Note 13: Employee and Director Benefits

The Company has a 401(k) profit-sharing plan covering substantially all employees. The Company’s contributions to the plan are determined annually by the Board of Directors of Cincinnati Federal. Contributions to the plan were approximately $124,100 and $88,700 for the years ended December 31, 2019 and 2018, respectively.

In connection with the conversion to an entity owned by stockholders, the Company established an Employee Stock Ownership Plan (ESOP) for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase 67,397 shares (approximately 3.92% of the common stock sold in the stock offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Company and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 15 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest in their accrued benefits under the ESOP at the rate of 20 percent per year after two years of service. Vesting is accelerated upon retirement, death or disability of the participant, or a change in control of the Company. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP.

The debt of the ESOP is eliminated in consolidation. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest. ESOP compensation expense was approximately $64,800 and $54,000 for the years ended December 31, 2019 and 2018, respectively.

A summary of the ESOP shares as of December 31, 2019 and 2018 are as follows:


	December 31,		December 31,
	2019		2018

Shares released to participants		17,972		13,479
Share allocated to participants		4,493		4,493
Unreleased shares		44,932		49,425
Total		67,397		67,397

Fair value of unreleased shares	$	745,871	$	605,456

If the ESOP is unable to satisfy the obligation to repurchase the shares held by each beneficiary upon the beneficiary’s termination or retirement, the Company is obligated to repurchase the shares. At December 31, 2019, the fair value of the 44,932 unreleased shares is $16.60 per share. In addition, there are no outstanding shares held by former employees that are subject to an ESOP related repurchase option.

In addition, effective July 2014, the Company provides post-retirement benefits to directors of the Company. The Company accounts for the policies in accordance with ASC 715‑60 Defined Benefit Plans, which requires companies to recognize a liability and related compensation costs that provide a benefit to a director extending to post-retirement periods. The liability is recognized based on the substantive agreement with the director.

The Company uses a December 31 measurement date for the plan. Information about the plan’s funded status and pension cost follows:


	2019		2018

Change in benefit obligation:
Beginning of year	$	487,077	$	440,630
Service cost		10,114		11,965
Interest cost		22,557		12,687
Loss/(gain)		69,547		36,795
Benefits paid		(30,000)		(15,000)

End of year	$	559,295	$	487,077

Amounts recognized in accumulated other comprehensive loss not yet recognized as components of net periodic benefit cost consist of:


	2019		2018

Prior service cost	$	25,280	$	25,280
Net loss	$	7,676	$	3,622

The accumulated benefit obligation for the benefit plan was $559,295 and $473,884 at December 31, 2019, and December 31, 2018, respectively.

The estimated prior service credit for the plan that will be amortized from accumulated other comprehensive income sinto net periodic benefit cost over the next fiscal year is approximately $25,280.


	2019		2018

Components of net periodic benefit cost:
Service cost	$	10,114	$	11,965
Interest Cost		22,557		12,687
Loss recognized		3,622		860
Prior service cost		25,280		25,280

	$	61,573	$	50,792

The retiree accrued liability expected to be reversed from the plan as of December 31, 2019 and December 31, 2018 is as follows:


	2019		2018

One year or less	$	30,000	$	30,000
Over one year to two years		30,000		30,000
Over two years to three years		30,000		30,000
Over three years to four years		30,000		30,000
Over four years to five years		15,000		30,000
Thereafter		135,000		126,000

	$	270,000	$	276,000

Significant assumptions for the benefit plan liability include the following as of December 31, 2019 and 2018:


	2019		2018

Weighted average assumptions used to determine benefit cost obligation:

Discount Rate	4.14	%	3.47	%