Note 10 – Employee Benefit Plans

The Company maintains a passive pension plan (the “Swiss Plan”) covering employees of its Swiss subsidiary, which is accounted for as a defined benefit plan.

Defined Benefit Plan-Switzerland

In Switzerland employers are required to provide a minimum pension plan for their staff. The Swiss Plan is financed by contributions of both the employees and employer. The amount of the contributions is defined by the plan regulations and cannot be decreased without amending the plan regulations. It is required that the employer contribute an amount equal to or greater than the employee contribution.

For the year ended, January 2, 2015, pursuant to the Manufacturing Consolidation Project, the Company terminated certain employees in its Swiss subsidiary resulting in Swiss pension plan curtailments as defined by ASC 715-30-35, Defined Benefit Plans – Pensions, Settlements, Curtailments, and Certain Termination Benefits. The curtailments resulted in a decrease of $1.6 million in the Swiss pension plan’s projected benefit obligation, of which $0.9 million was used to distribute cash payments to employees resulting in a decrease in plan assets. The remaining $0.8 million was recorded as a curtailment gain measured in accordance with ASC 715-30-35-93.

However, since the Swiss pension plan’s accumulated other comprehensive loss, immediately preceding the curtailments exceeded the curtailment gains, the curtailment gains were fully offset against the loss and no gain was recognized in earnings.

At January 2, 2015, the discount rate, one of the key assumptions used to calculate the Swiss pension plan’s projected benefit obligation, was reduced from 2.5% to 1.4%, resulting in an increase to the projected benefit obligation of $0.7 million recorded through an increase in the accumulated other comprehensive loss account of the Swiss pension plan.

The following table shows the changes in the benefit obligation and plan assets and the Swiss Plan’s funded status as of January 1, 2016 and January 2, 2015 (in thousands):

	2015		2014
Change in Projected Benefit Obligation:
Projected benefit obligation, beginning of period	$	4,827	$	5,183
Service cost		316		297
Interest cost		74		114
Participant contributions		209		241
Benefits deposited (paid)		340		(116)
Actuarial loss on obligation		656		737
Prior service cost		(73)		—
Curtailments		—		(1,629)
Projected benefit obligation, end of period	$	6,349	$	4,827
Change in Plan Assets:
Plan assets at fair value, beginning of period	$	2,705	$	3,517
Actual return on plan assets (including foreign currency impact)		35		(230)
Employer contributions		209		241
Participant contributions		209		241
Benefits deposited (paid)		340		(116)
Curtailment distributions		—		(948)
Plan assets at fair value, end of period	$	3,498	$	2,705
Funded status (pension liability), end of year	$	(2,851)	$	(2,122)
Amount Recognized in Accumulated Other Comprehensive Loss, net of tax:
Actuarial loss on plan assets	$	(822)	$	(773)
Actuarial loss on benefit obligation		(1,668)		(902)
Actuarial gain recognized in current year		362		266
Effect of curtailments		606		528
Accumulated other comprehensive loss	$	(1,522)	$	(881)
Accumulated benefit obligation at end of year	$	(5,932)	$	(4,488)

The underfunded balance of $2.9 million and $2.1 million was included in other long-term liabilities (pension liability) on the consolidated balance sheets as of January 1, 2016 and January 2, 2015, respectively.

Net periodic pension cost associated with the Swiss Plan during the years ended January 1, 2016, January 2, 2015 and January 3, 2014 include the following components (in thousands):

	2015		2014		2013
Service cost	$	316	$	297	$	320
Interest cost		74		114		101
Expected return on plan assets		(93)		(97)		(96)
Actuarial loss recognized in current year		64		24		55
Net periodic pension cost	$	361	$	338	$	380

Changes in other comprehensive income (loss), net of tax, associated with the Swiss Plan in the year ended January 1, 2016, January 2, 2015 and January 3, 2014 include the following components (in thousands):

	2015		2014		2013
Current year actuarial gain (loss) on plan assets, net of tax	$	(61)	$	(375)	$	37
Current year actuarial gain (loss) on benefit obligation, net of tax		(635)		(846)		135
Actuarial gain recorded in current year, net of tax		57		28		46
Prior service cost		—		—		—
Effect of curtailments		—		782		—
Change in other comprehensive income (loss)	$	(517)	$	(411)	$	218

The amount in accumulated other comprehensive income (loss) as of January 1, 2016 that is expected to be recognized as a component of the net periodic pension costs during fiscal year 2016 is $110,000.

