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PENSION AND OTHER POSTRETIREMENT PLANS
12 Months Ended
Dec. 31, 2016
Employee Benefit Plans [Abstract]  
PENSION AND OTHER POSTRETIREMENT PLANS
NOTE 11 PENSION AND OTHER POSTRETIREMENT PLANS

In April 2000, the Lakeland Financial Corporation Pension Plan was frozen. The Company also maintains a Supplemental Executive Retirement Plan ("SERP") for select officers that was established as a funded, non-qualified deferred compensation plan. Currently, seven retired officers are the only participants in the SERP. The measurement date for both the pension plan and SERP is December 31, 2016 and 2015.

Information as to the Company's employee benefit plans at December 31, 2016 and 2015 is as follows:
 
 
 
Pension Benefits
 
SERP Benefits
 
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
 
Change in benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning benefit obligation
 
$
2,795
 
$
2,785
 
$
1,223
 
$
1,267
 
Interest cost
 
 
105
 
 
103
 
 
45
 
 
46
 
Actuarial (gain)/loss
 
 
256
 
 
135
 
 
32
 
 
47
 
Benefits paid
 
 
(315)
 
 
(228)
 
 
(137)
 
 
(137)
 
Ending benefit obligation
 
 
2,841
 
 
2,795
 
 
1,163
 
 
1,223
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in plan assets (primarily equity and fixed
 
 
 
 
 
 
 
 
 
 
 
 
 
income investments and money market funds),
 
 
 
 
 
 
 
 
 
 
 
 
 
at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning plan assets
 
 
1,910
 
 
1,841
 
 
988
 
 
1,014
 
Actual return
 
 
151
 
 
(7)
 
 
73
 
 
1
 
Employer contribution
 
 
317
 
 
304
 
 
76
 
 
110
 
Benefits paid
 
 
(315)
 
 
(228)
 
 
(137)
 
 
(137)
 
Ending plan assets
 
 
2,063
 
 
1,910
 
 
1,000
 
 
988
 
Funded status at end of year
 
$
(778)
 
$
(885)
 
$
(163)
 
$
(235)
 
 
Amounts recognized in the consolidated balance sheets consist of:
 
 
 
Pension Benefits
 
SERP Benefits
 
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
 
Funded status included in other liabilities
 
$
(778)
 
$
(885)
 
$
(163)
 
$
(235)
 

Amounts recognized in accumulated other comprehensive income consist of:
 
 
 
Pension Benefits
 
SERP Benefits
 
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
 
Net actuarial loss
 
$
1,953
 
$
1,966
 
$
801
 
$
852
 

The accumulated benefit obligation for the pension plan was $2.8 million for both December 31, 2016 and 2015. The accumulated benefit obligation for the SERP was $1.2 million for both December 31, 2016 and 2015.

Net pension expense and other amounts recognized in other comprehensive income include the following:
 
 
 
Pension Benefits
 
SERP Benefits
 
(dollars in thousands)
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
 
Net pension expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
Interest cost
 
 
105
 
 
103
 
 
119
 
 
45
 
 
46
 
 
50
 
Expected return on plan assets
 
 
(139)
 
 
(139)
 
 
(125)
 
 
(70)
 
 
(76)
 
 
(73)
 
Recognized net actuarial loss
 
 
135
 
 
162
 
 
117
 
 
80
 
 
82
 
 
80
 
Settlement cost
 
 
128
 
 
78
 
 
0
 
 
0
 
 
0
 
 
0
 
Net pension expense
 
$
229
 
$
204
 
$
111
 
$
55
 
$
52
 
$
57
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
122
 
$
203
 
$
402
 
$
29
 
$
122
 
$
252
 
Amortization of net loss
 
 
(135)
 
 
(162)
 
 
(117)
 
 
(80)
 
 
(82)
 
 
(80)
 
Total recognized in other comprehensive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
income
 
$
(13)
 
$
41
 
$
285
 
$
(51)
 
$
40
 
$
172
 
Total recognized in net pension expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and other comprehensive income
 
$
216
 
$
245
 
$
396
 
$
4
 
$
92
 
$
229
 
 
The estimated net loss (gain) for the defined benefit pension plan and SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $185,000 for the pension plan and $79,000 for the SERP. The settlement cost was related to participants taking lump sum distributions from the pension plan during 2016 and 2015.

