(15)	Postretirement Benefit Plans

Mid Penn has an unfunded noncontributory defined benefit plan for directors, which provides defined benefits based on the respective director’s years of service.

Mid Penn also has other postretirement healthcare and life insurance benefit plans, which are noncontributory, covering certain full-time employees.

The significant aspects of each of these plans are as follows:

(a)

Health Insurance

Full-time employees who had at least 10 years of service as of January 1, 2008 and who retire at age 55 or later, after completion of at least 20 years of service, are eligible for medical benefits. Employees who retired prior to December 31, 2015 may elect the least expensive single coverage in the employer’s group medical plan. If the retiree becomes eligible for Medicare during the five year duration of coverage, the Bank will pay, at its discretion, premiums for single 65-special coverage or similar supplemental coverage. For those employees who retired between September 18, 2015 and December 31, 2015, the Bank will only pay up to $5,000 towards such medical coverage. Employees who retired after December 31, 2015 may not participate in the employer’s group medical plan. Instead, the Bank will reimburse the retiree for up to $5,000 in medical costs.

(b)

Life Insurance

Full-time employees who had at least ten years of service as of January 1, 2008 and retire with the Bank after age 55 and at least 20 years of service are eligible for term life insurance coverage. The insurance amount will be $50,000 until age 65. After age 65, the insurance amount will decrease by $5,000 per year until age 74. Thereafter, the insurance amount will be $5,000.

(c)

Directors’ Retirement Plan

Mid Penn has an unfunded defined benefit retirement plan for directors with benefits based on years of service. The adoption of this plan generated unrecognized prior service cost of $274,000, which is being amortized over the expected future years of service of active directors. The unamortized balance at December 31, 2017, was $22,000.

The accrued benefit liability and related income statement impacts of the postretirement healthcare and life insurance benefit plans, as well as the Director’s retirement plan, are detailed in the tables below.

Health and Life

The following tables provide a reconciliation of the changes in the plan’s health and life insurance benefit obligations and fair value of plan assets for the years ended December 31, 2017 and 2016, and a statement of the funded status at December 31, 2017 and 2016.

(Dollars in thousands)
	December 31,
Change in benefit obligations:	2017			2016
Benefit obligations, January 1	$	540		$	572
Service cost		4			4
Interest cost		20			23
Change in experience		(11	)		2
Change in assumptions		20			13
Change due to plan amendment		—			—
Benefit payments		(65	)		(74	)
Benefit obligations, December 31	$	508		$	540

Change in fair value of plan assets:
Fair value of plan assets, January 1	$	—		$	—
Employer contributions		65			74
Benefit payments		(65	)		(74	)
Fair value of plan assets, December 31	$	—		$	—

Funded status at year end	$	(508	)	$	(540	)

Mid Penn has capped the benefit to future retirees under its post-retirement health benefit plan. Employees who had achieved ten years of service as of January 1, 2008 and subsequently retire after at least 20 years of service are eligible for reimbursement of major medical insurance premiums up to $5,000, if the employee has not yet reached age 65. Upon becoming eligible for Medicare, Mid Penn will reimburse up to $5,000 in premiums for Medicare Advantage or a similar supplemental coverage. The maximum reimbursement period will not exceed five years regardless of retirement age and will end upon the participant obtaining other employment where major medical coverage is available or the participant’s death.

The amount recognized in the consolidated balance sheets at December 31, 2017 and 2016, is as follows:

(Dollars in thousands)
	2017		2016
Accrued benefit liability	$	508	$	540

The amounts recognized in accumulated other comprehensive loss consist of:

(Dollars in thousands)	December 31,
	2017			2016
Net gain, pretax	$	(22	)	$	(31	)
Net prior service cost, pretax		(174	)		(209	)

The accumulated benefit obligation for health and life insurance plans was $508,000 and $540,000 at December 31, 2017 and 2016, respectively.

There will be $25,000 in estimated prior service costs amortized from accumulated other comprehensive income into net periodic benefit cost during 2018.

