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EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2019

Pension

The Company maintains a multiemployer defined benefit pension plan (the "Pension Plan") administered by Pentegra Retirement Services (the "Fund" or "Pentegra Defined Benefit Plan for Financial Institutions"). The Fund does not segregate the assets or liabilities of all participating employers and accordingly, disclosure of plan assets, accumulated vested and nonvested benefits is not possible. Effective July 1, 2006, the Company froze the defined benefit plan by eliminating all future benefit accruals.

In conjunction with the acquisition of Peoples Federal Bancshares, Inc., the parent of Peoples Federal Savings Bank ("Peoples") in 2015, the Company acquired the Peoples Federal Defined Benefit Pension Plan ("Peoples Plan"). The Peoples Plan was frozen at the date of acquisition and will be maintained in the same manner as the Pension Plan. The Peoples Plan is also administered by Pentegra Retirement Services under the same Fund as the Pension Plan.

The Company’s participation in the Pension Plan and the Peoples Plan (the "Pension Plans") for the annual period ended December 31, 2019, is outlined in the table below. The "EIN/Pension Plan Number" column provides the Employer Identification Number ("EIN") and the three-digit plan number. The funding status of the Pension Plans is determined on the basis of the financial statements provided by the Fund using total plan assets and accumulated benefit obligation. The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan ("FIP") or a rehabilitation plan ("RP") is either pending or has been implemented. The "Expiration Date of Collective-Bargaining Agreement" column lists the expiration dates of any collective-bargaining agreement(s) to which the Pension Plans are subject. Financial information for the Fund is made available through the public Form 5500 which is available by April 15^th of the year following the plan year end.

Funding Status
of Pension Plan

FIP/RP Status
Pending/
Implemented

Surcharge
Imposed

Expiration
Date of
Collective-
Bargaining
Agreement

Minimum
Contributions
Required for
Future
Periods

EIN/Pension
Plan Number

2019

2018

Pentegra defined benefit plan for financial institutions

13-5645888/333

At least 80 percent

N/A

—

Contributions to the Fund are based on each individual employer’s experience. The Company bears the market risk relating to the Pension Plan and will continue to fund the Pension Plan as required. The Pension Plan year is July 1^st through June 30^th. The Company’s total contributions to the Pension Plan did not represent more than 5% of the total contributions to the Pension Plan as indicated in the Pension Plan’s most recently available annual report dated June 30, 2019. The comparability of employer contributions is impacted by asset performance, discount rates and the reduction in the number of covered employees year over year.

The Company’s contributions to the Pension Plans were as follows for the periods indicated:



					Required Contributions - Plan Year Allocation
	Cash Payment		Future period funding		2019-2020		2018-2019		2017-2018
	(Dollars in thousands)
2019	$	2,063	$	—	$	2,063	$	—	$	—
2018	$	2,642	$	2,000	$	—	$	642	$	—
2017	$	6,432	$	5,000	$	—	$	—	$	1,432

In conjunction with the acquisition of BHB in 2019, the Company acquired the Savings Banks Employees Retirement Association Pension Plan as adopted by BHB (the "BHB Plan"). The BHB Plan is administered by Savings Banks Employees Retirement Association (SBERA) and was frozen on October 31, 2014. Accumulated benefits for participants earned through the end of October 2014 remain secured by the BHB Plan assets as of December 31, 2019. Information pertaining to the BHB Plan at December 31, 2019 is as follows:



	Amount
	(Dollars in thousands)
Change in plan assets:
Fair value of plan assets at beginning of year	$	9,697
Actual return on plan assets	1,886
Employer contribution	505
Benefits paid	(435		)
Fair value of plan assets at end of year	$	11,653
Change in benefit obligation:
Benefit obligation at beginning of year	10,824
Interest cost	424
Actuarial loss	2,874
Benefits paid	(435		)
Benefit obligation at end of year	$	13,687
Funded status and accrued liability at end of year	$	(2,034	)

Accumulated benefit obligation at end of year	$	13,687

At December 31, 2019 the discount rate used to determine the benefit obligation was 3.11%.

The components of net period pension cost are as follows for the year ended December 31, 2019:



	Amount
	(Dollars in thousands)
Interest cost	$	424
Expected return on plan assets	(780		)
Amortization of net actuarial loss	327
Net period pension benefit	$	(29	)

The discount rate used to determine net periodic pension cost for the year ended December 31, 2019 was 4.03% and the expected long-term rate of return on plan assets used was 8.00%. Assumptions with respect to the expected long-term rate of return are based on prevailing yields on high-quality, fixed-income investments increased by a premium for equity return expectations.

SBERA offers a common and collective trust as the underlying investment structure for pension plans participating in SBERA. The target allocation mix for the common and collective trust portfolio calls for an equity-based investment range from 43% to 57% of total portfolio assets. The remainder of the portfolio is allocated to fixed income securities with a target range of 15% to 25% and other investments including global asset allocation and hedge funds from 15% to 31%. The Trustees of SBERA, through the Association's Investment Committee, select investment managers for the common and collective trust portfolio. A professional investment advisory firm is retained by the Investment Committee to provide allocation analysis, performance measurement and to assist with manager searches. The overall investment objective is to diversify equity investments across a spectrum of investment types to limit risks from large market swings.