For 2016, 2015 and 2014, the assumed form of payment elected by active participants upon retirement was changed from a single life annuity to a lump sum to reflect participant trends. The lump sum assumed interest rates below for December 31, 2016, 2015 and 2014 reflect the mortality table in effect for 2017, 2016 and 2015, respectively. For 2016, the mortality assumption was changed to the RP-2014 Mortality Table, adjusted to 2006, with full generational Projection Scale MP-2016 as of December 31, 2016 to reflect improved mortality expectations. For 2015, the mortality assumption was changed to the RP-2014 Mortality Table projected to 2024 with Projection Scale MP-2015 as of December 31, 2015 to reflect improved mortality expectations. For 2014, the mortality assumption was changed to the RP-2014 Mortality Table projected to 2024 with Projection Scale MP-2014 as of December 31, 2014 to reflect improved mortality expectations.
 
 
 
Pension Benefits
 
SERP Benefits
 
 
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
 
The following assumptions were used in calculating the net benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average discount rate
 
3.86
%
3.96
%
3.61
%
3.86
%
3.96
%
3.61
%
Rate of increase in future compensation
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
Lump sum assumed interest rates
 
 
 
 
 
 
 
 
 
 
 
 
 
First 5 years
 
1.57
%
1.61
%
1.29
%
N/A
 
N/A
 
N/A
 
Next 15 years
 
3.45
%
4.02
%
3.81
%
N/A
 
N/A
 
N/A
 
All future years
 
4.39
%
5.03
%
4.88
%
N/A
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following assumptions were used in calculating the net pension expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average discount rate
 
3.96
%
3.61
%
5.00
%
3.96
%
3.61
%
5.00
%
Rate of increase in future compensation
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
Expected long-term rate of return
 
7.00
%
7.75
%
7.75
%
7.00
%
7.75
%
7.75
%

Pension Plan and SERP Assets

The Company's investment strategies are to invest in a prudent manner for the purpose of providing benefits to participants in the pension plan and the SERP. The investment strategies are targeted to maximize the total return of the portfolio net of inflation, spending and expenses. Risk is controlled through diversification of asset types and investments in domestic and international equities and fixed income securities. The target allocations for plan assets are shown in the tables below. Equity securities primarily include investments in common stocks. Debt securities include government agency and commercial bonds. Other investments consist of money market mutual funds.
The weighted average expected long-term rate of return on pension plan and SERP assets is developed in consultation with the plans actuary. It is primarily based upon industry trends and consensus rates of return which are then adjusted to reflect the specific asset allocations and historical rates of return of the Company's plan assets. The following assumptions were used in determining the total long term rate of return:  equity securities were assumed to have a long-term rate of return of approximately 9.40% and debt securities were assumed to have a long-term rate of return of approximately 3.56%. These rates of return were adjusted to reflect an approximate target allocation of 60% equity securities and 40% debt securities with a small downward adjustment due to investments in the "Other" category, which consist of low yielding money market mutual funds.

Certain asset types and investment strategies are prohibited including, the investment in commodities, options, futures, short sales, margin transactions and non-marketable securities.

The Company's pension plan asset allocation at year-end 2016 and 2015, target allocation for 2017, and expected long-term rate of return by asset category are as follows:
 
 
 
 
Percentage of Plan
 
Weighted
 
 
 
Target
Assets
 
Average Expected
 
 
 
Allocation
at Year End
 
Long-Term Rate
 
Asset Category
 
2017
 
2016
 
2015
 
of Return
 
Equity securities
 
55-65
%
60
%
55
%
9.40
%
Debt securities
 
35-45
%
37
%
35
%
3.56
%
Other
 
5-10
%
3
%
10
%
0.10
%
Total
 
 
 
100
%
100
%
7.00
%
 
The Company's SERP plan asset allocation at year-end 2016 and 2015, target allocation for 2017, and expected long-term rate of return by asset category are as follows:
 
 
 
 
 
Percentage of Plan
 
Weighted
 
 
 
Target
 
Assets
 
Average Expected
 
 
 
Allocation
 
at Year End
 
Long-Term Rate
 
Asset Category
 
2017
 
2016
 
2015
 
of Return
 
Equity securities
 
55-65
%
62
%
58
%
9.40
%
Debt securities
 
35-45
%
37
%
36
%
3.56
%
Other
 
5-10
%
1
%
6
%
0.10
%
Total
 
 
 
100
%
100
%
7.00
%
 
Fair Value of Pension Plan and SERP Assets

Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. Also a fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Equity and debt securities:  The fair values of securities are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or pricing models, which utilize significant observable inputs such as matrix pricing. This is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).
 
