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Pension Benefits
 6 Months Ended
Jun. 30, 2021
Pension Benefits  
Pension Benefits

18.  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 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 U.S. 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 six months ended June 30, 2021 and 2020 were as follows (in thousands):

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Three months ended

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Six months ended

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June 30, 

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June 30, 

    

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2021

    

2020

    

2021

    

2020

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COMPONENTS OF NET PERIODIC BENEFIT COST:

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Service cost

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$

427

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$

441

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$

854

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$

882

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Interest cost

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225

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319

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450

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638

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Expected return on plan assets

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(992)

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(817)

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(1,985)

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(1,634)

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Recognized net actuarial loss

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621

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648

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1,243

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1,296

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Settlement charge

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851

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—

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851

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—

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Net periodic pension cost

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$

1,132

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$

591

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$

1,413

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$

1,182

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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.

The Company recognized an $851,000 settlement charge in connection with its defined benefit pension plan in the second quarter and first six months of 2021. A settlement charge must be recognized when the total dollar amount of lump sum distributions paid from the pension plan to retired employees exceed a threshold of expected annual service and interest costs in the current year. So far in 2021, all employees that retired have elected to take a lump sum distribution as opposed to collecting future monthly annuity payments since the value of the lump sums is elevated due to the historically low interest rates. It is anticipated that the Company will be required to recognize additional settlement charges through year end as more people retire. However, the amounts of these future settlement charges are difficult to estimate but management believes that, in aggregate, they will not be at the high level of this initial charge. It is important to note that since the retired employees have chosen to take the lump sum payments, these individuals are no longer included in the pension plan. Therefore, the Company’s normal annual pension expense is expected to be lower in the future.

The accrued pension liability, which had a positive (debit) balance of $11.4 million, was reclassified to other assets on the Consolidated Balance Sheets as of June 30, 2021. The balance of the accrued pension liability became a positive value as a result of the $4.0 million contribution made earlier in 2021 and the revaluation of the obligation due to the recognition of the settlement charge.

The Company implemented 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. This change was made to help reduce pension costs in future periods.