PENSION AND OTHER BENEFITS

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

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.

During 2013 Salisbury decided to complete its transition from providing retirement benefits under a defined benefit plan (pension plan) to a defined contribution plan (401(K) Plan).

Effective December 31, 2012, the pension plan was frozen, by amending the plan to freeze retirement benefits at current levels and discontinue future benefit accruals. Effective September 1, 2006, the pension plan was amended to provide that employees hired or rehired on or after September 1, 2006 are not eligible to participate in the plan.

Simultaneously with the freezing of the pension plan, Salisbury increased its 401(K) Plan benefits for 2013, as detailed below.

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

Years ended December 31, (in thousands)	2012	2011	2010
Change in projected benefit obligation
Benefit obligation at beginning of year	$ 7,949	$ 6,639	$ 6,251
Actuarial loss/ (gain)	1,012	1,073	117
Service cost	404	343	349
Interest cost	358	383	361
Curtailments and settlements	(3,586)	-	-
Benefits paid	(98)	(489)	(439)
Benefit obligation at end of year	6,039	7,949	6,639
Change in plan assets
Plan assets at estimated fair value at beginning of year	6,164	5,668	5,298
Actual return on plan assets	720	97	537
Contributions by employer	129	888	272
Curtailments and settlements	(896)	-	-
Benefits paid	(98)	(489)	(439)
Fair value of plan assets at end of year	6,019	6,164	5,668
Funded status and recognized liability
included in other liabilities on the balance sheet	$ (20)	$ (1,785)	$ (971)

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

Years ended December 31, (in thousands)	2012	2011	2010
Net loss	$ 711	$ 3,118	$ 1,799
	$ 711	$ 3,118	$ 1,799

The accumulated benefit obligation for the plan was $6,039,000 and $5,707,000 at December 31, 2012 and 2011, respectively. The discount rate used in determining the actuarial present value of the projected benefit obligation was 4.35% for 2012, 4.75% for 2011 and 5.75% for 2010. The rate of increase in future compensation levels was based on the following graded table for 2012 and 2011:

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)	2012	2011	2010
Service cost	$ 404	$ 343	$ 349
Interest cost on benefit obligation	358	383	361
Expected return on plan assets	(455)	(418)	(397)
Amortization of net loss	123	75	68
Net periodic benefit cost	430	383	381
Additional amount recognized due to settlement or curtailment	341	-	-
	771	383	381
Other changes in plan assets and benefit obligations recognized
in other comprehensive loss (income):
Net actuarial loss (gain)	(2,284)	1,394	(23)
Amortization of net loss	(123)	(75)	(68)
Total recognized in other comprehensive income (loss)	(2,407)	1,319	(91)
Total recognized in net periodic cost and other comprehensive income	$ (1,636)	$ 1,702	$ 290

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the year ended December 31, 2013 is $6,000.

The discount rate used to determine the net periodic benefit cost was 4.75% for 2012, 5.75% for 2011 and 6.00% for 2010; and the expected return on plan assets was 7.50% for 2012, 2011 and 2010.

The graded table above was also used for the rate of compensation increase in determining the net periodic benefit cost in 2012 and 2011.

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 2012. 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 77.7% equity, 16.3% fixed income and 6.0% 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 4.50% 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 moderate growth 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			Assets at fair value
(in thousands)	Level 1	Level 2	Level 3
December 31, 2012
Fixed Income
Corporate Debt	$ -	$ 714	$ -	$ 714
Preferred Stock	63	-	-	63
Equities	4,605	-	-	4,605
Mutual Funds	268	-	-	268
Money Fund	369	-	-	369
Totals	$ 5,305	$ 714	$ -	$ 6,019
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

Salisbury’s pension plan assets are generally all classified within level 1 and level 2 of the fair value hierarchy (see Note 19 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, 2012 and 2011. Salisbury does not expect to make a contribution in 2013. Based on current data and assumptions, future expected benefit payments are as follows:

Future expected benefit payments (in thousands)
2013	$ 103
2014	143
2015	374
2016	91
2017	558
2018 to 2022	1,924

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 December 31, 2012, and simultaneously with the freezing of the pension plan, the 401(k) Plan was amended to increase the safe harbor contribution for all employees to 4% from 3% and to allow for an additional discretionary match of up to 6% for all employees.

Effective December 31, 2010, the 401(k) Plan was amended to provide a 3% safe harbor contribution for all employees.

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 2012, 2011 and 2010 was $292,000, $288,000 and $168,000, respectively.

Other Retirement Plans

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 $479,000 and $434,000 at December 31, 2012, and 2011, respectively. Expense under this arrangement was $45,000 for 2012 and $49,000 for 2011.

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 $136,000 and $147,000 at December 31, 2012, and 2011, respectively. The related expense amounted to $12,000, $11,000 and $13,000 for 2012, 2011 and 2010, respectively.