Employee Benefit Plans

Alternative Long-Term Incentive

On January 3, 2012, Kforce granted to certain executive officers an ALTI as the result of certain performance criteria established in 2011 being met, which was to be initially measured over three tranches having periods of 12, 24, and 36 months, respectively. The terms of the grants specified that the ultimate annual payouts would be based on: (a) Kforce’s common stock price changes each year relative to its peer group or (b) the achievement of other market conditions contained in the terms of the award.

As discussed within Note 2 – “Discontinued Operations,” the Board approved the acceleration of all outstanding and unvested long-term incentives, including the ALTI, effective March 31, 2012. The accelerated ALTI of $9.8 million was paid in April 2012. Kforce recognized total compensation expense related to the ALTI of $9.8 million during the year ended December 31, 2012. No compensation expense related to the ALTI was recorded during the years ended December 31, 2014 or 2013.

401(k) Savings Plans

Kforce has a qualified defined contribution 401(k) Retirement Savings Plan (the “Kforce 401(k) Plan”) covering substantially all Kforce employees. Assets of the Kforce 401(k) Plan are held in trust for the sole benefit of employees and/or their beneficiaries. On October 2, 2006, Kforce created the Kforce Government Practice Plan, a qualified defined contribution 401(k) retirement savings plan (the “Government 401(k) Plan”), which covers all eligible employees of KGS. Assets of the Government 401(k) Plan are held in trust for the sole benefit of employees and/or their beneficiaries. Employer matching contributions are discretionary and are funded annually as approved by the Board of Directors.

Kforce accrued matching contributions of $1.3 million and $1.0 million for the above plans as of December 31, 2014 and 2013, respectively. The Kforce 401(k) Plan and Government 401(k) Plan held a combined 229 thousand and 317 thousand shares of Kforce’s common stock as of December 31, 2014 and 2013, respectively.

Employee Stock Purchase Plan

Kforce’s employee stock purchase plan allows all eligible employees to purchase Kforce’s common stock at a 5% discount from its market price at the end of a rolling three-month offering period. Kforce issued 35 thousand, 41 thousand and 51 thousand shares of common stock at an average purchase price of $19.76, $14.88 and $12.55 per share during the years ended December 31, 2014, 2013 and 2012, respectively. All shares purchased under the employee stock purchase plan were settled using Kforce’s treasury stock.

Deferred Compensation Plan

Kforce has a Non-Qualified Deferred Compensation Plan (the “Kforce NQDC Plan”) and a Kforce Non-Qualified Deferred Compensation Government Practice Plan (the “Government NQDC Plan”), pursuant to which eligible management and highly compensated key employees, as defined by IRS regulations, may elect to defer all or part of their compensation to later years. These amounts are classified in accounts payable and other accrued liabilities if payable within the next year or as other long-term liabilities if payable after the next year, upon retirement or termination of employment. At December 31, 2014 and 2013, amounts included in accounts payable and other accrued liabilities related to the deferred compensation plan totaled $3.7 million and $3.1 million, respectively. Amounts included in other long-term liabilities related to the deferred compensation plan totaled $22.4 million and $22.2 million as of December 31, 2014 and 2013, respectively. Kforce has insured the lives of certain participants in the deferred compensation plan to assist in the funding of the deferred compensation liability. Compensation income from continuing operations of $187 thousand was recognized for the plans for the year ended December 31, 2014. Compensation expense from continuing operations of $566 thousand and $635 thousand was recognized for the plans for the years ended December 31, 2013 and 2012, respectively.

Employee distributions are being funded through proceeds from the sale of assets held within our Rabbi Trust. The fair value of the assets within the Rabbi Trust, including the cash surrender value of the Company-owned life insurance policies and money market funds, was $25.7 million and $24.9 million as of December 31, 2014 and 2013, respectively, and is recorded in Other assets, net in the accompanying Consolidated Balance Sheets. For the years ended December 31, 2014, 2013 and 2012, there was nil, $15 thousand in losses and $519 thousand in gains, respectively, attributable to the investments in trading securities, including both money market funds and bond mutual funds, which is included in selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Foreign Pension Plan

Kforce maintains a foreign defined benefit pension plan for eligible employees of the Philippine branch of Global that is required by Philippine labor laws. The plan defines retirement as those employees who have attained the age of 60 and have completed at least five years of credited service. Benefits payable under the plan equate to one-half month’s salary for each year of credited service. Benefits under the plan are paid out as a lump sum to eligible employees at retirement.

