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Pension Benefits
 9 Months Ended
Sep. 30, 2022
Pension Benefits  
Pension Benefits

17.  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 nine months ended September 30, 2022 and 2021 were as follows (in thousands):

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Three months ended

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Nine months ended

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September 30, 

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September 30, 

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2022

    

2021

    

2022

    

2021

COMPONENTS OF NET PERIODIC BENEFIT COST:

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Service cost

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$

358

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$

429

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$

1,073

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$

1,287

Interest cost

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365

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221

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1,094

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664

Expected return on plan assets

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(1,052)

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(1,004)

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(3,156)

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(3,012)

Amortization of net loss

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341

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610

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1,024

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1,829

Settlement charge

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230

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269

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1,244

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1,120

Net periodic pension cost

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$

242

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$

525

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$

1,279

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$

1,888

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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 a $230,000 and $1.2 million settlement charge in connection with its defined benefit pension plan in the third quarter and first nine months of 2022, respectively. This compares to a $269,000 and $1.1 million settlement charge recognized in the third quarter and first nine months of 2021, respectively. A settlement charge must be recognized when the total dollar amount of lump sum distributions paid from the pension plan to retired employees exceeds a threshold of expected annual service and interest costs in the current year. So far in 2022, a vast majority of 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 continued to be elevated this year due to the low level of interest rates in late 2021 when these lump sums were calculated. It is anticipated that the Company will be required to recognize additional settlement charges through year end as more people retire. However, the amount of these future settlement charges are difficult to estimate. 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, we expect that the Company’s normal annual pension expense should be lower in the future, which has been evident so far in 2022 as the normal amount of pension expense required to be recognized is lower than the 2021 level.

The accrued pension liability, which had a positive (debit) balance of $17.6 million and $19.5 million, was reclassified to other assets on the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively. The balance of the accrued pension liability continues to be a positive value as a result of Company contributions to the plan 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.