16. Pension Benefits

The Company has a noncontributory defined benefit pension plan covering certain employees who work at least 1,000 hours per year. The participants shall have a vested interest in their accrued benefit after five full years of service. The benefits of the plan are based upon the employee's years of service and average annual earnings for the highest five consecutive calendar years during the final ten year period of employment. Plan assets are primarily debt securities (including US Treasury and Agency securities, corporate notes and bonds), listed common stocks (including shares of AmeriServ Financial, Inc. common stock which is limited to 10% of the plan's assets), mutual funds, and short-term cash equivalent instruments. The net periodic pension cost for the three and nine months ended September 30, 2013 and 2012 were as follows (in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Components of net periodic benefit cost
Service cost	$	453		$	373		$	1,359		$	1,119
Interest cost		291			299			873			897
Expected return on plan assets		(440	)		(406	)		(1,320	)		(1,218	)
Amortization of prior year service cost		(5	)		(5	)		(15	)		(15	)
Amortization of transition asset		(2	)		(4	)		(6	)		(12	)
Recognized net actuarial loss		341			262			1,023			786
Net periodic pension cost	$	638		$	519		$	1,914		$	1,557

The higher pension expense in 2013 reflects the negative impact that the low interest rate environment is having on the discount rate used to calculate the plan liabilities. This increasing pension cost was a key factor causing the Company to implement a soft freeze of its defined benefit pension plan to provide that non-union employees hired on or after January 1, 2013 and union employees hired on or after January 1, 2014 are not eligible to participate in the pension plan. Instead, such employees are eligible to participate in a qualified 401(k) plan.