PENSION AND OTHER POSTRETIREMENT PLANS

12 Months Ended

Dec. 31, 2020

PENSION AND OTHER POSTRETIREMENT PLANS

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, six retired officers are the only participants in the SERP. The measurement date for both the pension plan and SERP is December 31, 2020 and 2019.

Information as to the Company’s employee benefit plans at December 31, 2020 and 2019 is as follows:

	Pension Benefits				SERP Benefits
(dollars in thousands)	2020		2019		2020		2019
Change in benefit obligation:
Beginning benefit obligation	$	2,715	$	2,118	$	991	$	924
Interest cost		75		87		27		37
Actuarial (gain) loss		276		631		84		164
Benefits paid		(356)		(121)		(134)		(134)
Ending benefit obligation		2,710		2,715		968		991
Change in plan assets (primarily equity and fixed income investments and money market funds), at fair value:
Beginning plan assets		2,472		2,151		914		885
Actual return		233		415		99		163
Employer contribution		—		27		—		—
Benefits paid		(356)		(121)		(134)		(134)
Ending plan assets		2,349		2,472		879		914
Funded status at end of year	$	(361)	$	(243)	$	(89)	$	(77)

Amounts recognized in the consolidated balance sheets consist of:

	Pension Benefits				SERP Benefits
(dollars in thousands)	2020		2019		2020		2019
Funded status included in other liabilities	$	(361)	$	(243)	$	(89)	$	(77)

Amounts recognized in accumulated other comprehensive income consist of:

	Pension Benefits				SERP Benefits
(dollars in thousands)	2020		2019		2020		2019
Net actuarial loss	$	1,362	$	1,464	$	553	$	597

The accumulated benefit obligation for the pension plan was $2.7 million for December 31, 2020 and 2019. The accumulated benefit obligation for the SERP was $1.0 million for December 31, 2020 and 2019.

NOTE 11 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

Net period benefit cost and other amounts recognized in other comprehensive income (loss) include the following:

	Pension Benefits						SERP Benefits
(dollars in thousands)	2020		2019		2018		2020		2019		2018
Net pension expense:
Service cost	$	—	$	—	$	—	$	—	$	—	$	—
Interest cost		75		87		93		27		37		34
Expected return on plan assets		(140)		(137)		(138)		(51)		(55)		(61)
Recognized net actuarial loss		171		132		193		80		73		73
Settlement cost		115		—		224		0		0		0
Net pension expense	$	221	$	82	$	372	$	56	$	55	$	46
Net (gain) loss	$	69	$	353	$	(296)	$	36	$	56	$	27
Amortization of net loss		(171)		(132)		(193)		(80)		(73)		(73)
Total recognized in other comprehensive income (loss)		(102)		221		(489)		(44)		(17)		(46)
Total recognized in net pension expense and other comprehensive income (loss)	$	119	$	303	$	(117)	$	12	$	38	$	—

The estimated net loss (gain) for the defined benefit pension plan and SERP that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $160,000 for the pension plan and $82,000 for the SERP. The settlement costs in 2020 and 2018 were related to participants taking lump sum distributions from the pension plan during those years.

For 2020, 2019 and 2018, the assumed form of payment elected by active participants upon retirement was a lump sum to reflect participant trends. The lump sum assumed interest rates, below, for December 31, 2020, 2019 and 2018 reflect the mortality table in effect for 2020, 2019 and 2018, respectively. For 2020, the mortality assumption was changed to the PRI-2012 White Collar Mortality Table, with full generational Projection Scale MP-2020 as of December 31, 2020, to reflect improved mortality expectations. For 2019, the mortality assumption was the PRI-2012 White Collar Mortality Table, with full generational Projection Scale MP-2019 as of December 31, 2019. For 2018, the mortality assumption was the RP-2014 Mortality Table, adjusted to 2006, with full generational Projection Scale MP-2018 as of December 31, 2018.

