(11) PENSION PLAN AND OTHER BENEFIT PLANS

Pension Plan

The Corporation has a noncontributory defined benefit pension plan covering substantially all employees. The plan's defined benefit formula generally bases payments to retired employees upon their length of service multiplied by a percentage of the average monthly pay over the last five years of employment.

The Corporation uses a December 31 measurement date for its pension plan.

The Corporation amended the Defined Benefit Pension Plan during 2010. New employees hired on or after the effective date will not be eligible to participate in the plan, however, existing participants at that time will continue to accrue benefits. The amendment will result in a decrease over time in the future benefit obligations of the plan and the corresponding net periodic benefit cost associated with the plan.

The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2012 and 2011:

Change in projected benefit obligation:	2012			2011
Benefit obligation at beginning of year	$	32,526,033		$	28,319,596
Service cost		1,073,938			993,364
Interest cost		1,605,912			1,569,151
Actuarial loss		4,213,664			2,940,942
Benefits paid		(1,368,070	)		(1,297,020	)
Benefit obligation at end of year	$	38,051,477		$	32,526,033

Change in plan assets:	2012			2011
Fair value of plan assets at beginning of year	$	35,015,567		$	29,846,889
Actual return on plan assets		3,591,153			(1,534,302	)
Employer contributions		-			8,000,000
Benefits paid		(1,368,070	)		(1,297,020	)
Fair value of plan assets at end of year	$	37,238,650		$	35,015,567

Funded status	$	(812,827	)	$	2,489,534

Amount recognized in accumulated other comprehensive income at December 31, 2012 and 2011 consist of the following:

	2012		2011
Net actuarial loss	$	17,789,018	$	15,834,042
Prior service cost		35,814		49,670
Total before tax effects	$	17,824,832	$	15,883,712

The accumulated benefit obligation at December 31, 2012 and 2011 was $32,247,008 and $27,490,715, respectively.

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2012, 2011 and 2010 were as follows:

	2012			2011			2010
Discount rate		4.26	%		4.95	%		5.65	%
Assumed rate of future compensation increase		5.00	%		5.00	%		5.00	%

Components of net periodic benefit cost and other amounts recognized in other comprehensive income in 2012, 2011 and 2010 consist of the following:

Net periodic benefit cost	2012			2011			2010
Service cost, benefits earned during the year	$	1,073,938		$	993,364		$	903,538
Interest cost on projected benefit obligation		1,605,912			1,569,151			1,516,817
Expected return on plan assets		(2,742,609	)		(2,340,373	)		(2,253,421	)
Amortization of net loss		1,410,144			706,419			547,717
Amortization of prior service cost		13,856			29,873			45,890
Net periodic cost	$	1,361,241		$	958,434		$	760,541

Other changes in plan assets and benefit obligations recognized in other comprehensive income:	2012			2011			2010
Net actuarial loss(gain)	$	3,365,120		$	6,815,617		$	972,650
Recognized loss		(1,410,144	)		(706,419	)		(547,717	)
Amortization of prior service cost		(13,856	)		(29,873	)		(45,890	)
Total recognized in other comprehensive income (loss) (before tax effect)	$	1,941,120		$	6,079,325		$	379,043
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	3,302,361		$	7,037,759		$	1,139,584

Amounts expected to be recognized in net periodic cost during 2013
Loss recognition	$	1,518,336
Prior service cost recognition		13,856

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2012, 2011 and 2010 were as follows:

	2012			2011			2010
Discount rate		4.95	%		5.65	%		6.10	%
Expected long-term rate of return on assets		8.00	%		8.00	%		8.00	%
Assumed rate of future compensation increase		5.00	%		5.00	%		5.00	%

The Corporation changes important assumptions whenever changing conditions warrant. The discount rate is evaluated at least annually and the expected long-term return on plan assets will typically be revised every three to five years, or as conditions warrant. Other material assumptions include the compensation increase rates, rates of employee terminations, and rates of participant mortality.

The Corporation's overall investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types. The target allocations for plan assets are shown in the table below. Equity securities primarily include investments in common or preferred shares of both U.S. and international companies. Debt securities include U.S. Treasury and Government bonds as well as U.S. Corporate bonds. Other investments may consist of mutual funds, money market funds and cash & cash equivalents. While no significant changes in the asset allocations are expected during 2013, the Corporation may make changes at any time.

The expected return on plan assets was determined based on a Capital Asset Pricing Model ("CAPM") using historical and expected future returns of the various asset classes, reflecting the target allocations described below.

