Note 13 – Employee Benefit Plans

The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of its Swiss subsidiary, which is accounted for as a defined benefit plan under the provisions of ASC 715-30, “Defined Benefit Plans – Pension”.

Defined Benefit Plan-Switzerland

In Switzerland employers are required to provide a minimum pension plan for their staff. The Swiss Plan is financed by contributions of both the employees and employer. The amount of the contributions is defined by the plan regulations and cannot be decreased without amending the plan regulations. It is required that the employer contribute an amount equal to or greater than the employee contribution.

The funded status of the Swiss benefit plan at December 30, 2011 and December 31, 2010 is as follows:

	2011			2010
Change in Projected Benefit Obligation:
Projected benefit obligation, beginning of period	$	4,868		$	3,836
Service cost		414			328
Interest cost		127			120
Participant contributions		275			248
Benefits paid		(641	)		(489	)
Actuarial (gain) loss on obligation		(333	)		825
Projected benefit obligation, end of period	$	4,710		$	4,868
Changes in Plan Assets:
Plan assets at fair value, beginning of period	$	3,074		$	2,722
Actual return on plan assets (including foreign currency impact)		75			345
Employer contributions		275			248
Participant contributions		275			248
Benefits paid		(641	)		(489	)
Plan assets at fair value, end of period	$	3,058		$	3,074
Net Amount Recognized in Consolidated Balance Sheets:
Underfunded, end of year	$	(1,652	)	$	(1,794	)
Other long term liabilities	$	(1,652	)	$	(1,794	)
Amount Recognized in Accumulated Other Comprehensive Loss, Net of Tax:
Actuarial loss on plan assets	$	(610	)	$	(589	)
Actuarial loss on benefit obligation		(364	)		(624	)
Actuarial gain recognized in current year		163			88
Accumulated other comprehensive loss	$	(811	)	$	(1,125	)
Accumulated benefit obligation at end of year	$	(4,087	)	$	(4,271	)

The underfunded balance of $1,652,000 and $1,794,000 was included in other long-term liabilities on the consolidated balance sheets as of December 30, 2011 and December 31, 2010, respectively.

Net periodic pension cost associated with the Swiss Plan in the years ended December 30, 2011, December 31, 2010, and January 1, 2010 include the following components (in thousands):

	2011			2010			2009
Service Cost	$	414		$	328		$	307
Interest Cost		127			120			108
Expected return on plan assets		(101	)		(91	)		(91	)
Actuarial loss recognized in current year		97			55			33
Net periodic pension cost	$	537		$	412		$	357

Changes in other comprehensive loss (net of tax) associated with the Swiss Plan in the year ended December 30, 2011 and December 31, 2010 include the following components (in thousands):

	2011			2010
Actuarial loss of current year	$	(238	)	$	(446	)
Actuarial (loss) income recorded in current year		(75	)		43
Change in other comprehensive loss	$	(313	)	$	(403	)

The amount in accumulated other comprehensive loss as of December 30, 2011 that is expected to be recognized as a component of the net periodic pension costs in the subsequent year is $54,000.

Net periodic pension cost and projected and accumulated pension obligation for the Company’s Swiss Plan were calculated on December 30, 2011 and December 31, 2010 using the following assumptions:

	2011			2010
Discount rate		2.50	%		2.60	%
Salary increases		3.00	%		3.00	%
Expected return on plan assets		3.35	%		3.35	%
Expected average remaining working lives in years		10.60			9.90

The discount rates of 2.50% and 2.60% for the period ending December 30, 2011 and December 31, 2010, respectively are based on an assumed pension benefit maturity of 10 to 15 years. The rate was estimated using the rate of return for high quality Swiss corporate bonds that mature in eight years. This maturity was used as there are significant numbers of high quality Swiss bonds, but very few bonds issued with maturities with longer lives. As of December 30, 2011 and December 31, 2010, the average rate for high quality Swiss corporate bonds was 2.5% and 2.61% respectively. In order to determine an appropriate discount rate, the eight year rate of return was then extrapolated along the yield curve of Swiss government bonds.

The salary increase rate of 3% was based on the Company’s best estimate of future increases over time.

The expected long-term rate of return on plan assets is based on the expected asset allocation and assumptions concerning long-term interest rates, inflation rates, and risk premiums for equities above the risk-free rates of return. These assumptions take into consideration historical long-term rates of return for relevant asset categories.

