Note 16. Benefit Plans

The Bank has a 401(k) plan covering substantially all employees of the Bank who have completed one year and 1,000 hours of service. Employee contributions to the plan are matched at 100% up to 4% of each participant’s deferrals plus 50% of the next 2% of deferrals from participants’ eligible compensation. Under this plan, the maximum amount of employee contributions in any given year is defined by Internal Revenue Service regulations. In addition, a 100% discretionary profit sharing contribution of up to 2% of each employee’s eligible compensation is possible provided net income targets are achieved. Effective January 1, 2017 the time in service requirement for 401(k) eligibility was reduced from one year to four months, the hours of service requirement was removed and an auto-enrollment feature was added. The related expense for the 401(k) plan, and the discretionary profit sharing plan was $825 thousand in 2019 and $647 thousand in 2018. This expense is recorded in the Salary and employee benefits line of the Consolidated Statements of Income.

The Bank has a noncontributory defined benefit pension plan covering employees hired prior to April 1, 2007. The pension plan was closed to new participants on April 1, 2007. Benefits are based on years of service and the employee’s compensation using a career average formula. The Bank’s funding policy is to contribute the annual amount required to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for the benefits attributed to service to date but also for those expected to be earned in the future. Employees who are eligible for pension benefits may elect to receive an annuity style payment or a lump-sum payout of their pension benefits. Pension service costs are recorded in Salary and benefits expense while all other components of net periodic pension costs are recorded in other expense. For the next fiscal year, the estimated net loss and prior service costs for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost are $935 and $0 thousand. The Bank uses December 31 as the measurement date for its pension plan.

The Committee reviews and determines all the assumptions used to determine the benefit obligations and expense annually. Historical investment returns play a significant role in determining the expected long-term rate of return on Plan assets.

The following table sets forth the plan’s funded status, based on the December 31, 2019 and 2018 actuarial valuations.


	For the Years Ended December 31
(Dollars in thousands)	2019		2018
Change in projected benefit obligation
Benefit obligation at beginning of measurement year	$	17,937	$	19,889
Service cost		325		361
Interest cost		631		553
Actuarial loss (gain)		2,727		(1,762)
Benefits paid		(841)		(1,104)
Benefit obligation at end of measurement year		20,779		17,937

Change in plan assets
Fair value of plan assets at beginning of measurement year		16,549		17,192
Actual return on plan assets net of expenses		2,427		(539)
Employer contribution		—		1,000
Benefits paid		(841)		(1,104)
Fair value of plan assets at end of measurement year		18,135		16,549

Funded status of projected benefit obligation	$	(2,644)	$	(1,388)

	For the Years Ended December 31
	2019		2018
Assumptions used to determine benefit obligations:
Discount rate		3.13%		4.15%
Rate of compensation increase		4.00%		4.00%


Amounts recognized in accumulated other comprehensive	For the Years Ended December 31
income (loss), net of tax	2019		2018
Net actuarial loss	$	(7,812)	$	(6,975)
Prior service cost obligation		—		—
		(7,812)		(6,975)
Tax effect		1,641		1,465
Net amount recognized in accumulated other comprehensive loss	$	(6,171)	$	(5,510)


	For the Years Ended December 31
Components of net periodic pension cost	2019		2018
Service cost	$	325	$	361
Interest cost		631		553
Expected return on plan assets		(1,087)		(1,120)
Amortization of prior service cost		—		—
Recognized net actuarial loss		552		705
Net periodic pension cost		421		499
Effect of settlement loss		—		—
Total pension expense	$	421	$	499

	For the Years Ended December 31
	2019		2018
Assumptions used to determine net periodic benefit cost:
Discount rate		4.15%		3.46%
Expected long-term return on plan assets		6.50%		6.50%
Rate of compensation increase		4.00%		4.00%

Asset allocations:
Cash and cash equivalents		4%		2%
Common stocks		21%		22%
Corporate bonds		13%		15%
Municipal bonds		35%		36%
Investment fund - debt		9%		8%
Investment fund - equity		10%		7%
Deposit in immediate participation guarantee contract		6%		6%
Other		2%		4%
Total		100%		100%

The following methods and assumptions were used to estimate the fair values of the assets held by the plan. See Note 21 for additional information on the fair value hierarchy.

Cash and Cash Equivalents: The carrying value of this asset is considered to approximate its fair value. (Level 1).

Equity Securities, Investment Funds (Debt and Equity): The fair value of assets in these categories are determined using quoted market prices from nationally recognized markets (Level 1).

Bonds (Corporate and Municipal): Fair values of these assets was primarily measured using information from a third-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models (Level 2).

Immediate Participation Guarantee Contract: The carrying value of this asset is considered to approximate its fair value. (Level 1).

Cash Surrender Value of Life Insurance: The cash surrender value of this asset is considered to approximate its fair value. However, the inputs used to determine the cash surrender value are not readily observable in the market (Level 3)

Certificates of Deposit: The fair value of these assets are calculated by use of a pricing model that uses rate spreads to new market issue quotes and dealer quotes (Level 2).

The following table sets forth by level, within the fair value hierarchy, the Plan's investments at fair value as of December 31, 2019 and 2018. For more information on the levels within the fair value hierarchy, please refer to Note 21.


(Dollars in Thousands)	December 31, 2019
Asset Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	808	$	808	$	—	$	—
Equity securities		3,717		3,717		—		—
Corporate bonds		2,406		—		2,406		—
Municipal bonds		6,266		—		6,266		—
Investment fund - debt		1,605		—		1,605		—
Investment fund - equity		1,875		1,875		—		—
Cash surrender value of life insurance		28		—		—		28
Deposit in immediate participation guarantee contract		1,129		1,129		—		—
Certificates of deposit		301		—		301		—
Total assets	$	18,135	$	7,529	$	10,578	$	28


(Dollars in Thousands)	December 31, 2018
Asset Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	350	$	350	$	—	$	—
Equity securities		3,604		3,604		—		—
Corporate bonds		2,416		—		2,416		—
Municipal bonds		6,052		—		6,052		—
Investment fund - debt		1,409		—		1,409		—
Investment fund - equity		1,112		1,112		—		—
Cash surrender value of life insurance		25		—		—		25
Deposit in immediate participation guarantee contract		934		934		—		—
Certificates of deposit		647		—		647		—
Total assets	$	16,549	$	6,000	$	10,524	$	25

The following table sets forth a summary of the changes in the fair value of the Plan's level 3 investments for the years ended December 31, 2019 and 2018:


	Cash Value of Life Insurance
	December 31
	2019		2018
Balance at the beginning of the period	$	25	$	25
Unrealized gain (loss) relating to investments held at the reporting date		3		—
Purchases, sales, issuances and settlement, net		—		—
Balance at the end of the period	$	28	$	25

Contributions

The Bank does not expect to make any additional contributions in 2020.

Estimated future benefit payments at December 31, 2019 (Dollars in Thousands)


2020	$	1,323
2021		1,071
2022		1,227
2023		1,064
2024		1,035
2025-2029		6,664
Total	$	12,384