7. Defined Benefit Plans

Covance sponsors various pension and other post-retirement benefit plans.

Defined Benefit Pension Plans

Covance sponsors two defined benefit pension plans for the benefit of its employees at two United Kingdom subsidiaries and one defined benefit pension plan for the benefit of its employees at a German subsidiary, all of which are legacy plans of previously acquired companies. Benefit amounts for all three plans are based upon years of service and compensation. The German plan is unfunded, while the United Kingdom pension plans are funded. Covance’s funding policy has been to contribute annually a fixed percentage of the eligible employee’s salary at least equal to the local statutory funding requirements. Pension plan assets are administered by the plans’ trustees and are principally invested in equity and debt securities and annuities.

The components of net periodic pension cost for these plans for the three and six month periods ended June 30, 2014 and 2013 are as follows:

	United Kingdom Plans						German Plan
	Three Months Ended June 30						Three Months Ended June 30
	2014			2013			2014		2013
Components of Net Periodic Pension Cost:
Service cost	$	580		$	458		$	203	$	192
Interest cost	2,373			1,951			174		151
Expected return on plan assets	(3,369		)	(2,484		)	—		—
Amortization of net actuarial loss	373			153			62		56
Net periodic pension (income) cost	$	(43	)	$	78		$	439	$	399

	United Kingdom Plans						German Plan
	Six Months Ended June 30						Six Months Ended June 30
	2014			2013			2014		2013
Components of Net Periodic Pension Cost:
Service cost	$	1,150		$	922		$	406	$	386
Interest cost	4,708			3,931			348		304
Expected return on plan assets	(6,684		)	(5,005		)	—		—
Amortization of net actuarial loss	740			309			124		113
Net periodic pension (income) cost	$	(86	)	$	157		$	878	$	803

Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate	4.60%			4.60%			3.50%		3.50%
Expected rate of return on assets	6.15%			5.30%			n/a		n/a
Salary increases	4.00%			3.60%			2.00%		2.00%

Supplemental Executive Retirement Plan

In addition to these foreign defined benefit pension plans, Covance also has a non-qualified Supplemental Executive Retirement Plan (“SERP”). The SERP, which is not funded, is intended to provide retirement benefits for certain executive officers of Covance. Benefit amounts are based upon years of service and compensation of the participating employees.

The components of net periodic pension cost for the three and six month periods ended June 30, 2014 and 2013 are as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2014			2013			2014			2013
Components of Net Periodic Pension Cost:
Service cost	$	402		$	377		$	804		$	754
Interest cost	248			181			496			362
Amortization of prior service credit	(30		)	(30		)	(60		)	(60		)
Amortization of net actuarial loss	148			142			296			284
Net periodic pension cost	$	768		$	670		$	1,536		$	1,340

Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate	3.90%			3.20%			3.90%			3.20%
Salary increases	3.25%			3.25%			3.25%			3.25%

Post-Employment Retiree Health and Welfare Plan

Covance also sponsors a post-employment retiree health and welfare plan for the benefit of eligible employees at certain U.S. subsidiaries who retire after satisfying service and age requirements. This plan is funded on a pay-as-you-go basis and the cost of providing these benefits is shared with the retirees.

The components of net periodic post-retirement benefit cost for the three and six month periods ended June 30, 2014 and 2013 are as follows:

	Three Months Ended June 30				Six Months Ended June 30
	2014		2013		2014		2013
Components of Net Periodic Post-retirement Benefit Cost:
Service cost	$	11	$	18	$	22	$	36
Interest cost	63		59		125		119
Net periodic post-retirement benefit cost	$	74	$	77	$	147	$	155

Assumptions Used to Determine Net Periodic Post-retirement Benefit Cost:
Discount rate	4.40%		3.60%		4.40%		3.60%
Health care cost trend rate	7.00%(a)		7.50%		7.00%(a)		7.50%

(a) decreasing to ultimate trend of 5.00% in 2018