18. EMPLOYEE BENEFIT PLANS

PENSION PLAN:

The Company has a noncontributory defined benefit pension plan covering all 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. Effective January 1, 2013, the Company implemented a soft freeze of its defined benefit pension plan for non-union employees. A soft freeze means that all existing employees as of December 31, 2012 will remain in the defined benefit pension plan but any new non-union employees hired after January 1, 2013 will no longer be part of the defined benefit plan but instead will be offered retirement benefits under an enhanced 401 (k) program. The Company implemented a similar soft freeze of its defined benefit pension plan for union employees effective January 1, 2014. The Company executed these changes to help reduce its pension costs in future years. Plan assets are primarily debt securities (including U.S. Treasury and Agency securities, corporate notes and bonds), listed common stocks (including shares of the Company’s common stock valued at $1.3 million and is limited to 10% of the plan’s assets), mutual funds, and short-term cash equivalent instruments. The following actuarial tables are based upon data provided by an independent third party as of December 31, 2019.

PENSION BENEFITS:



	YEAR ENDED DECEMBER 31,
	2019		2018
	(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	41,094	$	41,013
Service cost		1,470		1,482
Interest cost		1,569		1,273
Actuarial loss		7,758		823
Special/contractual termination benefits		—		63
Benefits paid		(2,330)		(3,560)
Benefit obligation at end of year		49,561		41,094
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year		38,478		37,100
Actual return on plan assets		5,483		(1,062)
Employer contributions		3,200		6,000
Benefits paid		(2,330)		(3,560)
Fair value of plan assets at end of year		44,831		38,478
Funded status of the plan	$	(4,730)	$	(2,616)



	YEAR ENDED DECEMBER 31,
	2019		2018
	(IN THOUSANDS)
AMOUNTS NOT YET RECOGNIZED AS A COMPONENT OF NET PERIODIC PENSION COST:
Amounts recognized in accumulated other comprehensive loss consists of:
Net actuarial loss	$	22,113	$	18,461
Total	$	22,113	$	18,461



	YEAR ENDED DECEMBER 31,
	2019		2018
	(IN THOUSANDS)
ACCUMULATED BENEFIT OBLIGATION:
Accumulated benefit obligation	$	45,501	$	37,695

The weighted-average assumptions used to determine benefit obligations at December 31, 2019 and 2018 were as follows:



	YEAR ENDED DECEMBER 31,
	2019		2018
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate	3.20	%	4.28	%
Salary scale	2.50		2.50


	YEAR ENDED DECEMBER 31,
	2019		2018		2017
	(IN THOUSANDS)
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost	$	1,470	$	1,482	$	1,516
Interest cost		1,569		1,273		1,292
Expected return on plan assets		(3,025)		(2,798)		(2,539)
Special termination benefit liability		—		63		—
Recognized net actuarial loss		1,649		1,548		1,454
Net periodic pension cost	$	1,663	$	1,568	$	1,723

The service cost component of net periodic benefit cost is included in Salaries and employee benefits and all other components of net periodic benefit cost are included in Other expense on the Consolidated Statements of Operations.


	YEAR ENDED DECEMBER 31,
	2019		2018		2017
	(IN THOUSANDS)
OTHER CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER COMPREHENSIVE LOSS
Net (gain) loss	$	5,300	$	4,683	$	(822)
Recognized loss		(1,649)		(1,548)		(1,454)
Total recognized in other comprehensive loss before tax effect	$	3,651	$	3,135	$	(2,276)
Total recognized in net benefit cost and other comprehensive loss before tax effect	$	5,314	$	4,703	$	(553)

The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next year is $2,499,000.

The weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:


	YEAR ENDED DECEMBER 31,
	2019		2018		2017
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate	4.28	%	3.63	%	4.12	%
Expected return on plan assets	7.50		7.50		7.75
Rate of compensation increase	2.50		2.50		2.50

The Company has assumed a 7.50% long-term expected return on plan assets. This assumption was based upon the plan’s historical investment performance over a longer-term period of 15 years combined with the plan’s investment objective of balanced growth and income. Additionally, this assumption also incorporates a targeted range for equity securities of approximately 60% of plan assets.

