Benefit Plans
 12 Months Ended
Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]  
Benefit Plans
Note 17 – Benefit Plans
401(k) Plan
We have a 401(k) plan in which substantially all employees are eligible to participate. Employees may contribute up to 50% of their compensation subject to certain limits based on federal tax laws. The plan was amended in 2013 to provide a matching safe harbor contribution for all eligible employees equal to 100% of the first 5.0% of an employee's compensation contributed to the Plan during the year. Employees are 100% vested in the safe harbor matching contributions.
For 2012 and 2011, we made a 3.0% safe harbor contribution for all eligible employees and matching contributions equal to 50% of the first 4.0% of an employee’s compensation contributed to the Plan during the year. Employees were 100% vested in the safe harbor contributions and were 0% vested through their first two years of employment and were 100% vested after 6 years of service for matching contributions.
For 2013, 2012 and 2011, expenses attributable to the Plan were $608, $662, and $652, respectively.
Defined Benefit Pension Plan
We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007.
Changes in the projected benefit obligation and plan assets during each year, the funded status of the plan, and the net amount recognized on our consolidated balance sheets using an actuarial measurement date of December 31, are summarized as follows during the years ended December 31:
 
2013
 
2012
Change in benefit obligation
 
 
 
Benefit obligation, January 1
$
12,209

 
$
11,334

Interest cost
450

 
470

Actuarial (gain) loss
(1,294
)
 
888

Benefits paid, including plan expenses
(633
)
 
(483
)
Benefit obligation, December 31
10,732

 
12,209

Change in plan assets
 
 
 
Fair value of plan assets, January 1
9,650

 
8,603

Investment return
1,276

 
778

Contributions
215

 
752

Benefits paid, including plan expenses
(633
)
 
(483
)
Fair value of plan assets, December 31
10,508

 
9,650

Deficiency in funded status at December 31, included on the consolidated balance sheets in accrued interest payable and other liabilities
$
(224
)
 
$
(2,559
)

2013
 
2012
Change in accrued pension benefit costs
 
 
 
Accrued benefit cost at January 1
$
(2,559
)
 
$
(2,731
)
Contributions
215

 
752

Net periodic benefit cost
(208
)
 
(251
)
Net change in unrecognized actuarial loss and prior service cost
2,328

 
(329
)
Accrued pension benefit cost at December 31
$
(224
)
 
$
(2,559
)

Amounts recognized as a component of OCI consist of the following amounts during the years ended December 31:
 
2013
 
2012
 
2011
Net change in unrecognized actuarial loss and prior service cost
$
2,328

 
$
(329
)
 
$
(1,971
)
Tax effect
(791
)
 
111

 
671

Net
$
1,537

 
$
(218
)
 
$
(1,300
)

We have recorded the funded status of the Plan in our consolidated balance sheets. We adjust the underfunded status in a liability account to reflect the current funded status of the plan. Any gains or losses that arise during the year but are not recognized as components of net periodic benefit cost are recognized as a component of other comprehensive income (loss). The components of net periodic benefit cost are as follows for the years ended December 31:
 
2013
 
2012
 
2011
Interest cost on benefit obligation
$
450

 
$
470

 
$
507

Expected return on plan assets
(572
)
 
(511
)
 
(522
)
Amortization of unrecognized actuarial net loss
330

 
292

 
153

Net periodic benefit cost
$
208

 
$
251

 
$
138


Accumulated other comprehensive income at December 31, 2013 includes net unrecognized pension costs before income taxes of $3,234, of which $40 is expected to be amortized into benefit cost during 2014.
The actuarial assumptions used in determining the benefit obligation are as follows for the years ended December 31:
 
2013
 
2012
 
2011
Discount rate
4.64
%
 
3.75
%
 
4.22
%
Expected long-term rate of return
6.00
%
 
6.00
%
 
6.00
%

The actuarial weighted average assumptions used in determining the net periodic pension costs are as follows for the years ended December 31:
 
2013
 
2012
 
2011
Discount rate
3.75
%
 
4.22
%
 
5.36
%
Expected long-term return on plan assets
6.00
%
 
6.00
%
 
6.00
%

As a result of the curtailment of the Plan, there is no rate of compensation increase considered in the above assumptions.
The expected long term rate of return is an estimate of anticipated future long term rates of return on plan assets as measured on a market value basis. Factors considered in arriving at this assumption include:
•
Historical long term rates of return for broad asset classes.
•
Actual past rates of return achieved by the plan.
•
The general mix of assets held by the plan.
•
The stated investment policy for the plan.
The selected rate of return is net of anticipated investment related expenses.
Plan Assets
Our overall investment strategy is to moderately grow the portfolio by investing 50% of the portfolio in equity securities and 50% in fixed income securities. This strategy is designed to generate a long term rate of return of 6.0%. Equity securities primarily consist of the S&P 500 Index with a smaller allocation to the Small Cap and International Index. Fixed income securities are invested in the Bond Market Index. The Plan has appropriate assets invested in short term investments to meet near-term benefit payments.
The asset mix and the sector weighting of the investments are determined by our pension committee, which is comprised of members of our management. To manage the Plan, we retain a third party investment advisor to conduct consultations. We review the performance of the advisor at least annually.
The fair values of our pension plan assets by asset category were as follows as of December 31:
 
