(17.) EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan

The Company participates in The New York State Bankers Retirement System (the "Plan"), a defined benefit pension plan covering substantially all employees, subject to the limitations related to the plan closure effective December 31, 2006. The benefits are based on years of service and the employee's highest average compensation during five consecutive years of employment. The defined benefit plan was closed to new participants effective December 31, 2006. Only employees hired on or before December 31, 2006 and who met participation requirements on or before January 1, 2008 are eligible to receive benefits.

The following table provides a reconciliation of the Company's changes in the plan's benefit obligations, fair value of assets and a statement of the funded status as of and for the year ended December 31 (in thousands):


		2014			2013
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	48,991		$	53,625
Service cost		1,918			2,063
Interest cost		2,291			2,017
Actuarial (gain) loss		10,938			(6,393	)
Benefits paid and plan expenses		(2,406	)		(2,321	)
Projected benefit obligation at end of period		61,732			48,991
Change in plan assets:
Fair value of plan assets at beginning of period		64,603			57,785
Actual return on plan assets		5,387			9,139
Employer contributions		8,000			-
Benefits paid and plan expenses		(2,406	)		(2,321	)
Fair value of plan assets at end of period		75,584			64,603
Funded status at end of period	$	13,852		$	15,612

The accumulated benefit obligation was $54.9 million and $44.0 million at December 31, 2014 and 2013, respectively.

The Company's funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of Internal Revenue Code. The Company had no minimum required contribution for the 2015 fiscal year, but for tax purposes chose to contribute $8.0 million to its pension plan prior to December 31, 2014.

Estimated benefit payments under the pension plan over the next ten years at December 31, 2014 are as follows (in thousands):


2015	$	1,860
2016		2,086
2017		2,264
2018		2,330
2019		2,470
2020 - 2024		14,856

Net periodic pension cost consists of the following components for the years ended December 31 (in thousands):


		2014			2013			2012
Service cost	$	1,918		$	2,063		$	2,037
Interest cost on projected benefit obligation		2,291			2,017			2,017
Expected return on plan assets		(4,117	)		(3,684	)		(3,211	)
Amortization of unrecognized loss		159			1,344			1,370
Amortization of unrecognized prior service cost		20			20			20
Net periodic pension cost	$	271		$	1,760		$	2,233

The actuarial assumptions used to determine the net periodic pension cost were as follows:


	2014		2013		2012
Weighted average discount rate	4.80	%	3.84	%	4.27	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%
Expected long-term rate of return	6.50	%	6.50	%	7.00	%

The actuarial assumptions used to determine the projected benefit obligation were as follows:


	2014		2013		2012
Weighted average discount rate	3.86	%	4.80	%	3.84	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%

The weighted average discount rate was based upon the projected benefit cash flows and the market yields of high grade corporate bonds that are available to pay such cash flows.

The weighted average expected longterm rate of return is estimated based on current trends in the Plan's assets as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice No. 27, "Selection of Economic Assumptions for Measuring Pension Obligations" for long term inflation, and the real and nominal rate of investment return for a specific mix of asset classes. The following assumptions were used in determining the longterm rate of return:


Equity securities	Dividend discount model, the smoothed earnings yield model and the equity risk premium model
Fixed income securities	Current yieldtomaturity and forecasts of future yields
Other financial instruments	Comparison of the specific investment's risk to that of fixed income and equity instruments and using judgment

The long term rate of return considers historical returns. Adjustments were made to historical returns in order to reflect expectations of future returns. These adjustments were due to factor forecasts by economists and longterm U.S. Treasury yields to forecast longterm inflation. In addition forecasts by economists and others for longterm GDP growth were factored into the development of assumptions for earnings growth and per capita income.

The Plan's overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for Plan assets are shown in the table below. Cash equivalents consist primarily of government issues (maturing in less than three months) and short term investment funds. Equity securities primarily include investments in common stock, depository receipts, preferred stock, commingled pension trust funds, exchange traded funds and real estate investment trusts. Fixed income securities include corporate bonds, government issues, mortgage backed securities, municipals, commingled pension trust funds and other asset backed securities.

