PENSION AND OTHER POST RETIREMENT BENEFIT PLANS

The Corporation’s defined-benefit pension plans cover approximately 20 percent of the Corporation’s employees. In 2005, the Board of Directors of the Corporation approved the curtailment of the accumulation of defined benefits for future services provided by certain participants in the First Merchants Corporation Retirement Plan. No additional pension benefits have been earned by any employees who had not attained both the age of 55 and accrued at least 10 years of vesting service as of March 1, 2005. The benefits are based primarily on years of service and employees’ pay near retirement. Contributions are intended to provide not only for benefits attributed to service-to-date, but also for those expected to be earned in the future. The Corporation also maintains post retirement benefit plans that provide health insurance benefits to retirees. The plans allow retirees to be carried under the Corporation’s health insurance plan, generally from ages 55 to 65. The retirees pay 100 percent of the premiums due for their coverage. The table below sets forth the plans’ funded status and amounts recognized in the consolidated balance sheets at December 31, using measurement dates of December 31, 2015 and 2014.



	2015			2014
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	80,650		$	62,270
Service cost	55			73
Interest cost	3,087			3,235
Actuarial loss (gain)	(5,617		)	12,968
Benefits paid	(6,428		)	(5,541		)
Net transfers in from CFS acquisition				7,645
Benefit obligation at end of year	$	71,747		$	80,650

Change in Plan Assets:
Fair value of plan assets at beginning of year	$	77,139		$	69,871
Actual return on plan assets	153			5,232
Employer contributions	532			504
Benefits paid	(6,428		)	(5,541		)
CFS acquisition				7,073
End of year	71,396			77,139
Funded status at end of year	$	(351	)	$	(3,511	)

Assets and Liabilities Recognized in the Balance Sheets:
Deferred tax asset	$	7,461		$	8,541
Assets	$	4,006		$	1,329
Liabilities	$	4,357		$	4,840

Amounts Recognized in Accumulated Other Comprehensive Income Not Yet Recognized as Components of Net Periodic (Benefit) Cost Consist of:
Accumulated loss	$	(13,857	)	$	(15,863	)
Prior service credit	(305		)	(346		)
	$	(14,162	)	$	(16,209	)

The actuarial gain recognized in 2015 was primarily due to an increase in the discount rate assumption from 4.00% at December 31, 2014 to 4.50% at December 31, 2015. The actuarial loss recognized in 2014 was primarily due to two factors. The first factor was a decrease in the discount rate assumption from 4.80% at December 31, 2013 to 4.00% at December 31, 2014. The second factor contributing to the loss was the Corporation's adoption of the Society of Actuaries new mortality tables.

Ameriana participated in the Pentegra Defined Benefit Plan for Financial Institutions (the "Pentegra Plan”), an industry-wide, tax-qualified defined-benefit pension plan. The Pentegra Plan operated as a multi-employer plan for accounting purposes and as a multiple employer plan under ERISA and the Internal Revenue Code. On November 20, 2015, Ameriana provided Pentegra a 60-day written notice of withdrawal as a Participating Employer in the Pentegra Plan. Upon completion of the withdrawal from the Pentegra Plan, the assets and liabilities will be merged into the First Merchants Corporation Retirement Plan. A liability of $5,435,000 has been recorded as the estimated final contribution to the Pentegra Plan to complete the withdrawal. The merging of the plan assets and liabilities is expected to occur in early 2016.

The accumulated benefit obligation for all defined benefit plans was $71,747,000 and $80,650,000 at December 31, 2015 and 2014, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets is included in the table below.



	December 31, 2015		December 31, 2014
Projected benefit obligation	$	4,357	$	4,840
Accumulated benefit obligation	$	4,357	$	4,840
Fair value of plan assets

The following table shows the components of net periodic pension costs:



	December 31, 2015			December 31, 2014			December 31, 2013
Service cost	$	55		$	73		$	131
Interest cost	3,087			3,235			2,670
Expected return on plan assets	(4,471		)	(4,467		)	(4,265		)
Amortization of prior service costs	64			81			25
Amortization of net loss	1,722			478			2,131
Net periodic pension (benefit) cost	$	457		$	(600	)	$	692

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):



	December 31, 2015		December 31, 2014			December 31, 2013
Net periodic pension (benefit) cost	$	457	$	(600	)	$	692
Net gain (loss)	1,299		(12,203		)	11,942
Amortization of loss	1,722		478			2,131
Amortization of prior service cost	64		81			25
Total recognized in other comprehensive income (loss)	3,085		(11,644		)	14,098
Total recognized in net periodic pension cost and other comprehensive income (loss)	$	2,628	$	(11,044	)	$	13,406

The estimated net loss and transition obligation for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic pension cost over the next fiscal year are:



	December 31, 2015			December 31, 2014			December 31, 2013
Amortization of net loss	$	(1,505	)	$	(1,770	)	$	(533	)
Amortization of prior service cost	(61		)	(64		)	(25		)
Total	$	(1,566	)	$	(1,834	)	$	(558	)

Significant assumptions include:



	December 31, 2015		December 31, 2014		December 31, 2013
Weighted-average Assumptions Used to Determine Benefit Obligation:
Discount rate	4.50	%	4.00	%	4.80	%
Rate of compensation increase for accruing active participants	3.00	%	3.00	%	3.00	%
Weighted-average Assumptions Used to Determine Cost:
Discount rate	4.00	%	4.80	%	4.00	%
Expected return on plan assets	6.00	%	6.00	%	7.00	%
Rate of compensation increase for accruing active participants	3.00	%	3.00	%	3.00	%

At December 31, 2015 and 2014, the Corporation based its estimate of the expected long-term rate of return on analysis of the historical returns of the plans and current market information available. The plans’ investment strategies are to provide for preservation of capital with an emphasis on long-term growth without undue exposure to risk. The assets of the plans’ are invested in accordance with the plans’ Investment Policy Statement, subject to strict compliance with Employee Retirement Income Security Act of 1974 ("ERISA") and any other applicable statutes.

