Note 7.

Defined Benefit Postretirement Plans

The Company has a qualified, noncontributory, defined benefit pension plan covering substantially all of its employees at June 30, 2013, including eligible Alliance employees as of March 8, 2013. Benefits paid from the plan are based on age, years of service, compensation and social security benefits, and are determined in accordance with defined formulas. The Company’s policy is to fund the pension plan in accordance with Employee Retirement Income Security Act of 1974 (“ERISA”) standards. Assets of the plan are invested in publicly traded stocks and bonds.

The Company assumed a noncontributory, defined benefit pension plan in the Alliance acquisition. The plan covers certain Alliance full-time employees who met eligibility requirements on October 6, 2006, at which time all benefits were frozen. Under the plan, retirement benefits are primarily a function of both the years of service and the level of compensation. The Company is not required to make contributions to the plans in 2013, and did not do so during the six months ended June 30, 2013. Effective May 1, 2013, this plan was merged into the NBT Bancorp Inc. Defined Benefit Pension Plan. The merging of the plans did not have a significant impact on the Company’s financial statements and related footnotes.

In addition to the pension plans, the Company also provides supplemental employee retirement plans to certain current and former executives. These supplemental employee retirement plans and the defined benefit pension plans are collectively referred to herein as “Pension Benefits.”

Also, the Company provides certain health care benefits for retired employees. Benefits are accrued over the employees’ active service period. Only employees that were employed by the Company on or before January 1, 2000 are eligible to receive postretirement health care benefits. The plan is contributory for participating retirees, requiring participants to absorb certain deductibles and coinsurance amounts with contributions adjusted annually to reflect cost sharing provisions and benefit limitations called for in the plan. Eligibility is contingent upon the direct transition from active employment status to retirement without any break in employment from the Company. Employees also must be participants in the Company’s medical plan prior to their retirement. The Company funds the cost of postretirement health care as benefits are paid. The Company elected to recognize the transition obligation on a delayed basis over twenty years. In addition, the Company assumed post-retirement medical life insurance benefits for certain Alliance employees, retirees and their spouses, if applicable, in the Alliance acquisition. These postretirement benefits are referred to herein as “Other Benefits.” The components of expense for Pension Benefits and Other Benefits are set forth below (in thousands):

	Pension Benefits							Other Benefits
	Three months ended June 30,							Three months ended June 30,
Components of net periodic benefit cost:	2013				2012			2013				2012
Service cost		$	604		$	757			$	6		$	5
Interest cost			830			774				75			40
Expected return on plan assets			(1,929	)		(1,675	)			-			-
Net amortization			711			859				(1	)		(3	)
Total cost (benefit)		$	216		$	715			$	80		$	42

	Pension Benefits							Other Benefits
	Six months ended June 30,							Six months ended June 30,
Components of net periodic benefit cost:		2013			2012				2013			2012
Service cost		$	1,209		$	1,513			$	12		$	10
Interest cost			1,659			1,548				150			79
Expected return on plan assets			(3,858	)		(3,350	)			-			-
Net amortization			1,314			1,718				222			(5	)
Total cost (benefit)		$	324		$	1,429			$	384		$	84

The Company is not required to make contributions to the plans in 2013, and did not do so during the six months ended June 30, 2013.

Market conditions can result in an unusually high degree of volatility and increase the risks and short term liquidity associated with certain investments held by the Company’s defined benefit pension plan (“the Plan”) which could impact the value of these investments.