Plan assets categories in the Swiss Plan are comprised of the following (in thousands):

	2011		2010
Bonds and loans	$	2,186	$	2,090
Real estate (including real estate funds)		765		830
Equity securities		73		92
Liquid assets		34		62
	$	3,058	$	3,074

In accordance with ASC 820-10-35 the assets above are measured at fair value and are categorized into three different class levels. Level 1 assets are those whose value is based on quoted prices in active markets. Level 2 assets are those whose values are based on direct or indirect observable markets for similar assets. Level 3 assets are those whose values are unobservable. As of December 30, 2011, Level 1 assets in the Swiss Plan include bonds (65%), equity (2%) and liquid assets (1%). Level 2 assets are comprised of mortgages (14%), real estate assets (11%) and loans (7%). As of December 31, 2010, Level 1 assets in the Swiss Plan include bonds (60%), equity (3%) and liquid assets (2%). Level 2 assets are comprised of mortgages (13%), real estate assets (14%) and loans (8%).

The Company has contracted with the Allianz Suisse Life Insurance Company’s BVG Collective Foundation to manage the Swiss Plan. The investment strategy is determined by the Swiss insurance company and applies to all members of the collective foundation.

In fiscal 2012, the Company expects to make cash contributions totaling approximately $272,000 to the Swiss Plan.

The estimated future benefit payments for the Swiss Plan are as follows (in thousands):

Fiscal Year
2012	$	46
2013		53
2014		61
2015		69
2016		78
2017 – 2020		623
Total	$	930

Defined Benefit Plan-Japan

In connection with the Company’s acquisition of the remaining interest in STAAR Japan, Inc., STAAR assumed the net pension liability under STAAR Japan’s noncontributory defined benefit pension plan (“Japan Plan”) substantially covering all of the employees of STAAR Japan. STAAR Japan accounts for the Japan Plan under the requirements of ASC 715-30. Benefits under the Japan plan are earned, vested and accumulated based on a point-system, primarily based on the combination of years of service, actual and expected future grades (management or non-management) and actual and future zone (performance) levels of the employees. Each point earned is worth a fixed monetary value, 1,000 Yen per point, regardless of the level, grade or zone of the employee. Gross benefits are calculated based on the cumulative number of points earned over the service period multiplied by 1,000 Yen. The mandatory retirement age limit is 60 years old.

Effective September 30, 2009 (the “Distribution Date”), STAAR Japan management and the participants of the Japan Plan approved the distribution of the pension plan assets to its participants (the “Distribution”). All other terms and provisions of the Japan Plan remained unchanged except as described below. Prior to the Distribution Date, the plan assets were being held, invested and administered by Dai-ichi Mutual Life Insurance Company, the plan Custodian, and as of the Distribution Date, all the risks associated with the plan assets and its distribution to the participants of the plan were irrevocably accepted by and legally transferred to the Custodian. The Company accounted for this distribution as a partial settlement on the Distribution Date in accordance with ASC 715-30-35, Defined Benefit Plans – Pension. On September 30, 2009, the fair value of the Japan Plan assets were approximately 58 million Yen (approximately $643,000 at the exchange rate in effect on that date), which were distributed to the participants based on their pro rata vested balances in October 2009. The Company recorded in earnings a $26,000 gain on partial settlement of the Japan Plan calculated on a pro rata portion of the amount equal to the percentage reduction in the projected benefit obligation by the distribution amount.

Beginning October 1, 2009, STAAR Japan maintains and administers the plan (the “Amended Plan”) and funds the obligations of the Amended Plan from STAAR Japan’s operations. STAAR Japan is not required, and does not intend to provide any future contributions to the Amended Plan to meet benefit obligations and will therefore not have any plan assets. Benefit payments are made to beneficiaries from operating cash flows as they become due. The Amended Plan will retain all other provisions of the Japan Plan that existed prior to the distribution, except for two amendments made to the Amended Plan. First, since the Distribution was a taxable event to the participants, STAAR Japan agreed to increase future pension benefits to the participants to reimburse them for any additional taxes due from the Distribution when those benefits are paid. Second, the Amended Plan changed the benefit payment method to a lump-sum distribution only, whereas the Japan Plan prior to the amendment provided a choice of distribution of benefits either in lump-sum or an annuity.

