RETIREMENT PLANS

Prior to January 1, 2009, the Company had a single-employer qualified noncontributory defined benefit retirement plan that covered substantially all regular full-time employees. Effective January 1, 2009, the Company redesigned the plan and merged it into a multiple-employer plan, which is accounted for as a multi-employer plan because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Employees hired on or after January 1, 2009 are not eligible to participate in this plan.

Effective February 1, 2009, the Company amended the plan to reduce benefits for those whose age plus vesting service equaled less than 65 at that date. Also effective February 1, 2009, an enhanced 401(k) plan was made available to those hired on or after January 1, 2009 and to those who received benefit reductions from the amendments to the noncontributory defined benefit retirement plan. Employees hired on or after January 1, 2009 receive a 50% employer match on their contributions into the 401(k) plan, up to a maximum company contribution of 3% of each individual employee’s annual compensation. Employees who received a benefit reduction under the retirement plan amendments receive an automatic contribution of 5% or 7% of annual compensation, depending on the sum of an employee’s age and vesting service, into the 401(k) plan, regardless of the contributions made by the employees. This contribution is made annually and these employees will not receive any employer matches to their 401(k) contributions.

Certain information pertaining to the qualified noncontributory defined benefit retirement plan is as follows:



Legal name		Pentegra Defined Benefit Plan for Financial Institutions
Plan's employer identification number		13-5645888
Plan number		333

The plan is at least 80% funded as of July 1, 2017 and 2016. A funding improvement or rehabilitation plan has not been implemented, nor has a surcharge been paid to the plan. The Company’s contributions to the qualified noncontributory defined benefit retirement plan do not represent more than 5% of total contributions to the plan.

Funding and administrative costs of the qualified noncontributory defined benefit retirement plan and 401(k) plan charged to salaries and employee benefits in the consolidated statements of income for the years ended December 31 were as follows (in thousands):



	2017		2016	2015
Qualified noncontributory defined benefit retirement plan	$	1,054	969	984
401(k) plan	374		359	346

The Company expects a minimum contribution of $224,000 to the qualified noncontributory defined benefit retirement plan in 2018. The Company expects to contribute $426,000 to the 401(k) plan in 2018.

Citizens National had a qualified noncontributory defined benefit pension plan which covered employees hired before May 1, 2005. The Company assumed this plan at the time of the merger. At December 31, 2017, the amount of the liability for this plan was $128,000, representing the funded status of the plan.

The Bank has a benefit plan which permits eligible officers to defer a portion of their compensation. The deferred compensation balance, which accrues interest at 8% annually, is distributable in cash after retirement or termination of employment. The amount of such deferred compensation liability at December 31, 2017 and 2016 was $3,406,000 and $3,407,000, respectively.

The Bank also has supplemental income plans which provide certain employees an amount based on a percentage of average compensation, payable in accordance with individually defined schedules upon retirement. The projected benefit obligation included in other liabilities for the supplemental income plans at December 31, 2017 and 2016 is $1,249,000 and $1,284,000, respectively. The average discount rate used to determine the present value of the obligations was approximately 5.2% in 2017 and 5.2% in 2016. The service cost associated with the plans was $0 for 2017, $0 for 2016, and $183,000 for 2015. Interest costs were $62,000, $63,000, and $56,000 for 2017, 2016, and 2015, respectively.

The deferred compensation plan and supplemental income plans are nonqualified and unfunded. Participation in each plan is limited to a select group of management.

Effective February 1, 2009, the Company established a nonqualified defined benefit retirement plan, which is also unfunded, for certain highly compensated employees. The nonqualified plan ensures that participants receive the full amount of benefits to which they would have been entitled under the noncontributory defined benefit retirement plan in the absence of limits on benefit levels imposed by certain sections of the Internal Revenue Code.

The components of net periodic pension cost of the nonqualified defined benefit retirement plan for the years ended December 31 are summarized as follows (in thousands):



	2017		2016	2015
Service cost	$	—	41	38
Interest cost	69		78	68
Amortization of unrecognized (gain) loss	16		168	171
Net periodic pension cost	$	85	287	277

A reconciliation of changes in the projected benefit obligation of the nonqualified defined benefit retirement plan at December 31 follows (in thousands):



	2017			2016		2015
Projected benefit obligation at beginning of year	$	1,727		1,843		1,741
Service cost	—			41		38
Interest cost	69			78		68
Actuarial (gain) or loss	238			(209	)	10
Benefits paid	(63		)	(26	)	(14	)
Projected benefit obligation at end of year	$	1,971		1,727		1,843

Amounts recognized in other liabilities in the consolidated balance sheets for the nonqualified defined benefit retirement plan at December 31, 2017 and 2016 were $1,971,000 and $1,727,000, respectively.

The accumulated benefit obligation for the nonqualified defined benefit retirement plan at December 31, 2017 and 2016 was $1,971,000 and $1,727,000, respectively.

Amounts recognized in accumulated other comprehensive income, net of tax, at December 31 for the nonqualified defined benefit retirement plan consists of (in thousands):



	2017		2016		2015
Net actuarial (gain)/loss	$	141	(16	)	233
Past service cost	—		—		—
	$	141	(16	)	233

The estimated unrecognized net actuarial gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2018 for the nonqualified defined benefit retirement plan is $16,000.

Key weighted-average assumptions used to determine the benefit obligation and net periodic pension costs for the nonqualified defined benefit retirement plan for the years ended December 31 were as follows:



	2017		2016		2015
Benefit obligation:
Discount rate	3.60	%	4.14	%	4.34	%
Salary increase rate	2.00	%	2.00	%	2.00	%

Net periodic pension cost:
Discount rate	4.14	%	4.34	%	3.95	%
Salary increase rate	2.00	%	2.00	%	2.00	%
Amortization period in years	1.00		1.00		1.98

The nonqualified defined benefit retirement plan is not funded. Therefore no contributions will be made in 2018. Estimated future benefit payments reflecting expected future service for the years ended after December 31, 2017 are (in thousands):



2018	$	130
2019	130
2020	130
2021	130
2022	130
2023-2027	633