The fair value of major categories of the BHB Plan assets as of December 31, 2019 are summarized below:



			Fair Value Measurements at Reporting Date Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Collective funds	$	967	967		$	—	$	—
Equity securities	1,131		1,131		—		—
Mutual funds	3,628		3,628		—		—
Total investments in the fair value hierarchy	$	5,726	$	5,726	$	—	$	—

Investments measured at net asset value (1)	5,927
	$	11,653


(1)	Under the Fair Value Measurements and Disclosure Topic of the FASB ASC, certain investments that were measured at fair value at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

There were no transfers to or from Level 1, 2 and 3 during the period.

The fair value hierarchy above was received from SBERA, the plan administrator. The BHB Plan assets measured at fair value in Level 1 are based on quoted market prices in an active exchange market. BHB Plan assets measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. BHB Plan assets measured at fair value in Level 3 are based on unobservable inputs, which include the SBERA’s assumptions and the best information available under the circumstance.

Estimated future benefit payments for the BHB Plan are presented below:



	Amount
	(Dollars in thousands)
2020	$	629
2021	$	834
2022	$	591
2023	$	583
2024	$	556
2025-2029	$	2,867

The Company’s total defined benefit plan expense was $1.4 million, $1.1 million, and $1.9 million, for the years ending December 31, 2019, 2018, and 2017, respectively.

Additionally, in conjunction with the acquisition of Island Bancorp in 2017, the Company acquired the Edgartown National Bank Employee’s Retirement Plan. This pension plan was frozen at the date of acquisition and was subsequently dissolved.

Postretirement Benefit Plans

Employees retiring from the Bank after attaining age 65, who have rendered at least 10 years of continuous full time service with Rockland Trust are entitled to a fixed contribution toward the premium for postretirement health care benefits and a $5,000 benefit paid upon death. The health care benefits are subject to deductibles, co-payment provisions and other limitations. The Bank may amend or change these benefits periodically. Additionally, the Company has acquired small postretirement plans and/or agreements in conjunction with various acquisitions. The expense related to these plans for the years ending December 31, 2019, 2018, and 2017 was not material.

Supplemental Executive Retirement Plans

The Bank maintains frozen defined benefit supplemental executive retirement plans ("SERP") for certain highly compensated employees designed to offset the impact of regulatory limits on benefits under qualified pension plans. The Bank also maintains defined benefit SERPs acquired from previous acquisitions. The Bank has established and funded rabbi trusts to accumulate funds in order to satisfy the contractual liability of these supplemental retirement plan benefits. These agreements provide for the Bank to pay all benefits from its general assets, and the establishment of these trust funds does not reduce nor otherwise affect the Bank’s continuing liability to pay benefits from such assets except that the Bank’s liability shall be offset by actual benefit payments made from the trusts. The related trust assets included in the Company's available for sale securities portfolio totaled $18.3 million and $16.6 million at December 31, 2019 and 2018, respectively.

The following table shows the defined benefit supplemental retirement expense, and the contributions paid to the plans which were used only to pay the current year benefits as of the dates indicated:



	2019		2018		2017
	(Dollars in thousands)
Retirement expense	$	1,356	$	1,683	$	1,580
Contributions paid	$	486	$	434	$	367

Expected future benefit payments for the defined benefit supplemental executive retirement plans are presented below:



	Defined Benefit Supplemental Executive Retirement Plans Expected Benefit Payments
	(Dollars in thousands)
2020	$	472
2021	$	466
2022	$	458
2023	$	571
2024	$	1,220
2025-2029	$	5,853

The measurement date used to determine the defined benefit supplemental executive retirement plans' benefits is December 31 for each of the years reported. The following table illustrates the status of the defined benefit supplemental executive retirement plans at December 31 for the years presented:



	Defined Benefit Supplemental Executive Retirement Benefits
	2019			2018			2017
	(Dollars in thousands)
Change in accumulated benefit obligation
Benefit obligation at beginning of year	$	14,963		$	15,749		$	14,177
Service cost	433			459			423
Interest cost	601			533			547
Actuarial loss (gain)	1,850			(1,344		)	969
Benefits paid	(486		)	(434		)	(367		)
Benefit obligation at end of year	$	17,361		$	14,963		$	15,749
Change in plan assets
Fair value of plan assets at beginning of year	$	—		$	—		$	—
Employer contribution	486			434			367
Benefits paid	(486		)	(434		)	(367		)
Fair value of plan assets at end of year	$	—		$	—		$	—
Funded status at end of year	$	(17,361	)	$	(14,963	)	$	(15,749	)
Assets	—			—			—
Liabilities	(17,361		)	(14,963		)	(15,749		)
Funded status at end of year	$	(17,361	)	$	(14,963	)	$	(15,749	)
Amounts recognized in accumulated other comprehensive income ("AOCI")
Net loss	$	3,509		$	1,705		$	3,465
Prior service cost	494			770			1,047
Amounts recognized in AOCI	$	4,003		$	2,475		$	4,512
Information for plans with an accumulated benefit obligation in excess of plan assets
Projected benefit obligation	$	17,361		$	14,963		$	15,749
Accumulated benefit obligation	$	17,361		$	14,963		$	15,749
Net periodic benefit cost
Service cost	$	433		$	459		$	423
Interest cost	601			533			547
Amortization of prior service cost	276			276			276
Recognized net actuarial loss	46			415			334
Net periodic benefit cost	$	1,356		$	1,683		$	1,580
Amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit cost over next fiscal year
Net actuarial loss	$	471		$	41		$	415
Net prior service cost	$	276		$	276		$	276
Discount rate used for benefit obligation	2.00 - 3.04%			3.24 - 4.09%			2.48-3.45%
Discount rate used for net periodic benefit cost	3.24 - 4.09%			2.48 - 3.45%			2.49-3.94%
Rate of compensation increase	n/a			n/a			n/a

