Employee Benefit Plans

Defined Benefit Plan

The Corporation provides pension benefits for eligible employees through a defined benefit pension plan. Substantially all employees participate in the retirement plan on a non-contributing basis, and are fully vested after three years of service. Effective January 1, 2009, the plan was closed to new participants. The Corporation provided the requisite notice to plan participants on March 12, 2013 of the determination to freeze the plan (curtailment). While the freeze was not effective until April 30, 2013, management determined that participants would not satisfy, within the provisions of the plan, 2013 eligibility requirements based on minimum hours worked for 2013. Therefore, employees ceased to earn benefits as of January 1, 2013. This amendment to the plan will not affect benefits earned by the participant prior to the date of the freeze. The Corporation measures the funded status of the plan as of December 31.

Information pertaining to changes in obligations and funded status of the defined benefit pension plan for the years ended December 31 is as follows:



(Dollar amounts in thousands)	2017			2016
Change in plan assets:
Fair value of plan assets at beginning of year	$	9,331		$	9,368
Actual return on plan assets	1,218			612
Employer contribution	—			—
Benefits paid	(390		)	(649		)
Fair value of plan assets at end of year	10,159			9,331

Change in benefit obligation:
Benefit obligation at beginning of year	10,609			10,174
Interest cost	438			465
Actuarial loss	71			483
Effect of change in assumptions	1,073			136
Benefits paid	(390		)	(649		)
Benefit obligation at end of year	11,801			10,609
Funded status (plan assets less benefit obligation)	$	(1,642	)	$	(1,278	)

Amounts recognized in accumulated other comprehensive loss, net of tax, consists of:
Accumulated net actuarial loss	$	4,838		$	3,812
Accumulated prior service benefit	—			—
Amount recognized, end of year	$	4,838		$	3,812


13.	Employee Benefit Plans (continued)

The following table presents the Corporation’s pension plan assets measured and recorded at estimated fair value on a recurring basis and their level within the estimated fair value hierarchy as described in Note 15:



(Dollar amounts in thousands)			(Level 1)		(Level 2)		(Level 3)
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs

December 31, 2017:
Money markets	$	720	$	720	$	—	$	—
Mutual funds - debt	3,368		3,368		—		—
Mutual funds - equity	5,221		5,221		—		—
Emclaire Financial Corp stock	850		850		—		—
	$	10,159	$	10,159	$	—	$	—
December 31, 2016:
Money markets	$	870	$	870	$	—	$	—
Mutual funds - debt	3,247		3,247		—		—
Mutual funds - equity	4,458		4,458		—		—
Emclaire Financial Corp stock	756		756		—		—
	$	9,331	$	9,331	$	—	$	—

There were no significant transfers between Level 1 and Level 2 during 2017.

The accumulated benefit obligation for the defined benefit pension plan was $11.8 million and $10.6 million at December 31, 2017 and 2016, respectively.

The components of the periodic pension costs and other amounts recognized in other comprehensive income for the years ended December 31 are as follows:



(Dollar amounts in thousands)	2017			2016
Interest cost	$	438		$	465
Expected return on plan assets	(661		)	(665		)
Amortization of prior service benefit and net loss	239			220
Net periodic pension benefit	16			20

Amortization of prior service benefit and net loss	(239		)	(220		)
Net loss	588			671
Total recognized in other comprehensive loss	349			451

Total recognized in net periodic benefit and other comprehensive loss	$	365		$	471

The estimated net loss and prior service benefit for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $247,000 as of December 31, 2017.


13.	Employee Benefit Plans (continued)

Weighted-average actuarial assumptions for the years ended December 31 include the following:



	2017		2016
Discount rate for net periodic benefit cost	4.19	%	4.41	%
Discount rate for benefit obligations	3.62	%	4.19	%
Expected rate of return on plan assets	7.25	%	7.25	%

The Corporation’s pension plan asset allocation at December 31, 2017 and 2016, target allocation for 2018, and expected long-term rate of return by asset category are as follows:



	Target Allocation		Percentage of Plan Assets at Year End				Weighted-Average Expected Long-Term Rate of Return
Asset Category	2018		2017		2016		2017
Equity securities	55	%	56	%	54	%	5.25	%
Debt securities	37	%	37	%	37	%	1.97	%
Money markets	8	%	7	%	9	%	0.03	%
	100	%	100	%	100	%	7.25	%

Investment Strategy

The intent of the pension plan is to provide a range of investment options for building a diversified asset allocation strategy that will provide the highest likelihood of meeting the aggregate actuarial projections. In selecting the options and asset allocation strategy, the Corporation has determined that the benefits of reduced portfolio risk are best achieved through diversification. The following asset classes or investment categories are utilized to meet the Pension plan’s objectives: Small company stock, International stock, Mid-cap stock, Large company stock, Diversified bond, Money Market/Stable Value and Cash. The pension plan does not prohibit any certain investments.

The Corporation does currently not expect to make a contribution to its pension plan in 2018.

Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:



(Dollar amounts in thousands)	Pension
For year ended December 31,	Benefits

2018	$	379
2019	386
2020	433
2021	436
2022	480
Following 5 years	2,610


13.	Employee Benefit Plans (continued)

Defined Contribution Plan

The Corporation maintains a defined contribution 401(k) Plan. Employees are eligible to participate by providing tax-deferred contributions up to 20% of qualified compensation. Employee contributions are vested at all times. The Corporation provides a matching contribution of up to 4% of the participant’s salary. For the years ended 2017 and 2016, matching contributions were $206,000 and $196,000, respectively. The Corporation may also make, at the sole discretion of its Board of Directors, a profit sharing contribution. For the years ended 2017 and 2016, the Corporation made profit sharing contributions of $109,000 and $105,000, respectively.

Supplemental Executive Retirement Plan

The Corporation maintains a Supplemental Executive Retirement Plan (SERP) to provide certain additional retirement benefits to participating officers. The SERP is subject to certain vesting provisions and provides that the officers shall receive a supplemental retirement benefit if the officer’s employment is terminated after reaching the normal retirement age of 65, with benefits also payable upon death, disability, a change of control or a termination of employment prior to normal retirement age. As of December 31, 2017 and 2016, the Corporation’s SERP liability was $1.2 million and $1.1 million, respectively. For the years ended December 31, 2017 and 2016, the Corporation recognized expense of $167,000 and $114,000, respectively, related to the SERP.