16. Postretirement Benefits

First Defiance sponsors a defined benefit postretirement plan that is intended to supplement Medicare coverage for certain retirees who meet minimum age requirements. First Federal employees who retired prior to April 1, 1997 who completed 20 years of service after age 40 receive full medical coverage at no cost. First Federal employees retiring after April 1, 1997 are provided medical benefits at a cost based on their combined age and years of service at retirement. Surviving spouses are also eligible for continued coverage after the retiree is deceased at a subsidy level that is 10% less than what the retiree is eligible for. First Federal employees retiring before July 1, 1997 receive dental and vision care in addition to medical coverage. First Federal employees who retire after July 1, 1997 are not eligible for dental or vision care.

First Federal employees who were born after December 31, 1950 are not eligible for the medical coverage described above at retirement. Rather, a one-time medical spending account of up to $10,000 (based on the participant’s age and years of service) will be established to reimburse medical expenses for those individuals. First Insurance employees who were born before December 31, 1950 can continue coverage until they reach age 65, or in lieu of continuing coverage, can elect the medical spending account option, subject to eligibility requirements. Employees hired or acquired after January 1, 2003 are eligible only for the medical spending account option.

Included in accumulated other comprehensive income at December 31, 2014, 2013 and 2012 are the following amounts that have not yet been recognized in net periodic benefit cost:

	December 31
	2014		2013		2012
	(In Thousands)
Unrecognized prior service cost	$	65	$	78	$	30
Unrecognized actuarial losses		832		477		858
Total recognized in Accumulated Other Comprehensive Income		897		555		888
Income tax effect		(314)		(194)		(311)
Net amount recognized in Accumulated Other Comprehensive Income	$	583	$	361	$	577

The prior service cost and actuarial loss included in other comprehensive income and expected to be recognized in net postretirement benefit cost during the fiscal year-ended December 31, 2015 is $12,000 ($8,000 net of tax) and $39,000 ($25,000 net of tax), respectively.

Reconciliation of Funded Status and Accumulated Benefit Obligation

The plan is not currently funded. The following table summarizes benefit obligation and plan asset activity for the plan measured as of December 31 each year:

	December 31
	2014		2013
	(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	2,878	$	3,140
Service cost		63		82
Interest cost		136		118
Participant contribution		28		25
Actuarial (gains) / losses		377		(347)
Benefits paid		(219)		(139)
Benefit obligation at end of year		3,263		2,878
Change in fair value of plan assets:
Balance at beginning of year		-		-
Employer contribution		191		114
Participant contribution		28		25
Benefits paid		(219)		(139)
Balance at end of year		-		-
Funded status at end of year	$	(3,263)	$	(2,878)

Net periodic postretirement benefit cost includes the following components:

	Years Ended December 31
	2014		2013		2012
	(In Thousands)
Service cost-benefits attributable to service during the period	$	63	$	82	$	88
Interest cost on accumulated postretirement benefit obligation		136		118		120
Net amortization and deferral		35		46		51
Net periodic postretirement benefit cost		234		246		259
Net (gain) / loss during the year		377		(347)		(148)
Impact of prior year acquisition		-		60		-
Amortization of prior service cost and actuarial losses		(35)		(46)		(51)
Total recognized in comprehensive income		342		(333)		(199)
Total recognized in net periodic postretirement benefit cost and other comprehensive income	$	576	$	(87)	$	60

The following assumptions were used in determining the components of the postretirement benefit obligation:

	2014		2013		2012
Weighted average discount rates:
Used to determine benefit obligations at December 31	4.25	%	4.75	%	4.00	%
Used to determine net periodic postretirement benefit cost for years ended December 31	4.75	%	4.00	%	4.25	%

Assumed health care cost trend rates at December 31:
Health care cost trend rate assumed for next year	7.00	%	7.50	%	8.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%	5.00	%
Year that rate reaches ultimate trend rate	2019		2019		2019

The following benefits are expected to be paid over the next five years and in aggregate for the next five years thereafter. Because the plan is unfunded, the expected net benefits to be paid and the estimated Company contributions are the same amount.

	Expected to be Paid
	(In Thousands)
2015	$	157
2016		155
2017		178
2018		178
2019		186
2020 through 2024		954

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect:

	One-Percentage-Point Increase				One-Percentage-Point Decrease
	Year Ended December 31				Year Ended December 31
	2014		2013		2014		2013
	(In Thousands)
Effect on total of service and interest cost	$	26	$	28	$	(22)	$	(24)
Effect on postretirement benefit obligation		417		351		(352)		(299)

The Company expects to contribute $157,000 before reflecting expected Medicare retiree drug subsidy payments in 2015.