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EMPLOYEE RETIREMENT PLANS | 12 Months Ended
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Dec. 31, 2019
EMPLOYEE RETIREMENT PLANS |
EMPLOYEE RETIREMENT PLANS | 12. EMPLOYEE RETIREMENT PLANS The Company has a defined benefit pension plan covering substantially all employees, as well as an unfunded supplemental pension plan for key executives. Retirement benefits are provided based on employees’ years of credited service and average earnings or stated amounts for years of service. Normal retirement age is 65 with provisions for earlier retirement. The plan also has provisions for disability and death benefits. The plan closed to new participants as of August 1, 2011, and benefit accruals under the plan were frozen effective December 31, 2016. The Company’s funding policy for the defined benefit pension plan is to make contributions to the plan such that all employees’ benefits will be fully provided by the time they retire. Plan assets are stated at market value and consist primarily of equity securities and fixed income securities, mainly U.S. government and corporate obligations. The Company follows ASC 715, Compensation – Retirement Benefits, which requires employers to recognize the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability in their statements of financial position and to recognize changes in the funded status in the year in which the changes occur as a component of comprehensive income. In addition, ASC 715 requires employers to measure the funded status of their plans as of the date of their year-end statements of financial position. ASC 715 also requires additional disclosures regarding amounts included in accumulated other comprehensive loss. The Company’s pension plan’s weighted average asset allocation at December 31, 2019 and 2018, by asset category, was as follows:
|  | Plan Assets at December 31, |
|  | 2019 |  | 2018 |
Asset Category: |  |  |  |  |
Equity Securities |  | 55 | % | 53 | %
Fixed Income Securities |  | 36 | % | 40 | %
Other |  | 9 | % | 7 | %
Total |  | 100 | % | 100 | %
The Company has a Retirement Plan Committee, consisting of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, to manage the operations and administration of all benefit plans and related trusts. The committee has an investment policy for the pension plan assets that establishes target asset allocation ranges for the above listed asset classes as follows: equity securities: 20% - 80%; fixed income securities: 20% - 80%; and other, principally cash: 0% - 20%. On a semi-annual basis, the committee reviews progress towards achieving the pension plan’s performance objectives. To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 7.00% long-term rate of return on assets assumption for both 2019 and 2018. To determine the funded status of the pension plan at December 31, 2019 and 2018, the Company used a weighted average discount rate of 3.36% and 4.39% in 2019 and 2018, respectively. The following is a reconciliation of the change in benefit obligation and plan assets of both the defined benefit pension plan and the unfunded supplemental pension plan for the years ended December 31, 2019 and 2018:
|  | Defined Benefit Pension Plan |  | Supplemental Pension Plan
|  | 2019 |  | 2018 |  | 2019 |  | 2018
|  | (Dollars in thousands)
Change in projected benefit obligation |  |  |  |  |  |  |  |  |  |  |  |
Projected benefit obligation, beginning of year |  | $ | 45,010 |  | $ | 49,375 |  | $ | 15,891 |  | $ | 17,176
Service cost |  |  | 463 |  |  | 360 |  |  | — |  |  | 209
Interest cost |  |  | 1,801 |  |  | 1,608 |  |  | 659 |  |  | 595
Actuarial loss (gain) |  |  | 5,660 |  |  | (4,039) |  |  | 2,355 |  |  | (1,601)
Benefits paid |  |  | (2,382) |  |  | (2,294) |  |  | (445) |  |  | (488)
Projected benefit obligation, end of year |  | $ | 50,552 |  | $ | 45,010 |  | $ | 18,460 |  | $ | 15,891
Change in plan assets |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets, beginning of year |  | $ | 37,353 |  | $ | 38,369 |  | $ | — |  | $ | —
Actual return on plan assets |  |  | 6,528 |  |  | (1,362) |  |  | — |  |  | —
Administrative expenses |  |  | (463) |  |  | (360) |  |  | — |  |  | —
Contributions |  |  | — |  |  | 3,000 |  |  | 445 |  |  | 488
Benefits paid |  |  | (2,382) |  |  | (2,294) |  |  | (445) |  |  | (488)
Fair value of plan assets, end of year |  | $ | 41,036 |  | $ | 37,353 |  | $ | — |  | $ | —
Funded status of plan |  | $ | (9,516) |  | $ | (7,657) |  | $ | (18,460) |  | $ | (15,891)
Amounts recognized in the consolidated balance sheets consist of: |  |  |  |  |  |  |  |  |  |  |  |
Accrued liabilities - other |  | $ | — |  | $ | — |  | $ | (453) |  | $ | (436)
Long-term pension liability |  |  | (9,516) |  |  | (7,657) |  |  | (18,007) |  |  | (15,455)
Net amount recognized |  | $ | (9,516) |  | $ | (7,657) |  | $ | (18,460) |  | $ | (15,891)
Amounts recognized in accumulated other comprehensive loss consist of: |  |  |  |  |  |  |  |  |  |  |  |
Accumulated loss, net of income tax benefit of $4,478, $4,082, $1,684 and $1,102, respectively |  | $ | 12,745 |  | $ | 11,616 |  | $ | 4,792 |  | $ | 3,136
Prior service cost, net of income tax liability of $0, $0, ($12) and ($28), respectively |  |  | — |  |  | — |  |  | (34) |  |  | (81)
Net amount recognized |  | $ | 12,745 |  | $ | 11,616 |  | $ | 4,758 |  | $ | 3,055
