Employee Benefit Plans

Employee benefits charged to operating expenses are summarized in the table below. Substantially all of the Company’s employees are covered by a defined contribution (401(k)) plan, under which the Company makes matching contributions.



(In thousands)	2018		2017		2016
Payroll taxes	$	25,712	$	24,402	$	23,210
Medical plans	27,030		25,143		25,497
401(k) plan	14,986		14,244		13,562
Pension plans	651		704		987
Other	2,918		2,883		3,214
Total employee benefits	$	71,297	$	67,376	$	66,470

The Company adopted ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, on January 1, 2018, which required that the service cost component of net periodic pension cost be reported in the same income statement line item as other compensation costs, while other components of net periodic pension cost be reported separately from the service cost component. Historically, the Company has reported all components of pension cost in salaries and employee benefits. Beginning in 2018, only the service cost component has been included in this category, and the other components have been recorded in other non-interest expense. Prior period financial statements have not been revised because the amount of the reclassification was not significant.

A portion of the Company’s employees are covered by a noncontributory defined benefit pension plan, however, participation in the pension plan is not available to employees hired after June 30, 2003. All participants are fully vested in their benefit payable upon normal retirement date, which is based on years of participation and compensation. Certain key executives also participate in a supplemental executive retirement plan (the CERP) that the Company funds only as retirement benefits are disbursed. The CERP carries no segregated assets. Since January 2011, all benefits accrued under the pension plan have been frozen. However, the accounts continue to accrue interest at a stated annual rate. The CERP continues to provide credits based on hypothetical contributions in excess of those permitted under the 401(k) plan. In the tables presented below, the pension plan and the CERP are presented on a combined basis.

Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to satisfy the statutory minimum required contribution as defined by the Pension Protection Act, which is intended to provide for current service accruals and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. No contributions to the defined benefit plan were made in 2018. The Company made a discretionary contribution of $5.5 million to its defined benefit pension plan in 2017 in order to reduce pension guarantee premiums. The minimum required contribution for 2019 is expected to be zero. The Company does not expect to make any further contributions in 2019 other than the necessary funding contributions to the CERP. Contributions to the CERP were $24 thousand, $439 thousand and $21 thousand during 2018, 2017 and 2016, respectively.

The following items are components of the net pension cost for the years ended December 31, 2018, 2017 and 2016.



(In thousands)	2018			2017			2016
Service cost-benefits earned during the year	$	651		$	621		$	500
Interest cost on projected benefit obligation	3,756			3,826			3,944
Expected return on plan assets	(5,255		)	(5,785		)	(5,751		)
Amortization of prior service cost	(271		)	(271		)	(271		)
Amortization of unrecognized net loss	2,267			2,313			2,565
Net periodic pension cost	$	1,148		$	704		$	987

The following table sets forth the pension plans’ funded status, using valuation dates of December 31, 2018 and 2017.



(In thousands)	2018			2017
Change in projected benefit obligation
Projected benefit obligation at prior valuation date	$	120,667		$	116,695
Service cost	651			621
Interest cost	3,756			3,826
Benefits paid	(6,622		)	(6,780		)
Actuarial (gain) loss	(6,389		)	6,305
Projected benefit obligation at valuation date	112,063			120,667
Change in plan assets
Fair value of plan assets at prior valuation date	108,260			99,537
Actual return on plan assets	(2,244		)	9,564
Employer contributions	24			5,939
Benefits paid	(6,622		)	(6,780		)
Fair value of plan assets at valuation date	99,418			108,260
Funded status and net amount recognized at valuation date	$	(12,645	)	$	(12,407	)

The accumulated benefit obligation, which represents the liability of a plan using only benefits as of the measurement date, was $112.1 million and $120.7 million for the combined plans on December 31, 2018 and 2017, respectively.

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) at December 31, 2018 and 2017 are shown below, including amounts recognized in other comprehensive income during the periods. All amounts are shown on a pre-tax basis.



(In thousands)	2018			2017
Prior service cost	$	1,535		$	1,806
Accumulated loss	(32,342		)	(33,499		)
Accumulated other comprehensive loss	(30,807		)	(31,693		)
Cumulative employer contributions in excess of net periodic benefit cost	18,162			19,286
Net amount recognized as an accrued benefit liability on the December 31 balance sheet	$	(12,645	)	$	(12,407	)
Net loss arising during period	(1,110		)	(2,527		)
Amortization of net loss	2,267			2,313
Amortization of prior service cost	(271		)	(271		)
Total recognized in other comprehensive income	$	886		$	(485	)
Total expense recognized in net periodic pension cost and other comprehensive income	$	(262	)	$	(1,189	)

The estimated net loss and prior service cost to be amortized from accumulated other comprehensive income into net periodic pension cost in 2019 is $2.1 million.

The following assumptions, on a weighted average basis, were used in accounting for the plans.



