PENSION PLAN AND OTHER BENEFIT PLANS

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

PENSION PLAN AND OTHER BENEFIT PLANS

PENSION PLAN AND OTHER BENEFIT PLANS

Pension Plan

The Corporation has a noncontributory defined benefit pension plan covering a majority of employees. The plan's defined benefit formula generally based 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.

New employees hired on or after the July 10, 2010 were not eligible to participate in the plan, however, existing participants at that time continued to accrue benefits. On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits.

The Corporation uses a December 31 measurement date for its pension 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, 2022 and 2021 (in thousands):

Change in projected benefit obligation:	2022		2021
Benefit obligation at beginning of year	$	40,404	$	42,781
Service cost	—		—
Interest cost	1,130		1,084
Actuarial (gain) loss	(8,856)		(1,300)
Curtailments	—		—
Settlements	—		—
Benefits paid	(2,172)		(2,161)
Benefit obligation at end of year	$	30,506	$	40,404

Change in plan assets:	2022		2021
Fair value of plan assets at beginning of year	$	52,987	$	50,134
Actual return on plan assets	(6,159)		5,014
Employer contributions	—		—
Settlements	—		—
Benefits paid	(2,172)		(2,161)
Fair value of plan assets at end of year	$	44,656	$	52,987
Funded status	$	14,150	$	12,583

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2022 and 2021 consist of the following (in thousands):

	2022		2021
Net actuarial loss	$	4,988	$	4,833
Prior service cost	—		—
Total before tax effects	$	4,988	$	4,833

The accumulated benefit obligation at December 31, 2022 and 2021 was $30.5 million and $40.4 million, respectively.

Actuarial losses in the Projected Benefit Obligation (PBO) in 2022 were primarily the result of the increase in discount rate. The increase in discount rate caused the PBO to decrease by $9.2 million. The update in mortality table caused the PBO to increase by $0.2 million. Other sources of gain/loss such as plan experience, updated census data and minor adjustments to actuarial assumptions generated a combined loss of less than 1% of expected year end obligations.

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2022 and 2021 were as follows:

	2022		2021
Discount rate	5.42	%	2.87	%
Assumed rate of future compensation increase	N/A		N/A
Weighted-average interest crediting rate	N/A		N/A

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2022 and 2021 consist of the following (in thousands):

Net periodic benefit cost	2022		2021
Service cost, benefits earned during the year	$	—	$	—
Interest cost on projected benefit obligation	1,130		1,084
Expected return on plan assets	(2,851)		(2,696)
Amortization of net loss			151
Amortization of  prior service cost	—		—
Recognized (gain) loss due to settlements	—		—
Net periodic cost (benefit)	$	(1,721)	$	(1,461)

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):	2022		2021
Net actuarial (gain) loss	$	154	$	(3,618)
Recognized loss	—		(151)
Amortization of prior service cost	—		—
Total recognized in other comprehensive income (loss) (before tax effect)	$	154	$	(3,769)
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$	(1,567)	$	(5,230)

During 2022, the plan's total unrecognized net loss increased by $0.2 million. The variance between the actual and expected return on plan assets during 2022 increased the total unrecognized net loss by $9.0 million. Because the total unrecognized net gain or loss in the plan exceeds 10% of the projected benefit obligation or 10% of the plan assets, the excess will be amortized over the average future working lifetime of the plan participants. As of January 1, 2022, the average expected future working lifetime active plan participants was 22.55 years. Actual results for 2023 will depend on the 2023 actuarial valuation of the plan.

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2022, 2021 were as follows:

	2022		2021
Discount rate	2.87	%	2.61	%
Expected return on assets	5.50	%	5.50	%
Assumed rate of future compensation increase	N/A		N/A
Weighted-average interest crediting rate	N/A		N/A

The Corporation changes important assumptions whenever changing conditions warrant. At December 31, 2022 the Corporation used IRS Static 2023 Mortality Table with Mortality Improvement Scale MP-2021 as a basis for the Plan's valuation. At December 31, 2021, the Corporation used IRS Static 2022 Mortality Table with Mortality Improvement Scale MP-2020 as a basis for the Plan's valuation. 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. 

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 2023, the Corporation may make changes at any time.

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

Asset Class	Target Allocation 2022	Percentage of Plan Assets at December 31,				Expected Long-Term Rate of Return
		2022		2021
Large cap domestic equities	30% - 60%	39	%	42	%	9.3	%
Mid-cap domestic equities	0% - 8%	2	%	—	%	9.7	%
Small-cap domestic equities	0% - 6%	1	%	5	%	8.2	%
International equities	0% - 8%	3	%	4	%	9.4	%
Intermediate fixed income	33% - 63%	43	%	45	%	2.9	%
Alternative assets	0% - 15%	—	%	—	%	—	%
Cash	0% - 20%	12	%	4	%	0.9	%
Total		100	%	100	%

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 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, 2022 and 2021, 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, 2022 and 2021, by asset class are as follows (in thousands):

