Pension and Other Post-retirement Benefit Plans

The Company sponsors eleven defined benefit pension plans: six in Europe, one in Singapore, two in Mexico, and with the completion of the TOKIN acquisition in April 2017, two plans in Japan. The Company funds the pension liabilities in accordance with laws and regulations applicable to those plans.

In addition, the Company maintains two frozen post-retirement benefit plans: health care and life insurance benefits for certain retired United States employees who reached retirement age while working for the Company. The health care plan is contributory, with participants’ contributions adjusted annually. The life insurance plan is non-contributory.

A summary of the changes in benefit obligations and plan assets is as follows (amounts in thousands):



	Pension						Other Benefits
	2018			2017			2018			2017
Change in Benefit Obligation
Benefit obligation at beginning of the year	$	45,171		$	45,716		$	386		$	623
Service cost	4,585			1,298			—			—
Interest cost	1,750			1,297			12			11
Plan participants’ contributions	—			—			536			592
Actuarial (gain) loss	437			1,980			64			(228		)
Foreign currency exchange rate change	9,934			(3,732		)	—			—
Gross benefits paid	(1,128		)	(1,120		)	(631		)	(612		)
Curtailments and settlements	(5,642		)	(268		)	—			—
Acquisitions	106,566			—			—			—
Benefit obligation at end of year	$	161,673		$	45,171		$	367		$	386
Change in Plan Assets
Fair value of plan assets at beginning of year	$	10,004		$	10,268		$	—		$	—
Actual return on plan assets	2,594			1,099			—			—
Foreign currency exchange rate changes	3,831			(1,361		)	—			—
Employer contributions	4,766			1,176			95			20
Settlements	(5,659		)	(58		)	—			—
Plan participants’ contributions	—			—			536			592
Gross benefits paid	(1,128		)	(1,120		)	(631		)	(612		)
Acquisitions	57,083			—			—			—
Fair value of plan assets at end of year	$	71,491		$	10,004		$	—		$	—
Funded status at end of year
Fair value of plan assets	$	71,491		$	10,004		$	—		$	—
Benefit obligations	(161,673		)	(45,171		)	(367		)	(386		)
Amount recognized at end of year	$	(90,182	)	$	(35,167	)	$	(367	)	$	(386	)

The Company expects to contribute $6.2 million to the pension plans in fiscal year 2019, which includes direct contributions to be made for funded plans and benefit payments to be made for unfunded plans.

The Company does not pre-fund its post-retirement health care and life insurance benefit plans. As a result, the Company is responsible annually for the payment of benefits as incurred by the plans. The Company anticipates making payments of $55 thousand during fiscal year 2019.

Amounts recognized in the Consolidated Balance Sheets consist of the following (amounts in thousands):



	Pension						Other Benefits
	2018			2017			2018			2017
Current liability	$	(7,000	)	$	(827	)	$	(54	)	$	(52	)
Noncurrent liability	(83,182		)	(34,340		)	(313		)	(334		)
Amount recognized, end of year	$	(90,182	)	$	(35,167	)	$	(367	)	$	(386	)

Amounts recognized in Accumulated other comprehensive income (loss) consist of the following (amounts in thousands):



	Pension				Other Benefits
	2018		2017		2018			2017
Net actuarial loss (gain)	$	15,691	$	16,196	$	(879	)	$	(1,134	)
Prior service cost	1,413		1,500		—			—
Accumulated other comprehensive (income) loss	$	17,104	$	17,696	$	(879	)	$	(1,134	)

Although not reflected in the table above, the tax effect on the balances was $2.3 million and $2.7 million as of March 31, 2018 and 2017, respectively.

Components of benefit costs (credit) consist of the following (amounts in thousands):



	Pension									Other Benefits
	2018			2017			2016			2018			2017			2016
Net service cost	$	4,585		$	1,298		$	1,507		$	—		$	—		$	—
Interest cost	1,750			1,297			1,347			12			11			19
Expected return on plan assets⁽¹⁾	(1,956		)	(346		)	(433		)	—			—			—
Amortization:
Actuarial (gain) loss ⁽²⁾	393			419			704			(191		)	(207		)	(191		)
Prior service cost	87			82			60			—			—			—
Recurring activity	4,859			2,750			3,185			(179		)	(196		)	(172		)
One time expense (income)	(71		)	(11		)	—			—			—			—
Net periodic benefit cost (credit)	$	4,788		$	2,739		$	3,185		$	(179	)	$	(196	)	$	(172	)

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⁽¹⁾ The Company has elected to use the actual fair value of plan assets as the market-related value of assets in the determination of the expected return on plan assets.

