(17)Employee Benefit Plans

The Company has a noncontributory defined benefit pension plan (Pension Plan) that covers most employees with at least one year of service. The benefits are based on years of service and the employees’ compensation during the service period. The Company’s policy is to accrue the actuarially determined pension costs and to fund pension costs within regulatory guidelines. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income (AOCI) beginning in 2006 and amortized to net periodic benefit cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under the plan are reasonable based on its experience and market conditions.

In 2008, the Board of Directors approved changes to the Company’s defined benefit pension plan. Effective December 31, 2008, there are no further accruals of benefits for any participants and benefits do not increase with any additional years of service. Employees already enrolled in the Pension Plan as of December 31, 2008 will be 100% vested if they have at least five years of service. For employees with less than five years of service, vesting would occur at the employee’s five-year anniversary date.

In addition, the Company sponsors a Supplemental Employee Retirement Plan (SERP), a noncontributory supplemental retirement benefit plan, which covers certain current and former employees of the Company for amounts in addition to those provided under the Pension Plan.

The following table sets forth the status of the Pension Plan and SERP at the dates indicated:


	Pension Plan				SERP
	December 31,
(Dollars in thousands)	2019		2018		2019		2018
Accumulated benefit obligation at end of year	$	21,367	$	18,713	$	9,702	$	9,473
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	18,713	$	19,314	$	9,473	$	9,242
Service cost		164		141		84		97
Interest cost		811		728		162		151
Actuarial loss (gain)		2,558		(611)		—		—
Benefits paid		(879)		(859)		(17)		(17)
Benefit obligation at end of year		21,367		18,713		9,702		9,473
Change in plan assets:
Fair value of plan assets at beginning of year		17,500		15,927		—		—
Actual return on plan assets		2,814		(968)		—		—
Employer contributions		—		3,400		17		17
Benefits paid		(879)		(859)		(17)		(17)
Fair value of plan assets at end of year		19,435		17,500		—		—
Funded status at end of year	$	(1,932)	$	(1,213)	$	(9,702)	$	(9,473)
Amounts recognized in the Consolidated Balance Sheets:
Accounts payable and accrued expenses - liability	$	(1,932)	$	(1,213)	$	(9,702)	$	(9,473)
Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss	$	11,008	$	10,380	$	—	$	—
Prior service cost		139		144		—		—
Accumulated other comprehensive loss, before tax	$	11,147	$	10,524	$	—	$	—

The following table sets forth the changes recognized in accumulated other comprehensive loss for the years indicated:


	Pension Plan
	Year Ended December 31,
(Dollars in thousands)	2019		2018
Accumulated other comprehensive loss at beginning of year, before tax	$	10,524	$	9,245
Actuarial net loss arising during the period		961		1,562
Amortizations (recognized in net periodic benefit cost):
Actuarial loss		(333)		(278)
Prior service cost		(5)		(5)
Total recognized in other comprehensive loss		623		1,279
Accumulated other comprehensive loss at end of year, before tax	$	11,147	$	10,524

For the years ended December 31, 2019 and 2018, the following weighted average assumptions were used to determine benefit obligations at the end of the year:


	Pension Plan				SERP
	Year Ended December 31,
	2019		2018		2019		2018
Assumptions used to determine the year-end benefit obligations:
Discount rate	3.30	%	4.30	%	5.02	%	5.03	%
Rate of compensation increase	N/A		N/A		5.00	%	5.00	%

The Company does not expect any plan assets to be returned to the Company during calendar year 2020.

The dates used to determine retirement measurements for the Pension Plan were December 31, 2019 and 2018.

The Company’s investment strategy for the defined benefit retirement plan is to maintain a consistent rate of return with primary emphasis on capital appreciation and secondary emphasis on income to enhance the purchasing power of the plan’s assets over the long-term and to preserve capital. The investment policy establishes a target allocation for each asset class that is reviewed periodically and rebalanced when considered appropriate. Normal target allocations at December 31, 2019 were 55% domestic equity securities, 10% international equity securities and 35% bonds. Equity securities primarily include stocks, investment in exchange traded funds and large-cap, mid-cap and small-cap mutual funds. Bonds include U.S. Treasuries, mortgage-backed securities and corporate bonds of companies in diversified industries. Other types of investments include money market funds and savings accounts opened with the Company.

