Note 14. Employee Benefit Plans

Defined Contribution Plans

We have a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code covering all domestic employees and defined contribution plans for other Incyte employees in Europe. Employees may contribute a portion of their compensation, which is then matched by us, subject to certain limitations. Defined contribution expense was $8.9 million, $6.6 million and $2.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Included in the 2017 and 2016 defined contribution expense is $1.0 million and $0.3 million, respectively, of expense related to matching contributions under the European defined contribution plans.

Defined Benefit Pension Plans

In connection with the Acquisition, we assumed a defined benefit pension plan for the former ARIAD employees. In addition, we established another defined benefit pension plan for other Incyte employees in Europe. The pension plans provide benefits to employees upon retirement, death or disability. The assets of the pension plans are held in collective investment accounts represented by the cash surrender value of an insurance policy and are classified as Level 2 within the fair value hierarchy.

The pension plans assumptions reflect the expected investment return and discount rate on plan assets and disability rate probabilities. The benefit obligation at December 31, 2017 for the plans was determined using a discount rate of 0.75%, rate of compensation increase of 2.00% and long-term expected return on plan assets of 0.75%. The 2017 net periodic benefit cost for the plans was determined using a discount rate of 0.75%, rate of compensation increase of 1.50% and long-term expected return on plan assets of 0.75%. The benefit obligation at December 31, 2016 for the plans was determined using a discount rate of 0.75%, rate of compensation increase of 1.50% and long-term expected return on plan assets of 0.75%. The 2016 net periodic benefit cost for the plans was determined using a discount rate of 0.75%, rate of compensation increase of 1.50% and long-term expected return on plan assets of 0.75%.

Summarized information regarding changes in the obligations and plan assets, the funded status and the amounts recorded as of December 31, 2017 and 2016 were as follows (in thousands):


	2017		2016
Benefit obligation, beginning of year	$	23,787	$	—
Benefit obligations acquired / established		—		17,591
Employer service cost		2,836		1,225
Interest cost		190		76
Plan participants' contributions		1,101		536
Actuarial loss		4,514		2,249
Plan change		1,430		—
Benefit payments from fund		2,853		2,548
Expenses paid from assets		(36)		(20)
Translation (gain) loss		909		(418)
Benefit obligation, end of year		37,584		23,787

Fair value of plan assets, beginning of year		16,699		—
Fair value of plan assets acquired / established		—		12,598
Actual return on plan assets		88		100
Employer contributions		2,891		1,323
Plan participants' contributions		1,101		536
Benefit payments from fund		2,853		2,548
Expenses paid from assets		(36)		(20)
Translation (gain) loss		595		(386)
Fair value of plan assets, end of year		24,191		16,699

Unfunded liability, end of year	$	13,393	$	7,088

The accumulated benefit obligation is $33.1 million and $22.6 million as of December 31, 2017 and 2016, respectively. The unfunded liability is reported in other liabilities on the consolidated balance sheet as of December 31, 2017 and 2016.

The net periodic benefit cost for the year ended December 31, 2017 and 2016 was as follows (in thousands):


	2017		2016
Service cost	$	2,836	$	1,225
Interest cost		190		76
Expected return on plan assets		(138)		(59)
Amortization of prior service cost		154		—
Amortization of actuarial losses		141		—
Net periodic benefit cost	$	3,183	$	1,242

Other changes in the plans assets and the benefit obligation that is recognized in accumulated other comprehensive loss for the year ended December 31, 2017 and 2016 were as follows, net of tax (in thousands):


	2017		2016
Pension liability in other comprehensive loss, beginning of year	$	2,750	$	—
Plan change		1,276		506
Net prior service costs		(140)		—
Net loss		4,564		2,244
Pension liability in other comprehensive loss, end of year	$	8,450	$	2,750

The prior service cost for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $0.2 million. The actuarial loss for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $0.3 million.

We expect to contribute a total of $3.2 million to the pension plans in 2018. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):


2018	$	1,312
2019		1,418
2020		1,496
2021		1,727
2022		1,801
2023-2027		10,435
Total	$	18,189