The fair values of the Company's pension plan assets at December 31, 2016, by asset category are as follows:
 
 
 
 
 
 
Quoted Prices
 
 
 
 
 
 
 
 
 
 
 
 
in Active
 
Significant
 
Significant
 
 
 
 
 
 
Markets for
 
Observable
 
Unobservable
 
 
 
 
 
 
Identical Assets
 
Inputs
 
Inputs
 
Asset Category
 
Total
 
(Level 1)
 
(Level 2 )
 
(Level 3)
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities - US large cap common stocks
 
$
550
 
$
550
 
$
0
 
$
0
 
Equity securities - US large cap stock mutual funds
 
 
335
 
 
335
 
 
0
 
 
0
 
Equity securities - US mid cap stock mutual funds
 
 
138
 
 
138
 
 
0
 
 
0
 
Equity securities - US small cap stock mutual funds
 
 
53
 
 
53
 
 
0
 
 
0
 
Equity securities - international stock mutual funds
 
 
147
 
 
147
 
 
0
 
 
0
 
Equity securities - emerging markets stock mutual funds
 
 
24
 
 
24
 
 
0
 
 
0
 
Debt securities - intermediate term bond mutual funds
 
 
413
 
 
413
 
 
0
 
 
0
 
Debt securities - short term bond mutual funds
 
 
288
 
 
288
 
 
0
 
 
0
 
Debt securities - commercial
 
 
52
 
 
0
 
 
52
 
 
0
 
Cash - money market account
 
 
59
 
 
59
 
 
0
 
 
0
 
Total
 
$
2,059
 
$
2,007
 
$
52
 
$
0
 
 
Total pension plan assets available for benefits also include $4,000 in accrued interest and dividend income.

The fair values of the Company's pension plan assets at December 31, 2015, by asset category are as follows:
 
 
 
 
 
 
Quoted Prices
 
 
 
 
 
 
 
 
 
 
in Active
 
Significant
 
Significant
 
 
 
 
 
 
Markets for
 
Observable
 
Unobservable
 
 
 
 
 
 
Identical Assets
 
Inputs
 
Inputs
 
Asset Category
 
Total
 
(Level 1)
 
(Level 2 )
 
(Level 3)
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities - US large cap common stocks
 
$
495
 
$
495
 
$
0
 
$
0
 
Equity securities - US large cap stock mutual funds
 
 
204
 
 
204
 
 
0
 
 
0
 
Equity securities - US mid cap stock mutual funds
 
 
130
 
 
130
 
 
0
 
 
0
 
Equity securities - US small cap stock mutual funds
 
 
46
 
 
46
 
 
0
 
 
0
 
Equity securities - international stock mutual funds
 
 
148
 
 
148
 
 
0
 
 
0
 
Equity securities - emerging markets stock mutual funds
 
 
22
 
 
22
 
 
0
 
 
0
 
Debt securities - intermediate term bond mutual funds
 
 
275
 
 
275
 
 
0
 
 
0
 
Debt securities - short term bond mutual funds
 
 
257
 
 
257
 
 
0
 
 
0
 
Debt securities - world bond mutual funds
 
 
87
 
 
87
 
 
0
 
 
0
 
Debt securities - commercial
 
 
54
 
 
0
 
 
54
 
 
0
 
Cash - money market account
 
 
187
 
 
187
 
 
0
 
 
0
 
Total
 
$
1,905
 
$
1,851
 
$
54
 
$
0
 
 
Total pension plan assets available for benefits also include $5,000 in accrued interest and dividend income.

There were no significant transfers between Level 1 and Level 2 during 2016 and 2015.
 

