Note 16 — Pension and Other Benefits

Defined Benefit Plans

The Corporation maintained a non-contributory pension plan for substantially all of its employees until September 30, 2007, at which time the Corporation froze its defined benefit pension plan. The benefits are based on years of service and the employee’s compensation over the prior five-year period. The plan’s benefits are payable in the form of a ten year certain and life annuity. The plan is intended to be a tax-qualified defined benefit plan under Section 401(a) of the Internal Revenue Code. The pension plan generally covers employees of Union Center National Bank and the Parent Corporation who had attained age 21 and completed one year of service prior to September 30, 2007. Payments may be made under the Pension Plan once attaining the normal retirement age of 65 and are generally equal to 44 percent of a participant’s highest average compensation over a 5-year period.

The following table sets forth changes in projected benefit obligation, changes in fair value of plan assets, funded status, and amounts recognized in the consolidated statements of condition for the Corporation’s pension plans at December 31, 2013 and 2012.

	2013		2012
	(Dollars in Thousands)
Change in Benefit Obligation:
Projected benefit obligation at beginning of year	$	13,533	$	12,345
Interest cost		529		555
Actuarial loss		255		1,389
Benefits paid		(748)		(756)
Projected benefit obligation at end of year	$	13,569	$	13,533
Change in Plan Assets:
Fair value of plan assets at beginning year	$	7,034	$	6,762
Actual return on plan assets		1,040		681
Employer contributions		3,700		347
Benefits paid		(748)		(756)
Fair value of plan assets at end of year	$	11,026	$	7,034
Funded status	$	(2,543)	$	(6,499)

Amounts related to unrecognized actuarial losses for the plan, on a pre-tax basis, that have been recognized in accumulated other comprehensive loss amounted to $5,699,000 and $6,354,000 at December 31, 2013 and 2012, respectively.

The net periodic pension cost for 2013, 2012 and 2011 includes the following components:

	2013		2012		2011
	(Dollars in Thousands)
Interest cost	$	529	$	555	$	589
Expected return on plan assets		(488)		(377)		(381)
Net amortization		375		294		179
Net periodic pension expense	$	416	$	472	$	387

The following table presents the assumptions used to calculate the projected benefit obligation in each of the last three years.

	2013			2012			2011
Discount rate		4.84	%		4.03	%		4.64	%
Rate of compensation increase		N/A			N/A			N/A
Expected long-term rate of return on plan assets		5.50	%		5.50	%		5.50	%

The following information is provided for the year ended December 31:

	2013			2012			2011
	(Dollars in Thousands)
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31
Discount rate		4.03	%		4.64	%		5.25	%
Expected long-term return on plan assets		5.50	%		5.50	%		5.50	%
Rate of compensation increase		N/A			N/A			N/A

The process of determining the overall expected long-term rate of return on plan assets begins with a review of appropriate investment data, including current yields on fixed income securities, historical investment data, historical plan performance and forecasts of inflation and future total returns for the various asset classes. This data forms the basis for the construction of a best-estimate range of real investment return for each asset class. An average, weighted real-return range is computed reflecting the plan’s expected asset mix, and that range, when combined with an expected inflation range, produces an overall best-estimate expected return range. Specific factors such as the plan’s investment policy, reinvestment risk and investment volatility are taken into consideration during the construction of the best estimate real return range, as well as in the selection of the final return assumption from within the range.

Plan Assets

The Union Center National Bank Pension Trust’s weighted-average asset allocation at December 31, 2013, 2012 and 2011, by asset category, is as follows:

Asset Category	2013			2012			2011
Equity securities (domestic and international)		53	%		60	%		47	%
Debt and/or fixed income securities		39	%		39	%		41	%
Alternative investments, including commodities, foreign currency and real estate		—	%		1	%		4	%
Cash and other alternative investments, including hedge funds, equity structured notes		8	%		—	%		8	%
Total		100	%		100	%		100	%

The general investment policy of the Pension Trust is for the fund to experience growth in assets that will allow the market value to exceed the value of benefit obligations over time. Appropriate diversification on a total fund basis is achieved by following an allowable range of commitment within asset category, as follows:

	Range			Target
Equity securities		42 – 48	%		45	%
Debt and/or fixed income securities		37 – 43	%		40	%
International equity		12 – 18	%		15	%
Short term		N/A			N/A
Other		N/A			N/A

The fair values of the Corporation’s pension plan assets at December 31, 2013 and 2012, by asset category, are as follows:

	December 31, 2013		Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Cash	$	865	$	865	$	—	$	—
Equity securities:
U.S. companies		4,310		4,310		—		—
International companies		1,495		1,495		—		—
Debt and/or fixed income securities		4,356		4,356		—		—
Total	$	11,026	$	11,026	$	—	$	—

	December 31, 2012		Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Cash	$	42	$	42	$	—	$	—
Equity securities:
U.S. companies		3,154		3,154		—		—
International companies		1,051		1,051		—		—
Debt and/or fixed income securities		2,787		2,787		—		—
Total	$	7,034	$	7,034	$	—	$	—

The investment manager is not authorized to purchase, acquire or otherwise hold certain types of market securities (subordinated bonds, real estate investment trusts, limited partnerships, naked puts, naked calls, stock index futures, oil, gas or mineral exploration ventures or unregistered securities) or to employ certain types of market techniques (margin purchases or short sales) or to mortgage, pledge, hypothecate, or in any manner transfer as security for indebtedness, any security owned or held by the Plan.

Cash Flows

Contributions

The Bank expects to contribute $400,000 to its Pension Trust in 2014.

The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, signed into law on June 25, 2010, permits single employer and multiple employer defined benefit plan sponsors to elect to extend the plan’s amortization period of a Shortfall Amortization Base over either a nine year period or a fifteen year period, rather than the seven year period required under the Pension Protection Act of 2006. The relief was available for any two Plan Years 2008 through 2011.

The Bank has elected to apply the Pension Relief Act fifteen year amortization of the Shortfall Amortization Bases established for the 2009 and 2011 Plan Years.

The Moving Ahead for Progress in the 21^st Century Act which was enacted on July 6, 2012 contained special rules related to funding stabilization for single employer defined benefit plans. Under these provisions, the interest rates used to calculate the plan’s funding percentages and minimum required contribution are adjusted as necessary to fall within a specified range that is determined based on an average of rates for the 25 year period ending on September 30 of the calendar year preceding the first day of the Plan year. For Plan years beginning in 2013, the range is 85% - 115% of the 25 year average. The application of the adjusted rates produced a 2013 required minimum contribution to the Plan to approximately $400,000. However, a decision was made to contribute a total of $3,700,000 for the 2013 plan year in order to make significant progress toward fully funding Plan liabilities and that amount has been contributed for the 2013 Plan Year.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in each year 2014, 2015, 2016, 2017, 2018 and years 2019-2023, respectively: $761,489, $762,957, $765,263, $747,835, $743,646 and $3,882,812.

401(k) Benefit Plan

The Corporation maintains a 401(k) employee savings plan to provide for defined contributions which covers substantially all employees of the Corporation. Prior to 2013, the Corporation’s contribution to its 401(k) plan provided a dollar-for-dollar matching contribution up to six percent of salary deferrals for the periods presented. Beginning with the 2013 Plan Year, the Plan was amended to provide for a 3% non-elective safe harbor contribution for all participants. For 2013, 2012 and 2011, employer contributions amounted to $265,000, $405,000 and $358,000, respectively.