The significant assumptions used by Kforce in the actuarial valuation include the discount rate, the estimated rate of future annual compensation increases and the estimated turnover rate. As of December 31, 2014, 2013 and 2012, the discount rate used to determine the actuarial present value of the projected benefit obligation and pension expense was 4.7%, 5.0% and 6.0%, respectively. The discount rate was determined based on long-term Philippine government securities yields commensurate with the expected payout of the benefit obligation. The estimated rate of future annual compensation increases as of December 31, 2014, 2013 and 2012 was 3.0%, and was based on historical compensation increases, as well as future expectations. The Company applies a turnover rate to the specific age of each group of employees, which ranges from 20 to 64 years of age. For the years ended December 31, 2014, 2013 and 2012, net periodic benefit cost was $124 thousand, $92 thousand and $128 thousand, respectively.

As of December 31, 2014 and 2013, the projected benefit obligation associated with our foreign defined benefit pension plan was $1.6 million and $1.4 million, respectively, which is classified in other long-term liabilities in the accompanying Consolidated Balance Sheets.

Supplemental Executive Retirement Plan

Kforce maintains a SERP for the benefit of certain executive officers. The primary goals of the SERP are to create an additional wealth accumulation opportunity, restore lost qualified pension benefits due to government limitations and retain our covered executive officers. The SERP is a non-qualified benefit plan and does not include elective deferrals of covered executive officers’ compensation.

Normal retirement age under the SERP is defined as age 65; however, certain conditions allow for early retirement as early as age 55 or upon a change in control. Vesting under the plan is defined as 100% upon a participant’s attainment of age 55 and 10 years of service and 0% prior to a participant’s attainment of age 55 and 10 years of service. Full vesting also occurs if a participant with five years or more of service is involuntarily terminated by Kforce without cause or upon death, disability or a change in control. The SERP is funded entirely by Kforce, and benefits are taxable to the covered executive officer upon receipt and deductible by Kforce when paid. Benefits payable under the SERP upon the occurrence of a qualifying distribution event, as defined, are targeted at 45% of the covered executive officers’ average salary and bonus, as defined, from the three years in which the covered executive officer earned the highest salary and bonus during the last 10 years of employment, which is subject to adjustment for retirement prior to the normal retirement age and the participant’s vesting percentage. The benefits under the SERP are reduced for a participant that has not reached age 62 with 10 years of service or age 55 with 25 years of service with a percentage reduction up to the normal retirement age.

Benefits under the SERP are normally paid based on the lump sum present value but may be paid over the life of the covered executive officer or 10-year annuity, as elected by the covered executive officer upon commencement of participation in the SERP. None of the benefits earned pursuant to the SERP are attributable to services provided prior to the effective date of the plan. For purposes of the measurement of the benefit obligation as of December 31, 2014, Kforce has assumed that all participants will elect to take the lump sum present value option based on historical trends.

Actuarial Assumptions

The following represents the actuarial assumptions used to determine the actuarial present value of projected benefit obligations at:



	DECEMBER 31,
	2014		2013
Discount rate	3.75	%	3.75	%
Expected long-term rate of return on plan assets	—	%	—	%
Rate of future compensation increase	4.00	%	4.00	%

The following represents the weighted average actuarial assumptions used to determine net periodic benefit cost for the years ended:



	DECEMBER 31,
	2014		2013		2012
Discount rate	3.75	%	2.50	%	3.25	%
Expected long-term rate of return on plan assets	—	%	—	%	—	%
Rate of future compensation increase	4.00	%	4.00	%	4.00	%

The discount rate was determined using the Moody’s Aa long-term corporate bond yield as of the measurement date with a maturity commensurate with the expected payout of the SERP obligation. This rate is also compared against the Citigroup Pension Discount Curve and Liability Index to ensure the rate used is reasonable and may be adjusted accordingly. This index is widely used by companies throughout the United States and is considered to be one of the preferred standards for establishing a discount rate.

Due to the SERP being unfunded as of December 31, 2014 and 2013, it is not necessary for Kforce to determine the expected long-term rate of return on plan assets. Once funded, Kforce will determine the expected long-term rate of return on plan assets by determining the composition of the asset portfolio, the historical long-term investment performance and the current market conditions. The assumed rate of future compensation increases is based on a combination of factors, including the historical compensation increases for its covered executive officers and future target compensation levels for its covered executive officers taking into account the covered executive officers' assumed retirement date.

The periodic benefit cost is based on actuarial assumptions that are reviewed on an annual basis; however, Kforce monitors these assumptions on a periodic basis to ensure that they accurately reflect current expectations of the cost of providing retirement benefits.

