20. EMPLOYEE BENEFIT PLANS

Employee Retirement Plan

The Bank sponsors the Employee Retirement Plan, a tax-qualified, noncontributory, defined-benefit retirement plan. Prior to April 1, 2000, substantially all full-time employees of at least 21 years of age were eligible for participation after one year of service. Effective April 1, 2000, the Bank froze all participant benefits under the Employee Retirement Plan. For the years ended December 31, 2018 and 2017, the Bank used December 31^st as its measurement date for the Employee Retirement Plan.

The funded status of the Employee Retirement Plan was as follows:

	At December 31,
	2018			2017
Accumulated benefit obligation at end of period	$	23,047		$	26,029
Reconciliation of Projected benefit obligation:
Projected benefit obligation at beginning of period	$	26,029		$	25,297
Interest cost		852			936
Actuarial (gain) loss		(2,293	)		1,284
Benefit payments		(1,486	)		(1,488	)
Settlements		(55	)		—
Projected benefit obligation at end of period		23,047			26,029

Plan assets at fair value (investments in trust funds managed by trustee)
Balance at beginning of period		25,361			23,355
Return on plan assets		(1,296	)		3,477
Contributions		33			17
Benefit payments		(1,486	)		(1,488	)
Settlements		(55	)		—
Balance at end of period		22,557			25,361
Funded status at end of year	$	(490	)	$	(668	)

The net periodic cost for the Employee Retirement Plan included the following components:

	Year Ended December 31,
	2018			2017			2016
Interest cost	$	852		$	936		$	979
Expected return on plan assets		(1,719	)		(1,579	)		(1,532	)
Amortization of unrealized loss		1,045			1,287			1,551
Net periodic cost	$	178		$	644		$	998

The change in accumulated other comprehensive income (loss) that resulted from the Employee Retirement Plan is summarized as follows:

	At December 31,
	2018			2017
Balance at beginning of period	$	(8,340	)	$	(10,240	)
Amortization of unrealized loss		1,045			1,287
Gain (Loss) recognized during the year		(723	)		613
Balance at the end of the period	$	(8,018	)	$	(8,340	)
Period end component of accumulated other comprehensive loss, net of tax	$	5,456		$	5,610

Major assumptions utilized to determine the net periodic cost of the Employee Retirement Plan benefit obligations were as follows:

	At or for the Year Ended December 31,
	2018			2017			2016
Discount rate used for net periodic cost		3.38	%		3.82	%		3.98	%
Discount rate used to determine benefit obligation at period end		4.04			3.38			3.82
Expected long-term return on plan assets used for net periodic cost		7.00			7.00			7.00
Expected long-term return on plan assets used to determine benefit obligation at period end		7.00			7.00			7.00

The Employee Retirement Plan assets are invested in two diversified investment portfolios of the Pentegra Retirement Trust (the “Trust”). The Trust, a private placement investment trust, has been granted discretion by the Bank to determine the appropriate strategic asset allocations (as governed by its Investment Policy Statement) to meet estimated plan liabilities.

The Employee Retirement Plan’s asset allocation targets holding 65% of assets in equity securities via investment in the Long-Term Growth Equity Portfolio (“LTGE”), 34% in intermediate-term bonds via investment in the Long-Term Growth Fixed-Income Portfolio (“LTGFI”), and 1% in a cash equivalents portfolio (for liquidity). Asset rebalancing is performed at least annually, with interim adjustments when the investment mix varies in excess of 10% from the target.

The LTGE is a diversified portfolio of seven registered mutual funds and six common collective trust funds. The LTGE holds a diversified mix of equity funds in order to gain exposure to the U.S. and non-U.S. equity markets. The common collective investment funds held by the LTGE were privately offered, and the Employee Retirement Plan's investment in these common collective investment funds was therefore valued by the fund managers of each respective fund based on the Employee Retirement Plan’s proportionate share of units of beneficial interest in the respective funds. All of the common collective investment funds are audited, and the overwhelming majority of assets held in these funds (which derive the unit value of the common collective investment funds) are actively traded in established marketplaces. The seven registered mutual funds held by the LTGE are all actively traded on national securities exchanges and are valued at their quoted market prices.

The LTGFI is a diversified portfolio that invests in four intermediate-term bond funds, all of which are registered mutual funds. These mutual funds are actively traded on national securities exchanges and are valued at their quoted market prices.

The investment goal is to achieve investment results that will contribute to the proper funding of the Employee Retirement Plan by exceeding the rate of inflation over the long-term. In addition, investment managers for the trust function managing the assets of the Employee Retirement Plan are expected to provide a reasonable return on investment. Performance volatility is also monitored. Risk and volatility are further managed by the distinct investment objectives of each of the trust funds and the diversification within each fund.

