Employee Benefit Plans

12 Months Ended

Dec. 31, 2020

Employee Benefit Plans

Employee Benefit Plans

Note 15. Employee Benefit Plans

Defined Contribution Plans

We have a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code covering all U.S. employees and defined contribution plans for other Incyte employees in Europe and Japan. Employees may contribute a portion of their compensation, which is then matched by us, subject to certain limitations. Defined contribution expense was $13.4 million, $11.7 million and $10.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.  Included in the 2020, 2019 and 2018 defined contribution expense was $1.7 million, $1.6 million and $1.4 million, respectively, of expense related to matching contributions under the non-U.S. defined contribution plans.

Defined Benefit Pension Plans

We have defined benefit pension plans for our employees in Europe which provide benefits to employees upon retirement, death or disability. The assets of the pension plans are held in collective investment accounts represented by the cash surrender value of an insurance policy and are classified as Level 2 within the fair value hierarchy.

The pension plans assumptions reflect the expected investment return and discount rate on plan assets and disability rate probabilities. The benefit obligation at December 31, 2020 for the plans was determined using a discount rate of 0.10% and rate of compensation increase of 2.00%. The 2020 net periodic benefit cost for the plans was determined using discount rates of 0.30%, rates of compensation increase of 2.25% and long-term expected return on plan assets of 0.30%. The benefit obligation at December 31, 2019 for the plans was determined using a discount rate of 0.30% and rate of compensation increase of 2.25%.  The 2019 net periodic benefit cost for the plans was determined using discount rates of 0.75%, rates of compensation increase of 2.25% and long-term expected return on plan assets of 0.75%.

Summarized information regarding changes in the obligations and plan assets, the funded status and the amounts recorded were as follows (in thousands):

	Year Ended December 31,
	2020		2019
Benefit obligation, beginning of year	$	62,770	$	46,038
Employer service cost		6,047		5,195
Interest cost		193		345
Plan participants' contributions		2,237		1,613
Actuarial loss		9,372		6,672
Transfer of benefits net of payments from fund		11,057		2,184
Expenses paid from assets		(88)		(61)
Translation loss		6,371		784
Benefit obligation, end of year		97,959		62,770
Fair value of plan assets, beginning of year		38,662		30,368
Actual return on plan assets		260		132
Employer contributions		5,413		3,910
Plan participants' contributions		2,237		1,613
Transfer of benefits net of payments from fund		11,057		2,184
Expenses paid from assets		(88)		(61)
Translation gain		3,724		516
Fair value of plan assets, end of year		61,265		38,662
Unfunded liability, end of year	$	36,694	$	24,108

The unfunded liability is reported in other liabilities on the consolidated balance sheets as of December 31, 2020 and 2019. The accumulated benefit obligation is $83.2 million and $52.9 million as of December 31, 2020 and 2019, respectively.

The net periodic benefit cost was as follows (in thousands):

	Year Ended  December 31,
	2020		2019		2018
Service cost	$	6,047	$	5,195	$	4,450
Interest cost		193		345		278
Expected return on plan assets		(126)		(241)		(195)
Amortization of prior service cost		216		214		179
Amortization of actuarial losses		667		247		265
Net periodic benefit cost	$	6,997	$	5,760	$	4,977

The components of net periodic benefit cost other than the service cost component are included in other income (expense), net on the consolidated statements of operations.

Other changes in the plans assets and the benefit obligation that is recognized in accumulated other comprehensive loss were as follows, net of tax (in thousands):

	Year Ended December 31,
	2020		2019		2018
Pension liability, beginning of year	$	15,468	$	9,146	$	8,450
Net prior service costs		(216)		(214)		(179)
Net loss		8,579		6,536		875
Pension liability, end of year	$	23,831	$	15,468	$	9,146

We expect to contribute a total of $6.0 million to the pension plans in 2021. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2021	$	3,315
2022		3,413
2023		3,474
2024		3,506
2025		3,972
2026-2030		22,498
Total	$	40,178