(14) Benefit Plans

Pension Plans and Other Postretirement Benefits

The following table sets forth information regarding our defined benefit pension plans and other postretirement benefit plan.

	Pension Benefits						Other Postretirement Benefits
	At or For the Year Ended December 31,						At or For the Year Ended December 31,
(In Thousands)		2012			2011			2012			2011
Change in benefit obligation:
Benefit obligation at beginning of year	$ 274,874			$ 232,230			$ 32,515			$ 24,892
Service cost	2,025			4,642			1,061			529
Interest cost	10,992			12,212			1,378			1,360
Actuarial loss	19,535			35,615			1,454			6,629
Amendments	5,473			-			-			-
Settlements	(14,560		)	-			-			-
Curtailments	(28,192		)	-			-			-
Benefits paid	(10,039		)	(9,825		)	(932		)	(895		)
Benefit obligation at end of year	260,108			274,874			35,476			32,515
Change in plan assets:
Fair value of plan assets at beginning of year	134,495			129,352			-			-
Actual return on plan assets	16,593			(2,638		)	-			-
Employer contribution	34,194			17,606			932			895
Settlements	(14,560		)	-			-			-
Benefits paid	(10,039		)	(9,825		)	(932		)	(895		)
Fair value of plan assets at end of year	160,683			134,495			-			-
Funded status at end of year	$ (99,425		)	$ (140,379		)	$ (35,476		)	$ (32,515		)

The underfunded pension benefits and other postretirement benefits at December 31, 2012 and 2011 are included in other liabilities in our consolidated statements of financial condition.

As a result of 2012 plan amendments, we remeasured our benefit obligations and the funded status of our defined benefit pension plans at March 31, 2012, updating the pension measurement assumptions. The remeasurement resulted in a $40.6 million increase in the funded status at March 31, 2012 compared to December 31, 2011. The increase was the result of a $20.4 million decrease in the projected pension benefit obligation at March 31, 2012 compared to December 31, 2011 resulting from the plan amendments and an increase of $20.2 million in the fair value of plan assets at March 31, 2012 compared to December 31, 2011 resulting from the return on plan assets and employer contributions during the 2012 first quarter.

During 2012, we contributed $19.1 million to the Astoria Federal Pension Plan. We expect to contribute approximately $5.0 million to the Astoria Federal Pension Plan during 2013 to address the current pension deficit and manage future funding requirements. No pension plan assets are expected to be returned to us.

The following table sets forth the pre-tax components of accumulated other comprehensive loss related to pension plans and other postretirement benefits. We expect that $3.9 million in net actuarial loss and $213,000 in prior service cost will be recognized as components of net periodic cost in 2013.

	Pension Benefits				Other Postretirement Benefits
	At December 31,				At December 31,
(In Thousands)		2012		2011		2012		2011
Net actuarial loss	$ 110,043		$ 130,568		$ 10,955		$ 10,018
Prior service cost (credit)	5,353		67		-		(25		)
Total accumulated other comprehensive loss	$ 115,396		$ 130,635		$ 10,955		$ 9,993

The accumulated benefit obligation for all defined benefit pension plans was $260.1 million at December 31, 2012 and $244.2 million at December 31, 2011.

Included in the tables of pension benefits are the Astoria Federal Excess and Supplemental Benefit Plans, Astoria Federal Directors’ Retirement Plan, The Greater New York Savings Bank, or Greater, Directors’ Retirement Plan and Long Island Bancorp, Inc., or LIB, Directors’ Retirement Plan, which are unfunded plans. The projected benefit obligation and accumulated benefit obligation for these plans are as follows:

	At December 31,
(In Thousands)		2012		2011
Projected benefit obligation	$ 14,647		$ 30,113
Accumulated benefit obligation	14,647		26,588

The assumptions used to determine the benefit obligations at December 31 are as follows:

	Discount Rate				Rate of Compensation Increase
	2012		2011		2012	2011
Pension Benefit Plans:
Astoria Federal Pension Plan	3.77	%	4.44	%	N/A	5.10	%
Astoria Federal Excess and Supplemental Benefit Plans	3.49		4.16		N/A	6.10
Astoria Federal Directors’ Retirement Plan	3.21		4.09		N/A	4.00
Greater Directors’ Retirement Plan	2.77		3.78		N/A	N/A
LIB Directors’ Retirement Plan	0.63		1.74		N/A	N/A
Other Postretirement Benefit Plan:
Astoria Federal Retiree Health Care Plan	3.98		4.50		N/A	N/A

The components of net periodic cost are as follows:

	Pension Benefits									Other Postretirement Benefits
	For the Year Ended December 31,									For the Year Ended December 31,
(In Thousands)		2012			2011			2010			2012			2011			2010
Service cost	$ 2,025			$ 4,642			$ 3,727			$ 1,061			$ 529			$ 424
Interest cost	10,992			12,212			11,602			1,378			1,360			1,234
Expected return on plan assets	(11,947		)	(10,648		)	(9,420		)	-			-			-
Recognized net actuarial loss	4,930			8,445			6,450			517			147			-
Amortization of prior service cost (credit)	177			191			247			(25		)	(99		)	(101		)
Settlement	2,302			-			212			-			-			-
Net periodic cost	$ 8,479			$ 14,842			$ 12,818			$ 2,931			$ 1,937			$ 1,557

The assumptions used to determine the net periodic cost for the years ended December 31, 2012 and 2011 are as follows:

Discount Rate (1)

Expected Return
on Plan Assets

Rate of
Compensation
Increase (1)

2012

2011

2012

2011

2012

2011

Pension Benefit Plans:

Astoria Federal Pension Plan

4.44%

5.39%

8.00%

N/A

5.10

Astoria Federal Excess and Supplemental Benefit Plans

3.99

5.04

N/A

6.10

Astoria Federal Directors’ Retirement Plan

3.97

4.71

N/A

4.00

Greater Directors’ Retirement Plan

3.78

4.50

N/A

LIB Directors’ Retirement Plan

1.74

1.90

N/A

Other Postretirement Benefit Plan:

Astoria Federal Retiree Health Care Plan

4.50

5.46

N/A

(1)

As a result of plan amendments in 2012 resulting in a curtailment and a remeasurement of our benefit obligations recognized as of March 31, 2012, the 2012 discount rates and rates of compensation increase for the Astoria Federal Pension Plan, the Astoria Federal Excess and Supplemental Benefit Plans and the Astoria Federal Directors’ Retirement Plan reflect the rates used to determine net periodic cost for the period from April 1, 2012 to December 31, 2012. The discount rate used to determine the net periodic cost for the period from January 1, 2012 to March 31, 2012 was 4.44% for the Astoria Federal Pension Plan, 4.16% for the Astoria Federal Excess and Supplemental Benefit Plans and 4.09% for the Astoria Federal Directors’ Retirement Plan. The rates of compensation increase to determine net periodic cost for the period from January 1, 2012 to March 31, 2012 remained unchanged from 2011.

To determine the expected return on plan assets, we consider the long-term historical return information on plan assets, the mix of investments that comprise plan assets and the historical returns on indices comparable to the fund classes in which the plan invests.