The weighted average allocation by asset category of the assets of the Employee Retirement Plan was summarized as follows:

	At December 31,
	2018			2017
Asset Category
Equity securities		58	%		66	%
Debt securities (bond mutual funds)		39			32
Cash equivalents		3			2
Total		100	%		100	%

The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2018 and 2017, respectively.

The following tables present a summary of the Employee Retirement Plan’s investments measured at fair value on a recurring basis by level within the fair value hierarchy, as of the dates indicated. (See Note 23 for a discussion of the fair value hierarchy).

	Fair Value Measurements at December 31, 2018
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Mutual Funds (all registered and publicly traded) :
Domestic Large Cap	$	2,546	$	—	$	—	$	2,546
Domestic Mid Cap		1,080		—		—		1,080
Domestic Small Cap		737		—		—		737
International Equity		2,507		—		—		2,507
Fixed Income		8,756		—		—		8,756
Cash equivalents		650		—		—		650
Common collective investment funds:
Domestic Large Cap		—		4,295		—		4,295
Domestic Mid Cap		—		550		—		550
Domestic Small Cap		—		844		—		844
International Equity		—		592		—		592
Total Plan Assets							$	22,557

	Fair Value Measurements at December 31, 2017
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Mutual Funds (all registered and publicly traded) :
Domestic Large Cap	$	3,228	$	—	$	—	$	3,228
Domestic Mid Cap		1,344		—		—		1,344
Domestic Small Cap		513		—		—		513
International Equity		3,198		—		—		3,198
Fixed Income		8,133		—		—		8,133
Cash equivalents		510		—		—		510
Common collective investment funds:
Domestic Large Cap		—		5,246		—		5,246
Domestic Mid Cap		—		702		—		702
Domestic Small Cap		—		1,527		—		1,527
International Equity		—		960		—		960
Total Plan Assets							$	25,361

The expected long-term rate of return assumptions on Employee Retirement Plan assets were established based upon historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Employee Retirement Plan's target allocation of asset classes. Equities and fixed income securities were assumed to earn real annual rates of return in the ranges of 5% to 10% and 1% to 4%, respectively. The long-term inflation rate was estimated to be 2.5%. When these overall return expectations were applied to the Employee Retirement Plan's target allocation, the expected annual rate of return was determined to be 7.00% at both December 31, 2018 and 2017.

The Bank contributed $33 to the Employee Retirement Plan during the year ended December 31, 2018. The Bank expects to make contributions in the amount of $32 to the Employee Retirement Plan during the year ending December 31, 2019. During the year ending December 31, 2019, actuarial losses of $913 related to the Employee Retirement Plan are anticipated to be recognized as a component of net periodic cost.

Benefit payments are anticipated to be made as follows:

Year Ending December 31,	Amount
2019	$	1,492
2020		1,486
2021		1,496
2022		1,471
2023		1,463
2024 to 2028		7,025

BMP and Director Retirement Plan

The Holding Company and Bank maintain the BMP, which exists in order to compensate executive officers for any curtailments in benefits due to statutory limitations on benefit plans. As of December 31, 2018 and 2017, the BMP had investments, held in a rabbi trust, in the Common Stock of $2,334 and $5,018, respectively. Benefit accruals under the defined benefit portion of the BMP were suspended on April 1, 2000, when they were suspended under the Employee Retirement Plan.

Effective July 1, 1996, the Company established the Director Retirement Plan to provide benefits to each eligible outside director commencing upon the earlier of termination of Board service or at age 75. The Director Retirement Plan was frozen on March 31, 2005, and only outside directors serving prior to that date are eligible for benefits.

As of December 31, 2018 and 2017, the Bank used December 31^st as its measurement date for both the BMP and Director Retirement Plan.

The combined funded status of the defined benefit portions of the BMP and the Director Retirement Plan was as follows:

	At December 31,
	2018			2017
Accumulated benefit obligation at end of period	$	9,596		$	10,364
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$	10,364		$	11,351
Interest cost		313			379
Benefit payments		(770	)		(544	)
Actuarial gain		(311	)		(822	)
Projected benefit obligation at end of period		9,596			10,364
Plan assets at fair value:
Balance at beginning of period		—			—
Contributions		770			544
Benefit payments		(770	)		(544	)
Balance at end of period		—			—
Funded status at the end of the year:	$	(9,596	)	$	(10,364	)

The combined net periodic cost for the defined benefit portions of the BMP and the Director Retirement Plan included the following components:

