Pension

We have pension plans covering the majority of our employees. Benefits generally are based on compensation and length of service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before

January

2006.

The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before

January

2006,

and over half of the hourly U.S.-based employees. Hourly employees hired at Shreveport after

December 15, 2008,

and at Toledo after

September

30,

2010,

are

not

eligible to participate. Effective

January 1, 2013,

we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiary in Mexico and are unfunded.

Effect on Operations

The components of our net pension expense, including the SERP, are as follows:

Year ended December 31,	U.S. Plans						Non-U.S. Plans						Total
(dollars in thousands)	2019			2018			2019			2018			2019			2018
Service cost (benefits earned during the period)	$	3,368		$	4,009		$	1,032		$	1,142		$	4,400		$	5,151
Interest cost on projected benefit obligation		13,530			12,615			3,068			2,984			16,598			15,599
Expected return on plan assets		(20,781	)		(22,658	)		—			—			(20,781	)		(22,658	)
Amortization of unrecognized:
Prior service cost (credit)		—			1			(200	)		(201	)		(200	)		(200	)
Actuarial loss		4,396			6,472			413			622			4,809			7,094
Settlement charge		9			—			—			92			9			92
Pension expense	$	522		$	439		$	4,313		$	4,639		$	4,835		$	5,078

The non-service cost components of pension expense are included in other income (expense) on the Consolidated Statements of Operations. See note 16 for additional information.

Actuarial Assumptions

The assumptions used to determine net periodic pension expense for each year and the benefit obligations at

December 31

were as follows:

	U.S. Plans				Non-U.S. Plans
	2019		2018		2019		2018
Net periodic pension expense:
Discount rate		4.31% to 4.33%		3.64% to 3.69%		10.06%		9.40%
Expected long-term rate of return on plan assets		6.50%		7.00%		Not applicable		Not applicable
Rate of compensation increase		Not applicable		Not applicable		4.30%		4.30%
Cash balance interest crediting rate		5.50%		5.50%		Not applicable		Not applicable
Benefit obligations:
Discount rate		3.45% to 3.50%		4.31% to 4.33%		8.80%		10.60%
Rate of compensation increase		Not applicable		Not applicable		4.30%		4.30%
Cash balance interest crediting rate		5.50%		5.50%		Not applicable		Not applicable

The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at our

December

measurement date. The discount rate at

December

is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A higher discount rate decreases the present value of benefit obligations and decreases pension expense.

To determine the expected long-term rate of return on plan assets for our funded plans, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. At

December

31,

2019,

the expected long-term rate of return on plan assets is

6.50

percent, which will be used to measure the earnings effects for

2020.

The cash balance interest crediting rate, which applies only to the U.S. Salaried Plan, enables us to calculate the benefit obligation through projecting future interest credits on cash balance accounts between the measurement date and a participant’s assumed retirement date. The rate adjusts annually and is the

-year Treasury rate in effect as of

October

in the preceding plan year, subject to a minimum of

percent. A lower cash balance interest crediting rate assumption decreases the benefit obligation and decreases pension expense.

Future benefits are assumed to increase in a manner consistent with past experience of the plans except for the Libbey U.S. Salaried Pension Plan and SERP as discussed above, which, to the extent benefits are based on compensation, includes assumed compensation increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees.

We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. The actuarial valuations require significant estimates and assumptions to be made by management, primarily with respect to the discount rate and expected long-term return on plan assets. These assumptions are all susceptible to changes in market conditions. The discount rate is based on a selected settlement portfolio from a universe of high quality bonds. In determining the expected long-term rate of return on plan assets, we consider historical market and portfolio rates of return, asset allocations and expectations of future rates of return. We evaluate these critical assumptions on our annual measurement date of

December

. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.

For our U.S. pension plans, we began using the Pri-

2012

mortality base table and MP-

2019

generational mortality improvement projection scale, as released by the Society of Actuaries in

October 2019,

to determine our projected benefit obligations at

December 31, 2019.

Prior to this, we used the RP

2014

Sex Distinct Mortality Tables along with the yearly generational projection scale, as released by the Society of Actuaries.