	2018		2017		2016
Determination of benefit obligation at year end:
Effective discount rate for benefit obligations	4.14	%	3.57	%	4.05	%
Assumed credit on cash balance accounts	5.00	%	5.00	%	5.00	%
Determination of net periodic benefit cost for year ended:
Effective discount rate for benefit obligations	3.57	%	3.95	%	4.16	%
Effective rate for interest on benefit obligations	3.28	%	3.28	%	3.38	%
Long-term rate of return on assets	5.00	%	6.00	%	6.00	%
Assumed credit on cash balance accounts	5.00	%	5.00	%	5.00	%

The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2018 and 2017. Information about the valuation techniques and inputs used to measure fair value are provided in Note 16 on Fair Value Measurements.



			Fair Value Measurements
(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2018
Assets:
U.S. government obligations	$	2,994	$	2,994	$	—	$	—
Government-sponsored enterprise obligations^(a)	1,200		—		1,200		—
State and municipal obligations	8,299		—		8,299		—
Agency mortgage-backed securities ^(b)	8,209		—		8,209		—
Non-agency mortgage-backed securities	4,398		—		4,398		—
Asset-backed securities	3,520		—		3,520		—
Corporate bonds ^(c)	37,207		—		37,207		—
Equity securities and mutual funds:^(d)
Mutual funds	8,645		8,645		—		—
Common stocks	18,173		18,173		—		—
International developed markets funds	5,046		5,046		—		—
Emerging markets funds	1,727		1,727		—		—
Total	$	99,418	$	36,585	$	62,833	$	—
December 31, 2017
Assets:
U.S. government obligations	$	3,719	$	3,719	$	—	$	—
Government-sponsored enterprise obligations ^(a)	1,282		—		1,282		—
State and municipal obligations	8,527		—		8,527		—
Agency mortgage-backed securities^(b)	7,896		—		7,896		—
Non-agency mortgage-backed securities	4,891		—		4,891		—
Asset-backed securities	3,833		—		3,833		—
Corporate bonds ^(c)	37,457		—		37,457		—
Equity securities and mutual funds:^(d)
Mutual funds	6,979		6,979		—		—
Common stocks	23,744		23,744		—		—
International developed markets funds	7,870		7,870		—		—
Emerging markets funds	2,062		2,062		—		—
Total	$	108,260	$	44,374	$	63,886	$	—


(a)	This category represents bonds (excluding mortgage-backed securities) issued by agencies such as the Federal Home Loan Bank, the Federal Home Loan Mortgage Corp and the Federal National Mortgage Association.


(b)	This category represents mortgage-backed securities issued by the agencies mentioned in (a).


(c)	This category represents investment grade bonds issued in the U.S., primarily by domestic issuers, representing diverse industries.


(d)	This category represents investments in individual common stocks and equity funds. These holdings are diversified, largely across the financial services, technology services, healthcare, electronic technology, and consumer goods industries.

The investment policy of the pension plan is designed for growth in principal, within limits designed to safeguard against significant losses within the portfolio. The policy sets guidelines, which may change from time to time, regarding the types and percentages of investments held. Currently, the policy includes guidelines such as holding bonds rated investment grade or better and prohibiting investment in Company stock. The plan does not utilize derivatives. Management believes there are no significant concentrations of risk within the plan asset portfolio at December 31, 2018. Under the current policy, the long-term investment target mix for the plan is 35% equity securities and 65% fixed income securities. The Company regularly reviews its policies on investment mix and may make changes depending on economic conditions and perceived investment risk.

Effective January 1, 2016, the Company changed the method used to estimate the interest cost component of net periodic pension cost for its defined benefit pension plan. Prior to the change, the interest cost component was estimated by utilizing a single weighted average discount rate derived from the yield curve used to measure the projected benefit obligation. Under the new method, the interest cost component is estimated by applying the specific annual spot rates along the yield curve used in the determination of the projected benefit obligation to the relevant projected cash flows. This change provides a more precise measurement of the interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. The Company accounted for this change prospectively as a change in accounting estimate. The change resulted in a decrease of approximately $900 thousand in the interest cost component of the estimated annual net periodic pension cost for 2016.

The assumed overall expected long-term rate of return on pension plan assets used in calculating 2018 pension plan expense was 5.0%. Determination of the plan’s expected rate of return is based upon historical and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes. The rate used in plan calculations may be adjusted by management for current trends in the economic environment. The 10-year annualized return for the Company’s pension plan was 7.2%. During 2018, the plan’s assets lost 1.7% of their value, compared to a 9.6% rate of return in 2017. Returns for any plan year may be affected by changes in the stock market and interest rates. The Company expects to incur pension expense of $2.2 million in 2019, compared to $1.1 million in 2018.

The Company utilizes mortality tables published by the Society of Actuaries to incorporate mortality assumptions into the measurement of the pension benefit obligation. At December 31, 2018, the Company utilized an updated mortality projection scale, which decreased the pension benefit obligation on that date by approximately $300 thousand.

The following future benefit payments are expected to be paid:



(In thousands)
2019	$	7,163
2020	7,353
2021	7,510
2022	7,473
2023	7,509
2024 - 2028	36,468