As of December 31, 2019 and 2018, the Pension Plan’s assets measured at fair value were classified as follows:


			Fair Value of Measurements at Report Date Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Total Fair		Assets		Inputs		Inputs
(Dollars in thousands)	Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2019:
Cash	$	3,021	$	3,021	$	—	$	—
Equities		11,576		11,576		—		—
Mutual funds (1)		4,838		4,838		—		—
Total	$	19,435	$	19,435	$	—	$	—

December 31, 2018:
Cash	$	4,128	$	4,128	$	—	$	—
Equities		9,008		9,008		—		—
Mutual funds (1)		4,364		4,364		—		—
Total	$	17,500	$	17,500	$	—	$	—

(1)

This category includes mutual funds that invest in equities and bonds. The mutual fund managers have the ability to change the amounts invested in equities and bonds depending on their investment outlook.

Estimated future benefit payments reflecting expected future service at December 31, 2019 are as follows:


	Pension
(Dollars in thousands)	Plan		SERP
2020	$	1,195	$	17
2021		1,263		8,639
2022		1,303		160
2023		1,309		149
2024		1,317		149
2025 - 2029		6,447		743
Total	$	12,834	$	9,857

For the years ended December 31, 2019 and 2018, the following weighted average assumptions were used to determine net periodic benefit cost for the fiscal years shown:


	Pension Plan				SERP
	Year Ended December 31,
(Dollars in thousands)	2019		2018		2019		2018
Assumptions used to determine the net periodic benefit cost:
Discount rate	4.30	%	3.70	%	5.02	%	5.02	%
Expected return on plan assets	7.25		7.25		-		-
Rate of compensation increase	N/A		N/A		5.00		5.00

The components of net periodic benefit cost were as follows:


	Pension Plan				SERP
	Year Ended December 31,
(Dollars in thousands)	2019		2018		2019		2018
Net periodic benefit cost (income) for the year:
Service cost	$	164	$	141	$	84	$	97
Interest cost		811		728		162		151
Expected return on plan assets		(1,217)		(1,204)		—		—
Amortization of prior service cost		5		5		—		—
Recognized actuarial loss		333		278		—		—
Recognized curtailment loss		—		—		—		—
Net periodic benefit cost (income) for the year:	$	96	$	(52)	$	246	$	248

The components of net periodic benefit cost other than the service cost component are included in other general and administrative expenses in the Consolidated Statements of Income. The service cost component of net periodic benefit costs is included in salaries and employee benefits.

The estimated prior service cost and net actuarial loss that will be amortized from AOCI into net periodic pension benefit cost in 2020 are $5,000 and $337,000, respectively.

The expected return on plan assets is based on the weighted-average long-term rates of return for the types of assets held in the plan. The expected return on plan assets is adjusted when there is a change in the expected long-term rate of return or in the composition of assets held in the plan. The discount rate is based on the return of high-quality fixed-income investments that can be used to fund the benefit payments under the Company’s defined benefit plan.

The Company does not expect to make any contributions to the defined benefit pension plan in 2020. The Company expects to make a $17,000 contribution to the SERP in 2020 to cover actual benefit payments.

The Company also has a 401(k) defined contribution plan and profit sharing plan covering all employees after one year of service. The 401(k) plan provides for employer matching contributions, as determined by the Company, based on a percentage of employees’ contributions subject to a maximum amount defined in the plan agreement. The Company’s 401(k) matching contributions, based on 5% of employees’ contributions for 2019 and 2018 amounted to $62,000 and $60,000, respectively. The Company contributes to the profit sharing plan an amount determined by the Board of Directors. No contributions were made to the profit sharing plan for years ended December 31, 2019 and 2018.