Note 16. 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. Employees may contribute a portion of their compensation, which is then matched by us, subject to certain limitations. Defined contribution expense was $10.5 million, $8.9 million and $6.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. Included in the 2018, 2017 and 2016 defined contribution expense was $1.4 million, $1.0 million and $0.3 million, respectively, of expense related to matching contributions under the European 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, 2018 for the plans was determined using a discount rate of 0.75%, rate of compensation increase of 2.25% and long-term expected return on plan assets of 0.75%. The 2018 net periodic benefit cost for the plans was determined using discount rates of 0.75% to 1.00%, rates of compensation increase of 2.00% to 2.25% and long-term expected return on plan assets of 0.75%. The benefit obligation at December 31, 2017 for the plans was determined using a discount rate of 0.75%, rate of compensation increase of 2.00% and long-term expected return on plan assets of 0.75%. The 2017 net periodic benefit cost for the plans was determined using a discount rate of 0.75%, rate of compensation increase of 1.50% 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,
	2018		2017
Benefit obligation, beginning of year	$	37,584	$	23,787
Employer service cost		4,450		2,836
Interest cost		278		190
Plan participants' contributions		1,282		1,101
Actuarial loss		698		4,514
Plan change		—		1,430
Transfer of benefits net of payments from fund		2,268		2,853
Expenses paid from assets		(51)		(36)
Translation (gain) loss		(471)		909
Benefit obligation, end of year		46,038		37,584

Fair value of plan assets, beginning of year		24,191		16,699
Actual return on plan assets		95		88
Employer contributions		3,133		2,891
Plan participants' contributions		1,282		1,101
Transfer of benefits net of payments from fund		1,910		2,853
Expenses paid from assets		(51)		(36)
Translation (gain) loss		(192)		595
Fair value of plan assets, end of year		30,368		24,191

Unfunded liability, end of year	$	15,670	$	13,393

The unfunded liability is reported in other liabilities on the consolidated balance sheet as of December 31, 2018 and 2017. The accumulated benefit obligation is $39.8 million and $33.1 million as of December 31, 2018 and 2017, respectively.

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


	Year Ended December 31,
	2018		2017		2016
Service cost	$	4,450	$	2,836	$	1,225
Interest cost		278		190		76
Expected return on plan assets		(195)		(138)		(59)
Amortization of prior service cost		179		154		—
Amortization of actuarial losses		265		141		—
Net periodic benefit cost	$	4,977	$	3,183	$	1,242

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 income (loss) were as follows, net of tax (in thousands):


	Year Ended December 31,
	2018		2017		2016
Pension liability, beginning of year	$	8,450	$	2,750	$	—
Plan change		—		1,276		506
Net prior service costs		(179)		(140)		—
Net loss		875		4,564		2,244
Pension liability, end of year	$	9,146	$	8,450	$	2,750

The prior service cost for the pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $0.2 million. The actuarial loss for the pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $0.3 million.

We expect to contribute a total of $3.6 million to the pension plans in 2019. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):


2019	$	1,647
2020		1,759
2021		2,020
2022		2,131
2023		1,973
2024-2027		11,790
Total	$	21,320