AMENDED AND RESTATED SAVINGS INSTITUTE BANK AND TRUST COMPANY

Exhibit 10.3

AMENDED AND RESTATED

SAVINGS INSTITUTE BANK AND TRUST COMPANY

EMPLOYEE SEVERANCE COMPENSATION PLAN

PLAN PURPOSE

The purpose of the Savings Institute Bank and Trust Company Employee Severance Compensation Plan (the “Plan”) is to assure the services of employees of the Bank (and affiliates of the Bank that adopt the Plan) in the event of a Change in Control of the Company (capitalized terms are defined in Section 2.1). The benefits contemplated by the Plan recognize the value to the Bank of the services and contributions of the employees of the Bank and the effect upon the Bank resulting from the uncertainties of continued employment, reduced employee benefits, management changes and relocations that may arise in the event of a Change in Control. The Board of Directors of the Bank believes that the Plan will also aid the Bank in attracting and retaining highly qualified individuals who are essential to its success and the Plan’s assurance of fair treatment of the Bank’s employees will reduce the distractions and other adverse effects on employees’ performance in the event of a Change in Control.

ARTICLE I

ESTABLISHMENT OF PLAN

1.1 Establishment of Plan

As of the Effective Date of the Plan, the Bank hereby establishes an employee severance compensation plan to be known as the “Savings Institute Bank and Trust Company Employee Severance Compensation Plan.” The Bank has amended and restated this Plan on December 17, 2008 to conform with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)

1.2 Applicability of Plan

The benefits provided by this Plan shall be available to all employees of the Bank, who, at or after the Effective Date, meet the eligibility requirements of Article III.

1.3 Contractual Right to Benefits

This Plan establishes and vests in each Participant a contractual right to the benefits to which each Participant is entitled hereunder, enforceable by the Participant against the Employer.

1

ARTICLE II

DEFINITIONS AND CONSTRUCTION

2.1 Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below.

(a) “Annual Compensation” of a Participant means and includes all cash compensation paid or accrued by the Employer with respect to the Participant’s service during the 12-consecutive month period ending on the last business day of the month preceding the date the Participant’s employment terminates.

(b) “Bank” means Savings Institute Bank and Trust Company or any successor as provided for in Article VII hereof.

(c) “Change in Control” means any one of the following events occur:

(i) Merger: The Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company immediately before the merger or consolidation.

(ii) Acquisition of Significant Share Ownership: The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities.

(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board (or first nominated by the board for election by the stockholders) by a vote of at least two-thirds ( ²/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

2

(iv) Sale of Assets: The Company sells to a third party all or substantially all of its assets.

Notwithstanding anything in this Plan to the contrary, in no event shall the conversion of the Bank from mutual to stock form (including without limitation, through the formation of a stock holding company) or the reorganization of the Bank into the mutual holding company form of organization constitute a “Change in Control” for purposes of this Plan.

(d) “Company” means SI Financial Group, Inc., a federally chartered corporation.

(e) “Disability” means the permanent and total inability by reason of mental or physical infirmity, or both, of an employee to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Board that it is either not possible to determine if or when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of said employees lifetime.

(f) “Effective Date” means August 18, 2004.

(g) “Employer” means (i) the Bank, (ii) the Company, or (iii) any subsidiary of the Bank or the Company that adopts the Plan.

(h) “ERISA” means Employee Retirement Income Security Act of 1974, as amended.

(i) “Participant” means an employee of an employer who meets the eligibility requirements of Article III.

(j) “Termination for Cause” shall include termination because of a Participant’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or violation of any final cease-and desist order, or material breach of any provision of the plan. In determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the savings institutions industry.

(k) “Leave of Absence” and “LOA” mean (i) the taking of an authorized or approved leave of absence under the provisions of the federal Family and Medical Leave Act (“FMLA”), (ii) any state law providing qualitatively similar benefits as the FMLA, or (iii) a leave of absence authorized under the policies of the Bank. “Leave of Absence” and “LOA” are defined in this paragraph for the exclusive purposes of this Plan.

(l) “Plan” means this Savings Institute Bank and Trust Company Employee Severance Compensation Plan, as amended and restated.

3

(m) “Year of Service” means each consecutive 12 month period, beginning with an employee’s date of hire and running without a termination of employment in which an employee is credited with at least one hour of service in each of the 12 calendar months in such period. The taking of an LOA shall not eliminate a period of time from being a Year of Service if such period of time otherwise qualifies as such. Further if a particular 12 month period of time would not otherwise qualify under the Plan as a Year of Service because one hour of service is not credited during each month of such period due to the taking of a LOA, then such period of time shall be deemed to be a Year of Service for all other sections of this Plan.

2.2 Applicable Law

The laws of the State of Connecticut shall be the controlling law in all matters relating to the Plan to the extent not preempted by Federal law.

2.3 Severability

If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

ARTICLE III

ELIGIBILITY

3.1 Participation

All employees of the Employer who have completed at least one (1) Year of Service with the Employer at the time of any termination pursuant to Section 4.2 of this Plan are eligible to participate in the Plan. Notwithstanding the foregoing, persons who have entered into and continue to be covered by an employment agreement with the Employer shall not be entitled to participate in this Plan.

3.2 Duration of Participation

A Participant shall cease to be a Participant in the Plan when the Participant ceases to be an employee of an Employer, unless such Participant is entitled to benefits under the Plan. A Participant entitled to benefits under the Plan shall remain a Participant in this Plan until he has received full payment of his Plan benefits.

