15. PENSION AND OTHER POSTRETIREMENT PLANS

Pension Plan and Supplemental Executive Retirement Plan

The Bank maintains a noncontributory pension plan (the “Pension Plan”) covering all eligible employees. The Bank uses a December 31 measurement date for this plan in accordance with FASB ASC 715‑30 “Compensation – Retirement Benefits – Defined Benefit Plans – Pension.” During 2012, the Company amended the Pension Plan by revising the formula for determining benefits effective January 1, 2013, except for certain grandfathered employees. Additionally, new employees hired on or after October 1, 2012 are not eligible for the Pension Plan.

During 2001, the Bank adopted the Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”). As recommended by the Compensation Committee of the Board of Directors and approved by the full Board of Directors, the SERP provides benefits to certain employees, whose benefits under the Pension Plan are limited by the applicable provisions of the Internal Revenue Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under the Pension Plan and the 401(k) Plan in the absence of such Internal Revenue Code limitations. The assets of the SERP are held in a rabbi trust to maintain the tax-deferred status of the plan and are subject to the general, unsecured creditors of the Company. As a result, the assets of the rabbi trust are reflected on the Company’s consolidated balance sheets.

The following table provides information about changes in obligations and plan assets of the defined benefit Pension Plan and the defined benefit plan component of the SERP:


	Pension Benefits				SERP Benefits
	Year Ended December 31,				Year Ended December 31,
(In thousands)	2019		2018		2019		2018
Change in benefit obligation:
Benefit obligation at beginning of year	$	23,611	$	24,759	$	3,811	$	3,919
Service cost		952		1,106		261		290
Interest cost		908		794		147		127
Benefits paid and expected expenses		(475)		(402)		(112)		(112)
Assumption changes and other		3,761		(2,646)		1,216		(413)
Benefit obligation at end of year	$	28,757	$	23,611	$	5,323	$	3,811

Change in plan assets:
Fair value of plan assets at beginning of year	$	33,874	$	34,695	$	—	$	—
Actual return on plan assets		6,346		(2,079)		—		—
Employer contribution		—		1,660		112		112
Benefits paid and actual expenses		(475)		(402)		(112)		(112)
Fair value of plan assets at end of year	$	39,745	$	33,874	$	—	$	—

Funded status at end of year	$	10,988	$	10,263	$	(5,323)	$	(3,811)

The following table presents amounts recognized in accumulated other comprehensive income at December 31:


	Pension Benefits				SERP Benefits
	December 31,				December 31,
(In thousands)	2019		2018		2019		2018
Net actuarial loss	$	7,997	$	8,631	$	2,071	$	925
Prior service cost		(484)		(561)		—		—
Net amount recognized	$	7,513	$	8,070	$	2,071	$	925

As of December 31, 2019, the accumulated benefit obligation was $27.4 million for the Pension Plan and $3.6 million for the SERP. As of December 31, 2018, the accumulated benefit obligation was $22.3 million for the Pension Plan and $2.7 million for the SERP.

The following table summarizes the components of net periodic benefit (credit) cost and other amounts recognized in other comprehensive income:


	Pension Benefits						SERP Benefits
	Year Ended December 31,						Year Ended December 31,
(In thousands)	2019		2018		2017		2019		2018		2017
Components of net periodic benefit cost and other amounts recognized in other comprehensive income:
Service cost	$	952	$	1,106	$	1,129	$	261	$	290	$	212
Interest cost		908		794		750		147		127		105
Expected return on plan assets		(2,445)		(2,547)		(2,129)		—		—		—
Amortization of net loss		494		335		479		70		121		51
Amortization of prior service credit		(77)		(77)		(77)		—		—		—
Amortization of transition obligation		—		—		—		—		5		27
Net periodic benefit (credit) cost	$	(168)	$	(389)	$	152	$	478	$	543	$	395

Net (gain) loss	$	(140)	$	1,980	$	(409)	$	1,216	$	(413)	$	710
Amortization of net loss		(494)		(335)		(479)		(70)		(121)		(51)
Amortization of prior service credit		77		77		77		—		—		—
Amortization of transition obligation		—		—		—		—		(5)		(27)
Total recognized in other comprehensive income	$	(557)	$	1,722	$	(811)	$	1,146	$	(539)	$	632

The Company's service cost component is reported in the Company's income statement in salaries and employee benefits, which is the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. All other components of net periodic benefit (credit) cost are reported in the other operating expenses income statement line.