The assumed health care cost trend rates are as follows:

	At December 31,
	2012	2011
Health care cost trend rate assumed for next year	7.50%	8.00%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00%	5.00%
Year that the rate reaches the ultimate trend rate	2018	2018

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following effects:

(In Thousands)	One Percentage Point Increase	One Percentage Point Decrease
Effect on total service and interest cost components	$ 552	$ (427)
Effect on the postretirement benefit obligation	6,798	(5,270)

Total benefits expected to be paid under our defined benefit pension plans and other postretirement benefit plan as of December 31, 2012, which reflect expected future service, as appropriate, are as follows:

Year	Pension Benefits	Other Postretirement Benefits
	(In Thousands)
2013	$ 11,345	$ 1,164
2014	12,250	1,193
2015	11,601	1,240
2016	14,982	1,298
2017	12,612	1,352
2018-2022	67,844	7,551

The Astoria Federal Pension Plan’s assets are carried at fair value on a recurring basis. The Astoria Federal Pension Plan groups its assets at fair values in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are described in Note 17. Other than the Astoria Financial Corporation common stock, the plan assets are managed by Prudential Retirement Insurance and Annuity Company, or PRIAC.

The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis.

PRIAC Pooled Separate Accounts

The fair value of the Astoria Federal Pension Plan’s investments in the PRIAC Pooled Separate Accounts is based on the fair value of the underlying securities included in the pooled separate accounts which consist of equity securities and bonds. Investments in these accounts are represented by units and a per unit value. The unit values are calculated by PRIAC. For the underlying equity securities, PRIAC obtains closing market prices for those securities traded on a national exchange. For bonds, PRIAC obtains prices from a third party pricing service using inputs such as benchmark yields, reported trades, broker/dealer quotes and issuer spreads. Prices are reviewed by PRIAC and are challenged if PRIAC believes the price is not reflective of fair value. There are no restrictions as to the redemption of these pooled separate accounts nor does the Astoria Federal Pension Plan have any contractual obligations to further invest in any of the individual pooled separate accounts. These investments are classified as Level 2.

Astoria Financial Corporation common stock

The fair value of the Astoria Federal Pension Plan’s investment in Astoria Financial Corporation common stock is obtained from a quoted market price in an active market and, as such, is classified as Level 1.

PRIAC Guaranteed Deposit Account

The fair value of the Astoria Federal Pension Plan’s investment in the PRIAC Guaranteed Deposit Account approximates the fair value of the underlying investments by discounting expected future investment cash flows from both investment income and repayment of principal for each investment purchased directly for the general account. The discount rates assumed in the calculation reflect both the current level of market rates and spreads appropriate to the quality, average life and type of investment being valued. This investment is classified as Level 3.

Cash and cash equivalents

The fair value of the Astoria Federal Pension Plan’s cash and cash equivalents represents the amount available on demand and, as such, are classified as Level 1.

The following tables set forth the carrying value of the Astoria Federal Pension Plan’s assets by asset category and the level within the fair value hierarchy in which the fair value measurements fall at the dates indicated.

	Carrying Value at December 31, 2012
(In Thousands)	Total	Level 1		Level 2	Level 3
PRIAC Pooled Separate Accounts (1)	$ 145,037	$	-	$ 145,037	$	-
Astoria Financial Corporation common stock	8,466	8,466		-	-
PRIAC Guaranteed Deposit Account	7,177	-		-	7,177
Cash and cash equivalents	3	3		-	-
Total	$ 160,683	$	8,469	$ 145,037	$	7,177

(1)	Consists of 39% large-cap equity securities, 35% debt securities, 12% international equities, 8% small-cap equity securities and 6% mid-cap equity securities.

	Carrying Value at December 31, 2011
(In Thousands)	Total	Level 1		Level 2	Level 3
PRIAC Pooled Separate Accounts (1)	$ 120,436	$	-	$ 120,436	$	-
Astoria Financial Corporation common stock	7,477	7,477		-	-
PRIAC Guaranteed Deposit Account	6,564	-		-	6,564
Cash and cash equivalents	18	18		-	-
Total	$ 134,495	$	7,495	$ 120,436	$	6,564

(1)	Consists of 41% large-cap equity securities, 34% debt securities, 11% international equities, 8% small-cap equity securities and 6% mid-cap equity securities.

The following table sets forth a summary of changes in the fair value of the Astoria Federal Pension Plan’s Level 3 assets for the periods indicated.

