Employee Benefits

12 Months Ended

Dec. 31, 2020

Retirement Benefits [Abstract]

Employee Benefits

Employee Benefits

Defined Benefit Pension Plans

Washington Trust maintains a qualified pension plan for the benefit of certain eligible employees who were hired prior to October 1, 2007. Washington Trust also has non-qualified retirement plans to provide supplemental retirement benefits to certain employees, as defined in the plans. The defined benefit pension plans were previously amended to freeze benefit accruals after a 10-year transition period ending in December 2023.

The qualified pension plan is funded on a current basis, in compliance with the requirements of Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Pension benefit costs and benefit obligations incorporate various actuarial and other assumptions, including discount rates, mortality, rates of return on plan assets and compensation increases. Washington Trust evaluates these assumptions annually.

The following table presents the plans’ projected benefit obligations, fair value of plan assets and funded (unfunded) status:

(Dollars in thousands)	Qualified Pension Plan		Non-Qualified Retirement Plans
At December 31,	2020	2019	2020	2019
Change in Benefit Obligation:
Benefit obligation at beginning of period	$83,141	$73,380	$16,438	$14,626
Service cost	2,164	2,037	170	126
Interest cost	2,505	2,967	465	563
Actuarial loss	10,378	10,453	1,803	2,028
Benefits paid	(3,334)	(5,546)	(903)	(905)
Administrative expenses	(112)	(150)	—	—
Benefit obligation at end of period	94,742	83,141	17,973	16,438
Change in Plan Assets:
Fair value of plan assets at beginning of period	93,749	86,180	—	—
Actual return on plan assets	11,626	13,265	—	—
Employer contributions	—	—	903	905
Benefits paid	(3,334)	(5,546)	(903)	(905)
Administrative expenses	(112)	(150)	—	—
Fair value of plan assets at end of period	101,929	93,749	—	—
Funded (unfunded) status at end of period	$7,187	$10,608	($17,973)	($16,438)

As of December 31, 2020 and 2019, the funded status of the qualified defined benefit pension plan amounted to $7.2 million and $10.6 million, respectively, and was included in other assets in the Consolidated Balance Sheets. The unfunded status of the non-qualified defined benefit retirement plans was $18.0 million and $16.4 million, respectively, at December 31, 2020 and December 31, 2019 and was included in other liabilities in the Consolidated Balance Sheets.

The non-qualified retirement plans provide for the designation of assets in rabbi trusts.  Securities available for sale and other short-term investments designated for this purpose, with the carrying value of $13.7 million and $14.3 million are included in the Consolidated Balance Sheets at December 31, 2020 and 2019, respectively.

The following table presents the amounts included in accumulated other comprehensive income (“AOCI”) related to the qualified pension plan and non-qualified retirement plans:

(Dollars in thousands)	Qualified Pension Plan		Non-Qualified Retirement Plans
At December 31,	2020	2019	2020	2019
Net actuarial loss included in AOCI, pre-tax	$12,051	$10,343	$8,648	$7,405

The accumulated benefit obligation for the qualified pension plan was $87.9 million and $76.6 million at December 31, 2020 and 2019, respectively.  The accumulated benefit obligation for the non-qualified retirement plans amounted to $16.4 million and $14.9 million at December 31, 2020 and 2019, respectively.

The following table presents components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss), on a pre-tax basis:

(Dollars in thousands)	Qualified Pension Plan			Non-Qualified Retirement Plans
Years ended December 31,	2020	2019	2018	2020	2019	2018
Net Periodic Benefit Cost:
Service cost (1)	$2,164	$2,037	$2,244	$170	$126	$108
Interest cost (2)	2,505	2,967	2,715	465	563	475
Expected return on plan assets (2)	(4,538)	(4,495)	(5,272)	—	—	—
Amortization of prior service credit (2)	—	(16)	(23)	—	—	(1)
Recognized net actuarial loss (2)	1,582	792	1,496	560	408	411
Net periodic benefit cost	1,713	1,285	1,160	1,195	1,097	993
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (on a pre-tax basis):
Net loss (gain)	1,708	890	(4,342)	1,244	1,620	(663)
Prior service credit	—	16	23	—	—	1
Recognized in other comprehensive income (loss)	1,708	906	(4,319)	1,244	1,620	(662)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$3,421	$2,191	($3,159)	$2,439	$2,717	$331

(1)Included in salaries and employee benefits expense in the Consolidated Statements of Income.