	Pension Benefits						SERP Benefits
	2020		2019		2018		2020		2019		2018
The following assumptions were used in calculating the net benefit obligation:
Weighted average discount rate	2.08	%	2.98	%	4.08	%	2.08	%	2.98	%	4.08	%
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	0.53	%	2.01	%	3.33	%	N/A		N/A		N/A
Next 15 years	2.31	%	3.06	%	4.39	%	N/A		N/A		N/A
All future years	3.09	%	3.65	%	4.72	%	N/A		N/A		N/A
The following assumptions were used in calculating the net pension expense:
Weighted average discount rate	2.98	%	4.08	%	3.46	%	2.98	%	4.08	%	3.46	%
Rate of increase in future compensation	N/A		N/A		N/A		N/A		N/A		N/A
Expected long-term rate of return	6.50	%	6.50	%	6.50	%	6.50	%	6.50	%	6.50	%

NOTE 11 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

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 8.85% and debt securities were assumed to have a long-term rate of return of approximately 3.0%. 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 2020 and 2019, target allocation for 2021, 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	2021		2020		2019		of Return
Equity securities	55-65	%	65	%	61	%	8.85	%
Debt securities	35-45	%	31	%	36	%	3.00	%
Other	5-10	%	4	%	3	%	0.10	%
Total			100	%	100	%	6.50	%

The Company’s SERP plan asset allocation at year-end 2020 and 2019, target allocation for 2021, 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	2021		2020		2019		of Return
Equity securities	55-65	%	64	%	65	%	8.85	%
Debt securities	35-45	%	34	%	34	%	3.00	%
Other	5-10	%	2	%	1	%	0.10	%
Total			100	%	100	%	6.50	%

NOTE 11 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

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, 2020, 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	$	962	$	962	$	—	$	—
Equity securities - US mid cap stock mutual funds		124		124		—		—
Equity securities - US small cap stock mutual funds		129		129		—		—
Equity securities - international stock mutual funds		202		202		—		—
Equity securities - emerging markets stock mutual funds		105		105		—		—
Debt securities - intermediate term bond mutual funds		526		526		—		—
Debt securities - short term bond mutual funds		205		205		—		—
Cash - money market account		93		93		—		—
Total	$	2,346	$	2,346	$	—	$	—

Total pension plan assets available for benefits also include $3,000 in accrued interest and dividend income.

The fair values of the Company’s pension plan assets at December 31, 2019, 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	$	912	$	912	$	—	$	—
Equity securities - US mid cap stock mutual funds		115		115		—		—
Equity securities - US small cap stock mutual funds		119		119		—		—
Equity securities - international stock mutual funds		257		257		—		—
Equity securities - emerging markets stock mutual funds		111		111		—		—
Debt securities - intermediate term bond mutual funds		402		402		—		—
Debt securities - short term bond mutual funds		480		480		—		—
Cash - money market account		74		74		—		—
Total	$	2,470	$	2,470	$	—	$	—

NOTE 11 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

Total pension plan assets available for benefits also include $2,000 in accrued interest and dividend income.

There were no Level 2 or 3 securities during either year.

The fair values of the Company’s SERP assets at December 31, 2020, 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	$	360	$	360	$	0	$	0
Equity securities - US mid cap stock mutual funds		23		23		0		0
Equity securities - US small cap stock mutual funds		72		72		0		0
Equity securities - emerging markets stock mutual funds		37		37		0		0
Equity securities - international stock mutual funds		72		72		0		0
Debt securities - intermediate term bond mutual funds		216		216		0		0
Debt securities - short term bond mutual funds		82		82		0		0
Cash - money market account		16		16		0		0
Total	$	878	$	878	$	0	$	0

Total SERP plan assets available for benefits also include $1,000 in accrued interest and dividend income.

The fair values of the Company’s SERP assets at December 31, 2019, 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	$	353	$	353	$	—	$	—
Equity securities - US mid cap stock mutual funds		46		46		—		—
Equity securities - US small cap stock mutual funds		47		47		—		—
Equity securities - emerging markets stock mutual funds		43		43		—		—
Equity securities - international stock mutual funds		100		100		—		—
Debt securities - intermediate term bond mutual funds		156		156		—		—
Debt securities - short term bond mutual funds		155		155		—		—
Cash - money market account		13		13		—		—
Total	$	913	$	913	$	—	$	—

Total SERP plan assets available for benefits also include $1,000 in accrued interest and dividend income.

There were no Level 2 or 3 securities during either year.

Contributions

The Company does not expect to contribute to its pension or SERP plans in 2021.

NOTE 11 – PENSION AND OTHER POSTRETIREMENT PLANS (continued)

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)
2021	$	212	$	131
2022		205		125
2023		214		117
2024		192		109
2025		196		99
2026-2030		839		329