RETIREMENT PLANS

Prior to January 1, 2009, the Company had a single-employer qualified noncontributory defined benefit retirement plan that covered substantially all regular full-time employees. Effective January 1, 2009, the Company redesigned the plan and merged it into a multiple-employer plan, which is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Employees hired on or after January 1, 2009 are not eligible to participate in this plan.

Effective February 1, 2009, the Company amended the plan to reduce benefits for those whose age plus vesting service equaled less than 65 at that date. Also effective February 1, 2009, an enhanced 401(k) plan was made available to those hired on or after January 1, 2009 and to those who received benefit reductions from the amendments to the noncontributory defined benefit retirement plan. Employees hired on or after January 1, 2009 receive a 50% employer match on their contributions into the 401(k) plan, up to a maximum company contribution of 3% of each individual employee’s annual compensation. Employees who received a benefit reduction under the retirement plan amendments receive an automatic contribution of 5% or 7% of annual compensation, depending on the sum of an employee’s age and vesting service, into the 401(k) plan, regardless of the contributions made by the employees. This contribution is made annually and these employees will not receive any employer matches to their 401(k) contributions.

Certain information pertaining to the qualified noncontributory defined benefit retirement plan is as follows:



Legal name		Pentegra Defined Benefit Plan for Financial Institutions
Plan’s employer identification number		13-5645888
Plan number		333

The plan is at least 80% funded as of July 1, 2013 and 2012. A funding improvement or rehabilitation plan has not been implemented, nor has a surcharge been paid to the plan.

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to salaries and employee benefits in the consolidated statements of income for the years ended December 31 were as follows (in thousands):



	2013		2012	2011
Qualified noncontributory defined benefit retirement plan	$	486	355	543
401(k) plan	294		275	290

The Company expects to contribute $280,000 to the qualified noncontributory defined benefit retirement plan in 2014. The Company expects to contribute $300,000 to the 401(k) plan in 2014. The Company’s contributions to the qualified noncontributory defined benefit retirement plan do not represent more than 5% of total contributions to the plan.

Citizens National Bank had a qualified noncontributory defined benefit pension plan which covered employees hired before May 1, 2005. The Company assumed this plan at the time of the merger and recorded a $31,000 liability, representing the funded status of the plan..

The Bank has a benefit plan which permits eligible officers to defer a portion of their compensation. The deferred compensation balance, which accrues interest at 8% annually, is distributable in cash after retirement or termination of employment. The amount of such deferred compensation liability at December 31, 2013 and 2012 was $2,732,000 and $2,442,000, respectively.

The Bank also has supplemental income plans which provide certain employees an amount based on a percentage of average compensation, payable in accordance with individually defined schedules upon retirement. The projected benefit obligation included in other liabilities for the supplemental income plans at December 31, 2013 and 2012 is $1,040,000 and $476,000, respectively. The average discount rate used to determine the present value of the obligations was approximately 5.30% in 2013 and 4.50% in 2012. The service cost associated with the plans was $111,000 for 2013, $20,000 for 2012, and $20,000 for 2011. Interest costs were $47,000, $20,000, and $21,000 for 2013, 2012, and 2011, respectively.

The deferred compensation plan and supplemental income plans are nonqualified and unfunded. Participation in each plan is limited to a select group of management.

Effective February 1, 2009, the Company established a nonqualified defined benefit retirement plan, which is also unfunded, for certain highly compensated employees. The nonqualified plan ensures that participants receive the full amount of benefits to which they would have been entitled under the noncontributory defined benefit retirement plan in the absence of limits on benefit levels imposed by certain sections of the Internal Revenue Code.

The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the years ended December 31 are summarized as follows (in thousands):



	2013		2012	2011
Service cost	$	71	89	111
Interest cost	46		43	35
Amortization of unrecognized (gain) loss	25		20	(28	)
Amortization of unrecognized prior service cost	29		29	32
Net periodic pension cost	$	171	181	150

A reconciliation of changes in the projected benefit obligation of the nonqualified defined benefit retirement plan at December 31 follows (in thousands):



	2013			2012	2011
Projected benefit obligation at beginning of year	$	1,153		969	636
Service cost	71			89	111
Interest cost	46			43	35
Actuarial (gain) or loss	(57		)	52	305
Settlements	—			—	(74	)
Curtailment	—			—	(44	)
Projected benefit obligation at end of year	$	1,213		1,153	969

Amounts recognized in other liabilities in the consolidated balance sheets for the nonqualified defined benefit retirement plan at December 31, 2013 and 2012 were $1,213,000 and $1,153,000, respectively.

The accumulated benefit obligation for the nonqualified defined benefit retirement plan at December 31, 2013 and 2012 was $1,022,000 and $854,000, respectively.

Amounts recognized in accumulated other comprehensive income, net of tax, at December 31 for the nonqualified defined benefit retirement plan consists of (in thousands):



	2013		2012	2011
Net actuarial (gain)/loss	$	70	125	103
Past service cost	10		29	49
	$	80	154	152

The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2014 for the nonqualified defined benefit retirement plan is $15,000.

Key weighted-average assumptions used to determine the benefit obligation and net periodic pension costs for the nonqualified defined benefit retirement plan for the years ended December 31 were as follows:



	2013		2012		2011
Benefit obligation:
Discount rate	4.95	%	4.05	%	4.40	%
Salary increase rate	3.00	%	3.00	%	3.00	%

Net periodic pension cost:
Discount rate	4.05	%	4.40	%	5.54	%
Salary increase rate	3.00	%	3.00	%	3.00	%
Amortization period in years	2.99		3.0		6.92/3.48

The nonqualified defined benefit retirement plan is not funded. Therefore no contributions will be made in 2013. Estimated future benefit payments reflecting expected future service for the years ended after December 31, 2013 are (in thousands):



2014	18
2015	59
2016	64
2017	118
2018	118
2019-2023	590