14. Employee Benefits

12 Months Ended

Dec. 31, 2012

Employee Benefits

Note 14 - Employee Benefits

The Company sponsors a pretax savings and profit sharing plan (the “401(k) Plan”) qualified under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, eligible employees are able to contribute up to 15% of their compensation (subject to stricter limitation in the case of highly compensated employees). We may, at our discretion, match 100% of employees’ contributions up to $1,500 per employee per calendar year. Our contributions to the 401(k) Plan were $10,000 for the year ended December 31, 2011. We did not make any matching contributions in 2012.

We also sponsor a defined benefit plan, the MFN Financial Corporation Pension Plan (the “Plan”). The Plan benefits were frozen on June 30, 2001.

The following tables represents a reconciliation of the change in the plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2012 and 2011:

	December 31,
	2012			2011
	(In thousands)
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of year	$	19,443		$	17,057
Service cost		–			–
Interest cost		875			912
Assumption changes		2,332			2,232
Actuarial (gain) loss		2			(128	)
Settlements		–			–
Benefits paid		(860	)		(630	)
Projected benefit obligation, end of year	$	21,792		$	19,443
Change in Plan Assets
Fair value of plan assets, beginning of year	$	10,613		$	11,155
Return on assets		5,439			(527	)
Employer contribution		1,473			665
Expenses		(53	)		(50	)
Settlements		–			–
Benefits paid		(860	)		(630	)
Fair value of plan assets, end of year	$	16,612		$	10,613
Funded Status at end of year	$	(5,180	)	$	(8,830	)

Additional Information

Weighted average assumptions used to determine benefit obligations and cost at December 31, 2012 and 2011 were as follows:

	December, 31
	2012		2011
Weighted average assumptions used to determine benefit obligations
Discount rate		3.91%		4.60%
Weighted average assumptions used to determine net periodic benefit cost
Discount rate		4.60%		5.45%
Expected return on plan assets		8.50%		8.50%

Our overall expected long-term rate of return on assets is 8.50% per annum as of December 31, 2012. The expected long-term rate of return is based on the weighted average of historical returns on individual asset categories, which are described in more detail below.

	December 31,
	2012			2011
	(In thousands)
Amounts recognized on Consolidated Balance Sheet
Other assets	$	–		$	–
Other liabilities		(5,180	)		(8,830	)
Net amount recognized	$	(5,180	)	$	(8,830	)
Amounts recognized in accumulated other comprehensive income consists of:
Net loss (gain)	$	8,953		$	11,756
Unrecognized transition asset		–			–
Net amount recognized	$	8,953		$	11,756
Components of net periodic benefit cost
Interest Cost	$	875		$	912
Expected return on assets		(928	)		(948	)
Amortization of transition asset		–			–
Amortization of net loss		680			449
Net periodic benefit cost		627			413
Settlement (gain)/loss		–			–
Total	$	627		$	413
Benefit Obligation Recognized in Other Comprehensive Income
Net loss (gain)	$	(2,748	)	$	3,181
Prior service cost (credit)		–			–
Amortization of prior service cost		–			–
Net amount recognized in other comprehensive income	$	(2,748	)	$	3,181
Accumulated Pension Benefit Obligation	$	(5,637	)	$	(8,535	)

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2013 is $469,000.

The weighted average asset allocation of our pension benefits at December 31, 2012 and 2011 were as follows:

	December 31,
	2012		2011
Weighted Average Asset Allocation at Year-End
Asset Category
Equity securities		83%		80%
Debt securities		16%		20%
Cash and cash equivalents		1%		0%
Total		100%		100%

Our investment policies and strategies for the pension benefits plan utilize a target allocation of 75% equity securities and 25% fixed income securities (excluding company stock). Our investment goals are to maximize returns subject to specific risk management policies. We address risk management and diversification by the use of a professional investment advisor and several sub-advisors which invest in domestic and international equity securities and domestic fixed income securities. Each sub-advisor focuses its investments within a specific sector of the equity or fixed income market. For the sub-advisors focused on the equity markets, the sectors are differentiated by the market capitalization, the relative valuation and the location of the underlying issuer. For the sub-advisors focused on the fixed income markets, the sectors are differentiated by the credit quality and the maturity of the underlying fixed income investment. The investments made by the sub-advisors are readily marketable and can be sold to fund benefit payment obligations as they become payable.

Cash Flows
Estimated Future Benefit Payments (In thousands)
2013	$	705
2014		721
2015		815
2016		825
2017		858
Years 2018 - 2022		4,930
Anticipated Contributions in 2013	$	–

The fair value of plan assets at December 31, 2012 and 2011, by asset category, is as follows:

	December 31, 2012
	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total
Investment Name:	(in thousands)
Company Common Stock	$	4,791	$	–	$	–	$	4,791
Fundamental Value		–		2,049		–		2,049
Mid Cap Growth		–		596		–		596
Focus Value		–		607		–		607
Small Co. Value		–		604		–		604
Growth		–		2,681		–		2,681
International Growth		–		2,431		–		2,431
Core Bond		–		1,780		–		1,780
High Yield		–		363		–		363
Inflation Protected Bond		–		472		–		472
Money Market		–		238		–		238
Total	$	4,791	$	11,821	$	–	$	16,612

	December 31, 2011
	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total
Investment Name:	(in thousands)
Company Common Stock	$	852	$	–	$	–	$	852
Fundamental Value		–		1,776		–		1,776
Mid Cap Growth		–		492		–		492
Focus Value		–		510		–		510
Small Co. Value		–		492		–		492
Growth		–		2,209		–		2,209
International Growth		–		1,850		–		1,850
Core Bond		–		1,646		–		1,646
Income		–		318		–		318
Inflation Protected Bond		–		450		–		450
Money Market		11		7		–		18
Total	$	863	$	9,750	$	–	$	10,613

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(1) Assets with quoted prices in active markets for identical assets.

(2) Assets with significant observable inputs.

(3) Assets with significant unobservable inputs.