⁽²⁾ Actuarial gains and losses are amortized using a corridor approach. The total unrecognized amount of cumulative actuarial gain or loss in excess of 10% of the greater of the market value of assets or the projected benefit obligation is amortized over the average remaining service of active employees/lifetime of plan participants for plans with no active participants.

The estimated amounts related to pensions that will be amortized from accumulated other comprehensive income into net periodic benefit costs in fiscal year 2019 are actuarial losses of $429 thousand, and prior service costs of $92 thousand. The estimated amounts related to other benefits that will be amortized from accumulated other comprehensive income into net periodic benefit costs in fiscal year 2019 are actuarial gains of $155 thousand.

The asset allocation for the Company’s defined benefit pension plans at March 31, 2018 and the target allocation for 2018, by asset category, are as follows:



Asset Category	Target Allocation (%)	Plan Assets at March 31, 2018 (%)
Insurance ⁽¹⁾	10	1
International equities	15	31
International bonds	60	61
Other	15	7
Total	100	100

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⁽¹⁾ Comprised of assets held by the defined benefit pension plan in Germany.

The Company’s investment strategy for its defined benefit pension plans is to maximize long-term rate of return on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits. The investment policy establishes a target allocation range for each asset class and the fund is managed within those ranges. The plans use a number of investment approaches including insurance products, equity and fixed income funds in which the underlying securities are marketable in order to achieve this target allocation. Certain plans invest solely in insurance products. The Company continuously monitors the performance of the overall pension asset portfolio, asset allocation policies, and the performance of individual pension asset managers and makes adjustments and changes, as required. The Company does not manage any assets internally, does not have any passive investments in index funds, and does not directly utilize futures, options, or other derivative instruments or hedging strategies with regard to the pension plans; however, the investment mandate of some pension asset managers allows the use of the foregoing as components of their portfolio management strategies.

The expected rate of return was determined by modeling the expected long-term rates of return for broad categories of investments held by the plan against a number of various potential economic scenarios.

Other changes in plan assets and benefit obligations recognized in Accumulated other comprehensive income (loss) are as follows (amounts in thousands):



	Pension									Other Benefits
	2018			2017			2016			2018		2017			2016
Current year actuarial (gain) loss	$	(184	)	$	1,229		$	(5,125	)	$	64	$	(228	)	$	(146	)
Amortization of actuarial gain (loss)	(322		)	(619		)	(698		)	191		208			191
Current year prior service cost	—			—			342			—		—			—
Amortization of prior service cost	(87		)	(82		)	(60		)	—		—			—
Total recognized in other comprehensive income	$	(593	)	$	528		$	(5,541	)	$	255	$	(20	)	$	45
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	4,195		$	3,267		$	(2,356	)	$	76	$	(216	)	$	(127	)

Each of these changes has been factored into the following benefit payments schedule for the next ten fiscal years. The Company expects to have benefit payments in the future as follows (amounts in thousands):



	Expected benefit payments
	2019		2020		2021		2022		2023		2024- 2028
Pension benefits	$	8,968	$	7,417	$	7,487	$	10,105	$	9,059	$	57,685
Other benefits	55		52		47		43		39		131
Total	$	9,023	$	7,469	$	7,534	$	10,148	$	9,098	$	57,816

The following weighted-average assumptions were used to determine the projected benefit obligation at the measurement date and the net periodic cost for the pension and post-retirement plan (amounts in thousands except percentages):