The plans’ risk management practices include quarterly evaluations of investment managers, including reviews of compliance with investment manager guidelines and restrictions; ability to exceed performance objectives; adherence to the investment philosophy and style; and ability to exceed the performance of other investment managers. The evaluations are reviewed by management with appropriate follow-up and actions taken, as deemed necessary. The Investment Policy Statement generally allows investments in cash and cash equivalents, real estate, fixed income debt securities and equity securities, and specifically prohibits investments in derivatives, options, futures, private placements, short selling, non-marketable securities and purchases of non-investment grade bonds.

At December 31, 2015, the maturities of the plans’ debt securities ranged from 15 days to 9.04 years, with a weighted average maturity of 4.47 years. At December 31, 2014, the maturities of the plans’ debt securities ranged from 15 days to 9.59 years, with a weighted average maturity of 5.02 years.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as of December 31, 2015. The minimum contribution required in 2016 will likely be zero but the Corporation may decide to make a discretionary contribution during the year.



2016	$	4,814
2017	4,729
2018	4,657
2019	4,838
2020	4,772
After 2020	24,440
	$	48,250

Plan assets are re-balanced quarterly. At December 31, 2015 and 2014, plan assets by category are as follows:



	December 31, 2015				December 31, 2014
	Actual		Target		Actual		Target
Cash and cash equivalents	2.2	%	2.0	%	2.6	%	2.0	%
Equity securities	58.1		60.0		58.7		60.0
Debt securities	37.4		36.0		36.5		36.0
Alternative investments	2.3		2.0		2.2		2.0
	100.0	%	100.0	%	100.0	%	100.0	%

The First Merchants Corporation Retirement and Income Savings Plan (the “Savings Plan”), a Section 401(k) qualified defined contribution plan, was amended on March 1, 2005 to provide enhanced retirement benefits, including employer and matching contributions, for eligible employees of the Corporation and its subsidiaries. The Corporation matches employees’ contributions primarily at the rate of 50 percent for the first 6 percent of base salary contributed by participants.

Beginning in 2005, employees who have completed 1000 hours of service and are an active employee on the last day of the year receive an additional retirement contribution after year-end. Employees hired after January 1, 2010 do not participate in the additional retirement contribution. Effective January 1, 2013, the additional retirement contribution was fixed at 2 percent. Full vesting occurs after five years of service. The Corporation’s expense for the Savings Plan, including the additional retirement contribution, was $3,526,000, $3,396,000 and $3,138,000 for 2015, 2014 and 2013, respectively.

The Corporation maintains post retirement benefit plans that provide health insurance benefits to retirees. The plans allow retirees to be carried under the Corporation’s health insurance plan, generally from ages 55 to 65. The retirees pay 100 percent of the premiums due for their coverage. The obligations payable under the plans totaled $1,403,000 and $1,811,000 at December 31, 2015 and 2014, respectively. Post retirement plan expense totaled $(127,000), $97,000 and $519,000 for the years ending December 31, 2015, 2014 and 2013, respectively.

Pension Plan Assets

Following is a description of the valuation methodologies used for pension plan assets measured at fair value on a recurring basis, as well as the general classification of pension plan assets pursuant to the valuation hierarchy.

Where quoted market prices are available in an active market, plan assets are classified within Level 1 of the valuation hierarchy. Level 1 plan assets total $52,433,000 and include cash and cash equivalents, common stocks, mutual funds and corporate bonds and notes. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of plan assets with similar characteristics or discounted cash flows. Level 2 plan assets total $18,963,000 and include governmental agencies, taxable municipals, common collective trust investments (which are classified below as Party-in-Interest investments -- common bond fund and common equity fund) and certificates of deposit. In certain cases where Level 1 or Level 2 inputs are not available, plan assets are classified within Level 3 of the hierarchy. There are no assets classified within Level 3 of the hierarchy at December 31, 2015 and 2014.



			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2015	Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash & Cash Equivalents	$	1,608	$	1,608
Corporate Bonds and Notes	9,113		9,113
Government Agency and Municipal Bonds and Notes	6,993				$	6,993
Certificates of Deposit	1,511				1,511
Party-in-Interest Investments
Common Stock	1,538		1,538
Common Bond Fund	4,647				4,647
Common Equity Fund	5,812				5,812
Mutual Funds
Taxable Bond	4,536		4,536
Large Cap Equity	18,528		18,528
Mid Cap Equity	8,537		8,537
Small Cap Equity	3,578		3,578
International Equity	3,353		3,353
Specialty Alternative Equity	1,642		1,642
	$	71,396	$	52,433	$	18,963



			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2014	Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash & Cash Equivalents	$	2,032	$	2,032
Corporate Bonds and Notes	9,384		9,384
Government Agency and Municipal Bonds and Notes	8,252				$	8,252
Certificates of Deposit	1,001				1,001
Party-in-Interest Investments
Common Stock	1,376		1,376
Common Bond Fund	4,615				4,615
Common Equity Fund	5,858				5,858
Mutual Funds
Taxable Bond	4,987		4,987
Large Cap Equity	21,185		21,185
Mid Cap Equity	9,434		9,434
Small Cap Equity	3,872		3,872
International Equity	3,474		3,474
Specialty Alternative Equity	1,669		1,669
	$	77,139	$	57,413	$	19,726