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, and 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, 2017, 2016 and 2015 are the following amounts that have not yet been recognized in net periodic benefit cost:

	December 31
	2017		2016		2015
	(In Thousands)
Unrecognized prior service cost	$	39	$	52	$	53
Unrecognized actuarial losses		551		392		593
Total loss recognized in Accumulated Other Comprehensive Income		590		444		646
Income tax effect		(206)		(155)		(226)
Net loss recognized in Accumulated Other Comprehensive Income	$	384	$	289	$	420

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, 2018, is $18,000 ($14,000 net of tax) and $9,000 ($7,000 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
	2017		2016
	(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	2,985	$	3,115
Service cost		58		53
Interest cost		117		128
Participant contribution		29		29
Plan amendments for acquisitions		-		12
Actuarial (gains) / losses		166		(184)
Benefits paid		(161)		(168)
Benefit obligation at end of year		3,194		2,985
Change in fair value of plan assets:
Balance at beginning of year		-		-
Employer contribution		132		139
Participant contribution		29		29
Benefits paid		(161)		(168)
Balance at end of year		-		-
Funded status at end of year	$	(3,194)	$	(2,985)

Net periodic postretirement benefit cost includes the following components:

	Years Ended December 31
	2017		2016		2015
	(In Thousands)
Service cost-benefits attributable to service during the period	$	58	$	53	$	65
Interest cost on accumulated postretirement benefit obligation		117		128		130
Net amortization and deferral		19		30		47
Net periodic postretirement benefit cost		194		211		242
Net (gain) / loss during the year		166		(184)		(204)
Plan amendment for acquisition		-		12		-
Amortization of prior service cost and actuarial losses		(19)		(30)		(47)
Total recognized in comprehensive income		147		(202)		(251)
Total recognized in net periodic postretirement benefit cost and other comprehensive income	$	341	$	9	$	(9)

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

	2017			2016			2015
Weighted average discount rates:
Used to determine benefit obligations at December 31		3.50	%		4.00	%		4.25	%
Used to determine net periodic postretirement benefit cost for years ended December 31		4.00	%		4.25	%		4.25	%

Assumed health care cost trend rates at December 31:
Health care cost trend rate assumed for next year		7.00	%		7.50	%		6.50	%
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		2022			2022			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)
2018	$	174
2019		181
2020		194
2021		210
2022		191
2023 through 2027		1,073

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
	2017		2016		2017		2016
	(In Thousands)
Effect on total of service and interest cost	$	25	$	27	$	(21)	$	(22)
Effect on postretirement benefit obligation		392		369		(333)		(314)

The Company expects to contribute $174,000 before reflecting expected Medicare retiree drug subsidy payments in 2018.