13. Employee Benefit Plans

German Pension Plan

The Company’s subsidiary in Germany provides pension benefits to eligible retirees. Employees eligible for participation includes all employees who started working for the Company prior to September 30, 1987 and have finished a qualifying period of at least 10 years. The Company accrues the cost of these benefits over the service lives of the covered employees based on an actuarial calculation. The Company uses a December 31 measurement date for this plan. The German pension plan is an unfunded plan and therefore has no plan assets.

U.K. Pension Plan

The Company’s subsidiary in the United Kingdom provides pension benefits to eligible retirees and eligible dependents. Employees eligible for participation included all full-time regular employees who were more than three years from retirement prior to October 2001. A retirement pension or a lump-sum payment may be paid dependent upon length of service at the mandatory retirement age. The Company accrues the cost of these benefits over the service lives of the covered employees based on an actuarial calculation. The Company uses a December 31 measurement date for this plan.

The expected rate of return assumptions for plan assets relate solely to the UK plan and are based mainly on historical performance achieved over a long period of time (15 to 20 years) encompassing many business and economic cycles. The Company assumed a weighted average expected long-term rate on plan assets of 3.87%.

Norway Pension Plan

The Company’s subsidiary in Norway provides pension benefits to eligible retirees and eligible dependents. Employees eligible for participation include all employees who were more than three years from retirement prior to March 2018. The Company accrues the cost of these benefits over the service lives of the covered employees based on an actuarial calculation. The Company uses a December 31 measurement date for this plan. The expected rate of return assumptions for plan assets relate solely to the Norway plan and are based mainly on historical performance achieved over a long period of time (10 to 20 years) encompassing many business and economic cycles. The Company assumed a weighted average expected long-term rate on plan assets of 3.8%.

Asterion Pension Plan

The Company acquired in 2018 through the Asterion Business Combination the obligation to provide pension benefits to eligible retirees and eligible dependents. Employees eligible for participation included all full-time regular employees who were more than three years from retirement prior to July 2003. A retirement pension or a lump-sum payment may be paid dependent upon length of service at the mandatory retirement age. The Company accrues the cost of these benefits over the service lives of the covered employees based on an actuarial calculation. The Company uses a December 31 measurement date for this plan.

With respect to all of the plans as discussed, no new employees are registered under these plans and the employees who are already eligible to receive benefits under these plans are no longer employed by the Company.

Funded Status

The change in benefit obligations, the change in the fair value of the plan assets and the funded status of the Company’s pension plans (except for the German pension plan which is unfunded) and the amounts recognized in the Company’s consolidated financial statements are as follows:


	Year ended December,
	2019		2018
Change in Benefit Obligation:
Benefit obligation at beginning of period	$	90,051	$	91,875
Additional obligation due to acquisition		—		5,631
Service cost		80		82
Interest cost		2,448		2,350
Actuarial loss (gain)		9,168		(4,356)
Plan amendments		(835)		1,334
Benefits paid		(3,082)		(1,558)
Foreign-exchange rate changes		3,131		(5,307)
Benefit obligation at end of year	$	100,961	$	90,051

Change in Plan Assets:
Fair value of plan assets at beginning of period	$	62,952	$	64,886
Additional assets due to acquisition		—		2,184
Actual return on plan assets		10,906		(1,432)
Employer contributions		2,557		2,477
Benefits paid		(2,995)		(1,421)
Foreign-exchange rate changes		2,455		(3,742)
Fair value of plan assets at end of year		75,875		62,952
Funded status at end of year	$	(25,086)	$	(27,099)

Net amount recognized in the Consolidated Balance Sheets:
Pension liability (a)	$	(25,681)	$	(27,641)
Amounts recognized in accumulated other comprehensive loss, net of tax consist of:
Net actuarial loss		(8,059)		(9,301)
Net amount recognized in accumulated other comprehensive loss, net of tax	$	(8,059)	$	(9,301)

Plans with underfunded or non-funded accumulated benefit obligation:
Aggregate projected benefit obligation	$	100,961	$	90,050
Aggregate accumulated benefit obligation	$	100,961	$	90,050
Aggregate fair value of plan assets	$	75,875	$	62,883

(a)

Consolidated balance of $25.7 million for the year ended December 31, 2019 includes pension liabilities of $20.6 million, $2.4 million, $2.1 million and $0.1 million under U.K., Asterion, German and Norway pension plans, respectively, and minimum regulatory benefit for a Philippines legal entity of $0.5 million. Consolidated balance of $27.6 million for the year ended December 31, 2018 includes pension liabilities of $22.0 million, $2.8 million, $1.8 million and $0.5 million under U.K., Asterion, German and Norway pension plans, respectively, and minimum regulatory benefit for a Philippines legal entity of $0.5 million.