PLAN ASSETS:

The plan’s measurement date is December 31, 2019. This plan’s asset allocation at December 31, 2019 and 2018, by asset category are as follows:


	YEAR ENDED DECEMBER 31,
	2019		2018
ASSET CATEGORY:
Cash and cash equivalents	1	%	49	%
Domestic equities	8		7
Mutual funds/ETFs	82		42
International equities	1		—
Corporate bonds	8		2
Total	100	%	100	%

The major categories of assets in the Company’s Pension Plan as of year-end are presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure fair value.


	YEAR ENDED DECEMBER 31,
	2019		2018
	(IN THOUSANDS)
Level 1:
Cash and cash equivalents	$	186	$	18,939
Domestic equities		3,782		2,841
Mutual funds/ETFs		36,469		15,808
International equities		620		—
Level 2:
Corporate bonds		3,774		890
Total fair value of plan assets	$	44,831	$	38,478

Cash and cash equivalents may include uninvested cash balances along with money market mutual funds, treasury bills, or other assets normally categorized as cash equivalents. Domestic equities may include common or preferred stocks, covered options, rights or warrants, or American Depository Receipts which are traded on any U.S. equity market. Mutual funds/ETFs may include any equity, fixed income, balanced, international, or global mutual fund or exchange traded fund including any propriety fund managed by the Trust Company. Agencies may include any U.S. government agency security or asset-backed security. Collective investment funds may include equity, fixed income, or balanced collective investment funds managed by the Trust Company. Corporate bonds may include any corporate bond or note.

The investment strategy objective for the pension plan is a balance of growth and income. This objective seeks to develop a portfolio for acceptable levels of current income together with the opportunity for capital appreciation. The balanced growth and income objective reflects a relatively equal balance between equity and fixed income investments such as debt securities. The allocation between equity and fixed income assets may vary by a moderate degree but the plan typically targets a range of equity investments between 50% and 60% of the plan assets. This means that fixed income and cash investments typically approximate 40% to 50% of the plan assets. The plan is also able to invest in ASRV common stock up to a maximum level of 10% of the market value of the plan assets (at December 31, 2019, 2.8% of the plan assets were invested in ASRV common stock). This asset mix is intended to ensure that there is a steady stream of cash from maturing investments to fund benefit payments.

CASH FLOWS:

The Company presently expects that the contribution to be made to the Plan in 2020 will be approximately $4.0 million.

ESTIMATED FUTURE BENEFIT PAYMENTS:

The following benefit payments, which reflect future service, as appropriate, are expected to be paid.


	ESTIMATED FUTURE
YEAR:	BENEFIT PAYMENTS
	(IN THOUSANDS)
2020	$	4,096
2021		3,910
2022		4,317
2023		3,949
2024		4,205
Years 2025-2029		15,975

401(k) PLAN:

The Company maintains a qualified 401(k) plan that allows for participation by Company employees. Under the plan, employees may elect to make voluntary, pretax contributions to their accounts which the Company will match one half on the first 2% of contribution up to a maximum of 1%. The Company also contributes 4% of salaries for union members who are in the plan. Effective January 1, 2013, any new non- union employees receive a 4% non-elective contribution and these employees may elect to make voluntary, pretax contributions to their accounts which the Company will match one half on the first 6% of contribution up to a maximum of 3%. Effective January 1, 2014, any new union employees receive a 4% non-elective contribution and these employees may elect to make voluntary, pretax contributions to their accounts which the Company will match dollar for dollar up to a maximum of 4%. Contributions by the Company charged to operations were $604,000, $503,000 and $469,000 for the years ended December 31, 2019, 2018 and 2017, respectively. The fair value of plan assets includes $924,000 pertaining to the value of the Company’s common stock and Trust Preferred securities that are held by the plan at December 31, 2019.

DEFERRED COMPENSATION PLAN:

The Company maintains a nonqualified deferred compensation plan in which a select group of executives are permitted to participate. An eligible executive can defer a certain percentage of their current salary to be placed into the plan. The Company has established a rabbi trust to provide funding for the benefits payable under our deferred compensation plan. As of December 31, 2019, the Company reported a deferred compensation liability of $366,000 within Other liabilities on the Consolidated Balance Sheets. In 2019, the Company recognized $9,000 of deferred compensation plan expense which is reported within Other expense on the Consolidated Statements of Operations. See Note 6 (Investment Securities) for additional disclosures related to the nonqualified deferred compensation plan and assets held within the rabbi trust.

Except for the above described benefit plans, the Company has no significant additional exposure for any other post-retirement or post-employment benefits.