Effective February 2012, the Plan revised its investment guidelines. The Plan currently prohibits its investment managers from purchasing any security greater than 5% of the portfolio at the time of purchase or greater than 8% at market value in any one issuer. Effective June 2013, the issuer of any security purchased must be located in a country in the Morgan Stanley Capital International World Index. In addition, the following are prohibited:


Equity securities	Short sales Unregistered securities Margin purchases
Fixed income securities	Mortgage backed derivatives that have an inverse floating rate coupon or that are interest only securities Any ABS that is not issued by the U.S. Government or its agencies or its instrumentalities Generally securities of less than Baa2/BBB quality may not be purchased Securities of less than A-quality may not in the aggregate exceed 13% of the investment manager's portfolio. An investment manager's portfolio of commercial MBS and ABS shall not exceed 10% of the portfolio at the time of purchase.
Other financial instruments	Unhedged currency exposure in countries not defined as "high income economies" by the World Bank

All other investments not prohibited by the Plan are permitted. At December 31, 2014 and 2013, the Plan held certain investments which are no longer deemed acceptable to acquire. These positions will be liquidated when the investment managers deem that such liquidation is in the best interest of the Plan.

The target allocation range below is both historic and prospective in that it has not changed since prior to 2013. It is the asset allocation range that the investment managers have been advised to adhere to and within which they may make tactical asset allocation decisions.


						Weighted
						Average
	2014	Percentage of Plan Assets				Expected
	Target	at December 31,				Long-term
	Allocation	2014		2013		Rate of Return
Asset category:
Cash equivalents	0– 20%	8.7	%	5.5	%	0.26	%
Equity securities	40– 60	48.2		50.6		4.05
Fixed income securities	40– 60	43.1		43.9		1.98
Other financial instruments	0– 5	-		-		-

Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure fair value (see Note 18 - Fair Value Measurements). There were no assets classified as Level 3 assets during the years ended December 31, 2014 and 2013.

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments valued using the NAV (Net Asset Value) are classified as level 2 if the Plan can redeem its investment with the investee at the NAV at the measurement date. If the Plan can never redeem the investment with the investee at the NAV, it is considered a level 3. If the Plan can redeem the investment at the NAV at a future date, the Plan's assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset.

The Plan uses the Thomson Reuters Pricing Service to determine the fair value of equities excluding commingled pension trust funds, the pricing service of IDC Corporate USA to determine the fair value of fixed income securities excluding commingled pension trust funds and JP Morgan Chase Bank, N.A. to determine the fair value of commingled pension trust funds. The major categories of Plan assets measured at fair value on a recurring basis as of December 31 are presented in the following table (in thousands).


		Level 1		Level 2		Level 3		Total
		Inputs		Inputs		Inputs		Fair Value
2014
Cash equivalents:
Foreign currencies	$	31	$	-	$	-	$	31
Government issues		-		249		-		249
Short term investment funds		-		6,327		-		6,327
Total cash equivalents		31		6,576		-
Equity securities:
Common stock		14,732		-		-		14,732
Depository receipts		185		-		-		185
Commingled pension trust funds		-		10,802		-		10,802
Exchange traded funds		10,573		-		-		10,573
Preferred stock		140		-		-		140
Total equity securities		25,630		10,802		-		36,432
Fixed income securities:
Auto loan receivable		-		330		-		330
Collateralized mortgage obligations		-		682		-		682
Commingled pension trust funds		-		21,083		-		21,083
Corporate Bonds		-		2,971		-		2,971
FHLMC		-		73		-		73
FNMA		-		1,951		-		1,951
GNMA II		-		123		-		123
Government Issues		-		5,139		-		5,139
Other asset backed securities		-		160		-		160
Other securities		-		33		-		33
Total fixed income securities		-		32,545		-		32,545
Total Plan investments	$	25,661	$	49,923	$	-	$	75,584

At December 31, 2014, the portfolio was managed by two investment firms, with control of the portfolio split approximately 57% and 39% under the control of the investment managers with the remaining 4% under the direct control of the Plan. A portfolio concentration in two of the commingled pension trust funds and a short term investment fund of 13%, 9% and 8%, respectively, existed at December 31, 2014.