2013
 
2012

Total
 
(Level 2)
 
Total
 
(Level 2)
Short-term investments
$
142

 
$
142

 
$
80

 
$
80

Common collective trusts
 
 
 
 
 
 
 
Fixed income
5,064

 
5,064

 
4,832

 
4,832

Equity investments
5,302

 
5,302

 
4,738

 
4,738

Total
$
10,508

 
$
10,508

 
$
9,650

 
$
9,650


The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2013 and 2012:
•
Short-term investments: Shares of a money market portfolio, which is valued using amortized cost, which approximates fair value.
•
Common collective trusts: These investments are public investment securities valued using the NAV provided by a third party investment advisor. The NAV is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market.
We do not anticipate any contributions to the plan in 2014.
The components of projected net periodic benefit cost are as follows for the year ending December 31, 2014:
Interest cost on projected benefit obligation
$
486

Expected return on plan assets
(615
)
Amortization of unrecognized actuarial net loss
169

Net periodic benefit cost
$
40


Estimated future benefit payments are as follows for the next ten years:
2014
 
$
518

2015
 
551

2016
 
549

2017
 
577

2018
 
575

2019 - 2023
 
3,312


Equity Compensation Plan
Pursuant to the terms of the Directors Plan, our directors are required to invest at least 25% of their board fees in our common stock. These stock investments can be made either through deferred fees or through the purchase of shares through the Isabella Bank Corporation Stockholder Dividend Reinvestment and Employee Stock Purchase Plan ("DRIP Plan"). Deferred fees, under the Directors Plan, are converted on a quarterly basis into shares of our common stock based on the fair value of a share of common stock as of the relevant valuation date. Stock credited to a participant’s account is eligible for stock and cash dividends as declared. DRIP Plan shares are purchased on a monthly basis pursuant to the DRIP Plan.
Distribution of deferred fees from the Directors Plan occurs when the participant retires from the board or upon the occurrence of certain other events. The participant is eligible to receive a lump-sum, in-kind, distribution of all of the stock that is then in his or her account, and any unconverted cash will be converted to and rounded up to whole shares of stock and distributed, as well. The Directors Plan does not allow for cash settlement, and therefore, such share-based payment awards qualify for classification as equity. All authorized but unissued shares of common stock are eligible for issuance under the Directors Plan. We may also purchase shares of common stock on the open market to meet our obligations under the Directors Plan.
We maintain the Rabbi Trust to fund the Directors Plan. The Rabbi Trust is an irrevocable grantor trust to which we may contribute assets for the limited purpose of funding a nonqualified deferred compensation plan. Although we may not reach the assets of the Rabbi Trust for any purpose other than meeting our obligations under the Directors Plan, the assets of the Rabbi Trust remain subject to the claims of our creditors and are included in the consolidated financial statements. We may contribute cash or common stock to the Rabbi Trust from time to time for the sole purpose of funding the Directors Plan. The Rabbi Trust will use any cash that we contributed to purchase shares of our common stock on the open market through our brokerage services department.
The components of shares eligible to be issued under the Directors Plan were as follows as of December 31:
 
2013
 
2012
 
Eligible
Shares
 
Market
Value
 
Eligible
Shares
 
Market
Value
Unissued
172,550

 
$
4,115

 
165,436

 
$
3,598

Shares held in Rabbi Trust
12,761

 
304

 
5,130

 
112

Total
185,311

 
$
4,419

 
170,566

 
$
3,710


Other Employee Benefit Plans
We maintain two nonqualified supplementary employee retirement plans to provide supplemental retirement benefits to specified participants. Expenses related to these programs for 2013, 2012 and 2011 were $375, $382, and $444, respectively, and are being recognized over the participants’ expected years of service.
We maintain a non-leveraged ESOP which was frozen to new participants on December 31, 2006. Contributions to the plan are discretionary and are approved by the Board of Directors and recorded as compensation expense. During 2012, the Board of Directors approved a contribution of $75 to the ESOP. We made no contributions in 2013 or 2011. Compensation cost related to the plan for 2013, 2012 and 2011 was $29, $102, and $20, respectively. Total allocated shares outstanding related to the ESOP at December 31, 2013, 2012, and 2011 were 241,958, 246,404, and 246,404, respectively. Such shares are included in the computation of dividends and earnings per share in each of the respective years.
We maintain a self-funded medical plan under which we are responsible for the first $75 per year of claims made by a covered family. Expenses are accrued based on estimates of the aggregate liability for claims incurred and our experience. Expenses were $2,698 in 2013, $2,534 in 2012 and $2,045 in 2011.