Net periodic pension cost and projected and accumulated pension obligation for the Company’s Swiss Plan were calculated on January 1, 2016 and January 2, 2015 using the following assumptions:

	2015			2014
Discount rate		1.0	%		1.4	%
Salary increases		2.0	%		2.0	%
Expected return on plan assets		2.5	%		3.0	%
Expected average remaining working lives in years		10.4			10.1

The discount rates are based on an assumed pension benefit maturity of 10 to 15 years. The rate was estimated using the rate of return for high quality Swiss corporate bonds that mature in eight years. This maturity was used as there are significant numbers of high quality Swiss bonds, but very few bonds issued with maturities with longer lives. In order to determine an appropriate discount rate, the eight year rate of return was then extrapolated along the yield curve of Swiss government bonds.

The salary increase rate was based on the Company’s best estimate of future increases over time.

The expected long-term rate of return on plan assets is based on the expected asset allocation and assumptions concerning long-term interest rates, inflation rates, and risk premiums for equities above the risk-free rates of return. These assumptions take into consideration historical long-term rates of return for relevant asset categories

Under Swiss law, pension funds are legally independent from the employer and all the contributions are invested with regulated entities. The Company has a contract with Allianz Suisse Life Insurance Company’s BVG Collective Foundation (the “Foundation”) to manage its Swiss pension fund. Multiple employers contract with the Foundation to manage the employers’ respective pension plans. The Foundation manages the pension plans of its contracted employers as a collective entity. The investment strategy is determined by the Foundation and applies to all members of the collective Foundation. There are no separate financial statements for each employer contract. The pension plan assets of all the employers that contract with the Foundation are comingled. They are considered multiple-employer plans under ASC 715-30-35-70 and therefore accounted for as single-employer plans.

As there are no separate financial statements for each employer contract, there are no individual investments that can be directly attributed to the Company’s pension plan assets. However, the funds contributed by an employer are specifically earmarked for its employees and the total assets of the plan allocable to Company’s employees are separately tracked by the Foundation. The lack of visibility into the specific investments of the plan assets and how they are valued is considered to be a significant unobservable input, therefore, the Company considers the plan assets collectively to be Level 3 assets under the fair value hierarchy (see Note 1).

Plan assets totaled $3.5 million and $2.7 million as of January 1, 2016 and January 2, 2015, respectively.

The table below sets forth the fair value of Plan assets at January 1, 2016 and January 2, 2015, and the related activity in fiscal years 2014 and 2015, in accordance with ASC 715-20-50-1(d) (in thousands):

	Insurance Contracts
	(Level 3)

Beginning balance at January 3, 2014	$	3,517
Actual return on plan assets		(230)
Purchases, sales and settlement		(582)
Ending balance at January 2, 2015		2,705
Actual return on plan assets		35
Purchases, sales and settlement		758
Ending balance at January 1, 2016	$	3,498

During fiscal 2016, the Company expects to make cash contributions totaling approximately $248,000 to the Swiss Plan.

The estimated future benefit payments for the Swiss Plan are as follows (in thousands):

Fiscal Year	Amount
2016	$	58
2017		65
2018		72
2019		72
2020		78
Thereafter		498
Total	$	843

Defined Benefit Plan-Japan

STAAR Japan maintains a noncontributory defined benefit pension plan (“Japan Plan”) substantially covering all of the employees of STAAR Japan. Benefits under the Japan Plan are earned, vested and accumulated based on a point-system, primarily based on the combination of years of service, actual and expected future grades (management or non-management) and actual and future zone (performance) levels of the employees. Each point earned is worth a fixed monetary value, 1,000 Yen per point, regardless of the level grade or zone of the employee. Gross benefits are calculated based on the cumulative number of points earned over the service period multiplied by 1,000 Yen. The mandatory retirement age limit is 60 years old.

STAAR Japan administers the pension plan and funds the obligations of the Japan Plan from STAAR Japan’s operating cash flows. STAAR Japan is not required, and does not intend, to provide contributions to the Plan to meet benefit obligations and therefore does not have any plan assets. Benefit payments are made to beneficiaries as they become due.