	Year Ended December 31,
	2018		2017		2016
Interest cost	$	313	$	379	$	392
Amortization of unrealized loss		109		147		161
Net periodic cost	$	422	$	526	$	553

The combined change in accumulated other comprehensive income that resulted from the BMP and Director Retirement Plan is summarized as follows:

	At December 31,
	2018			2017
Balance at beginning of period	$	(1,789	)	$	(2,758	)
Amortization of unrealized loss		109			147
Gain recognized during the year		311			822
Balance at the end of the period	$	(1,369	)	$	(1,789	)
Period end component of accumulated other comprehensive loss, net of tax	$	1,089		$	1,203

Major assumptions utilized to determine the net periodic cost and benefit obligations for both the BMP and Director Retirement Plan were as follows:

	At or For the Year Ended December 31,
	2018			2017			2016
Discount rate used for net periodic cost – BMP		3.13	%		3.46	%		3.54	%
Discount rate used for net periodic cost – Director Retirement Plan		3.17			3.53			3.67
Discount rate used to determine BMP benefit obligation at period end		3.80			3.13			3.46
Discount rate used to determine Director Retirement Plan benefit obligation at period end		3.84			3.17			3.53

Both the BMP and Director Retirement Plan are unfunded non-qualified benefit plans that are not anticipated to ever hold assets for investment. Any contributions made to either the BMP or Director Retirement Plan are expected to be used immediately to pay benefits that accrue. The Bank contributed and made benefit payments in the amount of $546 on behalf of the BMP and $224 on behalf of the Directors Retirement Plan during the year ending December 31, 2018.

In addition to benefit payments from the defined benefit plan component of the BMP discussed above, retired participants are eligible for distributions from the plan. During the year ended December 31, 2018, three retired participants elected gross lump-sum distributions totaling $2,477. The distributions were satisfied by 102,074 shares of common stock (market value of $1,963) held by the previous ESOP component of the BMP, of which 49,895 shares were returned to Treasury Stock to cover income tax liabilities, and cash of $514 funded by the proceeds from the sale of marketable equity securities held by the defined contribution plan components of the BMP. As a result of the distribution, a non-cash tax benefit of $619 was recognized as a discrete item in income tax expense in accordance to ASU 2016-09 for the difference between market value and cost basis of the Common Stock held by the BMP.

During the year ended December 31, 2017, three retired participants elected gross lump-sum distributions totaling $11,828. The distributions were satisfied by 365,104 shares of common stock (market value $7,151) held by the previous ESOP component of the BMP, of which 230,358 shares were returned to Treasury Stock to cover income tax liabilities, and cash of $4,629 funded by the proceeds from the sale of trading securities held by the defined contribution plan components of the BMP. As a result of the distribution a non-cash tax benefit of $1,454 was recognized as a discrete item in income tax expense in accordance to ASU 2016-09 for the difference between market value and cost basis of the common stock held by the BMP.

During the year ended December 31, 2016, a retired participant elected a gross lump-sum distribution of $7,736. The distribution was satisfied by 239,822 shares of Common Stock (market value of $4,088) held by the ESOP component of the BMP, of which 107,008 shares were returned to Treasury Stock to cover income tax liabilities, and cash of $3,648 funded by proceeds from the sale of trading securities held by the defined contribution plan components of the BMP. As a result of the distribution, a non-cash tax benefit of $717 was recognized as reduction to income tax payable and increase in Additional Paid-in Capital for the difference between market value and cost basis of the Common Stock held by the BMP, prior to the adoption of ASU 2016-09.

Actuarial projections performed as of December 31, 2018 assumed the Bank will contribute $564 to the BMP and $225 to the Director Retirement Plan during the year ending December 31, 2019 in order to pay benefits due under the respective plans. During the year ending December 31, 2019, actuarial losses of $23 related to the BMP and $35 related to the Director Retirement Plan are anticipated to be recognized as a component of net periodic cost.

Combined benefit payments under the BMP and Director Retirement Plan, which reflect expected future service (as appropriate), are anticipated to be made as follows:

Year Ending December 31,	Amount

2019	$	789
2020		821
2021		813
2022		803
2023		793
2024 to 2028		3,909

There is no defined contribution cost incurred by the Holding Company or the Bank under the Director Retirement Plan. Defined contribution costs incurred by the Company related to the BMP were $59, $336, and $744 for the years ended December 31, 2018, 2017 and 2016, respectively.