	For the Year Ended December 31,
(In Thousands)	2012		2011
Fair value at beginning of year	$	6,564	$	6,301
Total net gain, realized and unrealized, included in change in net assets (1)	455		330
Purchases	9,640		18,338
Sales	(9,482)		(18,405)
Fair value at end of year	$	7,177	$	6,564

(1)	Includes unrealized gain related to assets held at December 31, 2012 of $517,000 for the year ended December 31, 2012 and unrealized gain related to assets held at December 31, 2011 of $334,000 for the year ended December 31, 2011.

The overall strategy of the Astoria Federal Pension Plan investment policy is to have a diverse investment portfolio that reasonably spans established risk/return levels, preserves liquidity and provides long-term investment returns equal to or greater than the actuarial assumptions. The strategy allows for a moderate risk approach in order to achieve greater long-term asset growth. The asset mix within the various insurance company pooled separate accounts and trust company trust funds can vary but should not be more than 80% in equity securities, 50% in debt securities and 25% in liquidity funds. Within equity securities, the mix is further clarified to have ranges not to exceed 10% in any one company, 30% in any one industry, 50% in funds that mirror the S&P 500, 50% in large-cap equity securities, 20% in mid-cap equity securities, 20% in small-cap equity securities and 10% in international equities. In addition, up to 15% of total plan assets may be held in Astoria Financial Corporation common stock. However, the Astoria Federal Pension Plan will not acquire Astoria Financial Corporation common stock to the extent that, immediately after the acquisition, such common stock would represent more than 10% of total plan assets.

Incentive Savings Plan

Astoria Federal maintains a 401(k) incentive savings plan, or the 401(k) Plan, which provides for contributions by both Astoria Federal and its participating employees. Under the 401(k) Plan, which is a qualified, defined contribution pension plan, participants may contribute up to 15% of their pre-tax base salary, generally not to exceed $17,000 for the calendar year ended December 31, 2012. Matching contributions, if any, may be made at the discretion of Astoria Federal. No matching contributions were made for the years ended December 31, 2012, 2011 and 2010. Participants vest immediately in their own contributions and, effective January 1, 2013, after a period of one year for Astoria Federal contributions.

Employee Stock Ownership Plan

Astoria Federal maintains an ESOP for its eligible employees, which is also a defined contribution pension plan. To fund the purchase of the ESOP shares, the ESOP borrowed funds from us. The ESOP loans bear an interest rate of 6.00%, mature on December 31, 2029 and are collateralized by our common stock purchased with the loan proceeds. Astoria Federal makes scheduled contributions to fund debt service. The ESOP loans had an aggregated outstanding principal balance of $5.9 million at December 31, 2012 and $12.1 million at December 31, 2011.

Shares purchased by the ESOP are held in trust for allocation among participants as the loans are repaid. Pursuant to the loan agreements, the number of shares released annually is based upon a specified percentage of aggregate eligible payroll for our covered employees. Shares allocated to participants totaled 1,075,354 for the year ended December 31, 2012, 1,398,763 for the year ended December 31, 2011 and 863,505 for the year ended December 31, 2010. Through December 31, 2012, 14,101,549 shares have been allocated to participants. As of December 31, 2012, 967,013 shares which had a fair value of $9.1 million remain unallocated.

In addition to shares allocated, Astoria Federal makes an annual cash contribution to participant accounts which, beginning in 2010, is equal to dividends paid on unallocated shares. This cash contribution totaled $513,000 for the year ended December 31, 2012, $1.8 million for the year ended December 31, 2011 and $2.2 million for the year ended December 31, 2010. Astoria Federal’s contributions may be reduced by dividends paid on unallocated shares and investment earnings realized on such dividends.

Compensation expense related to the ESOP totaled $10.7 million for the year ended December 31, 2012, $18.2 million for the year ended December 31, 2011 and $13.8 million for the year ended December 31, 2010.