	Pension				Other Benefits
	2018		2017		2018			2017
Projected benefit obligation:
Discount rate ⁽¹⁾	1.2	%	3.1	%	3.5		%	3.2		%
Rate of compensation increase	3.5	%	3.5	%	—		%	—		%
Health care cost trend on covered charges	—	%	—	%	7.0% decreasing to ultimate trend of 5% in 2022			7.0% decreasing to ultimate trend of 5% in 2021
Net periodic benefit cost:
Discount rate	1.2	%	3.1	%	3.2		%	2.8		%
Rate of compensation increase	3.5	%	3.5	%	—		%	—		%
Expected return on plan assets	3.0	%	3.2	%	—		%	—		%
Health care cost trend on covered charges	—	%	—	%	7.0% decreasing to ultimate trend of 5% in 2021			7.0% decreasing to ultimate trend of 5% in 2021
Sensitivity of retiree welfare results
Effect of a one percentage point increase in assumed health care cost trend:
On total service and interest costs components					$	—		$	—
On post-retirement benefits obligation					—			—
Effect of a one percentage point decrease in assumed health care cost trend:
On total service and interest costs components					—			—
On post-retirement benefits obligation					—			—

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⁽¹⁾The change in 2018 pension discount rate is primarily driven by the inclusion of TOKIN discount rate into the weighted averaged discount rate calculations after the acquisition of TOKIN. As discussed in Note 2, “Acquisitions,” TOKIN sold its EMD business on April 14, 2017.

The measurement date used to determine pension and post-retirement benefits is March 31.

The Company evaluated input from its third-party actuary to determine the appropriate discount rate. The determination of the discount rate is based on various factors such as the rate on bonds, term of the expected payouts, and long-term inflation factors.

The following table sets forth by level, within the fair value hierarchy as described in Note 1, the pension plan’s assets, required to be carried at fair value on a recurring basis as of March 31, 2018 and March 31, 2017 (amounts in thousands):



	Fair Value March 31, 2018		Fair Value Measurement Using						Fair Value March 31, 2017		Fair Value Measurement Using
	Fair Value March 31, 2018		Level 1		Level 2 ⁽¹⁾		Level 3 ⁽²⁾		Fair Value March 31, 2017		Level 1		Level 2		Level 3
Cash and cash equivalents	$	193	$	193	$	—	$	—	$	86	$	86	$	—	$	—
Equity securities:
International equities	22,391		—		22,391		—		1,760		—		1,760		—
Fixed income securities:
International bonds	43,742		—		43,742		—		6,275		—		6,275		—
Insurance contracts	697		—		—		697		580		—		—		580
Diversified growth funds	4,468		—		4,468		—		1,303		—		1,303		—
	$	71,491	$	193	$	70,601	$	697	$	10,004	$	86	$	9,338	$	580

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⁽¹⁾ Level 2 plan assets consist of pooled investment funds which are unquoted and have no restriction on redemption. Fair value was determined using daily, weekly, or monthly trading activity which derives the unit price of the pooled fund.

⁽²⁾ Level 3 plan assets are invested in reinsurance contracts whose value is the sum of the actuarial reserve and the profit participation of each contract. The actuarial reserve is the sum of discounted cash flows associated with future benefits and premiums.

The table below sets forth a summary of changes in the fair value of the defined benefit pension plan’s Level 3 assets for the fiscal years ended March 31, 2017 and March 31, 2018 (amounts in thousands):



Balance at March 31, 2016	$	611
Actual return on plan assets	20
Employer contributions	198
Benefits paid	(211		)
Foreign currency exchange rate change	(38		)
Balance at March 31, 2017	$	580
Actual return on plan assets	41
Employer contributions	219
Benefits paid	(233		)
Foreign currency exchange rate change	90
Balance at March 31, 2018	$	697

The Company also sponsors a deferred compensation plan for highly compensated employees. The plan is non-qualified and allows certain employees to contribute to the plan. Company matches, net of gains (losses) related to the deferred compensation plan, were $206 thousand in fiscal year 2018, $176 thousand in fiscal year 2017, and $5 thousand in fiscal year 2016. Total benefits accrued under this plan were $2.1 million and $1.8 million at March 31, 2018 and March 31, 2017, respectively.

In addition, the Company has a defined contribution retirement plan (the “Savings Plan”) in which all United States employees who meet certain eligibility requirements may participate. A participant may direct the Company to contribute amounts, based on a percentage of the participant’s compensation, to the Savings Plan through the execution of salary reduction agreements. In addition, the participants may elect to make after-tax contributions. The Company matches contributions to the Savings Plan up to 6% of the employee’s salary. The Company made matching contributions of $2.2 million, $2.4 million and $2.1 million in fiscal years 2018, 2017, and 2016, respectively.