9. Employee Benefits

Pension Plan

The Bank maintains a noncontributory defined benefit pension plan covering substantially all of its employees 21 years of age or older who had completed at least one year of service as of June 30, 2012, the effective date on which, the Board of Directors of the Bank voted to freeze the its defined benefit plan.

The following table sets forth the plan’s funded status and amounts recognized in the Company’s consolidated statements of financial condition:


	Three months		Year ended
	ended March 31,		December 31,
	2020		2019
Projected and accumulated benefit obligation	$	(19,557)	$	(20,953)
Plan assets at fair value		19,609		20,628
Funded status included in accrued expenses and other liabilities	$	52	$	(325)

The net periodic pension (benefit) cost and amounts recognized in other comprehensive income (loss) are as follows:


	Three months ended		Three months ended
	March 31,		March 31,
	2020		2019
Interest cost	$	167	$	185
Expected return on plan assets		(264)		235
Amortization of unrecognized loss		71		90
Net periodic cost (benefit)	$	(26)	$	510

The expected long-term rate of return on plan assets has been determined by applying historical average investment returns from published indexes relating to the current allocation of assets in the plan. Plan assets are invested in pooled separate accounts consisting of underlying investments in eleven diversified investment funds.

As of March 31, 2020 the investment funds included seven equity funds and four fixed income funds, comprised of three bond funds and a real estate fund, each with its own investment objectives, investment strategies and risks, as detailed in the Company’s investment policy statement. The Company determines the appropriate strategic asset allocation versus plan liabilities, as governed by the investment policy statement.

The assets of the plan are invested under the supervision of the Company’s investment committee in accordance with the investment policy statement. The investment options of the plan are chosen in a manner consistent with generally accepted standards of fiduciary responsibility. The investment performance of the Company’s individual investment managers, with the assistance of the Company’s investment consultant, is monitored on a quarterly basis and is reviewed at least annually relative to the objectives and guidelines as stated in the Company’s investment policy statement.

The Company did not make a contribution to the plan in the first three months of 2020 or 2019.

The fair value of the Company’s pension plan assets, by fair value hierarchy, are as follows:


	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	14,315	$	—	$	—	$	14,315
Equity		5,294		—		—		5,294
Total assets at fair value	$	19,609	$	—	$	—	$	19,609


	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	15,372	$	—	$	—	$	15,372
Equity		5,256		—		—		5,256
Total assets at fair value	$	20,628	$	—	$	—	$	20,628

The pooled separate accounts are valued at the net asset per unit based on either the observable net asset value of the underlying investment or the net asset value of the underlying pool of securities. Net asset value is based on the value of the underlying assets owned by the fund, minus its liabilities and then divided by the number of shares outstanding. Pooled separate accounts were previously classified within level 2 of the valuation hierarchy, however, new guidance interpretation has prompted us to reclassify our input level to level 1 as the net asset value has a readily determinable fair value in a manner that is similar to that of a mutual fund.

For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 10 of the Company’s Consolidated Financial Statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10‑K.

Defined Contribution Plan

The Company sponsors a 401(k) defined contribution plan. Participants are permitted, in accordance with the provisions of Section 401(k) of the Internal Revenue Code, to contribute up to 25% of their earnings (as defined) into the plan with the Company matching up to 6%, subject to Internal Revenue Service limitations. The Company’s contributions charged to operations amounted to $246 and $225 for the three months ended March 31, 2020 and 2019, respectively.

Deferred Compensation Arrangements

Directors’ Plan

The Bank’s Deferred Compensation Plan for Fees of Directors, as amended and restated effective January 1, 2005 (the “Directors’ Plan”) covers Directors who elect to defer receipt of all or a portion of their fees until separation from service. Upon resignation, retirement, or death the participant’s total deferred compensation, including earnings thereon, will be paid out. At March 31, 2020 and December 31, 2019, total amounts due of $1,795 and $2,086, respectively, are included in accrued expenses and other liabilities. Total expenses related to the Directors’ Plan were $10 and $32 for the three months ended March 31, 2020 and 2019, respectively, which were included in other noninterest expense in the consolidated statements of income.

Executive Long-Term Incentive and Retention Plan

The Bank maintains an Executive Long-Term Incentive and Retention Plan (the “Executive Plan”). Participation in the Executive Plan is limited to officers of the Company designated as participants by the Board of Directors and who filed a properly completed and executed participation agreement in accordance with the terms of the Executive Plan. Under the Executive Plan, the Board of Directors may grant annual incentive awards equal to a percentage of a participant’s base salary at the rate in effect on the last day of the Plan year, as determined by the Board of Directors based on the attainment of criteria established annually by the Board of Directors. Incentive awards under the Executive Plan are credited to the participant’s incentive benefit account as of the last day of the Executive Plan year to which the award relates and earn interest at a rate determined annually by the Board of Directors. Participants vest in their benefit accounts in accordance with the vesting schedule approved by the Board of Directors, which ranges from one to five years of service. At March 31, 2020 and December 31, 2019, $1,181 and $1,163, respectively, is included in accrued expenses and other liabilities, which represents the cumulative amounts deferred and earnings thereon. The Company recognized expenses of $149 and $137 for the three months ended March 31, 2020 and 2019, respectively, related to this plan and which are included in salaries and employee benefits expense in the consolidated statements of income.

Group Term Replacement Plan

Under the terms of the “Group Term Replacement Plan”, the Company provides postretirement life insurance benefits to certain officers. The liability related to these postretirement benefits is being accrued over the individual participants’ service period and aggregated $1,344 and $1,330, respectively, at March 31, 2020 and December 31, 2019. The Company recognized expenses of $14 and $13 for the three-month periods ended March 31, 2020 and March 31, 2019, related to this plan which are included in salaries and employee benefits expense in the consolidated statements of income.

Other Director and Officer Postretirement Benefits

The Company has individual fee continuation agreements with certain directors and a supplemental retirement agreement with an executive officer which provide for fixed postretirement benefits to be paid to the directors and the officer, or their beneficiaries, for periods ranging from 15 to 20 years. In addition, the Company has agreements with certain directors which provide for certain postretirement life insurance benefits. The liability related to these postretirement benefits is being accrued over the individual participants’ service period and aggregated $2,129 and $2,123, respectively, at March 31, 2020 and December 31, 2019. The Company recognized expenses of $22 and $24 for the three months ended March 31, 2020 and 2019, respectively, related to these benefits which are included in other noninterest expenses in the consolidated statements of income.

Employee Stock Ownership Plan

On January 1, 2019, the Bank established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Bank employees. On January 16, 2019, the Company granted a loan to the ESOP for the purchase of 436,425 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 20 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (4.75% at January 1, 2020). Loan payments are funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at March 31, 2020 was $4,239. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 21,821 through 2039.

Shares held by the ESOP include the following:


		March 31, 2020
Allocated		21,821
Committed to be allocated		5,454
Unallocated		409,150
Total shares		436,425

The fair value of unallocated shares was $2,619 at March 31, 2020.

Total compensation expense recognized in connection with the ESOP for the three months ended March 31, 2020 and 2019 was $55 and $64, respectively.