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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,
	2019			2018
Service cost	$	4		$	4
Interest cost on projected benefit obligation		1,407			1,315
Net amortization of actuarial loss		666			632
Expected return on plan assets		(1,103	)		(1,363	)
Net periodic benefit cost	$	974		$	588

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,
	2019			2018
Change in benefit obligation:
Benefit obligation at beginning of year	$	34,690		$	39,179
Service cost		4			4
Interest cost		1,407			1,315
Actuarial (gain) loss		2,835			(2,913	)
Benefits paid		(2,886	)		(2,895	)
Benefit obligation at end of year	$	36,050		$	34,690

Change in plan assets:
Fair value of plan assets at beginning of year	$	30,199		$	34,398
Actual return on plan assets		4,043			(1,381	)
Company contributions		382			77
Benefits paid		(2,886	)		(2,895	)
Fair value of plan assets at end of year	$	31,738		$	30,199
Underfunded status of the plans	$	(4,312	)	$	(4,491	)

Balance sheet assets (liabilities):
Other assets	$	607		$	138
Accrued liabilities		(893	)		(357	)
Other liabilities		(4,026	)		(4,272	)
Net amount recognized	$	(4,312	)	$	(4,491	)

Pension plans with accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	24,843		$	23,466
Accumulated benefit obligation		24,843			23,466
Fair value of plan assets		19,924			18,838

	December 31,
	2019			2018
Projected benefit obligation and net periodic pension cost assumptions:
Discount rate – projected benefit obligation	3.15%			4.25%
Discount rate – net periodic pension cost	4.25			3.55
Rate of compensation increase	4.00			4.00
Expected long-term rate of return on plan assets	3.65	–	3.90	3.95	–	4.30

Weighted average asset allocation:
Equity securities	18%			16%
Debt securities	78			80
Other	4			4
Total	100%			100%

The fair values of our pension plan assets as of

December 31, 2019

are as follows (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)
Asset categories:
Cash and cash equivalents	$	2,228	$	0
Equity securities:
U.S. Large Cap		1,935		0
U.S. Mid Cap		1,067		0
U.S. Small Cap		609		0
World Equity		2,214		0
Real Estate		546		0
Other		757		0
Fixed income securities		3,394		18,988
Total Plan Assets	$	12,750	$	18,988

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

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

2020

$893,000,

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

2019

and

2018

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

3.90%

for the Louisville Hourly Plan,

3.85%

for the Marion Plan and

3.65%

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

2019

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 loss 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,

2019

includes

$13,007,000

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 ending

December

31,

2020

$635,000.

The actual loss reclassified from accumulated other comprehensive loss for

2019

and

2018

was

$666,000

and

$632,000,

respectively.

December

31,

2019,

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):

2020	$	2,839
2021		2,782
2022		2,715
2023		2,638
2024		2,571
2025-2029		11,582
Total	$	25,127

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. In connection with the matching contributions, the Company recognized compensation expense of approximately

$392,000

and

$376,000

2019

and

2018,

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

$40,000

and

$41,000

2019

and

2018,

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

not

significant.