As noted above, benefit accruals under the pension plan were frozen, effective December 31, 2016. Therefore, the accumulated benefit obligation of the defined benefit pension plan and supplemental pension plan were equal to the respective plans’ projected benefit obligations, as shown in the above table, at December 31, 2019 and 2018. Assumptions used in determining net periodic pension cost for the years ended December 31, 2019 and 2018 were:
|  | Defined Benefit Pension Plan |  | Supplemental Pension Plan |
|  | 2019 |  | 2018 |  | 2019 |  | 2018 |
Discount rate for determining projected benefit obligation |  | 4.38 | % | 3.70 | % | 4.42 | % | 3.75 | %
Discount rate in effect for determining service cost |  | — |  | — |  | — |  | 3.83 | %
Discount rate in effect for determining interest cost |  | 4.05 | % | 3.33 | % | 4.19 | % | 3.51 | %
Long-term rate of return on plan assets |  | 7.00 | % | 7.00 | % | — |  | — |
The components of net periodic pension cost for the years ended December 31, 2019 and 2018, were:
|  | 2019 |  | 2018
|  | (Dollars in thousands)
Service cost |  | $ | 463 |  | $ | 569
Interest cost |  |  | 2,460 |  |  | 2,204
Expected return on plan assets |  |  | (2,502) |  |  | (2,711)
Net amortization and deferral |  |  | 626 |  |  | 634
Net periodic pension cost |  | $ | 1,047 |  | $ | 696
The components of net periodic pension cost other than the service cost component were included in “other expense, net” in the Consolidated Statements of Earnings. The Company expects to recognize expense of $808,000 due to the amortization of unrecognized loss and income of $63,000 due to the amortization of prior service credit as components of net periodic pension cost in 2020, which are included in accumulated other comprehensive loss at December 31, 2019. It is the Company’s intention to satisfy the minimum funding requirements and maintain at least an 80% funding percentage in its defined benefit retirement plan in future years. At this time, the Company expects that any cash contributions necessary to satisfy these requirements in 2020 would not be material. Projected benefit payments for the plans at December 31, 2019, were estimated as follows:
|  | Defined Benefit |  | Supplemental
|  | Pension Plan |  | Pension Plan
|  | (Dollars in thousands)
2020 |  | $ | 2,786 |  | $ | 453
2021 |  | $ | 2,802 |  | $ | 489
2022 |  | $ | 2,785 |  | $ | 538
2023 |  | $ | 2,833 |  | $ | 699
2024 |  | $ | 2,847 |  | $ | 767
2025 - 2029 |  | $ | 14,245 |  | $ | 5,196
The following table summarizes the fair value of the Company’s pension plan assets at December 31, 2019, by asset category within the fair value hierarchy (for further level information, see Note 4):
|  | December 31, 2019
|  | Quoted Prices |  | Significant |  | Significant |  |  |
|  | in Active Markets |  | Observable Inputs |  | Unobservable Inputs |  |  |
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (Dollars in thousands)
Common stocks |  | $ | 15,464 |  | $ | 2,026 |  | $ | — |  | $ | 17,490
Preferred stocks |  |  | 287 |  |  | 29 |  |  | — |  |  | 316
Exchange traded funds |  |  | 5,213 |  |  | — |  |  | — |  |  | 5,213
Corporate obligations |  |  | — |  |  | 4,626 |  |  | — |  |  | 4,626
State and municipal obligations |  |  | — |  |  | 1,062 |  |  | — |  |  | 1,062
Pooled fixed income funds |  |  | 7,598 |  |  | — |  |  | — |  |  | 7,598
U.S. government securities |  |  | — |  |  | 364 |  |  | — |  |  | 364
Marketable CD’s |  |  | — |  |  | 806 |  |  | — |  |  | 806
Cash and cash equivalents |  |  | 3,470 |  |  | — |  |  | — |  |  | 3,470
Subtotal |  | $ | 32,032 |  | $ | 8,913 |  | $ | — |  | $ | 40,945
Other assets (1) |  |  |  |  |  |  |  |  |  |  |  | 91
Total |  |  |  |  |  |  |  |  |  |  | $ | 41,036
(1) This category represents trust receivables that are not leveled. The following table summarizes the fair value of the Company’s pension plan assets at December 31, 2018, by asset category within the fair value hierarchy (for further level information, see Note 4):
|  | December 31, 2018
|  | Quoted Prices |  | Significant |  | Significant |  |  |
|  | in Active Markets |  | Observable Inputs |  | Unobservable Inputs |  |  |
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (Dollars in thousands)
Common stocks |  | $ | 13,556 |  | $ | 1,604 |  | $ | — |  | $ | 15,160
Preferred stocks |  |  | 279 |  |  | 28 |  |  | — |  |  | 307
Exchange traded funds |  |  | 4,454 |  |  | — |  |  | — |  |  | 4,454
Corporate obligations |  |  | — |  |  | 4,568 |  |  | — |  |  | 4,568
State and municipal obligations |  |  | — |  |  | 1,046 |  |  | — |  |  | 1,046
Pooled fixed income funds |  |  | 7,767 |  |  | — |  |  | — |  |  | 7,767
U.S. government securities |  |  | — |  |  | 286 |  |  | — |  |  | 286
Marketable CD’s |  |  | — |  |  | 911 |  |  | — |  |  | 911
Cash and cash equivalents |  |  | 2,748 |  |  | — |  |  | — |  |  | 2,748
Subtotal |  | $ | 28,804 |  | $ | 8,443 |  | $ | — |  | $ | 37,247
Other assets (1) |  |  |  |  |  |  |  |  |  |  |  | 106
Total |  |  |  |  |  |  |  |  |  |  | $ | 37,353
(1) This category represents trust receivables that are not leveled. The Company also has a defined contribution plan covering substantially all employees. The Company contributed $941,000 and $835,000 to the plan in 2019 and 2018, respectively.

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