			Fair Value Measurement atDecember 31, 2022 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	$	5,374	$	5,374	$	—	$	—
Equity securities:
U.S. companies	17,526		17,526		—		—
Mutual funds	19,619		19,619		—		—
Debt securities:
U.S. Treasuries/Government bonds	1,891		1,891		—		—
U.S. Corporate bonds	246		246		—		—
Total plan assets	$	44,656	$	44,656	$	—	$	—

			Fair Value Measurement atDecember 31, 2021 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	$	2,270	$	2,270	$	—	$	—
Equity securities:
U.S. companies	21,927		21,927		—		—
Mutual funds	26,345		26,345		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,181		2,181		—		—
U.S. Corporate bonds	264		264		—		—
Total plan assets	$	52,987	$	52,987	$	—	$	—

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 (in thousands):

Calendar Year	Future Expected Benefit Payments
2023	$	2,357
2024	$	2,363
2025	$	2,346
2026	$	2,352
2027	$	2,339
2028-2032	$	11,339

The Corporation does not expect to contribute to the plan during 2023. 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

On October 20, 2016, the Bank amended its defined contribution profit sharing, savings, and investment plan for all active participants to supersede the current contribution formula used by the Plan, which included eliminating the 1000 hours of service requirement to participate in employer contributions. Beginning on January 1, 2017, the Bank began contributing a non-discretionary 3% of gross annual wages for each participant, regardless of the participant’s deferral, and eliminated discretionary contributions for participants hired prior to July 1, 2010. Additionally, beginning January 1, 2017 the Bank began contributing a 50% match up to 6% of gross annual wages.

Expense related to both plans totaled $1.4 million and $1.3 million for the years ended December 31, 2022 and 2021, respectively. The plan's assets at December 31, 2022 and 2021 include 121,847 and 118,081 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.

Defined Benefit Health Care Plan

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the defined benefit health care plan disclosures as of December 31, 2017.

The Corporation uses a December 31 measurement date for its defined benefit health care 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, 2022 and 2021 (in thousands):

Changes in accumulated postretirement benefit obligation:	2022		2021
Accumulated postretirement benefit obligation - beginning of year	$	194	$	249
Service cost	—		—
Interest cost	3		6
Participant contributions	18		20
Amendments	—		—
Actuarial (gain) loss	(71)		(37)
Benefits paid	(49)		(44)
Accumulated postretirement benefit obligation at end of year	$	95	$	194

Change in plan assets:	2022		2021
Fair value of plan assets at beginning of year	$	—	$	—
Employer contribution	31		24
Plan participants’ contributions	18		20
Benefits paid	(49)		(44)
Fair value of plan assets at end of year	$	—	$	—
Unfunded status	$	(95)	$	(194)

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2022 and 2021 consist of the following (in thousands):

	2022		2021
Net actuarial loss	$	118	$	208
Prior service credit	—		—
Total before tax effects	$	118	$	208

Weighted-average assumption for disclosure as of December 31:	2022	2021
Discount rate	5.42%	2.87%
Assumed rate of future compensation increase	N/A	N/A
Health care cost trend: Initial (Pre-65/Post 65)	7.50% / 6.50%	6.95% / 5.45%
Health care cost trend: Ultimate (Pre-65/Post 65)	4.75% / 4.75%	4.75% / 4.75%
Year ultimate cost trend reached	2032 / 2030	2027

The components of net periodic postretirement benefit cost for the years ended December 31, 2022 and 2021 are as follows (in thousands):

Net periodic cost (benefit)	2022		2021
Service cost	$	—	$	—
Interest cost	3		6
Expected return on plan assets	—		—
Amortization of prior service benefit			(220)
Recognized actuarial loss	18		42
Recognized prior service benefit due to curtailments	—		—
Net periodic postretirement cost (benefit)	$	21	$	(172)

Other changes in plan assets and benefit obligations   recognized  in other comprehensive income (loss):	2022		2021
Net actuarial (gain) loss	$	(71)	$	(37)
Recognized actuarial loss	(18)		(42)
Prior service credit	—		—
Amortization of prior service benefit	—		220
Total recognized in other comprehensive income (loss)(before tax effect)	$	(89)	$	141
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	(68)	$	(31)

Actuarial gain for 2022 is primarily the net impact of an increase in discount rate, which decreased the Accumulated Postretirement Benefit Obligation (APBO) by $12 thousand, the updating of health care trend rates (HCTR), which increased the APBO by $4 thousand, and claims and data experience, which (combined) decreased the APBO by $64 thousand. During 2022 the plan's total unrecognized net loss decreased by $90 thousand. Because the total unrecognized net gain or loss in the plan exceeds 10% of the accumulated postretirement benefit obligation, the excess will be amortized over the average future life expectancy of all plan participants. As of January 1, 2022, the average future life expectancy of all plan participants was 7.0 years. Previous to the plan freeze as of December 31, 2016, the amortization period was based upon average future working lifetime of active employees. Actual results for 2023 will depend on the 2023 actuarial valuation of the plan.

The change in unrecognized gain/loss is one measure of the degree to which important assumptions have coincided with actual experience. During 2022, the unrecognized net loss decreased by 46% of the December 31, 2021 accumulated postretirement benefit obligation. The Corporation changes important assumptions whenever changing conditions warrant. The discount rate and per capita costs are typically changed at least annually. Other material assumptions include rates of participant mortality and rates of increase in medical costs.

