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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,
	2016			2015
Service cost	$	6		$	14
Interest cost on projected benefit obligation		1,675			1,691
Net amortization of actuarial loss		664			694
Expected return on plan assets		(1,971	)		(2,245	)
Net periodic benefit cost	$	374		$	154

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,
	2016				2015
Change in benefit obligation:
Benefit obligation at beginning of year	$		40,958		$		45,438
Service cost			6				14
Interest cost			1,675				1,691
Actuarial (gain) loss			(325)				(3,115)
Benefits paid			(3,002)				(3,070)
Benefit obligation at end of year	$		39,312		$		40,958

Change in plan assets:
Fair value of plan assets at beginning of year	$		35,126		$		38,038
Actual return on plan assets			1,714				(157)
Company contributions			0				315
Benefits paid			(3,002)				(3,070)
Fair value of plan assets at end of year	$		33,838		$		35,126

Underfunded status of the plans	$		(5,474)		$		(5,832)

Balance sheet assets (liabilities):
Other assets	$		0		$		0
Other liabilities			(5,474)				(5,832)
Net amount recognized	$		(5,474)		$		(5,832)

Pension plans with accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$		39,312		$		40,958
Accumulated benefit obligation			39,309				40,953
Fair value of plan assets			33,838				35,126

Projected benefit obligation and net periodic pension cost assumptions:
Discount rate			4.05%				4.35%
Rate of compensation increase			4.00				4.00
Expected long-term rate of return on plan assets		5.40	–	6.75		5.7	–	6.75

Weighted average asset allocation:
Equity securities			27%				30%
Debt securities			73				70
Total			100%				100%

The fair values of our pension plan assets as of

December

31,

2016

are as follows (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)
Asset categories:
Cash and cash equivalents	$	1,253	$	0
Equity investments:
U.S. Large Cap		6,105		0
U.S. Mid Cap		891		0
U.S. Small Cap		443		0
World Equity		1,095		0
Real estate		314		0
Other		223		0
Fixed income securities		8,525		14,989
Total Plan Assets	$	18,849	$	14,989

The fair values of our pension plan assets as of

December

31,

2015

are as follows (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(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

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

as the measurement date for the Pension Plans. There are no amounts expected to be paid to the Pension Plans during

2017

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

2016

and

2015

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

55%,

fixed income securities ranging

100%

and non-traditional/other of

10%

of total investments.

Accumulated other comprehensive loss at

December

31,

2016

includes

$15,675,000

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,

2016

$705,000.

The actual loss reclassified from accumulated other comprehensive loss for

2016

and

2015

was

$664,000

and

$694,000,

respectively.

December

31,

2016,

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):

2017			$	3,049
2018				3,005
2019				2,957
2020				2,890
2021				2,846
2022	-	2026		13,214
			$	27,961

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

and provide discretionary contributions. Contributions to the Defined Contribution Plan by the Company in

2016

and

2015

totaled approximately

$668,000

and

$930,000,

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

368

and

423

December

31,

2016

and

2015,

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

2016

and

2015,

the Company charged approximately

$2,502,000

and

$4,058,000,

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

$11,000

and

$30,000

2016

and

2015,

respectively. The aggregate benefit plan assets and accumulated benefit obligation of these plans are not significant.