Employer Sponsored Benefit Plan

The Company maintains a domestic defined benefit pension plan, which covers certain domestic Lydall employees, is noncontributory and benefits are based on either years of service or eligible compensation paid while a participant is in a plan. The plan has been closed to new employees for several years and benefits under the pension plan are no longer accruing. The Company’s funding policy for its domestic defined benefit pension plan is to fund not less than the ERISA minimum funding standard and not more than the maximum amount that can be deducted for federal income tax purposes.

Plan assets and benefit obligations of the domestic defined benefit pension plan are as follows:



	December 31,
In thousands	2017			2016
Change in benefit obligation:
Net benefit obligation at beginning of year	$	50,086		$	48,081
Interest cost	2,058			2,139
Actuarial loss	2,126			2,062
Gross benefits paid	(2,388		)	(2,196		)
Net benefit obligation at end of year	$	51,882		$	50,086
Change in plan assets:
Fair value of plan assets at beginning of year	$	37,038		$	35,413
Actual return on plan assets	5,924			221
Contributions	3,600			3,600
Gross benefits paid	(2,388		)	(2,196		)
Fair value of plan assets at end of year	$	44,174		$	37,038
Net benefit obligation in excess of plan assets	$	(7,708	)	$	(13,048	)
Balance sheet amounts:
Noncurrent liabilities	$	(7,708	)	$	(13,048	)
Total liabilities	$	(7,708	)	$	(13,048	)
Amounts recognized in accumulated other comprehensive income, net of tax consist of:
Net actuarial loss	$	17,632		$	19,689
Net amount recognized	$	17,632		$	19,689

At December 31, 2017, in addition to the accrued benefit liability of $7.7 million recognized for the Company’s domestic defined benefit pension plan, the Company also had foreign regulatory labor agreements with an accrued benefit liability of $1.9 million and accumulated other comprehensive loss, net of tax, of $0.4 million. At December 31, 2016, in addition to the accrued benefit liability of $13.0 million recognized for the Company’s domestic defined benefit pension plan, the Company also had foreign regulatory labor agreements with an accrued benefit liability of $1.5 million and accumulated other comprehensive loss, net of tax, of $0.4 million.

The domestic defined benefit pension plan liability, net of tax, included in other comprehensive income decreased by $2.1 million for the year ended December 31, 2017. The domestic defined benefit pension plan liability, net of tax, included in other comprehensive income increased by $2.4 million for the year ended December 31, 2016. These changes are mainly due to changes in pension assumptions, primarily the discount rates.

Aggregated information for the domestic defined benefit pension plan with an accumulated benefit obligation in excess of plan assets is provided in the tables below:



	December 31,
In thousands	2017		2016
Projected benefit obligation	$	51,882	$	50,086
Accumulated benefit obligation	$	51,882	$	50,086
Fair value of plan assets	$	44,174	$	37,038

Components of net periodic benefit cost for the domestic pension plan:



	December 31,
In thousands	2017			2016			2015
Interest cost	$	2,058		$	2,139		$	2,066
Expected return on plan assets	(2,376		)	(2,419		)	(2,360		)
Amortization of actuarial net loss	1,092			933			897
Total net periodic benefit cost	$	774		$	653		$	603

It is estimated that $1.0 million of actuarial net loss will be amortized from accumulated other comprehensive loss into net periodic benefit costs for the domestic pension plan in 2018.

The major assumptions used in determining the year-end benefit obligation and annual net cost for the domestic pension plan are presented in the following table:



	Benefit Obligation				Net Cost
For the years ended December 31,	2017		2016		2017		2016		2015
Discount rate	3.71	%	4.21	%	4.21	%	4.56	%	4.16	%
Expected return on plan assets	5.80	%	6.30	%	6.30	%	7.00	%	7.25	%

Plan Assets

The domestic defined benefit pension plan is administered by the Lydall Retirement Committee (the "Committee"), which is appointed by the Board of Directors. The Committee’s responsibilities are to establish a funding policy for the Lydall Pooled Pension Investment Trust (“the Trust”) and to appoint and oversee the investment advisor responsible for the Trust’s investments. The Committee is a named fiduciary under the plan, and the Committee has granted discretion to the investment advisor with respect to management of the Trust’s investments. The assets of the domestic defined benefit pension plan are invested in the Trust for the purpose of investment diversification. In determining the expected return on plan assets, the Committee considers the relative weighting of plan assets, the historical performance of marketable debt and equity securities and economic and other indicators of future performance.

Investment management objectives include maintaining an adequate level of diversification to balance market risk and to provide sufficient liquidity for near-term payments of benefits accrued under the domestic pension plan and to pay the expenses of administration. The long-term investment objective of the Trust is to achieve a total return equal to or greater than the Trust’s actuarially assumed rate of return, currently 5.80%. Though it is the intent of the Committee to achieve income and growth, that intent does not include taking extraordinary risks or engaging in investment activities not commonly considered prudent under the standards imposed by ERISA. The Committee defines risk as the probability of not meeting the Trust’s objectives and the probability of not meeting the Trust’s liability requirements. The allowable investments include: securities, mutual funds, sub-advisers, independent investment managers and/or programs, and cash or cash equivalents. Prohibited investments include: single strategy hedge funds, investment in individual securities, direct investment in venture capital, CMO derivatives and commodities.

