NOTE H: BENEFIT PLANS

The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors. The Company accrues for the estimated cost of these benefits through charges to expense during the years that employees earn these benefits.

Effective May 12, 2017, the Merchants Bank Pension Plan was merged into the Community Bank System, Inc. Pension Plan and the combined plan was revalued resulting in an additional unamortized actuarial gain of approximately $1.9 million, due primarily to a gain on plan assets that was partially offset by a decrease in the discount rate from 4.50% to 4.40% as of the valuation date. The Company made a $2.9 million contribution to its defined benefit pension plan in the first quarter of 2017, and made a $2.0 million contribution to the Merchants Bank Pension Plan in the second quarter of 2017.

The net periodic benefit cost for the three and six months ended June 30, 2017 and 2016 is as follows:

	Pension Benefits												Post-retirement Benefits
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(000's omitted)	2017			2016			2017			2016			2017			2016			2017			2016
Service cost	$	1,067		$	1,027		$	2,106		$	2,052		$	0		$	0		$	0		$	0
Interest cost		1,449			1,406			2,812			2,812			19			20			38			41
Expected return on plan assets		(3,407	)		(2,961	)		(6,529	)		(5,921	)		0			0			0			0
Amortization of unrecognized net loss		209			377			472			754			2			(1	)		4			(3	)
Amortization of prior service cost		17			11			30			22			(45	)		(45	)		(89	)		(89	)
Net periodic benefit cost (income)	$	(665	)	$	(140	)	$	(1,109	)	$	(281	)	$	(24	)	$	(26	)	$	(47	)	$	(51	)