			16			—			—			—
Special termination benefits	—			—			235			—			—			—
Amortization of loss (gain)	3,740			3,645			3,273			(43		)	(58		)	(51		)
Net periodic benefit cost (income)	$	3,007		$	3,530		$	2,022		$	42		$	29		$	35

A summary of the changes in pension and postretirement benefits recognized in other comprehensive (income) loss is presented below (in thousands):



	Pension Benefits									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2017			2016			2015			2017			2016		2015
Net loss (gain) arising during year	$	(5,821	)	$	5,794		$	9,543		$	(15	)	$	67	$	(100	)
Amortization of transition asset	—			253			258			—			—		—
Amortization of prior service credit	311			311			318			—			—		—
Amortization of (gain) loss	(3,858		)	(4,317		)	(3,289		)	43			58		51
Foreign currency exchange impact	1,619			(1,267		)	(835		)	—			—		—
Total recognized in other comprehensive (income) loss	(7,749		)	774			5,995			28			125		(49		)
Net recognized in net periodic benefit cost and other comprehensive (income) loss	$	(4,742	)	$	4,304		$	8,017		$	70		$	154	$	(14	)

The net periodic benefit cost for the foreign pension plans included in the amounts above was $1.9 million, $2.1 million, and $0.6 million, for the years ended December 31, 2017, 2016, and 2015, respectively.

The Company expects to recognize $3.2 million of net loss and $0.3 million of net prior service credit as components of net periodic benefit cost in 2018 for the defined benefit pension plans. The Company expects to recognize $0.04 million of net gain as a component of net periodic benefit cost for the postretirement benefits plans in 2018.

Actuarial assumptions used to determine pension costs and other postretirement benefit costs include:



	Pension Benefits						Postretirement Benefits
	2017		2016		2015		2017		2016		2015
Assumptions at January 1
For the domestic plans:
Discount rate	4.39	%	4.75	%	4.28	%	4.38	%	4.69	%	4.23	%
Expected return on plan assets	7.50	%	7.50	%	7.50	%	N/A		N/A		N/A
For the foreign plans:
Weighted average discount rate	0.87	%	0.89	%	1.21	%
Weighted average expected return on plan assets	3.14	%	3.91	%	3.95	%
Weighted average rate of compensation increase	1.52	%	1.51	%	1.52	%

Actuarial assumptions used to determine pension obligations and other postretirement benefit obligations include:



	Pension Benefits				Postretirement Benefits
	2017		2016		2017		2016
Assumptions at December 31
For the domestic plans:
Discount rate	3.86	%	4.39	%	3.90	%	4.38	%
For the foreign pension plans:
Weighted average discount rate	0.87	%	0.89	%
Weighted average rate of compensation increase	1.52	%	1.51	%

For the domestic and foreign plans (except for the Taiwan plan), discount rates used to determine the benefit obligations are based on the yields on high grade corporate bonds in each market with maturities matching the projected benefit payments. The discount rate for the Taiwan plan is based on the yield on long-dated government bonds plus a spread. To develop the expected long-term rate of return on assets assumption, for the domestic and foreign plans, management considers the current level of expected returns on least risk investments (primarily government bonds) in each market, the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the asset allocation to develop the expected long-term rate of return on assets assumption. The market-related value of assets for the U.S. qualified defined benefit pension plan recognizes asset losses and gains over a five-year period, which the Company believes is consistent with the long-term nature of the pension obligations.

Investment Policies and Strategies

For the qualified domestic defined benefit pension plan, the plan targets an asset allocation of approximately 55% equity securities, 36% debt securities and 9% other. For the foreign defined benefit pension plans, the plans target blended asset allocation of 38% equity securities, 44% debt securities and 18% other.

Given the relatively long horizon of the aggregate obligation, the investment strategy is to improve and maintain the funded status of the domestic and foreign plans over time, without exposure to excessive asset value volatility. This risk is managed primarily by maintaining actual asset allocations between equity and fixed income securities for the plans within a specified range of its target asset allocation. In addition, the Company ensures that diversification across various investment subcategories within each plan are also maintained within specified ranges.

The domestic and foreign pension assets are managed by outside investment managers and held in trust by third-party custodians. The selection and oversight of these outside service providers is the responsibility of management, investment committees, plan trustees, and their advisors. The selection of specific securities is at the discretion of the investment manager and is subject to the provisions set forth by written investment management agreements, related policy guidelines, and applicable governmental regulations regarding permissible investments and risk control practices.

Contributions

The Company's funding policy is to contribute to the defined benefit pension plans when pension laws and economics either require or encourage funding. The Company contributions expected to be paid during the year ended December 31, 2018 to the qualified domestic plan are $4.0 million. The Company contributions expected to be paid during the year ending December 31, 2018 to the foreign defined benefit pension plans are $2.4 million. Additionally, one of the Switzerland plans requires employee contributions.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):



Year	Pension Benefits		Postretirement Benefits
2018	$	10,589	$	106
2019	11,510		114
2020	10,978		120
2021	11,617		121
2022	12,071		115
Thereafter	60,140		496

Foreign Operations

The Company has employees in certain foreign countries that are covered by defined contribution retirement plans and other employee benefit plans. Related obligations and costs charged to operations for these plans are not material. The foreign entities with defined benefit pension plans are included in the consolidated pension plans described earlier within this footnote.