Asset Class	Target Allocation 2012			Percentage of Plan Assets at December 31,						Expected Long-Term Rate of Return

				2012			2011
Large Cap Domestic Equities		30% - 60	%		51	%		45	%		10.3	%
Mid-Cap Domestic Equities		0% - 20	%		7	%		2	%		10.6	%
Small-Cap Domestic Equities		0% - 15	%		2	%		4	%		10.8	%
International Equities		0% - 25	%		4	%		0	%		10.3	%
Intermediate Fixed Income		20% - 50	%		31	%		20	%		4.7	%
Alternative Assets		0% - 10	%		3	%		-			7.5	%
Cash		0% - 20	%		2	%		29	%		4.0	%
Total					100	%		100	%

The above table at December 31, 2011 actual cash exceeds the target allocation due to an $8,000,000 contribution made by the Corporation to the plan during the last week of December 2011.

The investment policy of the plan is to provide for long-term growth of principal and income without undue exposure to risk. The focus is on long-term capital appreciation and income generation. The Corporation maintains an Investment Policy Statement ("IPS") that guides the investment allocation in the plan. The IPS describes the target asset allocation positions as shown in the table above.

The Corporation has appointed an Employee Pension and Profit Sharing Committee to manage the general philosophy, objectives and process of the plan. The Employee Pension and Profit Sharing Committee meets with the Investment Manager periodically to review the plan's performance and to ensure that the current investment allocation is within the guidelines set forth in the IPS. Only the Employee Pension and Profit Sharing Committee, in consultation with the Investment Manager, can make adjustments to maintain target ranges and for any permanent changes to the IPS. Quarterly, the Board of Directors' Trust and Employee Benefits Committee reviews the performance of the plan with the Investment Manager.

As of December 31, 2012 and 2011, the Corporation's pension plan did not hold any direct investment in the Corporation's common stock.

The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument held by the pension plan:

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. The fair value hierarchy described below requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Discounted cash flows are calculated using spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

The fair value of the plan assets at December 31, 2012 and 2011, by asset class are as follows:

			Fair Value Measurement at December 31, 2012 Using
Plan Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	703,229	$	703,229	$	-	$	-
Equity securities:
U.S. companies		21,579,185		21,579,185		-		-
International companies		629,883		629,883		-		-

Mutual Funds		7,217,760		7,217,760		-		-

Debt securities:
U.S. Treasuries/Government bonds		3,468,448		3,468,448		-		-
U.S. Corporate bonds		3,371,255		-		3,371,255		-
Foreign bonds, notes & debentures		268,890		-		268,890		-
Total plan assets	$	37,238,650	$	33,598,505	$	3,640,145	$	-

			Fair Value Measurement at December 31, 2011 Using
Plan Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Asset (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	10,093,337	$	10,093,337	$	-	$	-
Equity securities:
U.S. companies		16,625,059		16,625,059		-		-
International companies		643,118		643,118		-		-

Mutual Funds		2,109,877		2,109,877		-		-

Debt securities:
U.S. Treasuries/Government bonds		2,410,971		2,410,971		-		-
U.S. Corporate bonds		2,865,173		-		2,865,173		-
Foreign bonds, notes & debentures		268,032		-		268,032		-
Total plan assets	$	35,015,567	$	31,882,362	$	3,133,205	$	-

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the pension plan:

Calendar Year	Future Expected Benefit Payments
2013	$	1,547,008
2014	$	1,606,688
2015	$	1,695,407
2016	$	1,826,855
2017	$	1,936,327
2018-2022	$	10,979,893

The Corporation does not expect to contribute to the plan during 2013. Funding requirements for subsequent years are uncertain and will significantly depend on changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements.

For tax planning, financial planning, cash flow management or cost reduction purposes the Corporation may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Defined Contribution Profit Sharing, Savings and Investment Plan

The Corporation also sponsors a defined contribution profit sharing, savings and investment plan which covers all eligible employees with a minimum of 1,000 hours of annual service. The Corporation makes discretionary matching and profit sharing contributions to the plan based on the financial results of the Corporation. Expense under the plan totaled $322,090, $331,689, and $332,133 for the years ended December 31, 2012, 2011 and 2010, respectively. The plan's assets at December 31, 2012 and 2011 include 189,337 and 191,393 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.

The Corporation also contributed $70,995 and $40,930 at December 31, 2012 and December 31, 2011, respectively, to a non-discretionary 401K plan which covers all eligible employees hired after July 1, 2010.