Other Employee Benefits

The Bank may choose to create an incentive compensation plan for senior management and other officers to participate in at varying levels. In addition, the Bank may also pay a discretionary bonus to senior management, officers, and/or non-officers of the Bank. The expense for the incentive plans and the discretionary bonus amounted to $16.3 million, $13.8 million and $10.9 million in 2019, 2018 and 2017, respectively.

The Bank has an Employee Savings Plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Employee Savings Plan, participating employees may defer a portion of their earnings, not to exceed the Internal Revenue Service annual contribution limits. The Bank matches 25% of each employee’s contributions up to the first 6% of the employee’s eligible earnings. The 401(k) Plan incorporates an Employee Stock Ownership Plan for contributions invested in the Company’s common stock. The Company also provides three defined contributions under this Plan, providing the employees are deemed eligible. To be eligible for these contributions, an employee must complete one year and 1,000 hours of service. The defined contributions are made up of a safe harbor contribution, in which eligible employees receive a 3% cash contribution of eligible earnings to the social security limit, a discretionary contribution in which eligible employees receive a 2% cash contribution of eligible earnings up to the social security limit and a 5% cash contribution of eligible earnings over the social security limit up to the maximum amount permitted by law. Benefits contributed to employees under this defined contribution plan vest immediately. The defined contribution plan expense was $6.6 million, $5.4 million and $5.0 million for the years ended December 2019, 2018 and 2017, respectively.

The Company has a non-qualified deferred compensation plan which allows for deferrals of base salary and incentive payments until an elected distribution date in the future. This deferred compensation plan is available to certain highly compensated employees. Deferrals are invested at the election of the participant into one of the actively managed funds made available to the participant through the Company's Investment Management Group. The funds are held in a rabbi trust until the elected date of distribution.

The Company has a non-qualified 401(k) Restoration Plan ("Restoration Plan") for certain executive officers. The Restoration Plan is intended to contribute to each participant the amount of matching and discretionary contributions which would have been made to the existing Rockland Trust 401(k) plan on the participant's behalf, but were prohibited due to Internal Revenue Code limitations. Deferrals are invested at the election of the participant into one of the actively managed funds made available to the participant through the Company's Investment Management Group or in the Company's stock. These funds are held in a rabbi trust until the elected date of distribution. The Company recognized expense of $356,000, $278,000 and $267,000 related to this plan for services performed for the years ended December 31, 2019, 2018 and 2017, respectively.

Also as part of the Peoples acquisition in 2015, the Company assumed various Salary Continuation Agreements with certain current and former senior executives. The agreements require the payment of specified benefits upon retirement over periods of ten or twenty years as described in each agreement. Expense related to the Salary Continuation Agreements was $295,000, $287,000 and $279,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company also assumed a Peoples supplemental retirement plan with a former executive, whereby the amounts paid under this plan commenced upon the executive's retirement and continue until 2026. The expense related to the supplemental retirement plan for the years ended December 31, 2019, 2018 and 2017 was not material.

Additionally, in conjunction with the acquisition of BHB in 2019, the Company assumed an Employee Stock Ownership Plan and a 401(k) retirement plan. These plans will be terminated by the Company subsequent to December 31, 2019.

Director Benefits

The Company maintains two deferred compensation plans for the Company’s Board of Directors which permit non-employee directors to defer cash fees, one which was in effect through December 31, 2018 and a new plan which was adopted effective January 1, 2019. Under the plan in effect through December 31, 2018, deferred compensation is invested in Company stock and held by the Company's Investment Management Group. Under the plan that took effect January 1, 2019, participating directors may defer all or a portion of their cash compensation into a choice of diversified investment portfolios comprised of stocks, bonds and cash. The amount of compensation deferred during 2019, 2018, and 2017 was $142,000, $142,000, and $143,000, respectively.

As a result of the Peoples acquisition during 2015, the Company assumed several Director Retirement Agreements. The agreements require the payment of specified benefits upon retirement over periods of ten or twenty years as described in each agreement. The expense related to the Director Retirement Agreements for the years ended December 31, 2019, 2018 and 2017 was not material.