Amounts in Accumulated Other Comprehensive Loss Expected to be Recognized in Net Periodic Benefit Costs in 2020

The liability recorded on the Company’s consolidated balance sheets representing the net unfunded status of this plan is different than the cumulative expense recognized for this plan. The difference relates to losses that are deferred and that will be amortized into periodic benefit costs in future periods. These unamortized amounts are recorded in Accumulated Other Comprehensive Loss in the consolidated balance sheets.

As of December 31, 2019, the estimated pre-tax amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next year will be net actuarial loss of $1.8 million and prior service cost of $0.1 million.

Tax Effect on Accumulated Other Comprehensive Loss

As of December 31, 2019 and 2018, the Company recorded actuarial losses of $8.1 million and $9.3 million, respectively, which is net of a deferred tax benefit of $2.0 million and $1.7 million, respectively.

Pension and Postretirement Expense

The components of the net periodic benefit cost are as follows:


	Year ended December 31,
	2019		2018		2017
Service cost	$	80	$	82	$	8
Interest cost		2,448		2,350		2,288
Expected return on plan assets		(2,460)		(2,841)		(2,392)
Amortization:
Amortization of prior service cost		(169)		9		(134)
Amortization of net (gain) loss		1,768		1,755		2,063
Net periodic benefit cost	$	1,667	$	1,355	$	1,833

Valuation

The Company uses the corridor approach and projected unit credit method in the valuation of its defined benefit plans for the UK, Germany, and Norway respectively. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions. For defined benefit pension plans, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over 15 years. Similarly, the Company used the Projected Unit Credit Method for the German Plan, and evaluated the assumptions used to derive the related benefit obligations consisting primarily of financial and demographic assumptions including commencement of employment, biometric decrement tables, retirement age, staff turnover. The projected unit credit method determines the present value of the Company’s defined benefit obligations and related service costs by taking into account each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately in building up the final obligation. Benefit is attributed to periods of service using the plan's benefit formula, unless an employee's service in later years will lead to a materially higher of benefit than in earlier years, in which case a straight-line basis is used.

The following tables set forth the principal actuarial assumptions used to determine benefit obligation and net periodic benefit costs:


	December 31,
	2019		2018		2019		2018		2019		2018		2019		2018
	UK				Germany				Norway				Asterion
Weighted-average assumptions used to determine benefit obligations:
Discount rate	2.10	%	2.80	%	1.00	%	1.90	%	2.30	%	2.60	%	1.10	%	1.80
Rate of compensation increase	N/A		N/A		N/A		N/A		2.25	%	2.75	%	2.50	%	2.50
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	2.80	%	2.50	%	1.00	%	1.90	%	2.30	%	2.60	%	1.10	%	1.80
Expected asset return	3.87	%	4.25	%	N/A	%	N/A	%	3.80	%	4.30	%	1.10	%	1.80
Rate of compensation increase	N/A		N/A		N/A		N/A		2.25	%	1.75	%	2.50	%	2.50

The Germany plan is an unfunded plan and therefore has no plan assets. The expected rate of return assumptions for plan assets are based mainly on historical performance achieved over a long period of time (10 to 20 years) encompassing many business and economic cycles. Adjustments, upward and downward, may be made to those historical returns to reflect future capital market expectations; these expectations are typically derived from expert advice from the investment community and surveys of peer company assumptions.

The Company assumed a weighted average expected long-term rate of return on plan assets for the overall scheme of 3.86%. The Company’s long-term expected rate of return on cash is determined by reference to UK government 10 year bond yields at the balance sheet dates. The long-term expected return on bonds is determined by reference to corporate bond yields at the balance sheet date. The long-term expected rate of return on equities and diversified growth funds is based on the rate of return on UK long dated government bonds with an allowance for out-performance. The long-term expected rate of return on the liability driven investments holdings is determined by reference to UK government 20 year bond yields at the balance sheet date.