Defined Benefit Health Care Plan

The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to employees who meet minimum age and service requirements. This plan was amended effective July 1, 2006. Prior to this amendment, all retirees age 55 or older were eligible for coverage under the Corporation's self-insured health care plan, contributing 40% of the cost of the coverage. Under the amended plan, coverage for Medicare eligible retirees who reside in the Central New York geographic area is provided under a group sponsored plan with Excellus BlueCross BlueShield called Medicare Blue PPO, with the retiree paying 100% of the premium. Excellus BlueCross BlueShield assumes full liability for the payment of health care benefits incurred after July 1, 2006. Current Medicare eligible retirees who reside outside of the Central New York geographic area were eligible for coverage under the Corporation's self insurance plan thru December 31, 2009, contributing 50% of the cost of coverage. Effective January 1, 2010, these out of area retirees were eligible for coverage under a Medicare Supplement Plan C administered by Excellus BlueCross BlueShield, contributing 50% of the premium. Current and future retirees between the ages of 55 and 65, will continue to be eligible for coverage under the Corporation's self insured plan, contributing 50% of the cost of the coverage. Employees who retire after July 1, 2006, and become Medicare eligible will only have access to the Medicare Blue PPO plan. Additionally, effective July 1, 2006, dental benefits were eliminated for all retirees.

The Corporation uses a December 31 measurement date for its postretirement medical benefits plan.

The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2012 and 2011:

Changes in accumulated postretirement benefit obligation:	2012			2011
Accumulated postretirement benefit obligation at beginning of year	$	1,391,822		$	1,315,379
Service cost		39,000			35,000
Interest cost		71,000			72,000
Participant contributions		65,161			57,847
Actuarial loss		177,966			19,705
Benefits paid		(210,788	)		(108,109	)
Accumulated postretirement benefit obligation at end of year	$	1,534,161		$	1,391,822

Change in plan assets:	2012			2011
Fair value of plan assets at beginning of year	$	-		$	-
Employer contribution		145,627			50,262
Plan participants' contributions		65,161			57,847
Benefits paid		(210,788	)		(108,109	)
Fair value of plan assets at end of year	$	-		$	-

Funded status	$	(1,534,161	)	$	(1,391,822	)

Amount recognized in accumulated other comprehensive income at December 31, 2012 and 2011 consist of the following:

	2012			2011
Net actuarial loss	$	218,936		$	41,970
Prior service benefit		(725,000	)		(822,000	)
Total before tax effects	$	(506,064	)	$	(780,030	)

Weighted-average assumption for disclosure as of December 31,:	2012			2011			2010
Discount rate		4.26	%		4.95	%		5.65	%
Health care cost trend: Initial		9.00	%		10.00	%		14.00	%
Health care cost trend: Ultimate		5.00	%		5.00	%		5.00	%
Year ultimate cost trend reached		2018			2018			2020

The components of net periodic postretirement benefit cost for the years ended December 31, 2012, 2011 and 2010 are as follows:

Net periodic benefit cost	2012			2011			2010
Service cost	$	39,000		$	35,000		$	33,000
Interest cost		71,000			72,000			75,000
Amortization of prior service benefit		(97,000	)		(97,000	)		(97,000	)
Recognized actuarial loss		1,000			-			-
Net periodic postretirement cost	$	14,000		$	10,000		$	11,000

Other changes in plan assets and benefit obligations recognized in other comprehensive income:	2012			2011		2010
Net actuarial loss	$	177,966		$	19,705	$	49,341
Recognized actuarial loss		(1,000	)		-		-
Amortization of prior service benefit		97,000			97,000		97,000
Total recognized in other comprehensive income (before tax effect)	$	273,966		$	116,705	$	146,341
Total recognized in net benefit cost and other comprehensive income (before tax effect)	$	287,966		$	126,705	$	157,341

During 2012, the plan's total unrecognized net loss increased by $176,966. Because the total unrecognized net gain or loss exceeds 10% of the accumulated postretirement benefit obligation, the excess will be amortized over the average future working lifetime of active plan participants. As of January 1, 2012 the average future working lifetime of active participants was 14.02 years. Actual results for 2013 will depend on the 2013 actuarial valuation of the plan.