The fair values of the Company's SERP assets at December 31, 2016, by asset category are as follows:
 
 
 
 
 
 
Quoted Prices
 
 
 
 
 
 
 
 
 
 
 
 
in Active
 
Significant
 
Significant
 
 
 
 
 
 
Markets for
 
Observable
 
Unobservable
 
 
 
 
 
 
Identical Assets
 
Inputs
 
Inputs
 
Asset Category
 
Total
 
(Level 1)
 
(Level 2 )
 
(Level 3)
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities - US large cap common stocks
 
$
132
 
$
132
 
$
0
 
$
0
 
Equity securities - US large cap stock mutual funds
 
 
380
 
 
380
 
 
0
 
 
0
 
Equity securities - US mid cap stock mutual funds
 
 
40
 
 
40
 
 
0
 
 
0
 
Equity securities - US small cap stock mutual funds
 
 
15
 
 
15
 
 
0
 
 
0
 
Equity securities - international stock mutual funds
 
 
49
 
 
49
 
 
0
 
 
0
 
Debt securities - high yield bond mutual funds
 
 
0
 
 
0
 
 
0
 
 
0
 
Debt securities - intermediate term bond mutual funds
 
 
153
 
 
153
 
 
0
 
 
0
 
Debt securities - short term bond mutual funds
 
 
166
 
 
166
 
 
0
 
 
0
 
Debt securities - commercial
 
 
57
 
 
0
 
 
57
 
 
0
 
Cash - money market account
 
 
4
 
 
4
 
 
0
 
 
0
 
Total
 
$
996
 
$
939
 
$
57
 
$
0
 
 
Total SERP plan assets available for benefits also include $4,000 in accrued interest and dividend income.

The fair values of the Company's SERP assets at December 31, 2015, by asset category are as follows:
 
 
 
 
 
 
Quoted Prices
 
 
 
 
 
 
 
 
 
 
in Active
 
Significant
 
Significant
 
 
 
 
 
 
Markets for
 
Observable
 
Unobservable
 
 
 
 
 
 
Identical Assets
 
Inputs
 
Inputs
 
Asset Category
 
Total
 
(Level 1)
 
(Level 2 )
 
(Level 3)
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities - US large cap common stocks
 
$
125
 
$
125
 
$
0
 
$
0
 
Equity securities - US large cap stock mutual funds
 
 
347
 
 
347
 
 
0
 
 
0
 
Equity securities - US mid cap stock mutual funds
 
 
39
 
 
39
 
 
0
 
 
0
 
Equity securities - US small cap stock mutual funds
 
 
14
 
 
14
 
 
0
 
 
0
 
Equity securities - international stock mutual funds
 
 
49
 
 
49
 
 
0
 
 
0
 
Debt securities - high yield bond mutual funds
 
 
22
 
 
22
 
 
0
 
 
0
 
Debt securities - intermediate term bond mutual funds
 
 
96
 
 
96
 
 
0
 
 
0
 
Debt securities - short term bond mutual funds
 
 
153
 
 
153
 
 
0
 
 
0
 
Debt securities - world bond mutual funds
 
 
30
 
 
30
 
 
0
 
 
0
 
Debt securities - commercial
 
 
58
 
 
0
 
 
58
 
 
0
 
Cash - money market account
 
 
51
 
 
51
 
 
0
 
 
0
 
Total
 
$
984
 
$
926
 
$
58
 
$
0
 
 
Total SERP plan assets available for benefits also include $4,000 in accrued interest and dividend income.

There were no significant transfers between Level 1 and Level 2 during 2016 and 2015.

Contributions

The Company expects to contribute $355,000 to its pension plan and $41,000 to its SERP plan in 2017.
 
Estimated Future Benefit Payments

The following benefit payments are expected to be paid over the next ten years:
 
 
 
Pension
 
SERP
 
Plan Year
 
Benefits
 
Benefits
 
(dollars in thousands)
 
 
 
 
 
 
 
2017
 
$
195
 
$
135
 
2018
 
 
210
 
 
131
 
2019
 
 
208
 
 
126
 
2020
 
 
208
 
 
121
 
2021
 
 
222
 
 
115
 
2022-2026
 
 
939
 
 
455