RETIREMENT PLANS

The Corporation’s banking subsidiary has a non-contributory, defined benefit pension plan. Retirement benefits are a function of both years of service and compensation. The funding policy is to contribute annually the amount that is sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act.

A measurement date of December 31 has been used for the fiscal years ended December 31, 2017 and 2016.



In thousands	2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	28,625		$	26,670
Service cost	839			795
Interest cost	1,135			1,136
Change in assumptions	2,040			1,059
Benefits paid	(1,092		)	(1,035		)
Benefit obligation at end of year	31,547			28,625
Change in plan assets:
Fair value of plan assets at beginning of year	38,715			36,880
Actual return on plan assets	4,816			2,870
Employer contribution	—			—
Benefits paid	(1,092		)	(1,035		)
Fair value of plan assets at end of year	42,439			38,715
Funded Status, included in other assets	$	10,892		$	10,090
Amounts recognized in accumulated other comprehensive loss:
Total net actuarial loss	$	7,924		$	8,859
Prior service cost	—			—
Total included in accumulated other comprehensive loss (pretax)	$	7,924		$	8,859

The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic pension cost during the next fiscal year are as follows:



In thousands
Net loss	$	515
Prior service cost	—
	$	515

The accumulated benefit obligation totaled $30,228,000 and $27,508,000 at December 31, 2017 and 2016, respectively.

For the years ended December 31, 2017 and 2016 the mortality assumptions were derived using the mortality rates from RP-2006 (underlying baseline table from SOA RP-2014 study based on experience data for private pension plans of 2006, the central year of experience data 2004-2008).

The components of net periodic benefit costs (income) related to the non-contributory, defined benefit pension plan for the years ended December 31 are as follows:



In thousands	2017			2016			2015
Components of net periodic benefit cost (income):
Service cost	$	839		$	795		$	881
Interest cost	1,135			1,136			1,040
Expected return on plan assets	(2,518		)	(2,429		)	(2,542		)
Recognized net actuarial loss	676			682			481
Amortization of prior service cost	—			1			24
Net Periodic Benefit Cost (Income)	132			185			(116		)
Net loss	(259		)	618			1,409
Amortization of net loss	(676		)	(682		)	(481		)
Amortization of prior service cost	—			(1		)	(24		)
Total recognized in other comprehensive (income) loss	$	(935	)	$	(65	)	$	904
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	(803	)	$	120		$	788

For the years ended December 31, 2017, 2016 and 2015, the assumptions used to determine the benefit obligation are as follows:



	2017		2016		2015
Discount rate	3.55	%	4.05	%	4.35	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%

For the years ended December 31, 2017, 2016 and 2015, the assumptions used to determine the net periodic benefit cost (income) are as follows:



	2017		2016		2015
Discount rate	4.05	%	4.35	%	3.90	%
Expected long-term rate of return on plan assets	6.75	%	6.75	%	6.75	%
Rate of compensation increase	3.50	%	3.50	%	3.75	%

The Corporation’s pension plan weighted-average assets’ allocations at December 31, 2017 and 2016, are as follows:



	2017		2016
Equity securities	50	%	48	%
Debt securities	44	%	46	%
Short-term fixed income	—	%	—	%
Real estate	6	%	6	%
	100	%	100	%

The Corporation’s overall investment strategy is to achieve a mix of investments to meet the long-term rate of return assumption and near-term pension obligations with a diversification of assets types, fund strategies and fund managers. The mix of investments is adjusted periodically by retaining an advisory firm to recommend appropriate allocations after reviewing the Corporation’s risk tolerance on contribution levels, funded status and plan expense, and any applicable regulatory requirements. The weighted-average assets’ allocation in the above table represents the Corporation’s conclusion on the appropriate mix of investments. The specific investment vehicles are institutional separate accounts from a variety of fund managers which are regularly reviewed by the Corporation for acceptable performance.

Equity securities included Corporation common stock in amounts of $2,114,000, or 5% of total plan assets, and $2,175,000, or 6% of total plan assets, at December 31, 2017 and 2016, respectively.

Fair value measurements at December 31, 2017, are as follows:



In thousands	Total		Level 1		Level 2		Level 3
Equity securities	$	21,423	$	2,114	$	19,309	$	—
Debt securities	18,668		—		18,668		—
Real estate	2,348		—		2,348		—

Fair value measurements at December 31, 2016, are as follows:



In thousands	Total		Level 1		Level 2		Level 3
Equity securities	$	18,687	$	2,175	$	16,512	$	—
Debt securities	17,888		—		17,888		—
Real estate	2,140		—		2,140		—

It has not yet been determined the amount that the Bank may contribute to the Plan in 2018. The Corporation reduced the future benefit accruals for the defined benefit pension plan effective January 1, 2010, in order to manage total benefit expense. The new formula is the earned benefit as of December 31, 2009, plus 0.75% of a participant’s average monthly pay multiplied by years of benefit service earned on and after January 1, 2010, but not more than 25 years. The benefit formula percentage and maximum years of benefit service were both reduced. Effective April 1, 2012, no inactive or former participant in the Plan is eligible to again participate in the plan, and no employee hired after March 31, 2012, is eligible to participate in the Plan. As of the last annual census, ACNB Bank had a combined 353 active, vested terminated, and retired persons in the Plan.

Based on current data and assumptions, the following benefit payments, which reflect expected future service, as appropriate, are:



Years Ending	In thousands
2018	$	1,320
2019	1,410
2020	1,440
2021	1,650
2022	1,660
2023 - 2027	9,200

The Corporation’s banking subsidiary maintains a 401(k) plan for the benefit of eligible employees. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The Bank makes matching contributions up to 100% of the first 4% of an employee’s compensation contributed to the plan. Matching contributions vest immediately to the employee. Bank contributions to and expenses for the plan were $626,000, $541,000 and $547,000 for 2017, 2016 and 2015, respectively.

RIG has a similar but separate 401(k) plan with the match of 6% for non-highly compensated employees and 3% match for highly compensated employees. RIG’s contributions to and expenses for the plan were $86,000, $83,000 and $74,000 for 2017, 2016 and 2015, respectively.

The Corporation’s banking subsidiary maintains nonqualified compensation plans for selected senior officers. The estimated present value of future benefits is accrued over the period from the effective date of the agreements until the expected retirement dates of the individuals. The balance accrued for these plans included in other liabilities as of December 31, 2017 and 2016, totaled $2,803,000 and $2,550,000, respectively. The annual expense included in salaries and benefits expense totaled $279,000, $383,000 and $360,000 during the years ended December 31, 2017, 2016 and 2015, respectively. To fund the benefits under these plans, the Bank is the owner of single premium life insurance policies on participants in the nonqualified retirement plans.