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Employee Benefit Plans

Sypris Technologies sponsors noncontributory defined benefit pension plans (the “Pension Plans”) covering certain of its employees. The Pension Plans covering salaried and management employees provide pension benefits that are based on the employees’ highest five-year average compensation within ten years before retirement. The Pension Plans covering hourly employees and union members generally provide benefits at stated amounts for each year of service. All of the Company’s pension plans are frozen to new participants and certain plans are frozen to additional benefit accruals. The Company’s funding policy is to make the minimum annual contributions required by the applicable regulations. The Pension Plans’ assets are primarily invested in equity securities and fixed income securities.

The following table details the components of pension (income) expense (in thousands):

	Year ended December 31,
	2015			2014
Service cost	$	14		$	13
Interest cost on projected benefit obligation		1,691			1,789
Net amortization of actuarial loss		694			531
Expected return on plan assets		(2,245	)		(2,390	)
	$	154		$	(57	)

The following are summaries of the changes in the benefit obligations and plan assets and of the funded status of the Pension Plans (in thousands):

	December 31,
	2015			2014
Change in benefit obligation:
Benefit obligation at beginning of year	$	45,438		$	40,526
Service cost		14			13
Interest cost		1,691			1,789
Actuarial (gain) loss		(3,115	)		6,231
Benefits paid		(3,070	)		(3,121	)
Benefit obligation at end of year	$	40,958		$	45,438

	December 31,
	2015				2014
Change in plan assets:
Fair value of plan assets at beginning of year	$		38,038		$	36,566
Actual return on plan assets			(157)			3,503
Company contributions			315			1,090
Benefits paid			(3,070)			(3,121	)
Fair value of plan assets at end of year	$		35,126		$	38,038

Underfunded status of the plans	$		(5,832)		$	(7,400	)

Balance sheet assets (liabilities):
Other assets	$		0		$	0
Other liabilities			(5,832)			(7,400	)
Net amount recognized	$		(5,832)		$	(7,400	)

Pension plans with accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$		40,958		$	45,438
Accumulated benefit obligation			40,953			45,428
Fair value of plan assets			35,126			38,038

Projected benefit obligation and net periodic pension cost assumptions:
Discount rate			4.35%			3.90	%
Rate of compensation increase			4.00			4.00
Expected long-term rate of return on plan assets		5.75	–	6.75		6.75

Weighted average asset allocation:
Equity securities			30%			32	%
Debt securities			70%			68
Total			100%			100	%

The fair values of our pension plan assets as of December 31, 2015 are as follows (in thousands):

	Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)
Asset categories:
Cash and cash equivalents	$	1,001	$	0
Equity investments:
U.S. Large Cap		7,065		0
U.S. Mid Cap		1,012		0
U.S. Small Cap		496		0
World Equity		1,458		0
Real estate		306		0
Other		103		0
Fixed income securities		8,511		15,174
Total Plan Assets	$	19,952	$	15,174

The fair values of our pension plan assets as of December 31, 2014 are as follows (in thousands):

	Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)
Asset categories:
Cash and cash equivalents	$	1,270	$	0
Equity investments:
U.S. Large Cap		8,105		0
U.S. Mid Cap		1,245		0
U.S. Small Cap		504		0
World Equity		1,596		0
Real estate		292		0
Other		266		0
Fixed income securities		11,710		13,050
Total Plan Assets	$	24,988	$	13,050

Investments in our defined benefit plans are stated at fair value. The following valuation methods were used to value our pension assets:

Equity securities	The fair value of equity securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.

Fixed income securities	The fair value of fixed income securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.

Cash and cash equivalents	The fair value of cash and cash equivalents is set equal to its cost.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The Company uses December 31 as the measurement date for the Pension Plans. There are no amounts expected to be paid to the plans during 2016 as designated under the minimum funding amounts required by federal law. The expected long-term rates of return on plan assets for determining net periodic pension cost for 2015 and 2014 were chosen by the Company from a best estimate range determined by applying anticipated long-term returns and long-term volatility for various assets categories to the target asset allocation of the plan. The target asset allocation of plan assets is equity securities ranging 0-55%, fixed income securities ranging 35-100% and non-traditional/other of 0-10% of total investments.

Accumulated other comprehensive loss at December 31, 2015 includes $16,206,000 of unrecognized actuarial losses that have not yet been recognized in net periodic pension cost. The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension cost during the fiscal year ended December 31, 2015 is $697,000. The actual loss reclassified from accumulated other comprehensive loss for 2015 and 2014 was $694,000 and $531,000, respectively.

At December 31, 2015, the benefits expected to be paid in each of the next five fiscal years, and in aggregate for the five fiscal years thereafter are as follows (in thousands):

	2016		$	3,140
	2017			3,112
	2018			3,076
	2019			3,028
	2020			2,962
2021	-	2025		13,970
			$	29,288

The Company sponsors a defined contribution plan (the “Defined Contribution Plan”) for substantially all domestic employees of the Company. The Defined Contribution Plan is intended to meet the requirements of Section 401(k) of the Internal Revenue Code. The Defined Contribution Plan allows the Company to match participant contributions up to 3% and provide discretionary contributions. Contributions to the Defined Contribution Plan by the Company in 2015 and 2014 totaled approximately $930,000 and $1,137,000, respectively.

The Company has self-insured medical plans (the “Medical Plans”) covering substantially all domestic employees. The number of employees participating in the Medical Plans was approximately 423 and 670 at December 31, 2015 and 2014, respectively. The Medical Plans limit the Company’s annual obligations to fund claims to specified amounts per participant. The Company is insured for amounts in excess of these limits. Employees are responsible for payment of a portion of the premiums. During 2015 and 2014, the Company charged approximately $4,058,000 and $4,967,000, respectively, to operations related to medical claims incurred and estimated, reinsurance premiums, and administrative costs for the Medical Plans.

In addition, certain of the Company’s non-U.S. employees are covered by various defined benefit and defined contribution plans. The Company’s expenses for these plans totaled approximately $30,000 and $26,000 in 2015 and 2014, respectively. The aggregate benefit plan assets and accumulated benefit obligation of these plans are not significant.