The discount rate assumption was developed considering the current yield on an investment grade non-gilt index with an adjustment to the yield to match the average duration of the index with the average duration of the plan’s liabilities. The index utilized reflected the market’s yield requirements for these types of investments.

The inflation rate assumption was developed considering the difference in yields between a long-term government stocks index and a long-term index-linked stocks index. This difference was modified to consider the depression of the yield on index-linked stocks due to the shortage of supply and high demand, the premium for inflation above the expectation built into the yield on fixed-interest stocks and the government’s target rate for inflation (CPI) at 1.8%. The assumptions used are the best estimates chosen from a range of possible actuarial assumptions which, due to the time scale covered, may not necessarily be borne out in practice.

Plan Assets

The investment objective for the plan is to earn, over moving fifteen to twenty year periods, the long-term expected rate of return, net of investment fees and transaction costs, to satisfy the benefit obligations of the plan, while at the same time maintaining sufficient liquidity to pay benefit obligations and proper expenses, and meet any other cash needs, in the short-to medium-term.

The Company’s investment policy related to the defined benefit plan is to continue to maintain investments in government gilts and highly rated bonds as a means to reduce the overall risk of assets held in the fund. No specific targeted allocation percentages have been set by category, but are set at the direction and discretion of the plan trustees. The weighted average allocation of plan assets by asset category is as follows:


	December 31,
	2019		2018 (As Restated)		2017 (As Restated)
U.K. and other international equities	29.9	%	27.1	%	45.0	%
U.K. government and corporate bonds	12.5		12.7		20.0
Diversified growth fund	41.3		38.9		35.0
Liability driven investments	16.3		21.3		N/A
Total	100.0	%	100.0	%	100.0	%

The following tables set forth, by category and within the fair value hierarchy, the fair value of the Company’s pension assets at December 31, 2019 and 2018:


	December 31, 2019
	Total		Level 1		Level 2		Level 3
Asset Category:
Cash	$	837	$	837	$	—	$	—
Equity funds:
U.K.		13,121		—		13,121		—
Other international		8,747		—		8,747		—
Fixed income securities:
Corporate bonds / U.K. Gilts		9,446		—		9,446		—
Other investments:
Diversified growth fund		31,345		—		31,345		—
Liability driven investments		12,379		—		12,379		—
Total fair value	$	75,875	$	837	$	75,038	$	—


	December 31, 2018 (As Restated)
	Total		Level 1		Level 2		Level 3
Asset Category:
Cash	$	129	$	129	$	—	$	—
Equity funds:
U.K.		10,161		—		10,161		—
Other international		6,773		—		6,773		—
Fixed income securities:
Corporate bonds / UK Gilts		7,987		—		7,987		—
Other investments:
Diversified growth fund		24,488		—		24,488		—
Liability driven investments		13,414		—		13,414		—
Total fair value	$	62,952	$	129	$	62,823	$	—

The Company identified an immaterial error in the footnotes to the previously issued financial statements as of December 31, 2018. In the previously issued financial statements the investments in Equities, Fixed Income Securities, and Other investments denominated in British Pounds relating to U.K. Plan as of December 31, 2018, were converted from British Pounds to United States Dollars using incorrect exchange rates. These amounts have been recomputed using appropriate exchange rate and correctly disclosed within the fair value hierarchy table above. As a result of this correction, the weighted average allocation of plan assets by asset category for the year ended December 31, 2018 is also restated.

The plan assets are categorized as follows, as applicable:

Level 1: Any asset for which a unit price is available and used without adjustment, cash balances, etc.

Level 2: Any asset for which the amount disclosed is based on market data, for example a fair value measurement based on a present value technique (where all calculation inputs are based on data).

Level 3: Other assets. For example, any asset value with a fair value adjustment made not based on available indices or data.

Employer Contributions

The Company’s funding is based on governmental requirements and differs from those methods used to recognize pension expense. The Company made contributions of $2.6 million and $2.5 million to its pension plans during the years ended December 31, 2019 and 2018 (as restated), respectively. The Company has fully funded the pension plans for 2019 based on current plan provisions. The Company expects to contribute $2.7 million to the pension plans during 2020, based on current plan provisions.

Estimated Future Benefit Payments

The estimated future pension benefit payments expected to be paid to plan participants are as follows:


	Estimated
	Benefit
	Payments
Year ended December 31,
2020	$	1,730
2021		1,741
2022		2,070
2023		1,997
2024		2,854
2025 - 2029		16,417
Total	$	26,809