The estimated net loss and prior service credit for the defined benefit Pension Plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $400 thousand and $77 thousand, respectively. The estimated net loss for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $227 thousand.

Expected Long-Term Rate of Return

The Company’s expected long-term rate of return on Pension Plan assets is a long-term rate based on anticipated Pension Plan asset returns over an extended period of time, taking into account market conditions and broad asset mix considerations. The expected rate of return is a long-term assumption and generally does not change annually.


	Pension Benefits						SERP Benefits
	December 31,						December 31,
	2019		2018		2017		2019		2018		2017
Weighted average assumptions used to determine benefit obligations:
Discount rate	3.10	%	4.14	%	3.52	%	3.08	%	4.13	%	3.50	%
Rate of compensation increase	3.00		3.00		3.00		5.00		5.00		5.00
Weighted average assumptions used to determine net periodic benefit cost:
Discount rate	4.14	%	3.52	%	4.05	%	4.13	%	3.50	%	4.01	%
Rate of compensation increase	3.00		3.00		3.00		5.00		5.00		5.00
Expected long-term rate of return	7.25		7.25		7.25		—		—		—

Pension Plan Assets

The Pension Plan seeks to provide retirement benefits to the employees of the Bank who are entitled to receive benefits under the Pension Plan. The Pension Plan assets are overseen by a committee comprised of management, who meet semi-annually, and sets the investment policy guidelines.

The Pension Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long‐term growth and 3% for near‐term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. Cash equivalents consist primarily of short-term investment funds. Equity securities primarily include investments in common stock, mutual funds, depository receipts and exchange traded funds. Fixed income securities include corporate bonds, government issues, mortgage-backed securities, high yield securities and mutual funds.

The weighted average expected long-term rate of return is estimated based on current trends in Pension Plan assets, as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice No. 27 for the real and nominal rate of investment return for a specific mix of asset classes. The long-term rate of return considers historical returns for the S&P 500 index and corporate bonds representing cumulative returns of approximately 9.5% and 5.0%, respectively. These returns were considered along with the target allocations of asset categories.

The following table indicates the target allocations for Plan assets:


							Weighted-Average-
	Target		Percentage of Plan Assets				Expected Long-
	Allocation		At December 31,				term Rate of
Asset Category	2020		2019		2018		Return
Cash equivalents	0 - 5	%	3.6	%	3.0	%	—	%
Equity securities	45 - 65		57.9		54.8		9.5
Fixed income securities	30 - 50		38.5		42.2		5.0
Total			100.0		100.0

Except for pooled vehicles and mutual funds, which are governed by the prospectus, and unless expressly authorized by management, the Pension Plan and its investment managers are prohibited from purchasing the following investments: letter stock, private placements, or direct payments; securities not readily marketable; Bridge Bancorp, Inc. stock; pledging or hypothecating securities, except for loans of securities that are fully collateralized; purchasing or selling derivative securities for speculation or leverage; and investments by the investment managers in their own securities, their affiliates or subsidiaries (excluding money market funds).

Fair value is defined under FASB ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. These levels are described in Note 3 “Fair Value.”

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments valued using the Net Asset Value (“NAV”) are classified as level 2 if the Pension Plan can redeem its investment with the investee at the NAV at the measurement date. If the Pension Plan can never redeem the investment with the investee at the NAV, it is considered as level 3. If the Pension Plan can redeem the investment at the NAV at a future date, the Pension Plan’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset.

