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12. Employee Benefits
 12 Months Ended
Dec. 31, 2018
Employee Benefits  
Employee Benefits

(12) Employee Benefits

 

We sponsor a pretax savings and profit sharing plan (the “401(k) Plan”) qualified under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, eligible employees are able to contribute up to the maximum allowed under the law. We may, at our discretion, match 100% of employees’ contributions up to $2,000 per employee per calendar year. Our matching contributions to the 401(k) Plan were $1.5 million, $1.2 million, and $929,000 respectively, for the years ended December 31, 2018, 2017 and 2016.

 

We also sponsor a defined benefit plan, the MFN Financial Corporation Pension Plan (the “Plan”). The Plan benefits were frozen on June 30, 2001.

 

The following tables represents a reconciliation of the change in the plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2018 and 2017:

 

    December 31,  
    2018     2017  
    (In thousands)  
Change in Projected Benefit Obligation                
Projected benefit obligation, beginning of year   $ 22,562     $ 21,515  
Service cost     –       –  
Interest cost     775       855  
Assumption changes     (1,867 )     1,535  
Actuarial (gain) loss     (361 )     (298 )
Settlements     –       –  
Benefits paid     (1,024 )     (1,045 )
   Projected benefit obligation, end of year   $ 20,085     $ 22,562  
                 
Change in Plan Assets                
Fair value of plan assets, beginning of year   $ 16,446     $ 16,243  
Return on assets     (1,806 )     1,508  
Employer contribution     1,000       –  
Expenses     (248 )     (260 )
Settlements     –       –  
Benefits paid     (1,024 )     (1,045 )
   Fair value of plan assets, end of year   $ 14,368     $ 16,446  
                 
Funded Status at end of year   $ (5,717 )   $ (6,116 )

 

Additional Information

 

Weighted average assumptions used to determine benefit obligations and cost at December 31, 2018 and 2017 were as follows:

 

    December, 31  
    2018     2017  
Weighted average assumptions used to determine benefit obligations                
Discount rate     4.11%       3.50%  
                 
Weighted average assumptions used to determine net periodic benefit cost                
Discount rate     3.50%       4.05%  
Expected return on plan assets     7.25%       7.25%  

 

Our overall expected long-term rate of return on assets is 7.25% per annum as of December 31, 2018. The expected long-term rate of return is based on the weighted average of historical returns on individual asset categories, which are described in more detail below.

 

    December 31,  
    2018     2017     2016  
    (In thousands)  
Amounts recognized on Consolidated Balance Sheet                        
Other assets   $ –     $ –     $ –  
Other liabilities     (5,717 )     (6,116 )     (5,272 )
   Net amount recognized   $ (5,717 )   $ (6,116 )   $ (5,272 )
                         
Amounts recognized in accumulated other comprehensive loss consists of:                        
Net loss   $ 11,896     $ 11,350     $ 10,618  
Unrecognized transition asset     –       –       –  
   Net amount recognized   $ 11,896     $ 11,350     $ 10,618  
                         
Components of net periodic benefit cost                        
Interest cost   $ 775     $ 855     $ 882  
Expected return on assets     (1,163 )     (1,149 )     (1,199 )
Amortization of transition asset     –       –       –  
Amortization of net loss     443       405       553  
Net periodic benefit cost     55       111       236  
Settlement (gain)/loss     –       –       –  
   Total   $ 55     $ 111     $ 236  
                         
Benefit Obligation Recognized in Other Comprehensive Loss (Income)                        
Net loss (gain)   $ 545     $ 732     $ 25  
Prior service cost (credit)     –       –       –  
Amortization of prior service cost     –       –       –  
   Net amount recognized in other comprehensive loss (income)   $ 545     $ 732     $ 25  

 

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2019 is $376,000.

 

The weighted average asset allocation of our pension benefits at December 31, 2018 and 2017 were as follows:

 

    December 31,  
    2018     2017  
Weighted Average Asset Allocation at Year-End                
Asset Category                
Equity securities     78%       83%  
Debt securities     22%       17%  
Cash and cash equivalents     0%       0%  
   Total     100%       100%  

 

Our investment policies and strategies for the pension benefits plan utilize a target allocation of 75% equity securities and 25% fixed income securities (excluding Company stock). Our investment goals are to maximize returns subject to specific risk management policies. We address risk management and diversification by the use of a professional investment advisor and several sub-advisors which invest in domestic and international equity securities and domestic fixed income securities. Each sub-advisor focuses its investments within a specific sector of the equity or fixed income market. For the sub-advisors focused on the equity markets, the sectors are differentiated by the market capitalization, the relative valuation and the location of the underlying issuer. For the sub-advisors focused on the fixed income markets, the sectors are differentiated by the credit quality and the maturity of the underlying fixed income investment. The investments made by the sub-advisors are readily marketable and can be sold to fund benefit payment obligations as they become payable.

 

  Cash Flows        
           
  Estimated Future Benefit Payments (In thousands)        
  2019   $ 829  
  2020     873  
  2021     911  
  2022     947  
  2023     976  
  Years 2024 - 2028     5,507  
           
  Anticipated Contributions in 2019   $ –  

  

The fair value of plan assets at December 31, 2018 and 2017, by asset category, is as follows:

 

    December 31, 2018  
    Level 1 (1)     Level 2 (2)     Level 3 (3)     Total  
Investment Name:   (in thousands)  
Company Common Stock   $ 2,635     $ –     $ –     $ 2,635  
Large Cap Value     –       1,983       –       1,983  
Mid Cap Index     –       563       –       563  
Small Cap Growth     –       559       –       559  
Small Cap Value     –       558       –       558  
Large Cap Blend     –       587       –       587  
Growth     –       2,031       –       2,031  
International Growth     –       2,301       –       2,301  
Core Bond     –       1,921       –       1,921  
High Yield     –       364       –       364  
Inflation Protected Bond     –       510       –       510  
Money Market     –       356       –       356  
   Total   $ 2,635     $ 11,733     $ –     $ 14,368  

 

    December 31, 2017  
    Level 1 (1)     Level 2 (2)     Level 3 (3)     Total  
Investment Name:   (in thousands)  
Company Common Stock   $ 3,633     $ –     $ –     $ 3,633  
Large Cap Value     –       2,324       –       2,324  
Mid Cap Index     –       654       –       654  
Small Cap Growth     –       657       –       657  
Small Cap Value     –       647       –       647  
Large Cap Blend     –       661       –       661  
Growth     –       2,313       –       2,313  
International Growth     –       2,683       –       2,683  
Core Bond     –       1,870       –       1,870  
High Yield     –       373       –       373  
Inflation Protected Bond     –       505       –       505  
Money Market     –       126       –       126  
   Total   $ 3,633     $ 12,813     $ –     $ 16,446  

 

  (1) Company common stock is classified as level 1 and valued using quoted prices in active markets for identical assets.

 

  (2) All other plan assets in stock, bond and money market funds are classified as level 2 and valued using significant observable inputs.

 

  (3) There are no plan assets classified as level 3 in the fair value hierarchy as a result of having significant unobservable inputs.