(2)Included in other expenses in the Consolidated Statements of Income.

Assumptions

The following table presents the measurement date and weighted-average assumptions used to determine benefit obligations at December 31, 2020 and 2019:

	Qualified Pension Plan				Non-Qualified Retirement Plans
	2020		2019		2020		2019
Measurement date	Dec 31, 2020		Dec 31, 2019		Dec 31, 2020		Dec 31, 2019
Discount rate	2.71	%	3.42	%	2.50	%	3.30	%
Rate of compensation increase	3.75		3.75		3.75		3.75

The following table presents the measurement date and weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018:

	Qualified Pension Plan						Non-Qualified Retirement Plans
	2020		2019		2018		2020		2019		2018
Measurement date	Dec 31, 2019		Dec 31, 2018		Dec 31, 2017		Dec 31, 2019		Dec 31, 2018		Dec 31, 2017
Equivalent single discount rate for benefit obligations	3.42	%	4.38	%	3.69	%	3.30	%	4.28	%	3.58	%
Equivalent single discount rate for service cost	3.54		4.44		3.76		3.62		4.48		3.79
Equivalent single discount rate for interest cost	3.07		4.12		3.42		2.93		3.98		3.22
Expected long-term return on plan assets	5.75		5.75		6.75		N/A		N/A		N/A
Rate of compensation increase	3.75		3.75		3.75		3.75		3.75		3.75

The expected long-term rate of return on plan assets is based on what the Corporation believes is realistically achievable based on the types of assets held by the plan and the plan’s investment practices.  The assumption is updated annually, taking into account the asset allocation, historical asset return trends on the types of assets held and

the current and expected economic conditions. Future decreases in the long-term rate of return assumption on plan assets would increase pension costs and, in general, may increase the requirement to make funding contributions to the plans. Future increases in the long-term rate of return on plan assets would have the opposite effect.

The discount rate assumption for defined benefit pension plans is reset on the measurement date.  Discount rates are selected for each plan by matching expected future benefit payments stream to a yield curve based on a selection of high-quality fixed-income debt securities. Future decreases in discount rates would increase the present value of pension obligations and increase our pension costs, while future increases in discount rates would have the opposite effect.

The "spot rate approach" was utilized in the calculation of interest and service cost. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of interest and service cost. This approach provides a more precise measurement of service and interest cost by improving the correlation between projected benefit cash flows and their corresponding spot rates.

Plan Assets

The following tables present the fair values of the qualified pension plan’s assets:

(Dollars in thousands)
	Fair Value Measurements Using			Assets at Fair Value
December 31, 2020	Level 1	Level 2	Level 3
Assets:
Cash and cash equivalents	$14,427	$—	$—	$14,427
Obligations of U.S. government-sponsored enterprises	—	29,449	—	29,449
Obligations of states and political subdivisions	—	2,327	—	2,327
Corporate bonds	—	9,211	—	9,211
Common stocks	17,150	—	—	17,150
Mutual funds	29,365	—	—	29,365
Total plan assets	$60,942	$40,987	$—	$101,929

(Dollars in thousands)
	Fair Value Measurements Using			Assets at Fair Value
December 31, 2019	Level 1	Level 2	Level 3
Assets:
Cash and cash equivalents	$9,902	$—	$—	$9,902
Obligations of U.S. government-sponsored enterprises	—	28,615	—	28,615
Obligations of states and political subdivisions	—	2,998	—	2,998
Corporate bonds	—	10,033	—	10,033
Common stocks	14,593	—	—	14,593
Mutual funds	27,608	—	—	27,608
Total plan assets	$52,103	$41,646	$—	$93,749

The qualified pension plan uses fair value measurements to record fair value adjustments to the securities held in its investment portfolio.

When available, the qualified pension plan uses quoted market prices to determine the fair value of securities; such items are classified as Level 1.  This category includes cash and cash equivalents, as well as common stocks and mutual funds which are exchange-traded.

Level 2 securities in the qualified pension plan include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose values are determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category includes obligations of U.S. government-sponsored enterprises, obligations of states and political subdivisions and corporate bonds.

