Note 15. Post-Retirement Benefits

Employee Pension Plan: The Company maintains a non-contributory defined benefit pension plan that covers employees meeting specific requirements as to age and length of service. The Company’s contributions to this qualified plan are determined on the basis of (i) the maximum amount that can be deducted for federal income tax purposes, and (ii) the amount determined by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974 (ERISA). Contributions are intended to provide not only for benefits attributed to service to date, but also those expected to be earned in the future. On February 15, 2017, the Board of Directors approved the freezing of the defined benefit pension plan effective May 1, 2017. As a result, during the year ended June 30, 2017 the Company recorded a $919,000 curtailment gain, which is included in earnings as a reduction to salaries and employee benefits expense.

The following is a summary of the plan’s funded status as of June 30, 2018 and 2017 (the measurement date for financial reporting purposes) (in thousands):

	2018			2017
Change in benefit obligation:
Beginning benefit obligation	$	25,614		$	28,670
Service Cost		-			602
Interest Cost		968			1,002
Actuarial Loss		8			(2,013	)
Benefits Paid		(868	)		(828	)
Settlements		(958	)		(1,301	)
Curtailment		-			(518	)
Ending benefit obligation		24,764			25,614
Change in plan assets, at fair value:
Beginning plan assets		27,444			23,215
Actual return		2,357			3,358
Employer contributions		-			3,000
Benefits paid		(868	)		(828	)
Settlements		(958	)		(1,301	)
Ending Plan assets		27,975			27,444
Funded Status	$	3,211		$	1,830
Accumulated Benefit Obligation	$	24,764		$	25,614

The following is a summary of net period pension cost, contributions and benefits paid for the years ended June 30 (in thousands):

	2018			2017
Net period pension cost	$	(321	)	$	(224	)
Employer contributions		-			3,000
Benefits paid		868			828

Pre-tax amounts recognized in accumulated other comprehensive loss was $6.5 million and $7.6 million for the years ended June 30, 2018 and 2017 respectively.

Net periodic pension cost and other amounts recognized in other comprehensive income for the years ended June 30 (in thousands):

	2018			2017			2016
Service cost	$	-		$	602		$	626
Interest cost		968			1,002			1,086
Expected return on plan assets		(2,014	)		(1,917	)		(1,796	)
Amortization of prior net loss		725			1,200			854
Amortization of prior service cost		-			(192	)		(287	)
Gain on curtailment		-			(919	)		-
New past service liability		-			-			-
Net periodic cost	$	(321	)	$	(224	)	$	483

The estimated net loss and past service cost for the pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit costs during the year ending June 30, 2019, are $580,000 and $0, respectively.

Contributions: The Company made no contributions to the defined benefit plan during the year ended June 30, 2018 and does not expect to make any contributions for the year ending June 30, 2019.

Estimated Future Payments: The following benefit payments are expected for the years ending June 30, (in thousands):

	2019	$	1,232
	2020		1,259
	2021		1,303
	2022		1,347
	2023		1,365
Following five years			7,202

Assumptions: Discount rates of 4.14% and 3.87% were used to determine pension benefit obligation as of June 30, 2018 and 2017, respectively.

Weighted-average assumptions used to determine net periodic pension cost are described in the table below.

	Year ended June 30,
	2018			2017
Discount Rate		3.87	%		4.04	%
Expected return on plan assets		7.50	%		7.50	%

Plan Assets

Plan assets are invested in a series of diversified investment funds of RSI Retirement Trust (“the Trust”). The investment funds include equity mutual funds, bond mutual funds, or commingled trust funds, each with its own investment objectives, investment strategies and risks. The Trust has been given discretion by the Company to determine the appropriate strategic asset allocation, as governed by the Trust’s Statement of Investment Objectives and Guidelines. The long-term objective is to be invested 65% in equity securities (equity mutual funds), 34% in debt securities (bond mutual funds) and 1% in cash equivalents. The bond fund portion may be temporarily increased to 50% in order to lessen the volatility of asset values. Asset rebalancing is performed at least annually, with interim adjustments made if the investment mix varies by more than 10% from the target allocation.

The weighted average expected long-term rate of return is estimated based on current trends in the plan assets as well as projected future rates of returns on those assets. The long-term rate of return assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 6% to 8% and 3% to 5%, respectively. The long-term inflation rate was estimated to be 2.5%. When these overall return expectations are applied to the plan’s target allocation, the result is an expected rate of return of 7.50%.

The plan is only permitted to invest in assets approved by the RSI Trustee Board. All other investments are prohibited.

