PENSION, PROFIT SHARING, AND OTHER EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2016

Pension, Profit Sharing, and Other Employee Benefit Plans [Abstract]

PENSION, PROFIT SHARING, AND OTHER EMPLOYEE BENEFIT PLANS

Note 13 – Pension, Profit Sharing, and Other Employee Benefit Plans

Defined Benefit Pension Plan

The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”) covering substantially all employees. All benefit accruals for employees were frozen as of December 31, 2007 based on past service and thus future salary increases and additional years of service will no longer affect the defined benefit provided by the plan although additional vesting may continue to occur.

The Company's funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. In addition, the Company contributes additional amounts as it deems appropriate based on benefits attributed to service prior to the date of the plan freeze. The Plan invests primarily in a diversified portfolio of managed fixed income and equity funds.

The Plan’s funded status at December 31 is as follows:

(In thousands)			2016		2015
Reconciliation of Projected Benefit Obligation:
	Projected obligation at January 1		$	39,416	$	42,629
	Interest cost			1,657		1,629
	Actuarial gain (loss)			251		(212)
	Benefit payments			(1,248)		(1,971)
	Increase (decrease) related to change in assumptions			707		(2,659)
		Projected obligation at December 31		40,783		39,416
Reconciliation of Fair Value of Plan Assets:
	Fair value of plan assets at January 1			30,683		33,200
	Actual return on plan assets			755		(546)
	Contribution			5,830		-
	Benefit payments			(1,248)		(1,971)
		Fair value of plan assets at December 31		36,020		30,683
Funded status at December 31			$	(4,763)	$	(8,733)
Accumulated benefit obligation at December 31			$	40,783	$	39,416
Unrecognized net actuarial loss			$	13,689	$	13,038
	Net periodic pension cost not yet recognized		$	13,689	$	13,038

Weighted-average assumptions used to determine benefit obligations at December 31 are presented in the following table:

	2016	2015	2014
Discount rate	4.15%	4.26%	3.91%
Rate of compensation increase	N/A	N/A	N/A

The components of net periodic benefit cost for the years ended December 31 are presented in the following table:

(In thousands)		2016		2015		2014
Interest cost on projected benefit obligation		$	1,657	$	1,629	$	1,600
Expected return on plan assets			(1,614)		(1,622)		(1,971)
Recognized net actuarial loss			1,164		1,032		251
	Net periodic benefit cost	$	1,207	$	1,039	$	(120)

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 are presented in the following table:

	2016	2015	2014
Discount rate	4.26%	3.91%	4.77%
Expected return on plan assets	5.00%	5.00%	6.00%
Rate of compensation increase	N/A	N/A	N/A

The expected rate of return on assets of 5.00% reflects the Plan’s predominant investment of assets in equity securities and an analysis of the average rate of return of the S&P 500 index and 10 year U. S. Treasury bonds over the past 10 years.

The following table reflects the components of the net unrecognized benefits costs that is reflected in accumulated other comprehensive income (loss) for the periods indicated. Additions represent the growth in the unrecognized actuarial loss during the period. Reductions represent the portion of the unrecognized benefits that are recognized each period as a component of the net periodic benefit cost.

		Unrecognized
		Net
(In thousands)		Gain/(Loss)
Included in accumulated other comprehensive income (loss) at January 1, 2014		$	5,539
	Additions during the year		977
	Reclassifications due to recognition as net periodic pension cost		(251)
	Increase related to change in assumptions		8,509
Included in accumulated other comprehensive income (loss) as of December 31, 2014			14,774
	Additions during the year		1,955
	Reclassifications due to recognition as net periodic pension cost		(1,032)
	Decrease related to change in assumptions		(2,659)
Included in accumulated other comprehensive income (loss) as of December 31, 2015			13,038
	Additions during the year		1,108
	Reclassifications due to recognition as net periodic pension cost		(1,164)
	Increase related to change in assumptions		707
Included in accumulated other comprehensive income (loss) as of December 31, 2016			13,689
	Applicable tax effect		(5,433)
Included in accumulated other comprehensive income (loss) net of tax effect at December 31, 2016		$	8,256
Amount expected to be recognized as part of net periodic pension cost in the next fiscal year		$	836

There are no plan assets expected to be returned to the employer in the next twelve months.

The following items have not yet been recognized as a component of net periodic benefit cost at December 31:

(In thousands)		2016		2015		2014
Net actuarial loss		$	(13,689)	$	(13,038)	$	(14,774)
	Net periodic benefit cost not yet recognized	$	(13,689)	$	(13,038)	$	(14,774)

Pension Plan Assets

The Company’s pension plan weighted average allocations at December 31 are presented in the following table:

		2016		2015
Asset Category:
Cash and certificates of deposit		2.6	%	9.7	%
Equity Securities:		71.2		71.6
Debt Securities		26.2		18.7
	Total pension plan assets	100.0	%	100.0	%

The Company has a written investment policy approved by the board of directors that governs the investment of the defined benefit pension fund trust portfolio. The investment policy is designed to provide limits on risk that is undertaken by the investment managers both in terms of market volatility of the portfolio and the quality of the individual assets that are held in the portfolio. The investment policy statement focuses on the following areas of concern: preservation of capital, diversification, risk tolerance, investment duration, rate of return, liquidity and investment management costs.

The Company has constituted the Retirement Plans Investment Committee (“RPIC”) in part to monitor the investments of the Plan as well as to recommend to executive management changes in the Investment Policy Statement which governs the Plan’s investment operations. These recommendations include asset allocation changes based on a number of factors including the investment horizon for the Plan. The Company uses outside third parties to advise RPIC on the Plan’s investment matters.

Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plan’s funded status and the Company’s financial condition. Investment performance and asset allocation are measured and monitored on an ongoing basis. The current target allocations for plan assets are 50-70% for equity securities, 30-40% for fixed income securities and 0-10% for cash equivalents. This asset allocation has been set after taking into consideration the Plan’s current frozen status and the possibility of partial plan terminations over the intermediate term.

Market volatility risk is controlled by limiting the asset allocation of the most volatile asset class, equities, to no more than 70% of the portfolio and by ensuring that there is sufficient liquidity to meet distribution requirements from the portfolio without disrupting long-term assets. Diversification of the equity portion of the portfolio is controlled by limiting the value of any initial acquisition so that it does not exceed 5% of the market value of the portfolio when purchased. The policy requires the sale of any portion of an equity position when its value exceeds 10% of the portfolio. Fixed income market volatility risk is managed by limiting the term of fixed income investments to five years. Fixed income investments must carry an “A” or better rating by a recognized credit rating agency. Corporate debt of a single issuer may not exceed 10% of the market value of the portfolio. The investment in derivative instruments such as “naked” call options, futures, commodities, and short selling is prohibited. Investment in equity index funds and the writing of “covered” call options (a conservative strategy to increase portfolio income) are permitted. Foreign currency-denominated debt instruments are not permitted. At December 31, 2016, management is of the opinion that there are no significant concentrations of risk in the assets of the plan with respect to any single entity, industry, country, commodity or investment fund that are not otherwise mitigated by FDIC insurance available to the participants of the plan and collateral pledged for any such amount that may not be covered by FDIC insurance. Investment performance is measured against industry accepted benchmarks. The risk tolerance and asset allocation limitations imposed by the policy are consistent with attaining the rate of return assumptions used in the actuarial funding calculations. The RPIC committee meets quarterly to review the activities of the investment managers to ensure adherence with the Investment Policy Statement.

Fair Values

The fair values of the Company’s pension plan assets by asset category at December 31 are presented in the following tables:

		2016
		Quoted Prices in		Significant Other		Significant
		Active Markets for		Observable		Unobservable
		Identical Assets		Inputs		Inputs
(In thousands)		(Level 1)		(Level 2)		(Level 3)		Total
Asset Category:
Money market funds		$	-	$	925	$	-	$	925
Mutual funds:
	Large cap U.S. equity funds		7,189		10,168		-		17,357
	Small/Mid cap U.S. equity funds		2,288		2,140		-		4,428
	International equity funds		2,053		1,806		-		3,859
	Short-term fixed income funds		-		9,451		-		9,451
Total mutual funds			11,530		23,565		-		35,095
	Total pension plan assets	$	11,530	$	24,490	$	-	$	36,020

			2015
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(In thousands)			(Level 1)		(Level 2)		(Level 3)		Total
Asset Category:
Cash and certificates of deposit			$	2,853	$	-	$	-	$	2,853
Equity Securities:
	Industrials			2,020		-		-		2,020
	Financials			2,025		-		-		2,025
	Telecommunication services			1,060		-		-		1,060
	Consumer			3,061		-		-		3,061
	Health care			2,355		-		-		2,355
	Information technology			3,156		-		-		3,156
	Energy			758		-		-		758
	Materials			367		-		-		367
	Equity-based mutual funds			5,205		-		-		5,205
	Other			1,949		-		-		1,949
		Total equity securities		21,956		-		-		21,956
Fixed income securities:
	Corporate bonds			-		5,750		-		5,750
Other				124		-		-		124
	Total pension plan assets		$	24,933	$	5,750	$	-	$	30,683

Contributions

The decision as to whether or not to make a plan contribution and the amount of any such contribution is dependent on a number of factors. Such factors include the investment performance of the plan assets in the current economy and, since the plan is currently frozen, the remaining investment horizon of the plan. After consideration of these factors, the Company made a contribution of $5.8 million in 2016. Management continues to monitor the funding level of the pension plan and may make contributions as necessary during 2017.

Estimated Future Benefit Payments

Benefit payments, which reflect expected future service, as appropriate, that are expected to be paid for the years ending December 31 are presented in the following table:

	Pension
(In thousands)	Benefits
2017	$	2,520
2018		1,920
2019		1,950
2020		1,680
2021		2,580
2022 - 2026		12,900

Cash and Deferred Profit Sharing Plan

The Sandy Spring Bank 401(k) Plan includes a 401(k) provision with a Company match. The 401(k) provision is voluntary and covers all eligible employees after ninety days of service. Employees contributing to the 401(k) provision receive a matching contribution of 100% of the first 3% of compensation and 50% of the next 2% of compensation subject to employee contribution limitations. The Company matching contribution vests immediately. The Plan permits employees to purchase shares of Sandy Spring Bancorp, Inc. common stock with their 401(k) contributions, Company match, and other contributions under the Plan. The Company’s matching contribution to the 401(k) Plan that are included in non-interest expenses totaled $2.0 million, $2.0 million and $ 1.8 million in 2016, 2015and 2014, respectively.

Executive Incentive Retirement Plan

The Executive Incentive Retirement Plan is a non-qualified deferred compensation defined contribution plan that provides for contributions to be made to the participants’ plan accounts based on the attainment of a level of financial performance compared to a selected group of peer banks. This level of performance is determined annually by the board of directors. Benefit costs related to the Plan included in non-interest expense for 2016, 2015and 2014were $0.3 million, $0.2 million, and $0.4 million, respectively.