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Associate Benefit Plans

12 Months Ended

Dec. 31, 2019

15. ASSOCIATE BENEFIT PLANS

Associate 401(k) Savings Plan

Certain subsidiaries of ours maintain a qualified plan in which Associates may participate. Participants in the plan may elect to direct a portion of their wages into investment accounts that include professionally managed mutual and money market funds and our common stock. Generally, the principal and related earnings are tax deferred until withdrawn. We match a portion of the Associates’ contributions. As a result, our total cash contributions to the plan on behalf of our Associates resulted in an expense of $5.8 million, $3.8 million, and $3.6 million for 2019, 2018, and 2017, respectively.

All contributions are invested in accordance with the Associates’ selection of investments. If Associates do not designate how discretionary contributions are to be invested, 100% is invested in target-date fund that corresponds with the participant’s age. Associates may generally make transfers to various other investment vehicles within the plan. The plan’s yearly activity includes net sales of 9,000, 51,000 and 156,000 shares of our common stock in 2019, 2018 and 2017 respectively. There were no purchases in 2019 or 2018, and 83,000 net purchases in 2017.

Postretirement Medical Benefits

We share certain costs of providing health and life insurance benefits to eligible retired Associates (employees) and their eligible dependents. Previously, all Associates were eligible for these benefits if they reached normal retirement age while working for us. Effective March 31, 2014, we changed the eligibility of this plan to include only those Associates who have achieved ten years of service with us as of March 31, 2014. As of December 31, 2014, we began to use the mortality table issued by the office of the Actuary of the U.S. Bureau of Census in our calculation.

We account for our obligations under the provisions of ASC 715, Compensation - Retirement Benefits (ASC 715). ASC 715 requires that we recognize the costs of these benefits over an Associate's active working career. Amortization of unrecognized net gains or losses resulting from experience different from that assumed and from changes in assumptions is included as a component of net periodic benefit cost over the remaining service period of active employees to the extent that such gains and losses exceed 10% of the accumulated postretirement benefit obligation, as of the beginning of the year. We recognize our service cost in Salaries, benefits and other compensation and the other components of net periodic benefit cost in Other operating expenses in our Consolidated Statements of Income.

ASC 715 requires that we recognize the funded status of our defined benefit postretirement plan in our statement of financial condition, with a corresponding adjustment to accumulated other comprehensive (loss) income, net of tax. The adjustment to accumulated other comprehensive (loss) income at adoption represented the net unrecognized actuarial losses and unrecognized transition obligation remaining from the initial adoption of ASC 715, all of which were previously netted against the plan’s funded status in our statement of financial condition pursuant to the provisions of ASC 715. These amounts will be subsequently recognized as net periodic pension costs pursuant to our historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods, and are not recognized as net periodic pension cost in the same periods, will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of ASC 715.

In accordance with ASC 715, during 2020 we expect to recognize less than $0.1 million of amortization related to net actuarial gain and $0.1 million of amortization related to prior service credit.

The following disclosures relating to postretirement medical benefits were measured at December 31:


(Dollars in thousands)	2019			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,893		$	1,990		$	1,764
Service cost	54			60			53
Interest cost	78			70			71
Actuarial loss (gain)	229			(143)			207
Benefits paid	(84)			(84)			(105)
Benefit obligation at end of year	$	2,170		$	1,893		$	1,990
Change in plan assets:
Fair value of plan assets at beginning of year	$	—		$	—		$	—
Employer contributions	84			84			105
Benefits paid	(84)			(84)			(105)
Fair value of plan assets at end of year	$	—		$	—		$	—
Unfunded status	$	(2,170)		$	(1,893)		$	(1,990)
Amounts recognized in accumulated other comprehensive income⁽¹⁾:
Net prior service credit	$	511		$	587		$	663
Net gain	491			783			685
Net amount recognized	$	1,002		$	1,370		$	1,348
Components of net periodic benefit cost:
Service cost	$	54		$	60		$	53
Interest cost	78			70			71
Amortization of prior service cost	(76)			(76)			(76)
Net gain recognition	(63)			(45)			(70)
Net periodic benefit cost	$	(7)		$	9		$	(22)
Assumption used to determine net periodic benefit cost:
Discount rate	4.20		%	3.60		%	4.10		%

Assumption used to value the Accumulated Postretirement Benefit Obligation (APBO):
Discount rate	3.10		%	4.20		%	3.60		%