Weighted-average assumptions for net periodic cost as of December 31:	2022	2021
Discount rate	2.87%	2.61%
Expected return on plan assets	N/A	N/A
Assumed rate of future compensation increase	N/A	N/A
Health care cost trend: Initial	6.95% / 5.45%	6.95% / 5.45%
Health care cost tread: Ultimate	4.75% / 4.75%	4.75% / 4.75%
Year ultimate reached	2027	2026

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 (in thousands):

Calendar Year	Future Estimated Benefit Payments
2023	$	27
2024	$	11
2025	$	11
2026	$	10
2027	$	10
2028-2032	$	36

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 2023 is $27 thousand.

Executive Supplemental Pension Plan

The Corporation also sponsors an Executive Supplemental Pension Plan for certain 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, 2022 and 2021.

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, 2022 and 2021 (in thousands):

Change in projected benefit obligation:	2022		2021
Benefit obligation at beginning of year	$	1,173	$	1,251
Service cost	—		—
Interest cost	32		31
Actuarial (gain) loss	(148)		—
Benefits paid	(109)		(109)
Projected benefit obligation at end of year	$	948	$	1,173

Changes in plan assets:	2022		2021
Fair value of plan assets at beginning of year	$	—	$	—
Employer contributions	109		109
Benefits paid	(109)		(109)
Fair value of plan assets at end of year	$	—	$	—
Unfunded status	$	(948)	$	(1,173)

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2022 and 2021 consist of the following (in thousands):

	2022		2021
Net actuarial loss	$	172	$	339
Prior service cost	—		—
Total before tax effects	$	172	$	339

Accumulated benefit obligation at December 31, 2022 and 2021 was $0.9 million and $1.2 million, respectively.

Weighted-average assumption for disclosure as of December 31:	2022		2021
Discount rate	5.42	%	2.87	%
Assumed rate of future compensation increase	N/A		N/A
Weighted-average interest crediting rate	N/A		N/A

The components of net periodic benefit cost for the years ended December 31, 2022 and 2021 are as follows (in thousands):

Net periodic benefit cost	2022		2021
Service cost	$	—	$	—
Interest cost	32		31
Recognized actuarial loss	19		19
Net periodic postretirement benefit cost	$	51	$	50

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):	2022		2021
Net actuarial (gain) loss	$	(148)	$	—
Recognized actuarial loss	(20)		(19)
Total recognized in other comprehensive income (loss) (before tax effect)	$	(168)	$	(19)
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	(117)	$	31

During 2022, there was a $182 thousand decrease in the projected benefit obligation as a result of the increase in discount rate. Offsetting this was a mortality increase of $7 thousand, due to the update in the mortality assumption. There was also a $27 thousand increase in PBO due to participant mortality (longevity) experience. There were no other significant sources of gain or loss during 2022.

During 2022, the plan's total unrecognized net loss decreased by $167 thousand. Because the total unrecognized net gain or loss exceeds the greater of 10% of the projected benefit obligation or 10% of the plan assets, the excess will be amortized over the average future life expectancy of all participants. Previously, the excess had been amortized over the average future working lifetime of active participants, however, there are no longer any active participants in the plan as of January 1, 2017, so the amortization period was changed to be the average future life expectancy of all plan participants. As of January 1, 2023, the average future life expectancy of plan participants was 10.86 years.

Weighted-average assumptions for net periodic cost as of December 31:	2022		2021
Discount rate	2.87	%	2.61	%
Expected asset return	N/A		N/A
Assumed rate of future compensation increase	N/A		N/A
Weighted-average interest crediting rate	N/A		N/A

The discount rate was determined by projecting the plan's expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation.

The change in unrecognized net gain or loss is one measure of the degree to which important assumptions have coincided with actual experience. During 2022 the unrecognized net loss decreased 14.3% of the December 31, 2021 projected benefit obligation.

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 (in thousands):

Calendar Year	Future Estimated Benefit Payments
2023	$	108
2024	$	106
2025	$	102
2026	$	98
2027	$	94
2028-2032	$	390

The Corporation expects to contribute $110 thousand to the plan during 2023. Corporation contributions are equal to the benefit payments to plan participants. Funding requirements for subsequent years are uncertain and will significantly depend upon 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 Supplemental Executive Retirement Plan

The Corporation also sponsors a Defined Contribution Supplemental Executive Retirement Plan for certain current executive officers, which was initiated in 2012. The plan is unfunded as of December 31, 2022 and is intended to provide nonqualified deferred compensation benefits payable at retirement, disability, death or certain other events. The accrued obligation for the plan as of December 31, 2022 and 2021 was $2.9 million and $2.4 million, respectively. A total of $0.5 million and $0.4 million was expensed during the years ended December 31, 2022 and 2021, respectively. In addition to each participants account being credited with the annual company contribution, each account will receive a quarterly interest credit that will be calculated based upon the average yield on five year U.S. Treasury Notes.