The Committee’s target asset allocation seeks to control risk through portfolio diversification and takes into account, among other factors, objectives discussed above, current funding levels, cash flow conditions and economic and industry trends. In developing strategic asset allocation guidelines for the portfolio, an emphasis was placed on the long-term characteristics of individual asset classes, and the benefits of diversification among multiple asset classes. Investment decisions are based on the returns and risk relative to the Plan's liabilities, an approach commonly referred to as liability-driven investing. This approach does not preclude taking risk; instead, it reframes risk from a total-return framework to one mindful of liability-driven investing as the funded status of the domestic defined benefit pension plan improves.

The following table presents the target allocation of pension plan assets for 2018 and the actual allocation of plan assets as of December 31, 2017 and 2016 by major asset category:



	Target Allocation	Actual Allocation of Plan Assets December 31,
Asset Category	2018	2017		2016
Domestic equities	21% - 31%	26	%	30	%
International equities	21% - 31%	26	%	30	%
Fixed income	35% - 45%	40	%	28	%
Hedge fund of funds	3% - 13%	7	%	10	%
Cash and cash equivalents	0% - 5%	1	%	2	%

Domestic and international equities consist primarily of mutual funds valued at the closing price reported in the active market in which individual securities are traded. Equity securities include investments in domestic and international mutual funds with a blend of small, mid and large cap investments. Emerging market equities are to comprise no more than 25% of the international equities allocation. Equity securities held by the Trust are publicly traded in active markets and are classified within Level 1 of the fair value hierarchy.

Fixed income consists of long duration fixed income held in proprietary funds pooled with other investor accounts which use the net asset value (NAV) per share practical expedient to measure fair value. The total nets assets of the fund are calculated at the close of trading by the fund’s custodian. The net asset value per share is calculated by dividing the total net assets of the fund by the number of units outstanding on the valuation date. Such investments are not classified in the fair value hierarchy. Fixed income investments provide a moderate return and are aligned with the interest rate risk of the Plan's obligations.

Hedge funds are pooled funds that employ a range of investment strategies including equity and fixed income, credit driven, macro and multi oriented strategies. The hedge funds are measured at fair value using the NAV practical expedient and are not classified in the fair value hierarchy. Generally, underlying investments held by the Funds which are publicly traded are valued at their current observable market values. Other investments are valued using procedures established by the portfolio manager. Hedge funds are incorporated to diversify the portfolio and to diminish equity volatility.

Cash and cash equivalents include investments readily converted to cash valued in the active market in which the funds were traded and are classified within Level 1 of the fair value hierarchy.

The investments of the Trust are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Effective December 31, 2016, the Company adopted ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share”, which removed from the fair value hierarchy, investments for which the practical expedient is used to measure fair value at NAV. The fixed income long duration fund and the hedge fund of funds were measured at fair value using the NAV practical expedient and are included as a reconciling item to the fair value table.

The following tables set forth the fair value of the Trust’s assets by major asset category as of December 31, 2017 and December 31, 2016:



December 31, 2017
In thousands	Level 1		Level 2		Level 3		Measured at NAV	Total

Domestic equity	$	11,577	$	—	$	—	—	$	11,577
International equity	11,626		—		—		—	11,626
Fixed income	—		—		—		17,360	17,360
Hedge fund of funds	—		—		—		3,054	3,054
Cash and cash equivalents	557		—		—		—	557
Total Assets at Fair Value	$	23,760	$	—	$	—	20,414	$	44,174



December 31, 2016
In thousands	Level 1		Level 2		Level 3		Measured at NAV	Total

Domestic equity	$	10,964	$	—	$	—	—	$	10,964
International equity	10,944		—		—		—	10,944
Fixed income	—		—		—		10,499	10,499
Hedge fund of funds	—		—		—		3,863	3,863
Cash and cash equivalents	768		—		—		—	768
Total Assets at Fair Value	$	22,676	$	—	$	—	14,362	$	37,038

Estimated Future Contributions and Benefit Payments

The Company expects to contribute approximately $3.0 million to $4.0 million in cash to its domestic defined benefit pension plan in 2018, but is evaluating this strategy as a result of the recent changes to U.S. tax law enacted on December 22, 2017.

Estimated future benefit payments for the next 10 years are as follows:



In thousands	2018		2019		2020		2021		2022		2023-2027
Benefit payments	$	2,499	$	2,615	$	2,741	$	2,824	$	2,854	$	14,801

Employee Savings Plan

The Company also sponsors a 401(k) Plan. Employer contributions to this plan amounted to $2.6 million in 2017, $2.5 million in 2016, and $2.3 million in 2015. Matching contributions by the Company are made on employee pretax contributions up to five percent of compensation, with the first three percent matched at 100% and the next two percent matched at 50%.