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Pension and Other Post Retirement Benefit Plans | 12 Months Ended
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Dec. 31, 2018
Retirement Benefits [Abstract] |
Pension and Other Post Retirement Benefit Plans | PENSION AND OTHER POST RETIREMENT BENEFIT PLANS The Corporation’s defined-benefit pension plans, including non-qualified plans for certain employees, former employees and former non-employee directors, cover approximately 13 percent of the Corporation’s employees. In 2005, the Board of Directors of the Corporation approved the curtailment of the accumulation of defined benefits for future services provided by certain participants in the First Merchants Corporation Retirement Plan. No additional pension benefits have been earned by any employees who had not attained both the age of 55 and accrued at least 10 years of vesting service as of March 1, 2005. The benefits are based primarily on years of service and employees’ pay near retirement. Contributions are intended to provide not only for benefits attributed to service-to-date, but also for those expected to be earned in the future. The table below sets forth the plans’ funded status and amounts recognized in the consolidated balance sheets at December 31, using measurement dates of December 31, 2018 and 2017.
| 2018 |  | 2017
Change in Benefit Obligation: |  |  |
Benefit obligation at beginning of year | $ | 82,157 |  |  | $ | 84,090 |
Service cost | 8 |  |  | 10 |
Interest cost | 2,816 |  |  | 3,353 |
Actuarial (gain) loss | (6,129 | ) |  | 3,686 |
Benefits paid | (5,659 | ) |  | (5,179 | )
Plan settlements |  |  |  | (3,803 | )
Benefit obligation at end of year | $ | 73,193 |  |  | $ | 82,157 |
Change in Plan Assets: |  |  |
Fair value of plan assets at beginning of year | $ | 85,213 |  |  | $ | 83,557 |
Actual return on plan assets | (3,427 | ) |  | 9,968 |
Employer contributions | 609 |  |  | 670 |
Benefits paid | (5,659 | ) |  | (5,179 | )
Plan settlements |  |  |  | (3,803 | )
End of year | 76,736 |  |  | 85,213 |
Funded status at end of year | $ | 3,543 |  |  | $ | 3,056 |
Assets and Liabilities Recognized in the Balance Sheets: |  |  |
Deferred tax asset | $ | 3,855 |  |  | $ | 3,474 |
Assets | $ | 7,024 |  |  | $ | 7,660 |
Liabilities | $ | 3,481 |  |  | $ | 4,604 |
Amounts Recognized in Accumulated Other Comprehensive Income Not Yet Recognized as Components of Net Periodic Cost, net of tax, consist of: |  |  |
Accumulated loss | $ | (14,111 | ) |  | $ | (10,360 | )
Prior service cost | (409 | ) |  | (393 | )
| $ | (14,520 | ) |  | $ | (10,753 | )
The actuarial (gain) loss recognized in 2018 and 2017 was primarily a result of discount rate assumption fluctuations. In 2017, the Corporation offered certain terminated vested pension plan participants the opportunity to elect a lump sum payment during a specific distribution window. The lump sums paid, or plan settlements, released $4.6 million of benefit obligation, while lump sum payments were $3.8 million. The total amount of lump sum payment elections and lump sums paid under regular operation of the plan, triggered pension plan settlement accounting, resulting in a $761,000 settlement charge, which is reflected in the Corporation's CONSOLIDATED STATEMENTS OF INCOME in the line titled "Salaries and employee benefits." The accumulated benefit obligation for all defined benefit plans was $73,193,000 and $82,157,000 at December 31, 2018 and 2017, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets consists solely of the non-qualified plans for certain employees, former employees and former non-employee directors, and is included in the table below.
