PENSION AND OTHER BENEFITS

12 Months Ended

Dec. 31, 2011

Pension And Other Benefits

PENSION AND OTHER BENEFITS

NOTE 13 – PENSION AND OTHER BENEFITS

Salisbury has an insured noncontributory defined benefit retirement plan available to employees eligible as to age and length of service. Benefits are based on a covered employee’s final average compensation, primary social security benefit and credited service. The Bank makes annual contributions which meet the Employee Retirement Income Security Act minimum funding requirements.

Effective September 1, 2006, the plan was amended, to provide that employees hired or rehired on or after September 1, 2006 are not eligible to participate in the plan.

The plan’s projected benefit obligation, fair value of plan assets and funded status are as follows:

Years ended December 31, (in thousands)	2011			2010			2009
Change in projected benefit obligation
Benefit obligation at beginning of year	$	6,639		$	6,251		$	6,676
Actuarial loss/ (gain)		1,073			117			(50	)
Service cost		343			349			378
Interest cost		383			361			373
Curtailments and settlements		—			—			49
Benefits paid		(489	)		(439	)		(1,175	)
Benefit obligation at end of year		7,949			6,639			6,251
Change in plan assets
Plan assets at estimated fair value at beginning of year		5,668			5,298			4,877
Actual return on plan assets		97			537			846
Contributions by employer		888			272			750
Benefits paid		(489	)		(439	)		(1,175	)
Fair value of plan assets at end of year		6,164			5,668			5,298
Funded status and recognized liability
included in other liabilities on the balance sheet	$	(1,785	)	$	(971	)	$	(953	)

The components of amounts recognized in accumulated other comprehensive loss, before tax effect, are as follows:

Years ended December 31, (in thousands)	2011		2010		2009
Net loss	$	3,118	$	1,799	$	1,890
Prior service cost		—		—		—
	$	3,118	$	1,799	$	1,890

The accumulated benefit obligation for the plan was $5,707,000 and $4,874,000 at December 31, 2011 and 2010, respectively. The discount rate used in determining the actuarial present value of the projected benefit obligation was 4.75% for 2011, 5.75% for 2010 and 6% for 2009. The rate of increase in future compensation levels was based on the following graded table for 2011 and 2010:

Age	Rate
25		4.75	%
35		4.25
45		3.75
55		3.25
65		3.00

The components of net periodic cost are as follows:

Years ended December 31, (in thousands)	2011			2010			2009
Service cost	$	343		$	349		$	378
Interest cost on benefit obligation		383			361			373
Expected return on plan assets		(418	)		(397	)		(353	)
Amortization of net loss		75			68			115
Net periodic benefit cost		383			381			513
Additional amount recognized due to settlement or curtailment		—			—			437
		383			381			950
Other changes in plan assets and benefit obligations recognized
in other comprehensive loss (income):
Net actuarial loss (gain)		1,394			(23	)		(931	)
Amortization of net loss		(75	)		(68	)		(115	)
Total recognized in other comprehensive income (loss)		1,319			(91	)		(1,046	)
Total recognized in net periodic cost and other comprehensive income	$	1,702		$	290		$	(96	)

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the year ended December 31, 2012 is $146,000.

The discount rate used to determine the net periodic benefit cost was 5.75% for 2011, and 6.00% for 2010 and 2009; and the expected return on plan assets was 7.50% for 2011, 2010 and 2009.

The graded table above was also used for the rate of compensation increase in determining the net periodic benefit cost in 2011 and 2010.

Pension expense is calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on pension plan assets of 7.50% for 2011. In developing the expected long-term rate of return assumption, asset class return expectations were evaluated as well as long-term inflation assumptions, and historical returns based on the current target asset allocations of 55% equity, 40% fixed income and 5% cash equivalents. The Bank regularly reviews the asset allocations and periodically rebalances investments when considered appropriate. While all future forecasting contains some level of estimation error, the Bank believes that 7.50% falls within a range of reasonable long-term rate of return expectations for pension plan assets. The Bank will continue to evaluate the actuarial assumptions, including expected rate of return, at least annually, and will adjust as necessary.

Plan Assets

The pension plan investments are co-managed by Salisbury’s Trust and Wealth Advisory Services division and Bradley, Foster and Sargent, Inc. The investments in the plan are reviewed and approved by Salisbury’s Trust Investment Committee. The asset allocation of the plan is a balanced allocation. Debt securities are timed to mature when employees are due to retire and provide cash flow for annuity payouts. Debt securities are laddered for coupon and maturity. Equities are held in the plan to achieve a balanced allocation and to provide growth of the principal portion of the plan and to provide diversification. The Trust Investment Committee reviews the policies of the plan. The prudent investor rule and applicable ERISA regulations apply to the management of the funds and investment selections.

The fair values of the pension plan assets are as follows:

	Fair Value Measurements at Reporting Date Using
(in thousands)	Level 1		Level 2		Level 3		Assets at fair value
December 31, 2011
Fixed Income
US Government	$	—	$	97	$	—	$	97
Corporate Debt		—		952		—		952
Preferred Stock		63		—		—		63
Equities		4,189		—		—		4,189
Mutual Funds		287		—		—		287
Money Fund		576		—		—		576
Totals	$	5,115	$	1,049	$	—	$	6,164
December 31, 2010
Fixed Income
US Government	$	—	$	218	$	—	$	218
Corporate Debt		—		887		—		887
Preferred Stock		63		—		—		63
Equities		3,702		—		—		3,702
Mutual Funds		432		—		—		432
Money Fund		366		—		—		366
Totals	$	4,563	$	1,105	$	—	$	5,668

Salisbury’s pension plan assets are generally all classified within level 1 and level 2 of the fair value hierarchy (see Note 20 for a description of the fair value hierarchy) because they are valued using quoted market prices, pricing service, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

There were no securities of Salisbury or related parties included in plan assets as of December 31, 2011 and 2010. Salisbury expects to make a contribution of $516,000 in 2012. Based on current data and assumptions, future expected benefit payments are as follows:

Future expected benefit payments (in thousands)
2012	$	341
2013		334
2014		253
2015		703
2016		125
2017 to 2021		2,785

401(k) Plan

Salisbury offers a 401(k) Plan to eligible employees. Under the Plan, eligible participants may contribute a percentage of their pay subject to IRS limitations. Salisbury may make discretionary contributions to the Plan. Discretionary contributions vest in full after five years.

Effective September 1, 2006, the 401(k) Plan was amended to provide that employees hired or rehired after September 1, 2006 are not eligible to participate in the plan. Salisbury has established a second 401(k) Plan to provide a discretionary match to employees hired or rehired on or after September 1, 2006 who satisfy certain eligibility requirements.

Salisbury’s 401(k) Plan contribution expense for 2011, 2010 and 2009 was $288,000, $168,000 and $120,000, respectively.

Other Retirement Plans

The Bank entered into a Supplemental Retirement Plan Agreement with its former Chief Executive Officer that provides for supplemental post retirement payments for a ten year period as described in the agreement. The related liability was $147,000 and $159,000 at December 31, 2011, and 2010, respectively. The related expense amounted to $11,000, $13,000 and $4,000 for 2011, 2010 and 2009, respectively.

Salisbury adopted ASC 715-60, “Compensation - Retirement Benefits - Defined Benefit Plans - Other Postretirement” and recognized a liability for Salisbury’s future postretirement benefit obligations under endorsement split-dollar life insurance arrangements. The total liability for the arrangements included in other liabilities was $434,000 and $385,000 at December 31, 2011, and 2010, respectively. Expense under this arrangement was $49,000 for 2011 and $51,000 for 2010.