		Level 1		Level 2		Level 3		Total
		Inputs		Inputs		Inputs		Fair Value
2013
Cash equivalents:
Foreign currencies	$	92	$	-	$	-	$	92
Government issues		-		937		-		937
Short term investment funds		-		2,498		-		2,498
Total cash equivalents		92		3,435		-		3,527
Equity securities:
Common stock		32,072		-		-		32,072
Depository receipts		309		96		-		405
Preferred stock		151		-		-		151
Real estate investment fund		94		-		-		94
Total equity securities		32,626		96		-		32,722
Fixed income securities:
Auto loan receivable		-		232		-		232
Collateralized mortgage obligations		-		7,079		-		7,079
Corporate Bonds		-		7,609		-		7,609
FHLMC		-		883		-		883
FNMA		-		3,044		-		3,044
GNMA I		-		215		-		215
GNMA II		-		96		-		96
Government Issues		-		8,984		-		8,984
Municipals		-		212		-		212
Total fixed income securities		-		28,354		-		28,354
Total Plan investments	$	32,718	$	31,885	$	-	$	64,603

At December 31, 2013 the portfolio was managed by two investment firms, with control of the portfolio split approximately 58% and 41% under the control of the investment managers with the remaining 1% under the direct control of the Plan. A portfolio concentration in the State Street Bank & Trust Co. Short Term Investment Fund of 5% existed at December 31, 2013.

Postretirement Benefit Plan

An entity acquired by the Company provided health and dental care benefits to retired employees who met specified age and service requirements through a postretirement health and dental care plan in which both the acquired entity and the retirees shared the cost. The plan provided for substantially the same medical insurance coverage as for active employees until their death and was integrated with Medicare for those retirees aged 65 or older. In 2001, the plan's eligibility requirements were amended to curtail eligible benefit payments to only retired employees and active employees who had already met the then-applicable age and service requirements under the Plan. In 2003, retirees under age 65 began contributing to health coverage at the same cost-sharing level as that of active employees. Retirees ages 65 or older were offered new Medicare supplemental plans as alternatives to the plan historically offered. The cost sharing of medical coverage was standardized throughout the group of retirees aged 65 or older. In addition, to be consistent with the administration of the Company's dental plan for active employees, all retirees who continued dental coverage began paying the full monthly premium. The accrued liability included in other liabilities in the consolidated statements of financial condition related to this plan amounted to $124 thousand and $93 thousand as of December 31, 2014 and 2013, respectively. The postretirement expense for the plan that was included in salaries and employee benefits in the consolidated statements of income was not significant for the years ended December 31, 2014, 2013 and 2012. The plan is not funded.

The components of accumulated other comprehensive loss related to the defined benefit plan and postretirement benefit plan as of December 31 are summarized below (in thousands):


		2014			2013
Defined benefit plan:
Net actuarial loss	$	(17,747	)	$	(8,237	)
Prior service cost		(52	)		(72	)
		(17,799	)		(8,309	)
Postretirement benefit plan:
Net actuarial loss		(186	)		(163	)
Prior service credit		372			440
		186			277
		(17,613	)		(8,032	)
Deferred tax benefit		6,977			3,182
Amounts included in accumulated other comprehensive loss	$	(10,636	)	$	(4,850	)

Changes in plan assets and benefit obligations recognized in other comprehensive income on a pre-tax basis during the years ended December 31 are as follows (in thousands):


		2014			2013
Defined benefit plan:
Net actuarial (loss) gain	$	(9,669	)	$	11,847
Amortization of net loss		159			1,344
Amortization of prior service cost		20			21
		(9,490	)		13,212
Postretirement benefit plan:
Net actuarial (loss) gain		(40	)		13
Amortization of net loss		17			19
Amortization of prior service credit		(68	)		(68	)
		(91	)		(36	)
Total recognized in other comprehensive income	$	(9,581	)	$	13,176

For the year ending December 31, 2015, the estimated net loss and prior service credit for the plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost is $943 thousand and $47 thousand, respectively.

Defined Contribution Plan

Employees that meet specified eligibility conditions are eligible to participate in the Company sponsored 401(k) plan. Under the plan, participants may make contributions, in the form of salary deferrals, up to the maximum Internal Revenue Code limit. The Company matches a participant's contributions up to 4.5% of compensation, calculated at 100% of the first 3% of compensation and 50% of the next 3% of compensation deferred by the participant. The Company may also make additional discretionary matching contributions, although no such additional discretionary contributions were made in 2014, 2013 or 2012. The expense included in salaries and employee benefits in the consolidated statements of income for this plan amounted to $1.1 million in 2014 and 2013 and $1.0 million in 2012.

Supplemental Executive Retirement Plans

The Company has non-qualified Supplemental Executive Retirement Plans ("SERPs") covering four former executives. The unfunded pension liability related to the SERPs was $2.2 million and $2.1 million at December 31, 2014 and 2013, respectively. SERP expense was $295 thousand, $95 thousand, and $1.3 million for 2014, 2013 and 2012, respectively.