| December 31, 2018 |  | December 31, 2017
Projected benefit obligation | $ | 3,481 |  |  | $ | 4,604 |
Accumulated benefit obligation | $ | 3,481 |  |  | $ | 4,604 |
Fair value of plan assets | $ | — |  |  | $ | — |
The Corporation recognized expense under these non-qualified plans of $161,000, $213,000 and $217,000 for 2018, 2017 and 2016, respectively. The following table shows the components of net periodic pension benefit cost:
| December 31, 2018 |  | December 31, 2017 |  | December 31, 2016
Service cost | $ | 8 |  |  | $ | 10 |  |  | $ | 9 |
Interest cost | 2,816 |  |  | 3,353 |  |  | 3,273 |
Expected return on plan assets | (4,891 | ) |  | (4,778 | ) |  | (4,508 | )
Amortization of prior service cost | 87 |  |  | 90 |  |  | 79 |
Amortization of net loss | 287 |  |  | 1,218 |  |  | 1,656 |
Settlement loss recognized |  |  |  | 761 |  |  |
Net periodic pension benefit cost | $ | (1,693 | ) |  | $ | 654 |  |  | $ | 509 |
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
| December 31, 2018 |  | December 31, 2017 |  | December 31, 2016
Net periodic pension benefit cost | $ | (1,693 | ) |  | $ | 654 |  |  | $ | 509 |
Net gain (loss) | (2,189 | ) |  | 1,504 |  |  | (228 | )
Amortization of net loss | 287 |  |  | 1,979 |  |  | 1,656 |
Amortization of prior service cost | 87 |  |  | 90 |  |  | 79 |
Total recognized in other comprehensive income (loss) | (1,815 | ) |  | 3,573 |  |  | 1,507 |
Total recognized in net periodic pension benefit cost and other comprehensive income (loss) | $ | (122 | ) |  | $ | 2,919 |  |  | $ | 998 |
The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic pension benefit cost over the next fiscal year are:
| December 31, 2018 |  | December 31, 2017 |  | December 31, 2016
Amortization of net loss | $ | (432 | ) |  | $ | (830 | ) |  | $ | (1,208 | )
Amortization of prior service cost | (87 | ) |  | (87 | ) |  | (90 | )
Total | $ | (519 | ) |  | $ | (917 | ) |  | $ | (1,298 | )
Significant assumptions include:
| December 31, 2018 |  | December 31, 2017 |  | December 31, 2016
Weighted-average Assumptions Used to Determine Benefit Obligation: |  |  |  |  |
Discount rate | 4.30 | % |  | 3.60 | % |  | 4.20 | %
Rate of compensation increase for accruing active participants | n/a |  |  | n/a |  |  | 3.00 | %
Weighted-average Assumptions Used to Determine Cost: |  |  |  |  |
Discount rate | 3.60 | % |  | 4.20 | % |  | 4.50 | %
Expected return on plan assets | 6.00 | % |  | 6.00 | % |  | 6.00 | %
Rate of compensation increase for accruing active participants | n/a |  |  | n/a |  |  | 3.00 | %
At December 31, 2018 and 2017, the Corporation based its estimate of the expected long-term rate of return on analysis of the historical returns of the plans and current market information available. The plans’ investment strategies are to provide for preservation of capital with an emphasis on long-term growth without undue exposure to risk. The assets of the plans’ are invested in accordance with the plans’ Investment Policy Statement, subject to strict compliance with ERISA and any other applicable statutes. The plans’ risk management practices include semi-annual evaluations of investment managers, including reviews of compliance with investment manager guidelines and restrictions; ability to exceed performance objectives; adherence to the investment philosophy and style; and ability to exceed the performance of other investment managers. The evaluations are reviewed by management with appropriate follow-up and actions taken, as deemed necessary. The Investment Policy Statement generally allows investments in cash and cash equivalents, real estate, fixed income debt securities and equity securities, and specifically prohibits investments in derivatives, options, futures, private placements, short selling, non-marketable securities and purchases of individual non-investment grade bonds. At December 31, 2018, the maturities of the plans’ debt securities ranged from 15 days to 8.24 years, with a weighted average maturity of 4.29 years. At December 31, 2017, the maturities of the plans’ debt securities ranged from 15 days to 8.83 years, with a weighted average maturity of 4.53 years. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as of December 31, 2018. The minimum contribution required in 2019 will likely be zero, but the Corporation may decide to make a discretionary contribution during the year.