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities may be classified as Level 3.  As of December 31, 2020 and 2019, the qualified pension plan did not have any securities in the Level 3 category.

The following table presents the asset allocations of the qualified pension plan, by asset category:

December 31,	2020		2019
Asset Category:
Cash and cash equivalents	14.2	%	10.6	%
Fixed income securities (1)	40.2		44.4
Equity securities (2)	45.6		45.0
Total	100.0	%	100.0	%

(1)Includes obligations of U.S. government agencies and U.S. government-sponsored enterprises, obligations of states and political subdivisions and corporate bonds.

(2)Includes common stocks and mutual funds.

The assets of the qualified defined benefit pension plan trust (the “Pension Trust”) are managed to ensure that all present and future benefit obligations are met as they come due.  It seeks to achieve this goal while trying to mitigate volatility in plan funded status, contributions and expense by better matching the characteristics of the plan assets to that of the plan liabilities. As benefit accruals under the qualified plan will be frozen on December 31, 2023, asset allocations have been and will continue to be refined.

Cash inflow is typically composed of investment income from portfolio holdings and employer contributions, while cash outflow is for the purpose of paying plan benefits and certain plan expenses.  As early as possible each year, the trustee is advised of the projected schedule of employer contributions and estimations of benefit payments.

The investment philosophy used for the Pension Trust emphasizes consistency of results over an extended market cycle, while reducing the impact of the volatility of the security markets upon investment results.  The assets of the Pension Trust should be protected by substantial diversification of investments, providing exposure to a wide range of quality investment opportunities in various asset classes, with a high degree of liquidity.

Fixed income securities will typically be limited to investment grade securities in the top four categories used by the major credit rating agencies.  High yield fixed income securities may be used to provide exposure to this asset class as a diversification tool.  In order to reduce the volatility of the annual rate of return of the fixed income security portfolio, attention will be given to the maturity structure of the portfolio in the light of money market conditions and interest rate forecasts.  The assets of the Pension Trust will typically have a laddered maturity structure, avoiding large concentrations in any single year.  Equity securities provide opportunities for dividend and capital appreciation returns.  Equity securities will be appropriately diversified by maintaining broad exposure to large-, mid- and small-cap stocks as well as international equities.  Investment selection and mix of equity securities should be influenced by forecasts of economic activity, corporate profits and allocation among different segments of the economy while ensuring efficient diversification.  The fair value of equity securities of any one issuer will not be permitted to exceed 10% of the total fair value of equity securities of the Pension Trust.

Cash Flows

Contributions

The Internal Revenue Code permits flexibility in plan contributions so that normally a range of contributions is possible.  The Corporation does not expect to make a contribution to the qualified pension plan in 2021.  In addition, the Corporation expects to contribute $896 thousand in benefit payments to the non-qualified retirement plans in 2021.

Estimated Future Benefit Payments

The following table presents the benefit payments, which reflect expected future service, as appropriate, expected to be paid:

	(Dollars in thousands)	Qualified Pension Plan	Non-Qualified Retirement Plans
Years ending December 31,	2021	$5,608	$896
	2022	4,255	886
	2023	4,804	881
	2024	4,830	874
	2025	6,096	871
	2026 and thereafter	27,942	4,460

401(k) Plan

The Corporation’s 401(k) Plan provides a match up to a maximum of 3% of employee contributions for substantially all employees.  In addition, substantially all employees hired after September 30, 2007, who are ineligible for participation in the qualified defined benefit pension plan, receive a non-elective employer contribution of 4% of compensation.  Total employer matching contributions under this plan amounted to $2.8 million, $2.7 million and $2.5 million in 2020, 2019 and 2018, respectively.

Deferred Compensation Plan

The Amended and Restated Nonqualified Deferred Compensation Plan provides supplemental retirement and tax benefits to directors and certain officers.  The plan is funded primarily through pre-tax contributions made by the participants.  The assets and liabilities of the Deferred Compensation Plan are recorded at fair value in the Corporation’s Consolidated Balance Sheets.  The participants in the plan bear the risk of market fluctuations of the underlying assets.  The accrued liability related to this plan amounted to $19.4 million and $17.9 million, respectively, at December 31, 2020 and 2019, and is included in other liabilities on the accompanying Consolidated Balance Sheets.  The corresponding invested assets are reported in other assets in the Consolidated Balance Sheets.