Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law; these plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants; all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

The Corporation also provides certain postretirement healthcare and life insurance benefits for retired employees. Information on these benefits is reported under “Other Postretirement Benefits” within this footnote.

The Corporation sponsors a 401(k) deferred salary savings plan, which is a qualified defined contribution plan, and which covers all employees of the Corporation and its subsidiaries, and provides that the Corporation makes matching contributions as defined by the plan. Expense recorded by the Corporation for the 401(k) deferred salary savings plan for the years ended December 31, 2017, 2016 and 2015 was $1.4 million, $1.2 million, and $1.0 million, respectively.

The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP), which was established in 1981 prior to the existence of a 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants; all current participants are now retired. Expense recorded by the Corporation for the SNQPP for the years ended December 31, 2017, 2016 and 2015 was $222 thousand, $52 thousand and $285 thousand, respectively.

Information with respect to the Retirement Plans and Other Postretirement Benefits follows:



	Retirement Plans						Other Postretirement Benefits
(Dollars in thousands)	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	47,389		$	49,810		$	2,968		$	2,834
Service cost	524			661			48			46
Interest cost	1,927			2,071			118			133
Actuarial loss (gain)	3,169			413			(409		)	36
Benefits paid	(2,645		)	(2,400		)	(114		)	(81		)
Settlements	—			(3,166		)	—			—
Benefit obligation at end of year	$	50,364		$	47,389		$	2,611		$	2,968

Change in plan assets:
Fair value of plan assets at beginning of year	$	41,418		$	41,490		$	—		$	—
Actual return on plan assets	5,799			3,314			—			—
Benefits paid	(2,645		)	(2,400		)	(114		)	(81		)
Settlements	—			(3,166		)	—			—
Employer contribution and non-qualified benefit payments	2,181			2,180			114			81
Fair value of plan assets at end of year	$	46,753		$	41,418		$	—		$	—
Funded status	(3,611		)	(5,971		)	(2,611		)	(2,968		)
Unrecognized net actuarial loss	21,256			22,018			316			767
Unrecognized prior service costs	(464		)	(746		)	—			—
Net amount recognized	$	17,181		$	15,301		$	(2,295	)	$	(2,201	)

In the fourth quarter of 2016, the Corporation offered to vested participants in the pension plan, who were no longer employees, the option of a one-time lump-sum payment in lieu of any future benefits that would have been payable from the plan. As a result, lump-sum payments from the plan were $3.2 million and exceeded the service cost and interest cost for the year triggering a settlement. The settlement was measured as of December 31, 2016 because the majority of lump sum payments occurred during December 2016. The settlement cost was $1.4 million. The amount represents a reclassification of accumulated other comprehensive income to pension expense (included in salaries and benefit expense in the statement of income) and had no impact on shareholders' equity.

Information for the pension plan with an accumulated benefit obligation in excess of the fair value of plan assets is shown below. The accumulated benefit obligation did not exceed the fair value of plan assets at December 31, 2017 but is shown for comparative purposes.



	At December 31,
(Dollars in thousands)	2017		2016
Projected benefit obligation	$	48,104	$	45,129
Accumulated benefit obligation	44,976		42,178
Fair value of plan assets	46,753		41,418

Components of net periodic benefit cost were as follows:



	Retirement Plans									Other Post Retirement Benefits
(Dollars in thousands)	2017			2016			2015			2017		2016		2015
Service cost	$	524		$	661		$	756		$	48	$	46	$	59
Interest cost	1,927			2,071			1,953			118		133		110
Expected return on plan assets	(3,074		)	(3,041		)	(3,100		)	—		—		—
Amortization of net actuarial loss	1,185			1,296			1,308			42		25		54
Accretion of prior service cost	(282		)	(283		)	(280		)	—		—		—
Settlement cost	—			1,434			—			—		—		—
Net periodic benefit cost	$	280		$	2,138		$	637		$	208	$	204	$	223



(Dollars in thousands)	Retirement Plans			Other Postretirement Benefits
Expected amortization expense for 2018:
Amortization of net actuarial loss	$	1,173		$	225
Accretion of prior service cost	(283		)	—

During 2018, the Corporation expects to contribute approximately $158 thousand to the Retirement Plans and approximately $80 thousand to Other Postretirement Benefits.

The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid:



(Dollars in thousands)	Retirement Plans		Other Postretirement Benefits
For the fiscal year ending:
2018	$	2,745	$	80
2019	2,786		85
2020	2,829		88
2021	2,899		91
2022	2,901		97
Years 2023-2027	14,987		608

Weighted-average assumptions used to determine benefit obligations at December 31, 2017 and 2016 were as follows:



	Retirement Plans				Other Postretirement Benefits
	2017		2016		2017		2016
Assumed discount rate	3.6	%	4.0	%	3.6	%	4.0	%
Assumed salary increase rate	3.0		3.0		—		—

The benefit obligation for all plans at December 31, 2017 was based on the RP-2014 mortality table using the projection scale MP-2017 published by the Society of Actuaries.

Weighted-average assumptions used to determine net periodic costs for the years ended December 31, 2017 and 2016 were as follows. The discount rate was determined utilizing the Citigroup Pension Discount Curve. Historical investment returns is the basis used to determine the overall expected long-term rate of return on assets.



	Retirement Plans				Other Postretirement Benefits
	2017		2016		2017		2016
Assumed discount rate	4.0	%	4.3	%	4.0	%	4.3	%
Assumed long-term rate of investment return	7.5		7.5		—		—
Assumed salary increase rate	3.0		3.0		—		—

The Corporation's pension plan asset allocation at December 31, 2017 and 2016, by asset category was as follows:



	Percentage of Plan Assets at December 31,
	2017		2016
Asset Category:
Equity securities	64	%	61	%
Debt securities	35		38
Other	1		1
Total	100	%	100	%

Plan assets include marketable equity securities, corporate and government debt securities, and certificates of deposit. The investment strategy is to keep a 60% equity to 40% fixed income mix to achieve the overall expected long-term rate of return of 7.5%. Equity securities do not include any common stock of the Corporation.

The major categories of assets in the Corporation’s pension plan at year-end are presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy described in Note 18, “Fair Value Disclosures.”



	Fair Value Measurements at December 31,
(Dollars in thousands)	2017		2016
Level 1:
Mutual funds	$	31,144	$	26,292
Short-term investments	515		549
Level 2:
U.S. government obligations	4,910		3,544
Corporate bonds	5,974		6,468
Level 3:
Certificates of deposit	4,210		4,565
Total fair value of plan assets	$	46,753	$	41,418

The following table provides a reconciliation of the beginning and ending balances for measurements in hierarchy Level 3 at December 31, 2017 and 2016:



(Dollars in thousands)	Balance at December 31, 2016		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2017
Certificates of deposit	$	4,565	$	—	$	—	$	535	$	(890	)	$	4,210
Total Level 3 assets	$	4,565	$	—	$	—	$	535	$	(890	)	$	4,210

(Dollars in thousands)	Balance at December 31, 2015		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2016
Certificates of deposit	$	4,755	$	—	$	—	$	675	$	(865	)	$	4,565
Total Level 3 assets	$	4,755	$	—	$	—	$	675	$	(865	)	$	4,565