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12. Employee Benefits

12 Months Ended

Dec. 31, 2016

We sponsor a pretax savings and profit sharing plan (the “401(k) Plan”) qualified under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, eligible employees are able to contribute up to 15% of their compensation (subject to stricter limitation in the case of highly compensated employees). We may, at our discretion, match 100% of employees’ contributions up to $1,500 per employee per calendar year. Our contributions to the 401(k) Plan were $929,000, $838,000 and $642,000, respectively, for the year ended December 31, 2016, 2015 and 2014.

We also sponsor a defined benefit plan, the MFN Financial Corporation Pension Plan (the “Plan”). The Plan benefits were frozen on June 30, 2001.

The following tables represents a reconciliation of the change in the plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2016 and 2015:

	December 31,
	2016			2015
	(In thousands)
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of year	$	21,385		$	22,559
Service cost		–			–
Interest cost		882			843
Assumption changes		95			(485	)
Actuarial (gain) loss		89			(14	)
Settlements		–			–
Benefits paid		(936	)		(1,518	)
Projected benefit obligation, end of year	$	21,515		$	21,385

Change in Plan Assets
Fair value of plan assets, beginning of year	$	16,374		$	19,848
Return on assets		1,031			(1,818	)
Employer contribution		–			–
Expenses		(226	)		(138	)
Settlements		–			–
Benefits paid		(936	)		(1,518	)
Fair value of plan assets, end of year	$	16,243		$	16,374

Funded Status at end of year	$	(5,272	)	$	(5,011	)

Additional Information

Weighted average assumptions used to determine benefit obligations and cost at December 31, 2016 and 2015 were as follows:

	December, 31
	2016		2015
Weighted average assumptions used to determine benefit obligations
Discount rate		4.05%		4.20%

Weighted average assumptions used to determine net periodic benefit cost
Discount rate		4.20%		3.80%
Expected return on plan assets		7.50%		7.75%

Our overall expected long-term rate of return on assets is 7.50% per annum as of December 31, 2016. The expected long-term rate of return is based on the weighted average of historical returns on individual asset categories, which are described in more detail below.

	December 31,
	2016			2015			2014
	(In thousands)
Amounts recognized on Consolidated Balance Sheet
Other assets	$	–		$	–		$	–
Other liabilities		(5,272	)		(5,011	)		(2,711	)
Net amount recognized	$	(5,272	)	$	(5,011	)	$	(2,711	)

Amounts recognized in accumulated other comprehensive loss consists of:
Net loss	$	10,618		$	10,592		$	7,977
Unrecognized transition asset		–			–			–
Net amount recognized	$	10,618		$	10,592		$	7,977

Components of net periodic benefit cost
Interest cost	$	882		$	843		$	888
Expected return on assets		(1,199	)		(1,508	)		(1,727	)
Amortization of transition asset		–			–			–
Amortization of net loss		553			349			–
Net periodic benefit cost		236			(316	)		(839	)
Settlement (gain)/loss		–			–			–
Total	$	236		$	(316	)	$	(839	)

Benefit Obligation Recognized in Other Comprehensive Loss (Income)
Net loss (gain)	$	25		$	2,615		$	6,610
Prior service cost (credit)		–			–			–
Amortization of prior service cost		–			–			–
Net amount recognized in other comprehensive loss (income)	$	25		$	2,615		$	6,610

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2017 is $405,000.

The weighted average asset allocation of our pension benefits at December 31, 2016 and 2015 were as follows:

	December 31,
	2016		2015
Weighted Average Asset Allocation at Year-End
Asset Category
Equity securities		85%		84%
Debt securities		15%		16%
Cash and cash equivalents		0%		0%
Total		100%		100%

Our investment policies and strategies for the pension benefits plan utilize a target allocation of 75% equity securities and 25% fixed income securities (excluding Company stock). Our investment goals are to maximize returns subject to specific risk management policies. We address risk management and diversification by the use of a professional investment advisor and several sub-advisors which invest in domestic and international equity securities and domestic fixed income securities. Each sub-advisor focuses its investments within a specific sector of the equity or fixed income market. For the sub-advisors focused on the equity markets, the sectors are differentiated by the market capitalization, the relative valuation and the location of the underlying issuer. For the sub-advisors focused on the fixed income markets, the sectors are differentiated by the credit quality and the maturity of the underlying fixed income investment. The investments made by the sub-advisors are readily marketable and can be sold to fund benefit payment obligations as they become payable.

Cash Flows

Estimated Future Benefit Payments (In thousands)
2017	$	785
2018		804
2019		845
2020		890
2021		930
Years 2022 - 2026		5,330

Anticipated Contributions in 2017	$	–

The fair value of plan assets at December 31, 2016 and 2015, by asset category, is as follows:

	December 31, 2016
	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total
Investment Name:	(in thousands)
Company Common Stock	$	4,581	$	–	$	–	$	4,581
Large Cap Value		–		2,238		–		2,238
Mid Cap Index		–		625		–		625
Small Cap Growth		–		621		–		621
Small Cap Value		–		687		–		687
Focus Value		–		676		–		676
Growth		–		1,980		–		1,980
International Growth		–		2,392		–		2,392
Core Bond		–		1,644		–		1,644
High Yield		–		356		–		356
Inflation Protected Bond		–		433		–		433
Money Market		–		10		–		10
Total	$	4,581	$	11,662	$	–	$	16,243

	December 31, 2015
	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total
Investment Name:	(in thousands)
Company Common Stock	$	4,643	$	–	$	–	$	4,643
Large Cap Value		–		2,061		–		2,061
Mid Cap Index		–		578		–		578
Small Cap Growth		–		552		–		552
Small Cap Value		–		573		–		573
Focus Value		–		571		–		571
Growth		–		2,215		–		2,215
International Growth		–		2,475		–		2,475
Core Bond		–		1,833		–		1,833
High Yield		–		354		–		354
Inflation Protected Bond		–		482		–		482
Money Market		–		37		–		37
Total	$	4,643	$	11,731	$	–	$	16,374

________________________

(1)

Company common stock is classified as level 1 and valued using quoted prices in active markets for identical assets.

(2)

All other plan assets in stock, bond and money market funds are classified as level 2 and valued using significant observable inputs.

(3)

There are no plan assets classified as level 3 in the fair value hierarchy as a result of having significant unobservable inputs.