NOTE 15 - EMPLOYEE BENEFIT PLANS

RETIREMENT PLAN AND RESTORATION PLAN

Old National maintains a funded noncontributory defined benefit plan (the “Retirement Plan”) that was frozen as of December 31, 2005. Retirement benefits are based on years of service and compensation during the highest paid five years of employment. The freezing of the plan provides that future salary increases will not be considered. Old National’s policy is to contribute at least the minimum funding requirement determined by the plan’s actuary.

Old National also maintains an unfunded pension restoration plan (the “Restoration Plan”) which provides benefits for eligible employees that are in excess of the limits under Section 415 of the Internal Revenue Code of 1986, as amended, that apply to the Retirement Plan. The Restoration Plan is designed to comply with the requirements of ERISA. The entire cost of the plan, which was also frozen as of December 31, 2005, is supported by contributions from the Company.

Old National uses a December 31 measurement date for its defined benefit pension plans. The following table presents the combined activity of our defined benefit plans:


(dollars in thousands)	2015			2014
Change in Projected Benefit Obligation
Balance at January 1,	$	46,446		$	41,321
Interest cost		1,661			1,754
Benefits paid		(869	)		(931	)
Actuarial loss (gain)		(1,916	)		6,287
Settlement		(3,773	)		(1,985	)

Projected benefit obligation at December 31,		41,549			46,446

Change in Plan Assets
Fair value at January 1,		37,693			37,916
Actual return on plan assets		(39	)		2,260
Employer contributions		200			433
Benefits paid		(869	)		(931	)
Settlement		(3,773	)		(1,985	)

Fair value of plan assets at December 31,		33,212			37,693

Funded status at December 31,	$	(8,337	)	$	(8,753	)

Amounts recognized in the statement of financial position at December 31:
Accrued benefit liability	$	(8,337	)	$	(8,753	)

Net amount recognized	$	(8,337	)	$	(8,753	)

Amounts recognized in accumulated other comprehensive income at December 31:
Net actuarial loss	$	11,860		$	14,863

Total	$	11,860		$	14,863

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $2.0 million.

The accumulated benefit obligation and the projected benefit obligation were equivalent for the defined benefit pension plans and were $41.5 million at December 31, 2015 and $46.4 million at December 31, 2014.

The net periodic benefit cost and its components were as follows for the years ended December 31:


(dollars in thousands)	2015			2014			2013
Net Periodic Benefit Cost
Interest cost	$	1,661		$	1,754		$	1,740
Expected return on plan assets		(2,047	)		(2,239	)		(2,202	)
Recognized actuarial loss		2,123			1,316			2,318

Net periodic benefit cost	$	1,737		$	831		$	1,856
Settlement loss		1,050			617			1,118

Total net periodic benefit cost	$	2,787		$	1,448		$	2,974

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net actuarial (gain)/loss	$	171		$	6,266		$	(6,901	)
Amortization of net actuarial loss		(2,123	)		(1,316	)		(2,318	)
Settlement loss		(1,050	)		(617	)		(1,118	)

Total recognized in other comprehensive income	$	(3,002	)	$	4,333		$	(10,337	)

Total recognized in net periodic benefit cost and other comprehensive income	$	(215	)	$	5,781		$	(7,363	)

The weighted-average assumptions used to determine the benefit obligations as of the end of the years indicated and the net periodic benefit cost for the years indicated are presented in the table below. Because the plans are frozen, increases in compensation are not considered.


	2015			2014			2013
Benefit obligations:
Discount rate at the end of the period		4.50	%		4.00	%		4.75	%
Net periodic benefit cost:
Discount rate at the beginning of the period		4.00	%		4.75	%		4.00	%
Expected return on plan assets		7.00			7.50			7.50
Rate of compensation increase		N/A			N/A			N/A

N/A = not applicable

The expected long-term rate of return for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation of the plan. The discount rate used reflects the expected future cash flow based on Old National’s funding valuation assumptions and participant data as of the beginning of the plan year. The expected future cash flow is discounted by the Principal Pension Discount yield curve as of December 31, 2015.

Old National’s asset allocation of the Retirement Plan as of year-end is presented in the following table. Old National’s Restoration Plan is unfunded.


Asset Category	Expected Long-Term Rate of Return	2015 Target Allocation	2015			2014			2013
Equity securities	9.00% - 9.50%	40 - 70%		60	%		61	%		64	%
Debt securities	4.00% - 5.85%	30 - 60%		39			38			35
Cash equivalents	—	0 - 15%		1			1			1

Total				100	%		100	%		100	%

Our overall investment strategy is to achieve a mix of approximately 40% to 70% of equity securities, 30% to 60% of debt securities, and 0% to 15% of cash equivalents. Fixed income securities and cash equivalents must meet minimum rating standards. Exposure to any particular company or industry is also limited. The investment policy is reviewed annually. There was no Old National stock in the plan as of December 31, 2015, 2014, or 2013.

The fair value of our plan assets are determined based on observable Level 1 or 2 pricing inputs, including quoted prices for similar assets in active or non-active markets. The holdings of the plan are comprised of pooled separate accounts, except for one mutual fund in the Fixed Income category. As of December 31, 2015, the fair value of plan assets, by asset category, is as follows:

Fair Value Measurements at December 31, 2015 Using

(dollars in thousands)

Carrying
Value

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Plan Assets

Large U.S. equity

13,333

—

13,333

—

International equity

6,667

—

6,667

—

Short-term fixed income

431

—

431

—

Fixed income

12,781

—

Total plan assets

33,212

12,781

20,431

—

As of December 31, 2014, the fair value of plan assets, by asset category, was as follows:


			Fair Value Measurements at December 31, 2014 Using
(dollars in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Plan Assets
Large U.S. equity	$	15,877	$	—	$	15,877	$	—
International equity		7,103		—		7,103		—
Short-term fixed income		468		—		468		—
Fixed income		14,245		14,245		—		—

Total plan assets	$	37,693	$	14,245	$	23,448	$	—

As of December 31, 2015, expected future benefit payments related to Old National’s defined benefit plans were as follows:


(dollars in thousands)
2016	$	4,890
2017		3,324
2018		2,326
2019		3,480
2020		3,001
Years 2021 - 2025		14,610

Old National expects to contribute cash of $0.2 million to the pension plans in 2016.

EMPLOYEE STOCK OWNERSHIP PLAN

The Employee Stock Ownership and Savings Plan (401k) (the “401(k) Plan”) permits employees to participate the first month following one month of service. Effective as of April 1, 2010, we suspended safe harbor matching contributions to the 401(k) Plan. However, we may make discretionary matching contributions to the 401(k) Plan. For 2015, 2014, and 2013, we matched 50% of employee compensation deferral contributions, up to 6% of compensation. In addition to matching contributions, Old National may contribute to the 401(k) Plan an amount designated as a profit sharing contribution in the form of Old National stock or cash. Our Board of Directors designated no discretionary profit sharing contributions in 2015, 2014, or 2013. All contributions vest immediately and plan participants may elect to redirect funds among any of the investment options provided under the 401(k) plan. The number of Old National shares in the 401(k) plan were 1.0 million at December 31, 2015 and 1.2 million at December 31, 2014. All shares owned through the 401(k) plan are included in the calculation of weighted-average shares outstanding for purposes of calculating diluted and basic earnings per share. Contribution expense under the 401(k) plan was $4.6 million in 2015, $4.3 million in 2014, and $3.8 million in 2013.