Retirement Benefits

12 Months Ended

Dec. 31, 2012

Retirement Plans [Abstract]

RETIREMENT PLANS

NOTE M — RETIREMENT PLANS

The Corporation's banking subsidiary has a non-contributory, defined benefit pension plan. Retirement benefits are a function of both years of service and compensation. The funding policy is to contribute annually the amount that is sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act.

A measurement date of December 31 has been used for the fiscal year ending December 31, 2012 and 2011.

In thousands	2012			2011
Change in benefit obligation:
Benefit obligation at beginning of year	$	20,989		$	17,919
Service cost	651			570
Interest cost	925			962
Actuarial loss	2,590			2,303
Benefits paid	(858		)	(765		)
Benefit obligation at end of year	24,297			20,989
Change in plan assets:
Fair value of plan assets at beginning of year	25,451			23,760
Actual return on plan assets	2,969			1
Employer contribution	1,856			2,455
Benefits paid	(858		)	(765		)
Fair value of plan assets at end of year	29,418			25,451
Funded Status, included in other assets	$	5,121		$	4,462
Amounts recognized in accumulated other comprehensive income:
Total net actuarial loss	$	8,719		$	7,937
Transition obligation	—			10
Prior service cost	105			144
Total included in accumulated other comprehensive income (pretax)	$	8,824		$	8,091

The estimated costs that will be amortized from accumulated other comprehensive income into net periodic pension cost during the next fiscal year are as follows:

In thousands
Net loss	$	652
Prior service cost	40
Net transition liability	—
	$	692

The accumulated benefit obligation totaled $23,757,000 and $20,658,000 at December 31, 2012 and 2011, respectively.

The components of net periodic benefit costs (income) related to the non-contributory, defined benefit pension plan for the years ended December 31 are as follows:

In thousands	2012			2011			2010
Components of net periodic benefit cost (income):
Service cost	$	651		$	570		$	458
Interest cost	925			962			1,074
Expected return on plan assets	(1,772		)	(1,829		)	(1,216		)
Recognized net actuarial loss	611			140			436
Amortization of transition liability	10			12			12
Amortization of prior service cost	40			40			39
Net Periodic Benefit Cost (Income)	465			(105		)	803
Net loss (gain)	1,393			4,130			(2,273		)
Amortization of net loss	(611		)	(140		)	(436		)
Amortization of transition liability	(10		)	(12		)	(12		)
Amortization of prior service cost	(40		)	(40		)	(39		)
Total recognized in other comprehensive loss (income)	$	732		$	3,938		$	(2,760	)
Total recognized in net periodic benefit cost (income) and other comprehensive loss (income)	$	1,197		$	3,833		$	(1,957	)

For the years ended December 31, 2012, 2011 and 2010, the assumptions used to determine the benefit obligation are as follows:

	2012		2011		2010
Discount rate	3.75	%	4.50	%	5.50	%
Rate of compensation increase	3.75	%	4.00	%	3.58	%

For the years ended December 31, 2012, 2011 and 2010, the assumptions used to determine the net periodic benefit cost (income) are as follows:

	2012		2011		2010
Discount rate	4.50	%	5.50	%	6.00	%
Expected long-term rate of return on plan assets	7.00	%	7.50	%	7.75	%
Rate of compensation increase	4.00	%	3.58	%	3.55	%

The Corporation's pension plan weighted-average assets' allocations at December 31, 2012 and 2011, are as follows:

	2012		2011
Equity securities	45	%	44	%
Debt securities	45	%	42	%
Short-term fixed income	6	%	8	%
Real estate	4	%	6	%
	100	%	100	%

The Corporation's overall investment strategy is to achieve a mix of investments to meet the long-term rate of return assumption and near-term pension obligations with a diversification of assets types, fund strategies and fund managers. The mix of investments is adjusted periodically by retaining an advisory firm to recommend appropriate allocations after reviewing the Corporation's risk tolerance on contribution levels, funded status and plan expense, and any applicable regulatory requirements. The weighted-average assets' allocation in the above table represents the Corporation's conclusion on the appropriate mix of investments. The specific investment vehicles are institutional separate accounts from a variety of fund managers which are regularly reviewed by the Corporation for acceptable performance.

Equity securities included Corporation common stock in amounts of $967,000, or 3% of total plan assets, and $786,000, or 3% of total plan assets, at December 31, 2012 and 2011, respectively

Fair value measurements at December 31, 2012, are as follows:

In thousands	Total		Level 1		Level 2		Level 3
Equity securities	$	14,951	$	967	$	13,984	$	—
Debt securities	13,155		—		13,155		—
Real estate	1,312		—		1,312		—

Fair value measurements at December 31, 2011, are as follows:

In thousands	Total		Level 1		Level 2		Level 3
Equity securities	$	11,814	$	786	$	11,028	$	—
Debt securities	12,316		—		12,316		—
Real estate	1,320		—		1,320		—

.The following table summarizes the effect the Level 3 investments had for the year ended December 31, 2011. There was no activity with respect to Level 3 investments for the year ended December 31, 2012.

In thousands	Real Estate
Balance — January 1, 2011	$	531
Total gains	15
Transfer out of Level 3	$	(546	)
Balance — December 31, 2011	$	—

It has not yet been determined the amount the Bank plans on contributing to the Plan in 2013. The Corporation reduced the benefit formula for the defined benefit pension plan effective January 1, 2010, in order to manage total benefit costs. The new formula is the earned benefit as of December 31, 2009, plus 0.75% of a participant's average monthly pay multiplied by years of benefit service earned on and after January 1, 2010, but not more than 25 years. The benefit percentage factor and maximum years of service eligible were both reduced. Effective April 1, 2012, no inactive or former participant in the Plan shall be eligible to again participate in the plan, and no employee hired after March 31, 2012, shall be eligible to participate in the Plan. As of the last annual census, ACNB Bank had a combined 368 active, vested terminated, and retired persons in the Plan. There were 11 new hires in the first quarter of 2012 that are not enrolled in the Plan, but will be upon meeting the eligibility requirements.

Based on current data and assumptions, the following benefit payments, which reflect expected future service, as appropriate, are:

Years Ending	In thousands
2013	$	940
2014	1,010
2015	1,020
2016	1,050
2017	1,160
2018-2021	7,080

The Corporation's banking subsidiary maintains a 401(k) plan for the benefit of eligible employees. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The Bank makes matching contributions up to 100% of the first 4% of an employee's compensation contributed to the plan. Matching contributions vest immediately to the employee. Bank contributions to and expenses for the plan were $486,000, $461,000 and $432,000 for 2012, 2011 and 2010, respectively.

The Corporation's banking subsidiary maintains non-qualified compensation plans for selected senior officers. The estimated present value of future benefits is accrued over the period from the effective date of the agreements until the expected retirement dates of the individuals. The balance accrued for these plans included in other liabilities as of December 31, 2012 and 2011, totaled $1,545,000 and $1,372,000, respectively. The annual expense included in salaries and benefits expense totaled $297,000, $143,000 and $152,000 during the years ended December 31, 2012, 2011 and 2010, respectively. To fund the benefits under these plans, the Bank is the owner of single premium life insurance policies on participants in the non-qualified retirement plans. At December 31, 2012 and 2011, the cash surrender value of these policies was $4,494,000 and $4,365,000, respectively.