The funded status of the benefit plan at January 1, 2016 and January 2, 2015 is as follows (in thousands):

	2015		2014
Change in Projected Benefit Obligation:
Projected benefit obligation, beginning of period	$	957	$	1,049
Service cost		121		157
Interest cost		6		9
Actuarial (gain) loss		32		(55)
Benefits paid		(83)		(66)
Foreign exchange adjustment		2		(137)
Projected benefit obligation, end of period	$	1,035	$	957
Changes in Plan Assets:
Plan assets at fair value, beginning of period	$	—	$	—
Actual return on plan assets		—		—
Employer contributions		—		—
Benefits paid		—		—
Distribution of plan assets		—		—
Foreign exchange adjustment		—		—
Plan assets at fair value, end of period	$	—	$	—

Funded status (pension liability), end of period	$	(1,035)	$	(957)
Amount Recognized in Accumulated Other Comprehensive Income, Net of Tax:
Transition obligation	$	(20)	$	(26)
Actuarial gain		122		146
Prior service cost		9		9
Net loss		(10)		(8)
Accumulated other comprehensive income	$	101	$	121
Accumulated benefit obligation at end of year	$	(893)	$	(828)

The underfunded balance of $1,035,000 and $957,000, respectively, was included in other long-term liabilities (pension liability) on the consolidated balance sheets as of January 1, 2016 and January 2, 2015.

Net periodic pension cost associated with the Japan Plan for the years ended January 1, 2016, January 2, 2015 and January 3, 2014 includes the following components (in thousands):

	2015		2014		2013
Service cost	$	121	$	157	$	158
Interest cost		6		9		8
Net amortization of transition obligation		11		12		12
Actuarial gain		(15)		(10)		(31)
Prior service cost (credit)		(2)		(1)		(1)
Net periodic pension cost	$	121	$	167	$	146

Changes in other comprehensive income (loss), net of tax, associated with the Japan Plan for the years ended January 1, 2016, January 2, 2015 and January 3, 2014 include the following components (in thousands):

	2015		2014		2013
Amortization of net transition obligation		7		12		12
Amortization of actuarial loss		(21)		(9)		(47)
Actuarial income (loss) recorded in current year		(10)		13		(153)
Amortization prior service cost		—		(2)		(1)
Change in other comprehensive income (loss)	$	(24)	$	14		(189)

The amount in accumulated other comprehensive income (loss) as of January 1, 2016 that is expected to be recognized as a component of the net periodic pension cost in fiscal 2016 is approximately $1,900.

Net periodic pension cost and projected and accumulated pension obligation for the Company’s Japan Plan were calculated on January 1, 2016 and January 2, 2015 using the following assumptions:

	2015			2014
Discount rate		0.5	%		0.6	%
Salary increases		6.1	%		4.5	%
Expected return on plan assets		N/A			N/A
Expected average remaining working lives in years		8.13			8.12

The discount rate of 0.50% as of January 1, 2016 and the discount rate of 0.60% as of January 2, 2015 are based on the approximate Japanese government bond rate with a term of 10 to 20 years.

The salary increase average rate was based on the Company’s best estimate of future increases over time.

The estimated future benefit payments for the Japan Plan are as follows (in thousands):

Fiscal Year	Amount
2016	$	55
2017		135
2018		54
2019		55
2020		57
Thereafter		607
Total	$	963

Defined Contribution Plan

The Company maintains a 401(k) profit sharing plan (“401(k) Plan”) for the benefit of qualified employees in U.S. During the fiscal year ended January 1, 2016, employees who participate may elect to make salary deferral contributions to the 401(k) Plan up to the $18,000 of the employees’ eligible payroll subject to annual Internal Revenue Code maximum limitations (with a $6,000 annual catch-up contribution permitted for those over 50 years old). The Company contribution percentage is 80% of the employee’s contribution up to the first 6% of the employee’s compensation. In addition, STAAR may make a discretionary contribution to qualified employees, in accordance with the 401(k) Plan. During the years ended January 1, 2016, January 2, 2015, and January 3, 2014, the Company made contributions, net of forfeitures, of $625,000 $518,000, and $270,000, respectively, to the 401(k) Plan.