In accordance with FASB ASC 715‑20, the following table represents the Pension Plan’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2019 and 2018:


	December 31, 2019
			Fair Value Measurements Using:
			Quoted Prices		Significant
			In Active		Other			Significant
			Markets for		Observable			Unobservable
	Carrying		Identical Assets		Inputs			Inputs
(Dollars in thousands)	Value		(Level 1)		(Level 2)			(Level 3)
Cash and cash equivalents:
Cash	$	—	$	—	$	—	$	—
Short term investment funds		1,444		—		1,444		—
Total cash and cash equivalents		1,444		—		1,444		—
Equities:
U.S. large cap		12,097		12,097		—		—
U.S. mid cap/small cap		4,195		4,195		—		—
International		6,320		6,320		—		—
Equities blend		414		414		—		—
Total equities		23,026		23,026		—		—
Fixed income securities:
Government issues		2,024		2,024		—		—
Corporate bonds		2,926		—		2,926		—
Mortgage-backed		1,033		—		1,033		—
High yield bonds and bond funds		9,292		—		9,292		—
Total fixed income securities		15,275		2,024		13,251		—
Total plan assets	$	39,745	$	25,050	$	14,695	$	—


	December 31, 2018
			Fair Value Measurements Using:
			Quoted Prices		Significant
			In Active		Other			Significant
			Markets for		Observable			Unobservable
	Carrying		Identical Assets		Inputs			Inputs
(Dollars in thousands)	Value		(Level 1)		(Level 2)			(Level 3)
Cash and cash equivalents:
Cash	$	—	$	—	$	—	$	—
Short term investment funds		1,063		—		1,063		—
Total cash and cash equivalents		1,063		—		1,063		—
Equities:
U.S. large cap		9,173		9,173		—		—
U.S. mid cap/small cap		2,760		2,760		—		—
International		6,480		6,480		—		—
Equities blend		155		155		—		—
Total equities		18,568		18,568		—		—
Fixed income securities:
Government issues		2,341		2,341		—		—
Corporate bonds		2,098		—		2,098		—
Mortgage-backed		1,132		—		1,132		—
High yield bonds and bond funds		8,672		—		8,672		—
Total fixed income securities		14,243		2,341		11,902		—
Total plan assets	$	33,874	$	20,909	$	12,965	$	—

The Company has no minimum required pension contribution due to the overfunded status of the plan.

Estimated Future Payments

The following table summarizes benefits expected to be paid under the Pension Plan and the SERP as of December 31, 2019, which reflect expected future service:


	Pension and SERP Payments
Year	(in thousands)
2020	$	931
2021		1,074
2022		1,148
2023		1,291
2024		1,298
2025-2029		9,246

401(k) Plan

The Company provides a 401(k) plan, which covers substantially all current employees. Newly hired employees are automatically enrolled in the plan on the 60th day of employment, unless they elect not to participate. Participants may contribute a portion of their pre-tax base salary, generally not to exceed $19,000 for the calendar year ended December 31, 2019. Under the provisions of the 401(k) plan, employee contributions are partially matched by the Bank as follows: 100% of each employee’s contributions up to 1% of each employee’s compensation plus 50% of each employee’s contributions over 1% but not in excess of 6% of each employee’s compensation for a maximum contribution of 3.5% of a participating employee’s compensation. Participants can invest their account balances into several investment alternatives. The 401(k) plan does not allow for investment in the Company’s common stock. During the years ended December 31, 2019, 2018 and 2017 the Company made cash contributions of $1.1 million, $1.0 million, and $1.0 million, respectively. The 401(k) plan also includes a discretionary profit-sharing component. During the years ended December 31, 2019, 2018 and 2017, the Company made discretionary profit-sharing contributions of $583 thousand, $497 thousand, and $550 thousand, respectively.