2019 | $ | 5,583 |
2020 | 5,549 |
2021 | 5,429 |
2022 | 5,363 |
2023 | 5,269 |
After 2023 | 24,586 |
| $ | 51,779 |
Plan assets are re-balanced quarterly. At December 31, 2018 and 2017, plan assets by category are as follows:
| December 31, 2018 |  | December 31, 2017
| Actual |  | Target |  | Actual |  | Target
Cash and cash equivalents | 3.9 | % |  | 3.0 | % |  | 6.0 | % |  | 3.0 | %
Equity securities | 48.4 |  |  | 50.0 |  |  | 52.4 |  |  | 55.0 |
Debt securities | 45.6 |  |  | 45.0 |  |  | 39.6 |  |  | 40.0 |
Alternative investments | 2.1 |  |  | 2.0 |  |  | 2.0 |  |  | 2.0 |
| 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
The Savings Plan, a Section 401(k) qualified defined contribution plan, was amended on March 1, 2005 to provide enhanced retirement benefits, including employer and matching contributions, for eligible employees of the Corporation and its subsidiaries. The Corporation matches employees’ contributions at the rate of 100 percent for the first 3 percent of base salary contributed by participants and 50 percent of the next 3 percent of base salary contributed by participants. Beginning in 2005, employees who have completed 1000 hours of service and are an active employee on the last day of the year receive an additional retirement contribution after year-end. Employees hired after January 1, 2010 do not participate in the additional retirement contribution. Effective January 1, 2013, the additional retirement contribution was fixed at 2 percent. Full vesting occurs after five years of service. The Corporation’s expense for the Savings Plan, including the additional retirement contribution, was $5,114,000, $3,691,000 and $3,441,000 for 2018, 2017 and 2016, respectively. The Corporation maintained a post retirement benefit plan that provided health insurance benefits to retirees. The plan allowed retirees to be carried under the Corporation’s health insurance plan, generally from ages 55 to 65. The retirees paid 100 percent of the premiums due for their coverage. In 2016, the Corporation elected to terminate this plan effective December 31, 2017, resulting in no obligation payable under the plan as of December 31, 2017. As a result of the termination, in 2016, the Corporation recognized a curtailment gain of $2,157,000 as a component of "Salaries and benefits expense" in the accompanying CONSOLIDATED STATEMENTS OF INCOME. Post retirement plan expense totaled $(301,000) and $(2,437,000) for the years ending December 31, 2017 and 2016, respectively. Pension Plan Assets Following is a description of the valuation methodologies used for pension plan assets measured at fair value on a recurring basis, as well as the general classification of pension plan assets pursuant to the valuation hierarchy. Where quoted market prices are available in an active market, plan assets are classified within Level 1 of the valuation hierarchy. Level 1 plan assets total $71,277,000 and $78,280,000 as of December 31, 2018 and 2017, respectively, and include cash and cash equivalents, common stocks, mutual funds and corporate bonds and notes. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of plan assets with similar characteristics or discounted cash flows. Level 2 plan assets total $5,459,000 and $6,933,000 as of December 31, 2018 and 2017, respectively, and include governmental agencies, taxable municipal bonds and notes, and certificates of deposit. In certain cases where Level 1 or Level 2 inputs are not available, plan assets are classified within Level 3 of the hierarchy. There are no assets classified within Level 3 of the hierarchy at December 31, 2018 and 2017.
|  |  | Fair Value Measurements Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
December 31, 2018 | Fair Value |  | (Level 1) |  | (Level 2) |  | (Level 3)
Cash & Cash Equivalents | $ | 3,026 |  |  | $ | 3,026 |  |  |  |  |
Corporate Bonds and Notes | 16,691 |  |  | 16,691 |  |  |  |  |
Government Agency and Municipal Bonds and Notes | 4,479 |  |  |  |  | $ | 4,479 |  |  |
Certificates of Deposit | 980 |  |  |  |  | 980 |  |  |
Party-in-Interest Investments |  |  |  |  |  |  |
Common Stock | 2,073 |  |  | 2,073 |  |  |  |  |
Mutual Funds |  |  |  |  |  |  |
Taxable Bond | 12,817 |  |  | 12,817 |  |  |  |  |  |
Large Cap Equity | 18,269 |  |  | 18,269 |  |  |  |  |
Mid Cap Equity | 8,735 |  |  | 8,735 |  |  |  |  |
Small Cap Equity | 4,713 |  |  | 4,713 |  |  |  |  |
International Equity | 3,336 |  |  | 3,336 |  |  |  |  |
Specialty Alternative Equity | 1,617 |  |  | 1,617 |  |  |  |  |
| $ | 76,736 |  |  | $ | 71,277 |  |  | $ | 5,459 |  |  |
|  |  | Fair Value Measurements Using
|  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
December 31, 2017 | Fair Value |  | (Level 1) |  | (Level 2) |  | (Level 3)
Cash & Cash Equivalents | $ | 5,123 |  |  | $ | 5,123 |  |  |  |  |
Corporate Bonds and Notes | 14,598 |  |  | 14,598 |  |  |  |  |
Government Agency and Municipal Bonds and Notes | 5,679 |  |  |  |  | $ | 5,679 |  |  |
Certificates of Deposit | 1,254 |  |  |  |  | 1,254 |  |  |
Party-in-Interest Investments |  |  |  |  |  |  |
Common Stock | 2,545 |  |  | 2,545 |  |  |  |  |
Mutual Funds |  |  |  |  |  |  |
Taxable Bond | 12,198 |  |  | 12,198 |  |  |  |  |
Large Cap Equity | 22,137 |  |  | 22,137 |  |  |  |  |
Mid Cap Equity | 10,676 |  |  | 10,676 |  |  |  |  |
Small Cap Equity | 5,264 |  |  | 5,264 |  |  |  |  |
International Equity | 4,030 |  |  | 4,030 |  |  |  |  |
Specialty Alternative Equity | 1,709 |  |  | 1,709 |  |  |  |  |
| $ | 85,213 |  |  | $ | 78,280 |  |  | $ | 6,933 |  |  |

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