The funded status of the benefit plan at December 30, 2011 and December 31, 2010 is as follows:

	2011			2010
Change in Projected Benefit Obligation:
Projected benefit obligation, beginning of period	$	782		$	920
Service cost		174			234
Interest cost		6			12
Actuarial loss or (gain)		137			(413	)
Benefits paid		(38	)		(79	)
Foreign exchange adjustment		47			108
Projected benefit obligation, end of period	$	1,108		$	782
Changes in Plan Assets:
Plan assets at fair value, beginning of period	$	—		$	—
Actual return on plan assets		—			—
Employer contributions		—			—
Benefits paid		—			—
Distribution of plan assets		—			—
Foreign exchange adjustment		—			—
Plan assets at fair value, end of period	$	—		$	—
Net Amount Recognized in Consolidated Balance Sheets:
Underfunded, end of period	$	(1,108	)	$	(782	)
Other long term liabilities	$	(1,108	)	$	(782	)
Amount Recognized in Accumulated Other Comprehensive Income:
Transition obligation	$	101		$	85
Actuarial gain		207			461
Prior Service Cost		29			30
Accumulated other comprehensive income	$	337		$	576
Accumulated benefit obligation at end of year	$	(912	)	$	(653	)

The underfunded balance of $1,108,000 and $782,000 was included in other long-term liabilities on the consolidated balance sheets as of December 30, 2011 and December 31, 2010.

Net periodic pension cost associated with the Japan Plan for the years ended December 30, 2011 and December 31, 2010 include the following components (in thousands):

	2011			2010
Service cost	$	174		$	234
Interest cost		6			13
Net amortization of transition obligation		16			15
Actuarial Loss		(117	)		(24	)
Prior Service Cost		(1	)		(1	)
Net periodic pension cost	$	78		$	237

Changes in other comprehensive income (loss) associated with the Japan Plan for the years ended December 30, 2011 and December 31, 2010 include the following components (in thousands):

	2011			2010
Amortization of transitional obligation	$	16		$	15
Net actuarial (loss) gain of current year		(137	)		413
Actuarial loss recorded in current year		(117	)		(24	)
Prior Service Cost		(1	)		(1	)
Change in other comprehensive income (loss)	$	(239	)	$	403

The amount in accumulated other comprehensive income as of December 30, 2011that is expected to be recognized as a component of the net periodic pension cost in fiscal 2012 is approximately $45,000.

Net periodic pension cost and projected and accumulated pension obligation for the Company’s Japan Plan were calculated on December 30, 2011and December 31, 2010 using the following assumptions:

	2011			2010
Discount rate		.70	%		.70	%
Salary increases		2.00	%		2.00	%
Expected return on plan assets		N/A			N/A
Expected average remaining working lives in years		8.61			6.49

The discount rate of 0.7% for the periods ending December 30, 2011 and December 31, 2010 is based on the approximate Japanese government bond rate with a term of 10 to 20 years.

The salary increase average rate of 2% was based on the Company’s best estimate of future increases over time.

On September 30, 2009, all assets of the Japan Plan were liquidated as part of the Distribution. The estimated future benefit payments for the Japan Plan are as follows (in thousands):

Fiscal Year
2012	$	64
2013		70
2014		72
2015		86
2016		105
2017 – 2021		644
Total	$	1,041

Defined Contribution Plan

The Company maintains a 401(k) profit sharing plan (“401(k) Plan”) for the benefit of qualified employees in North America. During the fiscal year ended December 30, 2011, employees who participate may elect to make salary deferral contributions to the 401(k) Plan up to the $16,500 of the employees’ eligible payroll subject to annual Internal Revenue Code maximum limitations. The Company makes a contribution of 50% of the employee’s contribution up to the first 2% of the employee’s compensation, and 25% of the next 4% of compensation. In addition, STAAR may make a discretionary contribution to qualified employees, in accordance with the 401(k) Plan. During the years ended December 30, 2011, December 31, 2010, and January 1, 2010, the Company made contributions, net of forfeitures, of $150,000, $123,000, and $94,000, respectively, to the 401(k) Plan. The Company also made a one-time discretionary contribution of $47,000 to qualified employees.