We have a 401(k) plan in which substantially all employees are eligible to participate. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The plan was amended in 2013 to provide a matching safe harbor contribution for all eligible employees equal to 100% of the first 5.0% of an employee's compensation contributed to the Plan during the year. Employees are 100% vested in the safe harbor matching contributions.

We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007.

Changes in the projected benefit obligation and plan assets during each year, the funded status of the plan, and the net amount recognized in our consolidated balance sheets using an actuarial measurement date of December 31, are summarized as follows during the years ended December 31:


	2020		2019
Change in benefit obligation
Benefit obligation, January 1	$	10,209	$	9,412
Interest cost	306		378
Actuarial loss (gain)	682		1,216
Benefits paid, including plan expenses	(839)		(797)
Benefit obligation, December 31	10,358		10,209
Change in plan assets
Fair value of plan assets, January 1	8,352		7,765
Investment return (loss)	750		1,384
Contributions	—		—
Benefits paid, including plan expenses	(839)		(797)
Fair value of plan assets, December 31	8,263		8,352
Deficiency in funded status at December 31, included on the consolidated balance sheets in accrued interest payable and other liabilities	$	(2,095)	$	(1,857)
Accumulated benefit obligation at December 31	$	10,358	$	10,209


	2020		2019
Change in accrued pension benefit costs
Accrued benefit cost at January 1	$	(1,857)	$	(1,647)
Contributions	—		—
Net periodic benefit cost	(176)		(268)
Net change in unrecognized actuarial loss and prior service cost	(62)		58
Accrued pension benefit cost at December 31	$	(2,095)	$	(1,857)

We have recorded the funded status of the plan in our consolidated balance sheets. We adjust the underfunded status in a liability account to reflect the current funded status of the plan. Any gains or losses that arise during the year but are not recognized as components of net periodic benefit cost are recognized as a component of other comprehensive income (loss).


	2020		2019		2018
Interest cost on benefit obligation	$	306	$	378	$	388
Expected return on plan assets	(488)		(452)		(554)
Amortization of unrecognized actuarial net loss	206		214		242
Settlement loss	152		128		269
Net periodic benefit cost	$	176	$	268	$	345

During 2020, 2019 and 2018, settlement losses of $152, $128 and $269 were recognized in connection with lump-sum benefit distributions, respectively. Many plan participants elect to receive their retirement benefit payments in the form of lump-sum settlements. Pro rata settlement losses, which can occasionally occur as a result of these lump-sum distributions, are recognized only in years when the total of such distributions exceed the sum of the service and interest expense components of net periodic benefit cost.

The expected long-term rate of return is an estimate of anticipated future long-term rates of return on plan assets as measured on a market value basis. Factors considered in arriving at this assumption include:

Our overall investment strategy is to moderately grow the portfolio by investing 50% of the portfolio in equity securities and 50% in fixed income securities. This strategy is designed to generate a long-term rate of return of 6.00%. Equity securities primarily consist of the S&P 500 Index with a smaller allocation to the Small Cap and International Index. Fixed income securities are invested in the Bond Market Index. The plan has appropriate assets invested in short-term investments to meet near term benefit payments.

The asset mix and the sector weighting of the investments are determined by our benefits committee, which is comprised of members of our management. To manage the plan, we retain a third party investment advisor to conduct consultations. We review the performance of the advisor at least annually.


	2020				2019
	Total		(Level 2)		Total		(Level 2)
Short-term investments	$	69	$	69	$	218	$	218
Common collective trusts
Fixed income	3,851		3,851		3,823		3,823
Equity investments	4,343		4,343		4,311		4,311
Total	$	8,263	$	8,263	$	8,352	$	8,352

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2020 and 2019:

•Common collective trusts: These investments are public investment securities valued using the NAV provided by a third party investment advisor. The NAV is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market.

Pursuant to the terms of the Directors Plan, our directors are required to invest at least 25% of their board fees in our common stock. These stock investments can be made either through deferred fees or through the purchase of shares through the Dividend Reinvestment Plan. Deferred fees, under the Directors Plan, are converted on a quarterly basis into stock units of our common stock based on the fair value of a share of our common stock as of the relevant valuation date. Stock units credited to a participant’s account are eligible for stock and cash dividends as declared. Dividend Reinvestment Plan shares are purchased pursuant to the Dividend Reinvestment Plan.