⁽¹⁾Before tax effects

Estimated future benefit payments:

The following table shows the expected future payments for the next 10 years:


(Dollars in thousands)
During 2020	$	63
During 2021	62
During 2022	64
During 2023	67
During 2024	72
During 2025 through 2029	447
	$	775

We assume medical benefits will increase at an average rate of less than 10% per annum. The costs incurred for retirees’ health care are limited since certain current and all future retirees are restricted to an annual medical premium cap indexed (since 1995) by the lesser of 4% or the actual increase in medical premiums paid by us. For 2019, this annual premium cap amounted to $3,695 per retiree. We estimate that we will contribute approximately $3,843 per retiree to the plan during fiscal 2020.

Alliance Associate Pension Plan

During the fourth quarter of 2015, we completed the acquisition of Alliance and its wholly-owned subsidiary, Alliance Bank, headquartered in Broomall, Pennsylvania. At the time of the acquisition we assumed the Alliance pension plan offered to current Alliance associates. The net amount recognized in 2019 was $0.2 million.

$0.3 million of estimated net loss for the defined benefit pension plans will be amortized from the accumulated other comprehensive income into net periodic benefit cost over the next fiscal year.

The following disclosures relating to Alliance pension benefits were measured at December 31:


(Dollars in thousands)	2019			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	6,289		$	7,853		$	7,517
Interest cost	253			279			297
Settlements	(282)			(1,142)			—
Disbursements	(231)			(271)			(407)
Actuarial loss (gain)	864			(430)			446
Benefit obligation at end of year	$	6,893		$	6,289		$	7,853
Change in plan assets:
Fair value of plan assets at beginning of year	$	6,533		$	8,378		$	7,504
Actual return on plan assets	1,435			(393)			1,314
Settlements	(273)			(1,146)			—
Benefits paid	(231)			(271)			(407)
Administrative expenses	(33)			(35)			(33)
Fair value of plan assets at end of year	$	7,431		$	6,533		$	8,378
Funded status	$	538		$	244		$	525
Amounts recognized in accumulated other comprehensive income⁽¹⁾:
Net (loss) gain	$	(279)		$	(413)		$	170
Components of net periodic benefit cost:
Service cost	$	40		$	40		$	40
Interest cost	253			279			297
Expected return on plan assets	(471)			(596)			(548)
Settlements	16			(24)			—
Net gain recognition	—			413			(170)
Net periodic benefit cost	$	(162)		$	112		$	(381)
Assumptions used to value the Accumulated Postretirement Benefit Obligation (APBO):
Discount rate for net periodic benefit cost	4.20		%	3.60		%	4.00		%

Expected return on plan assets	7.50		%	7.50		%	7.50		%
Discount rate for disclosure obligations	2.40		%	4.20		%	3.60		%

⁽¹⁾Before tax effects

Estimated future benefit payments:

During the fourth quarter of 2018, the Company notified the Alliance pension plan participants, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation of its intention to terminate the plan. The Company currently anticipates completing the pension plan termination in 2020. As of December 31, 2019, the valuation of the benefit obligations and estimated future benefit payments includes termination assumptions, and the remaining expected future payments are $6.9 million during 2020.

Beneficial Associate Pension and other postretirement benefit plans

On March 1, 2019, we closed our acquisition of Beneficial. At the time of acquisition, we assumed the pension plan covering certain eligible Beneficial Associates. The plan was frozen in 2008.

During 2020, we expect to recognize less than $0.1 million of amortization related to net actuarial gain (includes both pension benefits and other postretirement benefits in the table below).

The following disclosures relating to Beneficial pension benefits and other postretirement benefit plans were measured at December 31, 2019:


(Dollars in thousands)	Pension Benefits		Other Postretirement Benefits
Change in benefit obligation:
Benefit obligation at beginning of year	$	—	$	—
Acquired in business combinations	91,568		19,504
Service cost	—		76
Interest cost	2,851		588
Plan participants' contributions	—		34
Actuarial loss	12,020		1,035
Benefits Paid	(3,561)		(974)
Benefit obligation at end of year	$	102,878	$	20,263
Change in plan assets:
Fair value of plan assets at beginning of year	$	—	$	—
Acquired in business combinations	90,814		—
Actual return on Plan Assets	13,350		—
Employer contribution	293		940
Participants' contributions	—		34