Projected Benefit Obligation (PBO) and Fair Value of Assets

The changes in the projected benefit obligations and fair value of plan assets are as follows:

Year ended December 31,	U.S. Plans						Non-U.S. Plans						Total
(dollars in thousands)	2019			2018			2019			2018			2019			2018
Change in projected benefit obligation:
Projected benefit obligation, beginning of year	$	322,594		$	354,053		$	29,978		$	31,967		$	352,572		$	386,020
Service cost		3,368			4,009			1,032			1,142			4,400			5,151
Interest cost		13,530			12,615			3,068			2,984			16,598			15,599
Exchange rate fluctuations		—			—			1,549			138			1,549			138
Actuarial (gain) loss		28,820			(28,481	)		8,878			(3,056	)		37,698			(31,537	)
Settlements paid		(112	)		—			—			—			(112	)		—
Benefits paid		(19,745	)		(19,602	)		(3,210	)		(3,197	)		(22,955	)		(22,799	)
Projected benefit obligation, end of year	$	348,455		$	322,594		$	41,295		$	29,978		$	389,750		$	352,572

Change in fair value of plan assets:
Fair value of plan assets, beginning of year	$	304,084		$	343,219		$	—		$	—		$	304,084		$	343,219
Actual return on plan assets		61,961			(19,533	)		—			—			61,961			(19,533	)
Employer contributions		112			—			3,210			3,197			3,322			3,197
Settlements paid		(112	)		—			—			—			(112	)		—
Benefits paid		(19,745	)		(19,602	)		(3,210	)		(3,197	)		(22,955	)		(22,799	)
Fair value of plan assets, end of year	$	346,300		$	304,084		$	—		$	—		$	346,300		$	304,084

Funded ratio		99.4	%		94.3	%		0	%		0	%		88.9	%		86.2	%
Funded status and net accrued pension benefit cost	$	(2,155	)	$	(18,510	)	$	(41,295	)	$	(29,978	)	$	(43,450	)	$	(48,488	)

The U.S. defined benefit pension plans experienced actuarial (gains) losses of

$28.8

million and $(

28.5

) million for the years ended

December 31, 2019

and

2018,

respectively, primarily driven by assumption changes in the discount rate used to determine the benefit obligations.

The non-U.S. defined benefit pension plans experienced actuarial (gains) losses of

$8.9

million and $(

3.1

) million for the years ended

December 31, 2019

and

2018,

respectively, primarily driven by assumption changes in the discount rate and demographic experience used to determine the benefit obligations.

The current portion of the pension liability reflects the present value of expected benefit payments to be paid in the subsequent year by the Company. The net accrued pension benefit liability at

December 31

represents underfunded (including unfunded) pension benefits, and is included in the Consolidated Balance Sheets as follows:

December 31,
(dollars in thousands)	2019			2018
Pension asset	$	5,712		$	—
Pension liability (current portion)		(2,543	)		(3,282	)
Pension liability		(46,619	)		(45,206	)
Net accrued pension liability	$	(43,450	)	$	(48,488	)

The cumulative pretax amounts recognized in accumulated other comprehensive loss (AOCI) as of

December

are as follows:

December 31,	U.S. Plans				Non-U.S. Plans						Total
(dollars in thousands)	2019		2018		2019			2018			2019			2018
Net actuarial loss	$	88,703	$	105,468	$	17,772		$	8,732		$	106,475		$	114,200
Prior service cost (credit)		—		—		(2,351	)		(2,447	)		(2,351	)		(2,447	)
Total cost in AOCI	$	88,703	$	105,468	$	15,421		$	6,285		$	104,124		$	111,753

Estimated contributions for

2020,

as well as, contributions made in

2019

and

2018

to the pension plans are as follows:

(dollars in thousands)	U.S. Plans		Non-U.S. Plans		Total
Estimated contributions in 2020	$	163	$	2,486	$	2,649
Contributions made in 2019	$	112	$	3,210	$	3,322
Contributions made in 2018	$	—	$	3,197	$	3,197

It is difficult to estimate future cash contributions to the pension plans, as such amounts are a function of actual investment returns, withdrawals from the plans, changes in interest rates and other factors uncertain at this time. It is possible that greater cash contributions

may

be required in

2020

than the amounts in the above table. Although a decline in market conditions, changes in current pension law and uncertainties regarding significant assumptions used in the actuarial valuations

may

have a material impact in future required contributions to our pension plans, we currently do

not

expect funding requirements to have a material adverse impact on current or future liquidity.

