Note 14.

Employee Benefit Plans

Eligible U.S. employees of the Company participate in a profit sharing retirement plan. Contributions accrued for the plan are made at the discretion of the Company’s board of directors and were $3.4 million, $2.8 million, and $2.5 million for the years ended June 30, 2016, 2015 and 2014, respectively.

The Company has an employee stock purchase plan available for employees who have completed six months of continuous employment with the Company. The employee may purchase the Company’s Common Stock at 5% below the prevailing market price. The amount of shares which may be bought by an employee during each fiscal year is limited to 10% of the employee’s base pay. This plan, as amended, limits the number of shares of Common Stock available for purchase to 1,600,000 shares. There were 492,913 and 514,031 shares of Common Stock available for purchase under the plan at June 30, 2016 and 2015, respectively.

Switzerland Defined Benefit Plan

In conjunction with the acquisition of II-VI Laser Enterprise in fiscal year 2014, the Company assumed a pension plan covering employees of our Swiss subsidiary (the “Swiss Plan”). Employer and employee contributions are made to the Swiss Plan based on various percentages of salary and wages that vary according to employee age and other factors. Employer contributions to the Swiss Plan for year ended June 30, 2016 were $2.0 million. Expected employer contributions in fiscal year 2017 are $2.5 million.

The funded status of the Swiss Plan in the fiscal years ended June 30, 2016 and 2015 were as follows:

Year Ended June 30,	2016			2015
Change in projected benefit obligation:
Projected benefit obligation, beginning of period	$	42,575		$	39,390
Service cost		2,680			2,791
Interest cost		434			744
Participant contributions		1,046			965
Benefits received (paid)		1,567			(1,279	)
Actuarial loss on obligation		8,071			1,520
Currency translation adjustment		(2,279	)		(1,556	)
Projected benefit obligation, end of period	$	54,094		$	42,575
Change in plan assets:
Plan assets at fair value, beginning of period		32,509			31,965
Actual return on plan assets		431			207
Employer contributions		2,043			1,914
Participant contributions		1,046			965
Benefits received (paid)		1,567			(1,279	)
Currency translation adjustment		(1,739	)		(1,263	)
Plan assets at fair value, end of period	$	35,857		$	32,509
Amounts recognized in consolidated balance sheets:
Other non-current assets:
Deferred tax asset	$	3,857		$	2,129
Other non-current liabilities:
Underfunded pension liability	$	18,237			10,066
Amounts recognized in accumulated other comprehensive income, net of tax:
Pension adjustment	$	(7,031	)	$	(2,244	)
Accumulated benefit obligation, end of period	$	50,772		$	38,734

Net periodic pension cost associated with the Swiss Plan included the following components:

Year Ended June 30,	2016			2015
Service cost		2,680		$	2,791
Interest cost		434			744
Expected return on plan assets		(1,097	)		(1,106	)
Net period pension cost	$	2,017		$	2,429

The projected and accumulated benefit obligations for the Swiss Plan were calculated as of June 30, 2016 and 2015 using the following assumptions:

Year Ended June 30,	2016			2015
Discount rate		0.3	%		1.1	%
Salary increase rate		2.0	%		2.0	%
Expected return on plan assets		2.0	%		3.5	%
Expected average remaining working life (in years)	10.2				13.1

The discount rate is based on assumed pension benefit maturity and estimates developed using the rate of return and yield curves for high quality Swiss corporate and government bonds. The fiscal year 2016 decrease in the discount rate was a result of a decrease in the yield on the 20-year Swiss government bond. As a result of the decrease in the Swiss Plan’s discount rate utilized in the current fiscal year the underfunded pension liability increased from the $10.1 million at the beginning of the fiscal year to $18.2 million at June 30, 2016. The salary increase rate is based on our best assessment for on-going increases over time. The expected long-term rate of return on plan assets is based on the expected asset allocation and taking into consideration historical long-term rates of return for the relevant asset categories.

As is customary with Swiss pension plans, the assets of the plan are invested in a collective fund with multiple employers. We have no investment authority over the assets of the plan that are held and invested by a Swiss insurance company. The Swiss Plan assets are measured at fair value and are classified within Level 2 of the fair value hierarchy. The investment strategy of the Swiss Plan is managed by an independent asset manager with the objective of achieving a consistent long-term return which will provide sufficient funding for future pension obligations while limiting risk.

The Swiss Plan is legally separate from II-VI, as are the assets of the plan. As of June 30, 2016, the Swiss Plan’s asset allocation was as follows:

Year Ended June 30,	2016			2015
Fixed income investments		15.0	%		22.0	%
Equity investments		51.0	%		52.0	%
Real estate		28.0	%		16.0	%
Cash		3.0	%		8.0	%
Alternative investments		3.0	%		2.0	%
		100.0	%		100.0	%

Estimated future benefit payments under the Swiss Plan are estimated to be as follows:

Year Ending June 30,
($000)
2017	$	2,521
2018		1,419
2019		3,661
2020		1,312
2021		2,222
Next five years		16,549

Other Employee Benefit Plans

The Company has no program for post-retirement health and welfare benefits.

The II-VI Incorporated Deferred Compensation Plan (the “Compensation Plan”) is designed to allow officers and key employees of the Company to defer receipt of compensation into a trust fund for retirement purposes. Under the Compensation Plan, as it is currently implemented by the Company, eligible participants can elect to defer up to 100% of certain discretionary incentive compensation and certain equity awards into the Compensation Plan. The Compensation Plan is a nonqualified, defined contribution employees’ retirement plan. At the Company’s discretion, the Compensation Plan may be funded by the Company making contributions based on compensation deferrals, matching contributions and discretionary contributions. Compensation deferrals will be based on an election by the participant to defer a percentage of compensation under the Compensation Plan. All assets in the Compensation Plan are subject to claims of the Company’s creditors until such amounts are paid to the Compensation Plan participants. Employees of the Company made contributions to the Compensation Plan in the amounts of approximately $1.2 million, $0.7 million, and $1.9 million for the fiscal years ended June 30, 2016, 2015, and 2014, respectively. There were no employer contributions made to the Compensation Plan for the fiscal years ended June 30, 2016, 2015 and 2014.