Employee Benefit Plans

Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly compensation pay over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the employee’s annual compensation plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Effective July 1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following the date such person makes an election to receive his or her retirement benefits.

Peoples also provides post-retirement health and life insurance benefits to former employees and directors. Only those individuals who retired before January 27, 2012 were eligible for life insurance benefits. All retirees are eligible for health benefits; however, Peoples only pays 100% of the cost for those individuals who retired before January 1, 1993. For all others, the retiree is responsible for most, if not all, of the cost of health benefits. Peoples’ policy is to fund the cost of the benefits as they arise.

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over the two-year period ended December 31, 2013, and a statement of the funded status as of December 31, 2013 and 2012:



	Pension Benefits						Postretirement Benefits
(Dollars in thousands)	2013			2012			2013			2012
Change in benefit obligation:
Obligation at January 1	$	17,306		$	16,505		$	244		$	224
Interest cost	543			599			5			10
Plan participants’ contributions	—			—			40			54
Actuarial loss	(2,333		)	1,863			(85		)	42
Benefit payments	(154		)	(169		)	(61		)	(86		)
Settlements	(639		)	(1,492		)	—			—
Obligation at December 31	$	14,723		$	17,306		$	143		$	244
Accumulated benefit obligation at December 31	$	14,723		$	17,306		$	—		$	—

Change in plan assets:
Fair value of plan assets at January 1	$	10,019		$	10,409		$	—		$	—
Actual return on plan assets	2,061			1,271			—			—
Employer contributions	—			—			21			32
Plan participants’ contributions	—			—			40			54
Benefit payments	(154		)	(169		)	(61		)	(86		)
Settlements	(639		)	(1,492		)	—			—
Fair value of plan assets at December 31	$	11,287		$	10,019		$	—		$	—
Funded status at December 31	$	(3,436	)	$	(7,287	)	$	(143	)	$	(244	)
Amounts recognized in Consolidated Balance Sheets:
Prepaid benefit costs	$	—		$	—		$	—		$	—
Accrued benefit liability	$	(3,436	)	$	(7,287	)	$	(143	)	$	(244	)
Net amount recognized	$	(3,436	)	$	(7,287	)	$	(143	)	$	(244	)
Amounts recognized in Accumulated Other Comprehensive Income (Loss):
Unrecognized prior service cost	$	—		$	—		$	(2	)	$	2
Unrecognized net loss	3,533			6,260			(65		)	15
Total	$	3,533		$	6,260		$	(67	)	$	17
Weighted-average assumptions at year-end:
Discount rate	4.30		%	3.30		%	4.30		%	3.30		%

The estimated costs relating to Peoples’ pension benefits that will be amortized from accumulated other comprehensive income (loss) into net periodic cost over the next fiscal year are $131,000 of net loss.

Net Periodic Benefit Cost

The following tables detail the components of the net periodic benefit cost for the plans:



	Pension Benefits									Postretirement Benefits
(Dollars in thousands)	2013			2012			2011			2013			2012			2011
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost	543			599			724			5			10			12
Expected return on plan assets	(659		)	(756		)	(1,033		)	—			—			—
Amortization of prior service cost (credit)	—			—			—			—			—			—
Amortization of net loss (gain)	189			162			75			(7		)	(2		)	(9		)
Curtailment	—			—			—			—			—			—
Settlement of benefit obligation	270			835			815			—			—			—
Net periodic benefit cost	$	343		$	840		$	581		$	(2	)	$	8		$	3

Weighted-average assumptions:
Discount rate	3.75		%	4.00		%	5.40		%	3.30		%	4.00		%	5.70		%
Expected return on plan assets	7.50		%	7.50		%	8.00		%	n/a			n/a			n/a
Rate of compensation increase	n/a			n/a			n/a			n/a			n/a			n/a

For measurement purposes, an 8% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2013, grading down to an ultimate rate of 5% in 2026. The health care trend rate assumption does not have a significant effect on the contributory defined benefit postretirement plan; therefore, a one percentage point increase or decrease in the trend rate is not material in the determination of the accumulated postretirement benefit obligation or the ongoing expense.

Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss.

In the third quarter of 2013, the total lump-sum distributions made to participants, when added to the lump-sum distributions made through the first six months of 2013, caused the total settlements through nine months of 2013 to exceed the recognition threshold for settlement gains or losses. As a result, Peoples remeasured its pension obligation and plan assets as of July 1, 2013 as part of the calculation of the settlement loss recognized.

Determination of Expected Long-term Rate of Return

The expected long-term rate of return on the plans' total assets is based on the expected return of each category of the plan's assets. Peoples' investment strategy for the plan's assets continues to allocate 60% to 75% to equity securities. The returns generated by equity securities over the last 10 years have been significantly lower than their long-term historical annual returns due in part to unfavorable economic conditions. Thus, Peoples lowered its expected return on equity securities from their long-term historical rate, which had a corresponding impact on overall expected return on plan assets in 2011.

Plan Assets

Peoples' investment strategy, as established by Peoples' Retirement Plan Committee, is to invest assets based upon established target allocations, which include a target range of 60-75% allocation in equity securities, 24-39% in debt securities and approximately 1% of other investments. The assets are reallocated periodically to meet the target allocations. The investment policy is reviewed periodically, under the advisement of a certified investment advisor, to determine if the policy should be changed.

The following table provides the fair values of investments held in Peoples' pension plan at December 31, by major asset category:



(Dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
December 31, 2013
Equity securities:
Mutual funds - equity	$	8,863	$	8,863	$	—
Debt securities:
Mortgage-backed securities	97		—		97
Municipal obligations	649		—		649
Corporate bonds	357		357		—
Mutual funds - taxable income	901		901		—
Total fair value of pension assets	$	10,867	$	10,121	$	746
December 31, 2012
Equity securities:
Mutual funds - equity	$	7,545	$	7,545	$	—
Debt securities:
Mortgage-backed securities	157		—		157
Municipal obligations	932		—		932
Corporate bonds	363		363		—
Mutual funds - taxable income	599		599		—
Total fair value of pension assets	$	9,596	$	8,507	$	1,089

Pension plan assets also included cash and cash equivalents of $400,000 and accrued income of $20,000 at December 31, 2013. Cash and cash equivalents were $401,000 and accrued income was $22,000 at December 31, 2012. For further information regarding levels of input used to measure fair value, please refer to Note 2.

Equity securities of Peoples' pension plan did not include any securities of Peoples or related parties in 2013 or 2012.

Cash Flows

Peoples has not determined if any contributions will be made to its pension plan in 2014; however, actual contributions are made at the discretion of the Retirement Plan Committee and Peoples' Board of Directors. Estimated future benefit payments, which reflect benefits attributable to estimated future service, for the years ending December 31 are as follows:



(Dollars in thousands)	Pension Benefits		Postretirement Benefits
2014	$	3,280	$	21
2015	1,149		22
2016	1,158		22
2017	874		22
2018	925		12
2019 to 2023	4,120		50
Total	$	11,506	$	149

Retirement Savings Plan

Peoples also maintains a retirement savings plan, or 401(k) plan, which covers substantially all employees. The plan provides participants the opportunity to save for retirement on a tax-deferred basis. During 2009 and in prior years, Peoples made matching contributions equal to 100% of participants' contributions that did not exceed 3% of the participants' compensation, plus 50% of participants' contributions between 3% and 5% of the participants' compensation. Effective January 1, 2010, Peoples began making matching contributions equal to 100% of participants' contributions that do not exceed 2% of the participants' compensation. Beginning January 1, 2011, matching contributions equaled 100% of participants' contributions that did not exceed 3% of the participants' compensation, plus 50% of participants' contributions between 3% and 5% of the participants' compensation. Matching contributions made by Peoples totaled $924,000, $758,000 and $763,000 in 2013, 2012 and 2011, respectively.