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Benefit Plans
9 Months Ended
Sep. 30, 2013
Compensation And Retirement Disclosure [Abstract]  
Benefit Plans

Note 10. Benefit Plans

Pension and Director Plans

The Bank has a non-contributory defined benefit plan (“qualified plan”) covering most of its employees. The qualified plan benefits are based upon years of credited service and the employee’s highest average compensation as defined. Additionally, the Bank has a supplemental non-qualified, non-funded retirement plan, which is designed to supplement the pension plan for key officers, and Valley has a non-qualified, non-funded directors’ retirement plan (both of these plans are referred to as the “non-qualified plans” below).

On June 19, 2013, the Board of Directors approved amendments to freeze the benefits earned under the qualified and non-qualified plans effective December 31, 2013. As a result, participants will not accrue further benefits and their pension benefits will be determined based on the compensation and service up to December 31, 2013. Plan benefits will not increase for any pay or service earned after such date. However, participants will continue to vest with respect to their frozen earned benefits as long as they continue to work for Valley.

As a result of these actions, Valley re-measured the projected benefit obligation of the affected plans and the funded status of each plan at June 30, 2013. The freeze and re-measurement decreased the projected benefit obligations by $22.9 million and decreased accumulated other comprehensive loss, net of tax, by $19.9 million during the six months ended June 30, 2013. The decrease in the plan obligations was mainly due to an increase in the discount rate from December 31, 2012 and the curtailment of plan benefits. At June 30, 2013, Valley used a discount rate of 4.87 percent for the re-measurement of the pension benefit obligation as compared to 4.26 percent at December 31, 2012. The discount rate is based on our consistent methodology of determining our discount rate based on an established yield curve that incorporates a broad group of Aa3 or higher rated bonds with durations equal to the expected benefit payment streams required by each plan. The assumption for the expected rate of return on plan assets was 7.50 percent at June 30, 2013 and remained unchanged from December 31, 2012. Additionally, a curtailment loss totaling $750 thousand was recognized as a component of net periodic pension expense during the second quarter of 2013 due to the re-measurement and freeze of the plans.

The fair value of qualified plan assets increased approximately $35.1 million, or 25.3 percent, to $174.0 million at September 30, 2013 from $138.9 million at December 31, 2012. In April 2013, Valley made a $25.0 million discretionary contribution to the qualified plan prior to Valley’s decision to freeze the plan. It is the Bank’s funding policy to contribute annually, if deemed necessary, an amount that can be deducted for federal income tax purposes.

The following table sets forth the components of net periodic pension expense related to the qualified and non-qualified plans for the three and nine months ended September 30, 2013 and 2012:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  
     (in thousands)  

Service cost

   $ 1,530      $ 1,964      $ 5,573      $ 5,892   

Interest cost

     1,640        1,599        5,005        4,795   

Expected return on plan assets

     (3,334     (2,234     (9,076     (6,700

Amortization of prior service cost

     229        177        672        531   

Amortization of actuarial loss

     357        582        1,962        1,745   

Curtailment loss

     —          —          750        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic pension expense

   $ 422      $ 2,088      $ 4,886      $ 6,263   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Largely due to the freeze in the plans’ benefits during the second quarter of 2013, Valley’s net periodic pension expense declined to $422 thousand for the quarter ended September 30, 2013. Valley expects the net periodic pension expense to remain materially unchanged during the fourth quarter of 2013 as compared to the third quarter of 2013.

Savings and Investment Plan

Effective January 1, 2014, Valley will increase benefits under the Bank’s 401(k) plan in an effort to offset a portion of the employee benefits no longer accruing under the qualified pension plan after December 31, 2013. At such date, Valley’s contributions will be increased to a dollar-for-dollar matching contribution of up to six percent of eligible compensation contributed by an employee each pay period.