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 includes 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:


	2024		2023
Change in benefit obligation
Benefit obligation, beginning balance	$	6,628	$	6,896
Interest cost	294		317
Actuarial loss (gain)	(76)		(241)
Benefits paid, including plan expenses	(443)		(344)
Benefit obligation, ending balance	6,403		6,628
Change in plan assets
Fair value of plan assets, beginning balance	7,066		6,582
Investment return (loss)	680		828
Contributions	—		—
Benefits paid, including plan expenses	(443)		(344)
Fair value of plan assets, ending balance	7,303		7,066
Surplus (deficiency) in funded status, ending balance	$	900	$	438
Accumulated benefit obligation, ending balance	$	6,403	$	6,628


	2024		2023
Change in accrued pension benefit costs
Accrued benefit cost, beginning balance	$	438	$	(314)
Contributions	—		—
Net periodic benefit (cost) credit	82		(95)
Net change in unrecognized actuarial loss and prior service cost	380		847
Prepaid (accrued) pension liability, ending balance	$	900	$	438

The funded status of the plan is recorded in our consolidated balance sheets. We adjust the funded status in a prepaid account and 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).

The components of net periodic benefit cost are as follows for the years ended December 31:


	2024		2023		2022
Interest cost on benefit obligation	$	294	$	317	$	224
Expected return on plan assets	(402)		(371)		(490)
Amortization of unrecognized actuarial net loss	26		149		216
Settlement loss	—		—		109
Net periodic benefit cost (credit)	$	(82)	$	95	$	59

Settlement losses during 2022 were recognized in connection with lump-sum benefit distributions. 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 components of accumulated other comprehensive income are as follows for the years ended December 31:


	2024		2023		2022
Transition (asset) obligation	$	—	$	—	$	—
Net (gain) loss	502		882		1,729
Past service (credit) cost	—		—		—
Accumulated other comprehensive income	$	502	$	882	$	1,729

The actuarial assumptions used in determining the benefit obligation are as follows for the years ended December 31:


	2024		2023		2022
Discount rate	5.32	%	4.69	%	4.88	%
Expected long-term rate of return on plan assets	6.00	%	6.00	%	6.00	%

The actuarial weighted average assumptions used in determining the net periodic pension costs are as follows for the years ended December 31:


	2024		2023		2022
Discount rate	4.69	%	4.88	%	2.43	%
Expected long-term rate of return on plan assets	6.00	%	6.00	%	6.00	%

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.

The fair values of our pension plan assets by asset category were as follows as of December 31:


	2024				2023
	Total		(Level 2)		Total		(Level 2)
Short-term investments	$	234	$	234	$	103	$	103
Common collective trusts
Fixed income	3,322		3,322		3,273		3,273
Equity investments	3,747		3,747		3,690		3,690
Total	$	7,303	$	7,303	$	7,066	$	7,066

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, 2024 and 2023:

•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.

The components of shares eligible to be issued under the Directors Plan were as follows as of December 31:


	2024			2023
	Eligible Shares	Market Value		Eligible Shares	Market Value
Unissued	101,493	$	2,638	154,119	$	3,313
Shares held in Rabbi Trust	142,535	3,704		150,581	3,237

We provide an executive cash incentive plan, which 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 22% to 35% of the employee's annual salary. Expenses related to this plan for 2024, 2023, and 2022 were $103, $53, and $252 respectively.

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 2024, 2023 and 2022 were $1,485, $796, and $1,072, respectively.

Under the RSP, an equity based bonus plan, we may award restricted stock bonuses to eligible employees on an annual basis that are not fully transferable or vested until certain conditions are met. Currently, the eligible employees are the Bank's CEO, President, and CFO. 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. The employee must also satisfy the annual 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. All such grant agreements contain vesting conditions and clawback provisions.

A summary of changes in nonvested restricted stock awards follows for the years ended December 31:


	2024			2023
	Number of Shares	Fair Value		Number of Shares	Fair Value
Beginning balance	27,072	$	592	27,072	$	592
Granted	3,901	76		—	—
Vested	(16,240)	(345)		—	—
Forfeited	—	—		—	—
Ending balance	14,733	$	323	27,072	$	592

Expenses related to the RSP for 2024, 2023, 2022 were $95, $253, and $147 respectively. As of December 31, 2024, there was $88 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 2.38 years.

We maintain nonqualified defined contribution retirement plans to provide supplemental retirement benefits to specified participants. Expenses related to these programs for 2024, 2023 and 2022 were $529, $345, and $251, 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 $100 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 $2,895 in 2024, $2,281 in 2023 and $3,026 in 2022.