Benefits paid	(3,561)		(974)
Administrative expenses	(508)		—
Fair value of plan assets at end of year	$	100,388	$	—
Unfunded status	$	(2,490)	$	(20,263)
Amounts recognized in accumulated other comprehensive income⁽¹⁾:
Net loss	$	(4,174)	$	(1,035)
Components of net periodic benefit cost:
Service cost	$	—	$	76
Interest cost	2,851		588

Expected return on plan assets	(4,829)		—
Net periodic benefit cost	$	(1,978)	$	664

⁽¹⁾Before tax effects

Significant assumptions used to calculate the net periodic benefit cost and obligation for Beneficial postretirement plans as of December 31, 2019 are as follows:


Consolidated Pension Plan	2019
Discount rate for net periodic benefit cost	4.14	%
Expected return on plan assets	6.50	%
Discount rate for disclosure obligations	3.25	%
Beneficial Bank Other Postretirement
Discount rate for net periodic benefit cost	4.10	%
Discount rate for disclosure obligations	3.19	%
FMS Other Postretirement
Discount rate for net periodic benefit cost	3.60	%
Discount rate for disclosure obligations	2.60	%
Split-Dollar Plan
Discount rate for net periodic benefit cost	3.54	%
Discount rate for disclosure obligations	2.55	%

Estimated future benefit payments:

The following table shows the expected future payments for the next 10 years:


(Dollars in thousands)	Pension Benefits		Other Postretirement Benefits
During 2020	$	4,744	$	990
During 2021	5,649		1,007
During 2022	4,874		1,022
During 2023	5,501		1,033
During 2024	6,219		1,052
During 2025 through 2029	27,855		5,780
	$	54,842	$	10,884

The fair values and weighted average asset allocations in plan assets of all pension and postretirement plan assets at December 31, 2019 by asset category are as follows:


	Category Used for Fair Value Measurement
	December 31, 2019
(Dollars in thousands)	Level 1		Level 2		Level 3		Total		Percent
Assets:
Mutual Funds:
Large cap	$	4,532	$	—	$	—	$	4,532	4.5	%
Mid cap	67		—		—		67		0.1	%
Small cap	63		—		—		63		0.1	%
International	7,902		—		—		7,902		7.9	%
Global Managed Volatility	6,955		—		—		6,955		6.9	%
U.S. Managed Volatility	2,611		—		—		2,611		2.6	%
Fixed Income	62,924		—		—		62,924		62.7	%
U.S. Government Agencies	15,166		—		—		15,166		15.1	%
Accrued Income	168		—		—		168		0.1	%
Total	$	100,388	$	—	$	—	$	100,388	100.0	%

As of December 31, 2019, pension and postretirement plan assets were comprised of investments in equity and fixed income mutual funds. The Bank’s consolidated pension plan investment policy provides that assets are to be managed over a long-term investment horizon to ensure that the chances and duration of investment losses are carefully weighed against the long-term potential for asset appreciation. The primary objective of managing a plan’s assets is to improve the plan’s funded status. A secondary financial objective is, where possible, to minimize pension expense volatility. The Company’s pension plan allocates assets based on the plan’s funded status to risk management and return enhancement asset classes. The risk management class is comprised of a long duration fixed income fund while the return enhancement class consists of equity and other fixed income funds. Asset allocation ranges are generally 40% to 80% for risk management and 20% to 60% for return enhancement when the funded status is less than 110%, and 50% to 90% in risk management and 10% to 50% for return enhancement when the funded status reaches 110%, subject to the discretion of the Company. Also, a small portion is maintained in cash reserves when appropriate.

We have four additional plans which are no longer being provided to current Associates: (1) a Supplemental Pension Plan with a corresponding liability of $0.6 million and $0.7 million for December 31, 2019 and 2018 respectively; (2) an Early Retirement Window Plan with a corresponding liability of $0.1 million for both December 31, 2019 and 2018; (3) a Supplemental Executive Retirement Plan with a corresponding liability of $1.4 million and $1.5 million for December 31, 2019 and 2018 respectively, and; (4) a Post-Retirement Medical Plan with a corresponding liability of $0.1 million for both December 31, 2019 and 2018. Additionally, the Director's Plan that had a corresponding asset of less than $0.1 million as of December 31, 2018 is no longer in effect as of December 31, 2019.