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Note 15 - Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Retirement Benefits [Text Block] |
( 15 ) | 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, |
|  | 2020 |  |  | 2019 |
Service cost |  | $ | 5 |  |  | $ | 4 |
Interest cost on projected benefit obligation |  |  | 1,084 |  |  |  | 1,407 |
Net amortization of actuarial loss |  |  | 631 |  |  |  | 666 |
Expected return on plan assets |  |  | (987 | ) |  |  | (1,103 | )
Net periodic benefit cost |  | $ | 733 |  |  | $ | 974 |
The net periodic cost of the defined benefit pension plans incurred during the years ended December 31, 2020 and 2019 are reflected in the following captions in the accompanying consolidated statements of operations (in thousands):
|  | Year ended December 31, |
|  | 2020 |  |  | 2019 |
Service cost: |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  | $ | 5 |  |  |  | 4 |
Other net periodic benefit costs: |  |  |  |  |  |  |  |
Other expense (income), net |  |  | 728 |  |  |  | 970 |
Total |  | $ | 733 |  |  | $ | 974 |
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, |
|  | 2020 |  |  | 2019 |
Change in benefit obligation: |  |  |  |  |  |  |  |
Benefit obligation at beginning of year |  | $ | 36,050 |  |  | $ | 34,690 |
Service cost |  |  | 5 |  |  |  | 4 |
Interest cost |  |  | 1,084 |  |  |  | 1,407 |
Actuarial loss |  |  | 2,516 |  |  |  | 2,835 |
Benefits paid |  |  | (2,796 | ) |  |  | (2,886 | )
Benefit obligation at end of year |  | $ | 36,859 |  |  | $ | 36,050 |
|  | December 31, |
|  | 2020 |  |  | 2019 |
Change in plan assets: |  |  |  |  |  |  |  |
Fair value of plan assets at beginning of year |  | $ | 31,738 |  |  | $ | 30,199 |
Actual return on plan assets |  |  | 2,549 |  |  |  | 4,043 |
Company contributions |  |  | 862 |  |  |  | 382 |
Benefits paid |  |  | (2,796 | ) |  |  | (2,886 | )
Fair value of plan assets at end of year |  | $ | 32,353 |  |  | $ | 31,738 |
Underfunded status of the plans |  | $ | (4,506 | ) |  | $ | (4,312 | )
Balance sheet assets (liabilities): |  |  |  |  |  |  |  |
Other assets |  | $ | 380 |  |  | $ | 607 |
Accrued liabilities |  |  | (596 | ) |  |  | (893 | )
Other liabilities |  |  | (4,290 | ) |  |  | (4,026 | )
Net amount recognized |  | $ | (4,506 | ) |  | $ | (4,312 | )
Pension plans with accumulated benefit obligation in excess of plan assets: |  |  |  |  |  |  |  |
Projected benefit obligation |  | $ | 25,566 |  |  | $ | 24,843 |
Accumulated benefit obligation |  |  | 25,566 |  |  |  | 24,843 |
Fair value of plan assets |  |  | 20,680 |  |  |  | 19,924 |
|  | December 31, |
|  | 2020 |  | 2019 |
Projected benefit obligation and net periodic pension cost assumptions: |  |  |  |  |  |  |  |  |
Discount rate – projected benefit obligation |  | 2.25% |  | 3.15% |
Discount rate – net periodic pension cost |  | 3.15 |  | 4.25 |
Rate of compensation increase |  | N/A |  | 4.00 |
Expected long-term rate of return on plan assets |  | 3.05 | – | 3.40 |  | 3.65 | – | 3.90 |
Weighted average asset allocation: |  |  |  |  |  |  |
Equity securities |  | 17% |  | 18% |
Debt securities |  | 80 |  | 78 |
Other |  | 3 |  | 4 |
Total |  | 100% |  | 100% |
The fair values of our pension plan assets as of December 31, 2020 are as follows (in thousands):
|  |  |  |  |  | Significant |
|  | Quoted Prices |  |  | Other |
|  | In Active |  |  | Observable |
|  | Markets |  |  | Inputs |
|  | (Level 1) |  |  | (Level 2) |
Asset categories: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 2,744 |  |  | $ | 0 |
Equity securities: |  |  |  |  |  |  |  |
U.S. Large Cap |  |  | 2,272 |  |  |  | 0 |
U.S. Mid Cap |  |  | 867 |  |  |  | 0 |
U.S. Small Cap |  |  | 224 |  |  |  | 0 |
World Equity |  |  | 2,256 |  |  |  | 0 |
Real Estate |  |  | 391 |  |  |  | 0 |
Other |  |  | 600 |  |  |  | 0 |
Fixed income securities |  |  | 6,304 |  |  |  | 16,695 |
Total Plan Assets |  | $ | 15,658 |  |  | $ | 16,695 |
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 |
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. Total estimated contributions expected to be paid to the plans during 2021 is $574,000, 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 2020 and 2019 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. 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 3.15% for the Louisville Hourly Plan, 3.40% for the Marion Plan and 3.05% for the Louisville Salaried Plan as the expected return on our U.S. pension plan assets for 2020 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, 2020 includes $13,329,000 of unrecognized actuarial losses that have not yet been recognized in net periodic pension cost. The actual loss reclassified from accumulated other comprehensive loss for 2020 and 2019 was $631,000 and $666,000, respectively. At December 31, 2020, 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):
2021 |  |  | $ | 2,772 |
2022 |  |  |  | 2,707 |
2023 |  |  |  | 2,631 |
2024 |  |  |  | 2,565 |
2025 |  |  |  | 2,490 |
2026-2030 |  |  |  | 11,118 |
Total |  |  | $ | 24,283 |
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. In connection with the matching contributions, the Company recognized compensation expense of approximately $350,000 and $392,000 in 2020 and 2019, 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 $199,000 and $185,000 in 2020 and 2019, respectively. The aggregate benefit plan assets and accumulated benefit obligation of these plans are not significant.

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