Net Periodic Benefit Cost

The following represents the components of net periodic benefit cost for the years ended (in thousands):



	DECEMBER 31,
	2014		2013		2012
Service cost	$	1,164	$	2,018	$	2,087
Interest cost	294		471		560
Amortization of actuarial loss	—		97		164
Settlement loss	—		24		—
Net periodic benefit cost	$	1,458	$	2,610	$	2,811

Changes in Benefit Obligation

The following represents the changes in the benefit obligation for the years ended (in thousands):



	DECEMBER 31,
	2014		2013
Projected benefit obligation, beginning	$	7,852	$	19,658
Service cost	1,164		2,018
Interest cost	294		471
Actuarial experience and changes in actuarial assumptions	887		(1,475		)
Curtailment	—		(2,138		)
Benefits Paid	—		(10,682		)
Projected benefit obligation, ending	$	10,197	$	7,852

During the year ended December 31, 2014, there were no payments made under the SERP. During the three months ended December 31, 2013, in connection with the Firm’s organizational realignment, two participants in the SERP were terminated, resulting in a curtailment of $2.1 million to the projected benefit obligation. Additionally, during the three months ended December 31, 2013, Kforce made a lump sum payment to a participant in the SERP of $10.7 million as a result of the participant’s separation from service on June 1, 2013. The present value of the projected benefit obligation as of December 31, 2014 and 2013 was $10.2 million and $7.9 million, respectively, and is recorded in other long-term liabilities in the accompanying Consolidated Balance Sheets.

Contributions

There is no requirement for Kforce to fund the SERP and, as a result, no contributions have been made to the SERP through the year ended December 31, 2014. Kforce does not currently anticipate funding the SERP during the year ending December 31, 2015.

Estimated Future Benefit Payments

Undiscounted benefit payments by the SERP, which reflect the anticipated future service of participants, expected to be paid are as follows (in thousands):



	PROJECTED ANNUAL BENEFIT PAYMENTS
2015	$	—
2016	—
2017	—
2018	—
2019	9,187
2020-2024	—
Thereafter	4,081

Supplemental Executive Retirement Health Plan

Kforce maintained a Supplemental Executive Retirement Health Plan (“SERHP”) to provide post-retirement health and welfare benefits to certain executives. The vesting and eligibility requirements mirrored that of the SERP, and no advance funding was required by Kforce or the participants. Consistent with the SERP, none of the benefits earned were attributable to services provided prior to the effective date of the plan.

During the year ended December 31, 2014, Kforce terminated the Company's SERHP and settled all future benefit obligations by making lump sum payments totaling approximately $3.9 million, which resulted in a net settlement loss of $725 thousand recorded in selling, general and administrative expenses in the corresponding Consolidated Statement of Operations and Comprehensive Income (Loss). The termination effectively removed Kforce's related post-retirement benefit obligation.

During the three months ended December 31, 2013, in connection with the Firm’s organizational realignment, two participants in the SERHP were terminated, resulting in a curtailment of $785 thousand to the projected benefit obligation and in the recognition of a curtailment gain of $359 thousand recorded in selling, general and administrative expenses in the corresponding Consolidated Statement of Operations and Comprehensive Income (Loss). The current portion of the accumulated post-retirement benefit obligation as recorded in other current liabilities in the accompanying Consolidated Balance Sheets was $47 thousand as of December 31, 2013. The long-term portion of the accumulated post-retirement benefit obligation as of December 31, 2013 was $2.6 million and is recorded in other long-term liabilities in the accompanying Consolidated Balance Sheets.

Net Periodic Post-retirement Benefit Cost

The following represents the components of net periodic post-retirement benefit cost for the years ended (in thousands):



	DECEMBER 31,
	2014		2013			2012
Service cost	$	174	$	649		$	919
Interest cost	78		134			150
Amortization of actuarial loss	—		86			272
Settlement/curtailment loss/(gain)	725		(359		)	—
Net periodic benefit cost	$	977	$	510		$	1,341

Changes in Post-retirement Benefit Obligation

The following represents the changes in the post-retirement benefit obligation for the years ended (in thousands):



	DECEMBER 31,
	2014			2013
Accumulated post-retirement benefit obligation, beginning	$	2,674		$	3,574
Service cost	174			649
Interest cost	78			134
Actuarial experience and changes in actuarial assumptions	234			(834		)
Settlement/curtailment loss/(gain)	725			(785		)
Benefits Paid	(3,885		)	(64		)
Accumulated post-retirement benefit obligation, ending	$	—		$	2,674