Postretirement Benefit Plan

The Bank offers the Postretirement Benefit Plan to its retired employees who provided at least five consecutive years of credited service and were active employees prior to April 1, 1991, as follows:

(1)

Qualified employees who retired prior to April 1, 1991 receive the full medical coverage in effect at the time of retirement until their death at no cost to such retirees;

(2)

Qualified employees retiring on or after April 1, 1991 are eligible for medical benefits. Throughout retirement, the Bank will continue to pay the premiums for the coverage not to exceed the premium amount paid for the first year of retirement coverage. Should the premiums increase, the employee is required to pay the differential to maintain full medical coverage.

Postretirement Benefit Plan benefits are available only to full-time employees who commence or commenced collecting retirement benefits from the Retirement Plan immediately upon termination of service from the Bank. The Bank reserves the right at any time, to the extent permitted by law, to change, terminate or discontinue any of the group benefits, and can exercise the maximum discretion permitted by law in administering, interpreting, modifying or taking any other action with respect to the plan or benefits.

The Postretirement Plan was amended effective March 31, 2015 to eliminate plan participation for post-amendment retirees.

The funded status of the Postretirement Benefit Plan was as follows:

	At December 31,
	2018			2017
Accumulated benefit obligation at end of period	$	1,532		$	1,768
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$	1,768		$	1,756
Interest cost		54			59
Actuarial (gain) loss		(200	)		132
Benefit payments		(90	)		(179	)
Projected benefit obligation at end of period		1,532			1,768
Plan assets at fair value:
Balance at beginning of period		—			—
Contributions		90			179
Benefit payments		(90	)		(179	)
Balance at end of period		—			—
Funded status:
Deficiency of plan assets over projected benefit obligation and accrued expense included in other liabilities	$	(1,532	)	$	(1,768	)

The Postretirement Benefit Plan net periodic cost included the following components:

	Year Ended December 31,
	2018			2017			2016
Interest cost	$	54		$	59		$	63
Amortization of unrealized loss		(9	)		(14	)		(12	)
Net periodic cost	$	45		$	45		$	51

The change in accumulated other comprehensive income (loss) that resulted from the Postretirement Benefit Plan is summarized as follows:

	At December 31,
	2018			2017
Balance at beginning of period	$	203		$	349
Amortization of unrealized loss		(9	)		(14	)
Gain (loss) recognized during the year		200			(132	)
Balance at the end of the period	$	394		$	203
Period end component of accumulated other comprehensive loss, net of tax	$	(255	)	$	(137	)

Major assumptions utilized to determine the net periodic cost were as follows:

	At or for the Year Ended December 31,
	2018			2017			2016
Discount rate used for net periodic cost		3.16	%		3.48	%		3.58	%
Discount rate used to determine benefit obligation at period end		3.82			3.16			3.48

As of December 31, 2018, an escalation in the assumed medical care cost trend rates by 1% in each year would increase the net periodic cost by approximately $1. A decline in the assumed medical care cost trend rates by 1% in each year would decrease the net periodic cost by approximately $1.

As of December 31, 2018 and 2017, the Bank used December 31^st as its measurement date for the Postretirement Benefit Plan. The assumed medical care cost trend rate used in computing the accumulated Postretirement Benefit Plan obligation was 6.5% for 2018 and was assumed to decrease gradually to 5.0% in 2025 and remain at that level thereafter. An escalation in the assumed medical care cost trend rates by 1% in each year would increase the accumulated Postretirement Benefit Plan obligation by approximately $22. A decline in the assumed medical care cost trend rates by 1% in each year would reduce the accumulated Postretirement Benefit Plan obligation by approximately $20.

GAAP provides guidance on both accounting for the effects of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Modernization Act") to employers that sponsor postretirement health care plans which provide prescription drug benefits, and measuring the accumulated postretirement benefit obligation ("APBO") and net periodic postretirement benefit cost, and the effects of the Modernization Act on the APBO. The Company determined that the benefits provided by the Postretirement Benefit Plan are actuarially equivalent to Medicare Part D under the Modernization Act. The effects of an expected subsidy on payments made under the Postretirement Benefit Plan were treated as an actuarial gain for purposes of calculating the APBO as of December 31, 2018 and 2017. The Company remains in the process of claiming this subsidy from the government, and, as a result, the Bank cannot determine the amount of subsidy it will ultimately receive.

The Postretirement Benefit Plan is an unfunded non-qualified benefit plan that is not anticipated to ever hold assets for investment. Any contributions made to the Postretirement Benefit Plan are expected to be used immediately to pay benefits that accrue.

Benefit payments under the Postretirement Benefit Plan, which reflect expected future service (as appropriate), are expected to be made as follows:

Year Ending December 31,	Amount
2019	$	109
2020		101
2021		95
2022		89
2023		80
2024 to 2028		297