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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,
	2018			2017
Service cost	$	4		$	6
Interest cost on projected benefit obligation		1,315			1,518
Net amortization of actuarial loss		632			693
Expected return on plan assets		(1,363	)		(1,813	)
Net periodic benefit cost	$	588		$	404

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,
	2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	39,179		$	39,312
Service cost		4			6
Interest cost		1,315			1,518
Actuarial (gain) loss		(2,913	)		1,278
Benefits paid		(2,895	)		(2,935	)
Benefit obligation at end of year	$	34,690		$	39,179

Change in plan assets:
Fair value of plan assets at beginning of year	$	34,398		$	33,838
Actual return on plan assets		(1,381	)		3,495
Company contributions		77			0
Benefits paid		(2,895	)		(2,935	)
Fair value of plan assets at end of year	$	30,199		$	34,398

Underfunded status of the plans	$	(4,491	)	$	(4,781	)

Balance sheet assets (liabilities):
Other assets	$	138		$	0
Accrued liabilities		(357	)		0
Other liabilities		(4,272	)		(4,781	)
Net amount recognized	$	(4,491	)	$	(4,781	)

Pension plans with accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	23,466		$	26,327
Accumulated benefit obligation		23,466			26,327
Fair value of plan assets		18,838			21,539

	December 31,
	2018				2017
Projected benefit obligation and net periodic pension cost assumptions:
Discount rate – projected benefit obligation			4.25%				3.55%
Discount rate – net periodic pension cost			3.55				4.05
Rate of compensation increase			4.00				4.00
Expected long-term rate of return on plan assets		3.95	–	4.30		5.15	–	6.30

Weighted average asset allocation:
Equity securities			16%				27%
Debt securities			80				71
Other			4				2
Total			100%				100%

The fair values of our pension plan assets as of

December 31, 2018

are as follows (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)
Asset categories:
Cash and cash equivalents	$	1,415	$	0
Equity securities:
U.S. Large Cap		1,590		0
U.S. Mid Cap		967		0
U.S. Small Cap		489		0
World Equity		1,886		0
Real Estate		458		0
Other		690		0
Fixed income securities		5,237		17,467
Total Plan Assets	$	12,732	$	17,467

The fair values of our pension plan assets as of

December 31, 2017

are as follows (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)
Asset categories:
Cash and cash equivalents	$	1,090	$	0
Equity securities:
U.S. Large Cap		5,845		0
U.S. Mid Cap		1,343		0
U.S. Small Cap		795		0
World Equity		1,484		0
Real Estate		473		0
Other		147		0
Fixed income securities		6,462		16,759
Total Plan Assets	$	17,639	$	16,759

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. Total estimated contributions expected to be paid to the plans during

2019

$285,000,

which represents 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

2018

and

2017

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.

When establishing the expected long-term rate of return on our U.S. pension plan assets, the Company considered historical performance and forward looking return estimates reflective of our portfolio mix and investment strategy. Based on the most recent analysis of projected portfolio returns, the Company concluded that the use of

3.95%

for the Louisville Hourly Plan,

4.30%

for the Marion Plan and

4.20%

for the Louisville Salaried Plan as the expected return on our U.S. pension plan assets for

2018

was appropriate.

Actuarial gains and losses, which are primarily the result of changes in the discount rate and other assumptions and differences between actual and expected asset returns, are deferred in Accumulated Other Comprehensive Income and amortized to expense following the corridor approach. We use the average remaining service period of active participants unless almost all of the plan’s participants are inactive, in which case we use the average remaining life expectancy for all active and inactive participants. Accumulated other comprehensive loss at

December

31,

2018

includes

$13,777,000

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,

2019

$674,000.

The actual loss reclassified from accumulated other comprehensive loss for

2018

and

2017

was

$632,000

and

$693,000,

respectively.

December

31,

2018,

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):

2019		2,903
2020		2,833
2021		2,787
2022		2,723
2023		2,653
2024-2028		12,130
Total	$	26,029

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

2018

and

2017

totaled approximately

$428,000

and

$530,000,

respectively.

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

$41,000

and

$20,000

2018

and

2017,

respectively. The aggregate benefit plan assets and accumulated benefit obligation of these plans are

not

significant.