The Company’s actual pension plan asset allocation and target allocation by asset category are as follows:

				Percentage of Plan
	Target			Assets at Year-End
Asset Category	Allocation			2018			2017
Equity mutual funds and common/collective trusts		65	%		67	%		65	%
Fixed income common/collective trusts		34	%		32	%		34	%
Cash equivalents		1	%		1	%		1	%
Total		100	%		100	%		100	%

Equity, Debt, Investment Funds and Other Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and the London Interbank Offered Rate (LIBOR) curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

The fair value of the plan assets at June 30, 2018 and 2017, by asset category, is as follows (in thousands):

			Fair Value Measurements Using
			Quoted Prices		Significant
			In Active		Other		Significant
			Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2018
Plan assets
Equity mutual funds and common/collective trusts	$	18,914	$	-	$	18,914	$	-
Fixed income common/collective trusts		8,893		-		8,893		-
Cash equivalents		168		168		-		-
Total	$	27,975	$	168	$	27,807	$	-
June 30, 2017
Plan assets
Equity mutual funds and common/collective trusts	$	17,704	$	-	$	17,704	$	-
Fixed income common/collective trusts		9,451		-		9,451		-
Cash equivalents		289		289		-		-
Total	$	27,444	$	289	$	27,155	$	-

Defined Contribution Retirement Plan: The Company maintained a defined contribution plan for eligible employees hired after October 1, 2012. All full-time employees who have attained age twenty-one and have a minimum of one year of service received a contribution to their 401(k) account equal to 5% of their salary. On February 15, 2017, the Board of Directors approved the freezing of this plan effective May 1, 2017. As a result, the Company had no expense for the year ended June 30, 2018. The Plan expense was $120,000 and $162,000 for years ended June 30, 2017 and 2016, respectively.

401(k) Plan: The Company maintains a defined contribution plan for eligible employees under Section 401(k) of the Internal Revenue Code. All full-time employees who have attained age twenty-one and have a minimum of one year of service may elect to participate in the plan, by making contributions ranging from 2% to 10% of their compensation. The Company makes matching contributions equal to 75% of the participant’s contributions up to 6% of compensation. Savings plan expense was $414,000, $418,000 and $410,000 for the years ended June 30, 2018, 2017 and 2016, respectively. On June 20, 2018, the Board of Directors approved the suspension of the Company match effective July 1, 2018.

Acquired Pension Plan: As part of the CMS acquisition, the Company acquired the pension plan of CMS Bank, which was frozen prior to and in the process of termination as of the acquisition date, a process which was not complete as of the acquisition date. During the year ended June 30, 2016, the CMS pension plan was terminated, resulting in a $629,000 charge to earnings, included on the income statement in merger and acquisition related expenses.

Supplemental Retirement Plan

The Company also maintains unfunded and non-qualified supplemental retirement plans to provide pension benefits in addition to those provided under the qualified pension plan.

The accrued benefit cost for the supplemental plans was approximately $3.4 million and $3.0 million at June 30, 2018 and 2017 (included in other liabilities in the consolidated statements of financial condition). Included in accumulated other comprehensive income were pre-tax net losses of $335,000 and $379,000 for the supplemental retirement plans as of June 30, 2018 and 2017, respectively. The projected benefit obligation and accumulated benefit obligation were $3.4 million as of the June 30, 2018 measurement date and $3.0 million as of June 30, 2017 measurement date.

Pension expense for the supplemental plans was $655,000, $615,000 and $539,000 for the years ended June 30, 2018, 2017 and 2016, respectively.

Supplemental retirement plan benefits of $272,000 were paid in each of the years ended June 30, 2018, 2017 and 2016.

Net periodic pension cost and other amounts recognized in other comprehensive income for the years ended June 30 (in thousands):

	2018		2017		2016
Service cost	$	518	$	398	$	322
Interest cost		103		124		133
Amortization of prior net loss		34		93		84
Net periodic cost	$	655	$	615	$	539

The estimated net loss for the supplemental plans that will be amortized from accumulated other comprehensive income into net periodic benefit costs during the year ending June 30, 2019, is $37,000.

The following benefit payments, which reflect expected future service, are expected for the years ending June 30 (in thousands):

2019	$	272
2020		272
2021		3,336
2022		272
2023		272
Following five years		136

As of June 30, 2018, the assumed discount rates used for the supplemental plans range from 3.16% to 4.14%.

Employee Stock Ownership Plan

On January 1, 2017, the Company established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Company employees. The Company granted a loan to the ESOP for the purchase of 1,453,209 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 15 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (4.50% for 2018). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at June 30, 2018 was $13.6 million. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 96,881 through 2032.

Shares held by the ESOP include the following (dollars in thousands):

	2018		2017
Allocated to participants		144,923		26,975
Unearned		1,308,286		1,426,234
Total ESOP shares		1,453,209		1,453,209

Fair value of unearned shares	$	25,996	$	24,332

Total compensation expense recognized in connection with the ESOP for the year ended June 30, 2018 and June 30, 2017 was $2.2 million and $454,000, respectively.