Distribution of deferred fees from the Directors Plan occurs when the participant retires from the Board of Directors or upon the occurrence of certain other events. The participant is eligible to receive a distribution in the form of shares of our common stock of all of the stock units that are then in his or her account, and any unconverted cash will be converted to and rounded up to whole shares of stock and distributed, as well. The Directors Plan does not allow for cash settlement, and therefore, such share-based payment awards qualify for classification as equity. We may use authorized but unissued shares or purchase shares of common stock on the open market to meet our obligations under the Directors Plan.

We maintain the Rabbi Trust to fund the Directors Plan. The Rabbi Trust is an irrevocable grantor trust to which we may contribute assets for the limited purpose of funding a nonqualified deferred compensation plan. Although we may not use the assets of the Rabbi Trust for any purpose other than meeting our obligations under the Directors Plan, the assets of the Rabbi Trust remain subject to the claims of our creditors and are included in the consolidated financial statements. We may contribute cash or common stock to the Rabbi Trust from time to time for the sole purpose of funding the Directors Plan. The Rabbi Trust will use any cash that we contribute to purchase shares of our common stock on the open market. Shares held in the Rabbi Trust are included in the calculation of earnings per share.


	2020			2019
	Eligible Shares	Market Value		Eligible Shares	Market Value
Unissued	117,053	$	2,291	177,935	$	4,326
Shares held in Rabbi Trust	59,162	1,158		27,069	658
Total	176,215	$	3,449	205,004	$	4,984

On June 24, 2020, we amended and restated the Isabella Bank Corporation Employee Cash Incentive Plans to create two separate plans: one for non-executive employees and the other, the Isabella Bank Corporation Executive Cash Incentive Plan for executive employees. The executive plan provides separate potential payouts for Isabella Bank's CEO, President and CFO based on achievement of personal and corporate goals. The potential payouts under the plan range from 20% to 30% of the employee's annual salary. Expenses related to this plan for 2020 were $165.

We provide cash incentive plans to reward employees above and beyond their base salaries when our performance and operating profitability exceed established annual targets. Incentives are also awarded for achievement of personal performance

goals. Expenses related to this plan for 2020, 2019 and 2018 were $1,101, $1,070, and $500, respectively. Prior to 2020, such expenses included cash incentives for all eligible employees, including executives.

On June 24, 2020 the Board of Directors adopted the RSP, an equity-based bonus plan. The primary purpose of the plan is to promote our growth and profitability by attracting and retaining executive officers and key employees of outstanding competence through ownership of equity that provides them with incentives to achieve corporate objectives. In connection with the adoption of the RSP, the Isabella Bank Corporation Stock Award Incentive Plan was terminated.

The RSP authorizes the issuance of unvested restricted stock to an eligible employee with a maximum award ranging from 25% to 40% of the employee’s annual salary, on a calendar year basis. Under the RSP, the Board of Directors may grant restricted stock awards to eligible employees on an annual basis based on satisfactory achievement of performance targets and measures established by the Board of Directors. If these grant conditions are not satisfied, then the award of restricted shares will lapse or be adjusted appropriately, at the discretion of the Board of Directors. Restricted stock awards granted are not fully transferable or vested until certain conditions are met, as stated in the plan.

Compensation expense related to the RSP was $14 for 2020. As of December 31, 2020, there was $68 of total remaining unrecognized compensation expense related to nonvested restricted stock awards granted under the RSP. The remaining expense is expected to be recognized over a weighted-average service period of 3.17 years.

We maintained an equity incentive plan for the purpose of promoting growth and operating profitability, as well as attracting and retaining executive officers of outstanding competence, through ownership of equity. Under this plan, stock was granted to specified individuals subject to certain conditions, and the transfer of shares granted under the plan is restricted. Expenses related to this plan for 2019 and 2018 were $171 and $45, respectively. This plan was terminated in 2020 with the adoption of our Restricted Stock Plan.

We maintain nonqualified defined contribution retirement plans to provide supplemental retirement benefits to specified participants. Expenses related to these programs for 2020, 2019 and 2018 were $373, $355, and $356, respectively. Expenses are recognized over the participants’ expected years of service.

We maintain a self-funded medical plan under which we are responsible for the first $75 per year of claims made by a covered family. Expenses are accrued based on estimates of the aggregate liability for claims incurred and our experience. Expenses were $1,868 in 2020, $2,445 in 2019 and $2,695 in 2018.