Pension benefit payment amounts are anticipated to be paid from the plans (including the SERP) as follows:

Fiscal Year
(dollars in thousands)	U.S. Plans		Non-U.S. Plans		Total
2020	$	20,040	$	2,486	$	22,526
2021	$	20,212	$	2,580	$	22,792
2022	$	20,412	$	2,988	$	23,400
2023	$	20,669	$	2,763	$	23,432
2024	$	20,748	$	3,002	$	23,750
2025-2029	$	103,285	$	18,071	$	121,356

Projected and Accumulated Benefit Obligations in Excess of Plan Assets

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with a projected and accumulated benefit obligation in excess of plan assets at

December

31,

2019

and

2018

were as follows:

December 31,	U.S. Plans				Non-U.S. Plans				Total
(dollars in thousands)	2019		2018		2019		2018		2019		2018
Projected benefit obligation	$	268,232	$	322,594	$	41,295	$	29,978	$	309,527	$	352,572
Accumulated benefit obligation	$	268,232	$	322,594	$	35,557	$	26,717	$	303,789	$	349,311
Fair value of plan assets	$	260,365	$	304,084	$	—	$	—	$	260,365	$	304,084

Plan Assets

Our investment strategy is to control and manage investment risk through diversification across asset classes and investment styles, within established target asset allocation ranges. The investment risk of the assets is limited by appropriate diversification both within and between asset classes. Assets are diversified among a mix of traditional investments in equity and fixed income instruments, as well as alternative investments including real estate and hedge funds. It would be anticipated that a modest allocation to short-term investments would exist within the plans, since each investment manager is likely to hold some short-term investments in the portfolio with the goal of ensuring that sufficient liquidity will be available to meet expected cash flow requirements.

Our investment valuation policy is to state the investments at fair value. Primarily all investments are valued at their respective net asset value (NAV) as a practical expedient and calculated by the Trustee. The real estate, equity securities and fixed income investments are held in a Group Trust which is valued at the unit prices established by the Trustee and are valued using NAV as a practical expedient. Underlying equity securities (including large and small cap domestic and international equities), for which market quotations are readily available, are valued at the last reported readily available sales price on their principal exchange on the valuation date or official close for certain markets. Fixed income investments are valued on a basis of valuations furnished by a trustee-approved pricing service, which determines valuations for normal institutional-size trading units of such securities which are generally recognized at fair value as determined in good faith by the Trustee. The fair value of investments in real estate funds is based on valuation of the fund as determined by periodic appraisals of the underlying investments owned by the respective fund. Investments in registered investment companies are valued at quoted market prices. Collective pooled funds, if any, are recorded using NAV practical expedients. Short-term investments are valued at their respective NAV and have

redemption restrictions. The hedge fund investments using NAV as a practical expedient are valued by using estimated month-end NAV and performance numbers provided by the fund administrator. The Plan is required to provide a month’s advance written notice to liquidate its entire share in the Group Trust. Certain investments in the hedge funds can only be liquidated on either a quarterly or semi-annual basis, require advance notification and are subject to audit holdback provisions.

Investments measured at NAV as a practical expedient for fair value have been excluded from the fair value hierarchy, in accordance with U.S. GAAP. The table below presents our U.S. pension plan assets at fair value.

December 31,	Measured at NAV as a practical expedient				Target Allocation
(dollars in thousands)	2019		2018		2020
Short-term investments	$	7,489	$	9,796		3	%
Real estate		7,623		6,198		2	%
Equity securities		139,060		108,952		40	%
Debt securities		155,574		146,080		45	%
Hedge funds		36,554		33,058		10	%
	$	346,300	$	304,084		100	%

Other Retirement Plans

We sponsor the Libbey Inc. Salary and Hourly

401

(k) plans (the Plans) to provide retirement benefits for our U.S. employees. As allowed under Section

401

(k) of the Internal Revenue Code, the Plans provide for tax-deferred wage contributions for eligible employees. For the Salary Plan, we match

100

percent on the

first

percent of pretax contributions from eligible earnings on a per pay basis. For the Hourly Plan, we match

percent of the

first

percent of pretax contributions from eligible earnings on a per pay basis. All matching contributions are invested according to the employees’ deferral elections and vest immediately. Our matching contributions to all U.S. Plans totaled

$3.9

million and

$3.8

million in

2019

and

2018,

respectively.

Libbey Holland makes cash contributions to the Pensioenfonds voor de Grafische Bedrijven (“PGB”), an industry wide pension fund, as participating employees earn pension benefits. These related costs are expensed as incurred and amounted to

$2.0

million in both

2019

and

2018.