12. Employee Benefit Plans

Defined Benefit Plans

The Company maintains a defined benefit pension plan in the United Kingdom (the “U.K. Plan”). The U.K. Plan was closed to new membership in 1997 and stopped accruing additional pension benefits for existing members in 2003. Benefits under the U.K. Plan were based on the employees’ years of service and compensation as of the date the plan was frozen in 2003, adjusted for inflation. The Company continues to fund the plan in sufficient amounts to cover current benefit payments as well as to fund a portion of the unfunded pension obligations based on periodic agreements with the trustees of the U.K. Plan.

The net periodic pension cost consisted of the following components (in thousands):

	Year Ended December 31,
	2016			2015			2014
Components of the net periodic pension cost:
Interest cost	$	1,232		$	1,340		$	1,589
Expected return on plan assets		(1,566	)		(1,844	)		(1,958	)
Amortization of actuarial losses		726			875			374
Net periodic pension cost	$	392		$	371		$	5

The actuarial assumptions used to compute the net periodic pension cost for the years ended December 31, 2016, 2015 and 2014, respectively, were as follows:

	Year Ended December 31,
	2016			2015			2014
Weighted-average discount rate		3.8	%		3.5	%		4.6	%
Weighted-average long-term rate of return on plan assets		5.3	%		5.6	%		5.9	%

The actuarial assumptions used to compute the benefit obligations as of December 31, 2016 and 2015, respectively, were as follows:

	December 31,
	2016			2015
Weighted-average discount rate		2.6	%		3.8	%
Rate of inflation		3.0	%		2.8	%

The discount rates used are derived from (AA) corporate bonds that have maturities approximating the terms of the related obligations. In estimating the expected return on plan assets, the Company considered the historical performance of the major asset classes held and current forecasts of future rates of return for these asset classes.

The following table provides a reconciliation of benefit obligations and plan assets of the U.K. Plan (in thousands):

	December 31,
	2016			2015
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	35,914		$	39,421
Interest cost		1,232			1,340
Actuarial (gains) losses		7,425			(2,083	)
Benefits paid		(809	)		(798	)
Foreign currency exchange rate changes		(6,501	)		(1,966	)
Projected benefit obligation at end of year	$	37,261		$	35,914
Accumulated benefit obligation at end of year	$	37,261		$	35,914
Change in plan assets:
Fair value of plan assets at beginning of year	$	32,374		$	33,610
Actual return on plan assets		4,522			342
Employer contributions		868			955
Benefits paid		(809	)		(798	)
Foreign currency exchange rate changes		(5,651	)		(1,735	)
Fair value of plan assets at end of year	$	31,304		$	32,374
Funded status at end of year	$	(5,957	)	$	(3,540	)
Amounts included in accumulated other comprehensive loss not yet recognized in net periodic pension cost:
Net actuarial losses at beginning of year	$	(9,874	)	$	(11,890	)
Net actuarial gains (losses) during the year		(4,469	)		581
Amounts reclassified from accumulated other comprehensive income to income before income taxes		726			875
Foreign currency exchange rate changes		1,920			560
Net actuarial losses at end of year	$	(11,697	)	$	(9,874	)
Amounts expected to be amortized from accumulated other comprehensive loss into net periodic pension cost over the next fiscal year consists of:
Net actuarial loss	$	1,148		$	794

The funded status of the U.K. Plan is included in other long term liabilities in the accompanying consolidated balance sheets.

The following table reflects the total expected benefit payments to plan participants and have been estimated based on the same assumptions used to measure the Company’s benefit obligations as of December 31, 2016 (in thousands):

	Amount
2017	$	875
2018		725
2019		1,048
2020		1,205
2021		1,371
2022-2026		7,667
Total	$	12,891

In the U.K., funding valuations are conducted every three years in order to determine the future level of contributions. Based on the results of the most recent valuation completed in the fourth quarter 2015, the Company’s annual contributions will be approximately $0.8 million per year in 2017 and will increase by 2.9% per year thereafter.

Fair Value of Plan Assets

The trustees of the U.K. Plan have the fiduciary responsibilities to manage the plan assets in consultation with the Company. The overall objective is to invest plan assets in a portfolio of diversified assets, primarily through the use of institutional collective funds, to achieve balanced growth through a combination of investments in equities for long-term growth and investments in debt instruments that match a portion of the expected future benefit payments and to maintain adequate liquidity to make pension payments to pensioners.

The following table summarizes the fair values of Plan assets by asset category as of December 31, 2016 (in thousands):

Asset Category	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Not Subject to Leveling (4)
Mutual Funds:
Balanced (1)	$	23,317	$	—	$	—	$	—	$	23,317
Growth (2)		3,239		—		—		—		3,239
Fixed income (3)		4,512		—		—		—		4,512
Cash		236		236		—		—		—
Total	$	31,304	$	236	$	—	$	—	$	31,068

(1)	This class comprises a diversified portfolio of global investments which seeks a balanced return between capital growth and fixed income and is allocated on a weighted average basis as follows: equities (34%), bonds (36%), other assets (27%) and cash (3%).

(2)	This class comprises a diversified portfolio of global investments which seeks long-term capital growth and is allocated on a weighted average basis as follows: equities (59%), bonds (16%), other assets (22%) and cash (3%).

(3)	This class comprises a diversified portfolio of global investments which seeks fixed income and is allocated on a weighted average basis as follows: bonds (93%), other assets (1%) and cash (6%).

(4)

In 2016, the Company adopted ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” As a result of the adoption, pension plan assets measured using the net asset value per share (or its equivalent) are presented as “Not Subject to Leveling” in the table above.

The following table summarizes the fair values of Plan assets by asset category as of December 31, 2015 (in thousands):

Asset Category	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Not Subject to Leveling (3)
Mutual Funds:
Balanced (1)	$	15,611	$	—	$	—	$	—	$	15,611
Growth (2)		16,583		—		—		—		16,583
Cash		180		180		—		—		—
Total	$	32,374	$	180	$	—	$	—	$	32,194

(1)	This class comprises a diversified portfolio of global investments which seeks a balanced return between capital growth and fixed income and is allocated on a weighted average basis as follows: equities (52%), bonds (24%), other assets (9%) and cash (15%).

(2)	This class comprises a diversified portfolio of global investments which seeks long-term capital growth and is allocated on a weighted average basis as follows: equities (67%), bonds (12%), other assets (9%), and cash (12%).

(3)

The tables above present the fair value of plan assets in accordance with the fair value hierarchy. Except for cash, pension plan assets are measured using net asset value per share (or its equivalent). These investments have quoted prices in inactive markets and there are significant other observable inputs which can be corroborated by observable market data for substantially the full term of the plan assets.

Defined Contribution Plans

The Company has defined contribution employee savings plans in the U.K., Japan, and the U.S. The Company matches the contributions of participating employees on the basis of percentages specified in each plan. Company matching contributions to the plans were $2.5 million, $2.7 million and $2.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.