Amounts expected to be recognized in net periodic cost during 2013:
Loss recognition	$	5,000
Prior service cost recognition	$	(97,000	)

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following effects:

Effect of a 1% increase in health care trend rate on:	2012			2011		2010
Benefit obligation	$	4,000		$	10,000	$	10,000
Total service and interest cost	$	(100	)	$	700	$	300

Effect of a 1% decrease in health care trend rate on:	2012			2011			2010
Benefit obligation	$	(5,000	)	$	(11,000	)	$	(12,000	)
Total service and interest cost	$	(500	)	$	(500	)	$	(1,000	)

Weighted-average assumptions for net periodic cost as of December 31,:	2012			2011			2010
Discount rate		4.95	%		5.65	%		6.10	%
Health care cost trend: Initial		10.00	%		14.00	%		15.00	%
Health care cost tread: Ultimate		5.00	%		5.00	%		5.00	%
Year ultimate reached		2018			2020			2020

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten:

Calendar Year
2013	$	157,000
2014	$	129,000
2015	$	143,000
2016	$	139,000
2017	$	128,000
2018-2022	$	656,000

The Corporation's policy is to contribute the amount required to fund postretirement benefits as they become due to retirees. The amount expected to be required in contributions to the plan during 2013 is $157,000.

Executive Supplemental Pension Plan

The Corporation also sponsors an Executive Supplemental Pension Plan for certain current and former executive officers to restore certain pension benefits that may be reduced due to limitations under the Internal Revenue Code. The benefits under this plan are unfunded as of December 31, 2012 and 2011.

The Corporation uses a December 31 measurement date for its Executive Supplemental Pension Plan.

The following table presents Executive Supplemental Pension plan status at December 31, 2012 and 2011:

Change in benefit obligation:	2012			2011
Benefit obligation at beginning of year	$	1,069,490		$	989,053
Service cost		34,770			30,625
Interest cost		51,091			53,771
Actuarial loss		81,128			70,771
Benefits paid		(74,730	)		(74,730	)
Projected benefit obligation at end of year	$	1,161,749		$	1,069,490

Changes in plan assets:	2012			2011
Fair value of plan assets at beginning of year	$	-		$	-
Employer contributions		74,730			74,730
Benefits paid		(74,730	)		(74,730	)
Fair value of plan assets at end of year	$	-		$	-
Unfunded status	$	(1,161,479	)	$	(1,069,490	)

Amounts recognized in accumulated other comprehensive income at December 31, 2012 and 2011 consist of the following:

	2012		2011
Net actuarial loss	$	287,679	$	226,471
Prior service cost		-		-
Total before tax effects	$	287,679	$	226,471

Accumulated benefit obligation at December 31, 2012 and 2011 was $1,092,439 and $1,004,803, respectively.

Weighted-average assumption for disclosure as of December 31,:	2012			2011			2010
Discount rate		4.26	%		4.95	%		5.65	%
Assumed rate of future compensation increase		5.00	%		5.00	%		5.00	%

The components of net periodic benefit cost for the years ended December 31, 2012, 2011 and 2010 are as follows:

Net periodic benefit cost	2012		2011		2010
Service cost	$	34,770	$	30,625	$	30,113
Interest cost		51,091		53,771		55,474
Recognized actuarial loss		19,920		9,466		5,582
Net periodic postretirement benefit cost	$	105,781	$	93,862	$	91,169

Other changes in plan assets and benefit obligation recognized in other comprehensive income:	2012			2011			2010
Net actuarial loss (gain)	$	81,128		$	70,771		$	31,415
Recognized actuarial loss		(19,920	)		(9,466	)		(5,582	)
Total recognized in other comprehensive income (before tax effect)	$	61,208		$	61,305		$	25,833

Total recognized in net benefit cost and other comprehensive income (before tax effect)	$	166,989		$	155,167		$	117,002

Amounts expected to be recognized in net periodic cost during 2013:
Loss recognition	$	34,301
Prior service cost recognition	$	-

Weighted-average assumptions for net periodic cost as of December 31,:	2012			2011			2010
Discount rate		4.95	%		5.65	%		6.10	%
Salary scale		5.00	%		5.00	%		5.00	%

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the Supplemental Pension Plan:

Calendar Year	Future Estimated Benefit Payments
2013	$	75,000
2014	$	75,000
2015	$	75,000
2016	$	75,000
2017	$	75,000
2018-2022	$	570,000

The Corporation expects to contribute $75,000 to the plan during 2013. Corporation contributions are equal to the benefit payments to plan participants.

Defined Contribution Supplemental Executive Retirement Plan

The Corporation also sponsors a Defined Contribution Supplemental Executive Retirement Plan for certain current executive officers. The plan is unfunded as of December 31, 2012 and is intended to provide nonqualified deferred compensation benefits payable at retirement, disability, death or certain other events. The plan was initiated in 2012. The balance in the plan as of December 31, 2012 was $181,000, which was expensed in 2012. In addition to each participants account being credited with the annual company contribution, each account will received a quarterly interest credit that will equal the average yield on five year U.S. Treasury Notes.