Retirement Agreements and Other Postretirement Benefit Plan

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

Retirement Agreements and Other Postretirement Benefit Plan

Retirement Agreements and Other Postretirement Benefit Plan

The Company has a 401(k) savings plan.  In order to participate, individuals must be employed for one full year and work at least 1,000 hours annually.  The Company makes a 3% Safe Harbor contribution and also has the option annually to make a discretionary profit share contribution.  Individuals may elect to make contributions up to the maximum deductible amount as determined by the Internal Revenue Code.  Expenses related to the 401(k) plan were approximately $579,000, $518,000 and $479,000 for 2013, 2012 and 2011, respectively.

In November 2003, ITIC, a wholly owned subsidiary of the Company, entered into employment agreements with the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer of ITIC. These individuals also serve as the Chairman, President and Executive Vice President, respectively, of the Company.  The agreements provide compensation and life, health, dental and vision benefits upon the occurrence of specific events, including death, disability, retirement, termination without cause or upon a change in control. The employment agreements also prohibit each of these executives from competing with ITIC and its parent, subsidiaries and affiliates in the State of North Carolina while employed by ITIC and for a period of two years following termination of their employment.  

In addition, during the second quarter of 2004, ITIC entered into nonqualified deferred compensation plan agreements with these executives.  The amount accrued for all agreements at December 31, 2013 and 2012 was approximately $6,580,000 and $6,303,000, respectively, which includes postretirement compensation and health benefits, and was calculated based on the terms of the contract.  Both the 2013 and 2012 accruals are included in the Accounts payable and accrued liabilities line item of the Consolidated Balance Sheets.  These executive contracts are accounted for on an individual contract basis.  On December 24, 2008, the executive contracts were amended effective January 1, 2009 to bring them into compliance with Section 409A of the Internal Revenue Code, and were amended and restated to provide for an annual cash payment to the officers equal to the amounts the Company would have contributed to their accounts under its 401(k) plan if such contributions were not limited by the federal tax laws, less the amount of any contributions that the Company actually makes to their accounts under the Company’s 401(k) plan. 

On November 17, 2003, ITIC entered into employment agreements with key executives that provide for the continuation of certain employee benefits upon retirement.  The executive employee benefits include health insurance, dental insurance, vision insurance and life insurance.   The benefits are unfunded.  Estimated future benefit payouts expected to be paid for each of the next five years are $4,231 in 2014, $4,596 in 2015, $4,937 in 2016, $8,093 in 2017, $11,751 in 2018 and $100,122 in the next five years thereafter.

Cost of the Company’s postretirement benefits included the following components:

	2013			2012		2011
Net periodic benefit cost
Service cost – benefits earned during the year	$	15,782		$	12,617	$	19,503
Interest cost on the projected benefit obligation	28,412			27,867		24,607
(Accretion) amortization of unrecognized prior service cost	(1,518		)	9,396		13,038
Amortization (accretion) of unrecognized loss (gain)	6,293			680		(318		)
Net periodic benefits cost at end of year	$	48,969		$	50,560	$	56,830

The Company is required to recognize the funded status (i.e., the difference between the fair value of the assets and the accumulated postretirement benefit obligations of its postretirement benefits) in its Consolidated Balance Sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax.  The net amount in accumulated other comprehensive income is $(73,246), $(48,353) net of tax, for December 31, 2013, and $(155,234), $(102,454) net of tax, for December 31, 2012, and represents the net unrecognized actuarial losses and unrecognized prior service costs.  The effects of the funded status on the Company’s Consolidated Balance Sheets at December 31, 2013 and 2012 are presented in the following table:

	2013			2012
Funded status
Actuarial present value of future benefits:
Fully eligible active employee	$	(377,838	)	$	(401,553	)
Non-eligible active employees	(301,439		)	(310,743		)
Plan assets	—			—
Funded status of accumulated postretirement benefit obligation, recognized in other liabilities	$	(679,277	)	$	(712,296	)

Development of the accumulated postretirement benefit obligation for the years ended December 31, 2013 and 2012 includes the following:

	2013			2012
Accrued postretirement  benefit obligation at beginning of year	$	(712,296	)	$	(588,894	)
Service cost – benefits earned during the year	(15,782		)	(12,617		)
Interest cost on projected benefit obligation	(28,412		)	(27,867		)
Actuarial gain (loss)	77,213			(82,918		)
Accrued postretirement benefit obligation at end of year	$	(679,277	)	$	(712,296	)

The changes in amounts related to accumulated other comprehensive income, pre-tax, are as follows:

	2013			2012
Balance at beginning of year	$	155,234		$	82,392
Components of accumulated other comprehensive income:
Unrecognized prior service credit (cost)	1,518			(9,396		)
Amortization of loss, net	(6,293		)	(680		)
Actuarial (gain) loss	(77,213		)	82,918
Balance at end of year	$	73,246		$	155,234

The amounts currently in accumulated other comprehensive income, pre-tax, that will be reclassified to the Consolidated Statements of Income and recognized as components of net periodic benefit costs in 2014 are:

	Projected 2014
Amortization of unrecognized prior service cost	$	2,217
Amortization of unrecognized loss	—
Net periodic benefit cost at end of year	$	2,217

Assumed health care cost trend rates do have an effect on the amounts reported for the postretirement benefit obligations.  The following illustrates the effects on the net periodic postretirement benefit cost (“NPPBC”) and the accumulated postretirement benefit obligation (“APBO”) of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate as of December 31, 2013:

	One- Percentage Point Increase		One- Percentage Point Decrease
Net periodic postretirement benefit cost
Effect on the service cost component	$	3,790	$	(2,860	)
Effect on interest cost	6,574		(5,056		)
Total effect on the net periodic postretirement benefit cost	$	10,364	$	(7,916	)
Accumulated postretirement benefit obligation (including active employees who are not fully eligible)
Effect on those currently receiving benefits (retirees and spouses)	$	—	$	—
Effect on active fully eligible	68,198		(53,548		)
Effect on actives not yet eligible	77,887		(58,806		)
Total effect on the accumulated postretirement benefit obligation	$	146,085	$	(112,354	)