The components of net periodic postretirement benefit (income) cost for 2017, 2016 and 2015 are as follows:

(Dollars in thousands)
	2017			2016			2015
Service cost	$	4		$	4		$	13
Interest cost		20			23			32
Amortization of prior service cost		(35	)		(35	)		-
Net periodic postretirement benefit (income) cost	$	(11	)	$	(8	)	$	45

Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31, 2017 and 2016 are as follows:

Weighted-average assumptions:	2017			2016
Discount rate		3.50	%		4.00	%
Rate of compensation increase		2.50	%		3.00	%

Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows:

Weighted-average assumptions:	2017			2016			2015
Discount rate		4.00	%		4.25	%		4.00	%
Rate of compensation increase		3.00	%		3.25	%		3.00	%

Assumed health care cost trend rates at December 31, 2017, 2016 and 2015 are as follows:

	2017			2016			2015
Health care cost trend rate assumed for next year		6.00	%		6.00	%		5.50	%

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.40	%		5.50	%		5.50	%
Year that the rate reaches the ultimate trend rate	2024			2018			2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. At December 31, 2017, a one-percentage-point change in assumed health care cost trend rates would have the following effects:

(Dollars in thousands)	One-Percentage Point
	Increase		Decrease
Effect on total of service and interest cost	$	—	$	2
Effect on accumulated postretirement benefit obligation		3		4

Mid Penn expects to contribute $60,000 to its life and health benefit plans in 2018. The following table shows the estimated benefit payments for future periods.

(Dollars in thousands)

1/1/2018 to 12/31/2018	$	60
1/1/2019 to 12/31/2019		61
1/1/2020 to 12/31/2020		55
1/1/2021 to 12/31/2021		31
1/1/2022 to 12/31/2022		32
1/1/2023 to 12/31/2027		160

Retirement Plan

The following tables provide a reconciliation of the changes in the directors’ defined benefit plan’s benefit obligations and fair value of plan assets for the years ended December 31, 2017 and 2016, and a statement of the status at December 31, 2017 and 2016. This Plan is unfunded.

(Dollars in thousands)
	December 31,
Change in benefit obligations:	2017			2016
Benefit obligations, January 1	$	1,122		$	1,150
Service cost		35			34
Interest cost		43			46
Actuarial gain (loss)		6			(13	)
Change in assumptions		2			(4	)
Benefit payments		(92	)		(91	)
Benefit obligations, December 31	$	1,116		$	1,122

Change in fair value of plan assets:
Fair value of plan assets, January 1	$	—		$	—
Employer contributions		92			91
Benefit payments		(92	)		(91	)
Fair value of plan assets, December 31	$	—		$	—

Funded status at year end	$	(1,116	)	$	(1,122	)

Amounts recognized in the consolidated balance sheet at December 31, 2017 and 2016 are as follows:

(Dollars in thousands)
	2017		2016
Accrued benefit liability	$	1,116	$	1,122

Amounts recognized in accumulated other comprehensive loss consist of:

(Dollars in thousands)	December 31,
	2017		2016
Net prior service cost, pretax	$	22	$	43
Net loss, pretax		67		60

The accumulated benefit obligation for the retirement plan was $1,116,000 at December 31, 2017 and $1,122,000 at December 31, 2016.

The estimated prior service costs that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2018 is $22,000.

The components of net periodic retirement cost for 2017, 2016 and 2015 are as follows:

(Dollars in thousands)
	2017		2016		2015
Service cost	$	35	$	34	$	33
Interest cost		43		46		45
Amortization of prior-service cost		22		22		22
Net periodic retirement cost	$	100	$	102	$	100

Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31, 2017 and 2016 are as follows:

Weighted-average assumptions:	2017			2016
Discount rate		3.50	%		4.00	%
Change in consumer price index		1.50	%		2.00	%

Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows:

Weighted-average assumptions:	2017			2016			2015
Discount rate		4.00	%		4.25	%		4.00	%
Change in consumer price index		2.00	%		2.25	%		2.25	%

Mid Penn expects to contribute $95,000 to its retirement plan in 2018. The following table shows the estimated benefit payments for future periods.

(Dollars in thousands)

1/1/2018 to 12/31/2018	$	95
1/1/2019 to 12/31/2019		95
1/1/2020 to 12/31/2020		96
1/1/2021 to 12/31/2021		107
1/1/2022 to 12/31/2022		104
1/1/2023 to 12/31/2027		413

The Bank is the owner and beneficiary of insurance policies on the lives of certain officers and directors, which informally fund the retirement plan obligation. The aggregate cash surrender value of these policies was $3,905,000 and $3,834,000 at December 31, 2017 and 2016, respectively.