4

ARTICLE IV

BENEFITS

4.1 Right to Benefits

A Participant shall be entitled to receive from his respective Employer a severance benefit in the amount provided in Section 4.3 of the Plan if there has been a Change in Control of the Bank or the Company and if, within twenty-four (24) months thereafter, the Participant’s employment by an Employer shall terminate for any reason specified in Section 4.2 of the Plan, whether the termination of employment is voluntary or involuntary. A Participant shall not be entitled to a benefit if termination occurs by reason of death, voluntary retirement, voluntary termination other than for reasons specified in Section 4.2 of the Plan, Disability, or as a result of Termination for Cause.

4.2 Reasons for Termination

Following a Change in Control, a Participant shall be entitled to a benefit if employment by an Employer is terminated, voluntarily or involuntarily, for any one or more of the following reasons:

(a) The Employer reduces the Participant’s base salary or rate of compensation as in effect immediately prior to the Change in Control.

(b) The Employer materially changes the Participant’s function, duties or responsibilities which would cause the Participant’s position to be one of lesser responsibility, importance or scope with the Employer than immediately prior to the change in control.

(c) The Employer requires the Participant to change the location of the Participant’s job or office, so that such Participant will be based at a location more than twenty-five (25) miles from the location of the Participant’s job or office immediately prior to the Change in Control provided that such new location is not closer to the Participant’s home.

(d) The Employer materially reduces the benefits and perquisites available to the Participant immediately prior to the Change in Control, provided, however, that a material reduction in benefits and perquisites generally provided to all Employees of the Employer on a nondiscriminatory basis would not trigger a payment pursuant to this Plan.

(e) A successor to the Bank fails or refuses to assume the Employer’s obligations under this Plan, as required by Article VII.

(f) The Bank or any successor to the Bank breaches any other provisions of this Plan.

(g) The Employer terminates the employment of a Participant at or after a Change in Control other than for Termination for Cause.

5

4.3 Amount of Benefit

(a) Each Participant entitled to a benefit under this Plan shall receive from the Bank, a lump sum cash payment equal to one-twelfth of his Annual Compensation for each Year of Service up to a maximum of twenty-four (24) months of service.

(b) Notwithstanding the provisions of paragraph (a) above, if a benefit to a Participant who is a “Disqualified Individual” shall be in an amount which includes an “Excess Parachute Payment,” the benefit hereunder to that Participant shall be reduced to the maximum amount which does not include an Excess Parachute Payment. The terms “Disqualified Individual” and “Excess Parachute Payment” shall have the same meanings as under Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision thereto.

Participants shall not be required to mitigate damages on the amount of the benefit by seeking other employment or otherwise, nor shall the amount of such benefit be reduced by any compensation earned by a Participant as a result of employment after termination of employment hereunder.

4.4 Time of Payment of Benefit

The benefit to which a Participant is entitled shall be paid to the Participant by the Employer or the successor to the Employer, in cash and in full, not later than twenty (20) business days after the termination of the Participant’s employment. If any Participant should die after termination of the employment but before all amounts have been paid, such unpaid amounts shall be paid to the Participant’s named beneficiary, if living, otherwise to the personal representative on behalf of or for the benefit of the Participant’s estate.

ARTICLE V

OTHER RIGHTS AND BENEFITS NOT AFFECTED

5.1 Other Benefits

Neither the provisions of this Plan nor the benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Participant’s rights as an Employee of an Employer, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock ownership or any employment agreement or other plan or arrangement.

5.2 Employment Status

This Plan does not constitute a contract of employment or impose on the Participant or the Participant’s Employer any obligation to retain the Participant as an Employee, to change the status of the Participant’s employment, or to change the Employer’s policies regarding termination of employment.

6

ARTICLE VI

PARTICIPATING EMPLOYERS

6.1 Upon approval by the Board of Directors of the Bank, this Plan may be adopted by any “Subsidiary” or “Parent” of the Bank. Upon such adoption, the Subsidiary or Parent shall become an Employer hereunder and the provisions of the Plan shall be fully applicable to the Employees of that Subsidiary or Parent. The term “Subsidiary” means any corporation in which the Bank, directly or indirectly, holds a majority of the voting power of its outstanding shares of capital stock. The term “Parent” means any corporation which holds a majority of the voting power of the Bank’s outstanding shares of capital stock.

ARTICLE VII

SUCCESSOR TO THE BANK

7.1 The Employer shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Employer, expressly and unconditionally to assume and agree to perform the Employer’s obligations under this plan, in the same manner and to the same extent that the Employer would be required to perform if no such succession or assignment had taken place.

ARTICLE VIII

DURATION, AMENDMENT AND TERMINATION

8.1 Duration

If a Change in Control has not occurred, this Plan shall expire ten (10) years from the Effective Date, unless sooner terminated as provided in Section 8.2 of the Plan, or unless extended for an additional period or periods by resolution adopted by the Board of Directors of the Bank.

Notwithstanding the foregoing, if a Change in Control occurs this Plan shall continue in full force and effect, and shall not terminate or expire until such date as all Participants who become entitled to benefits hereunder shall have received such benefits in full.

8.2 Amendment and Termination

The Plan may be terminated or amended in any respect by resolution adopted by a majority of the Board of Directors of the Bank, unless a Change in Control has previously occurred. If a Change in Control occurs, the Plan no longer shall be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever.

7

8.3 Form of Amendment

The form of any proper amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Bank, certifying that the amendment or termination has been approved by the Board of Directors. A proper amendment of the Plan automatically shall effect a corresponding amendment to each Participant’s rights hereunder. A proper termination of the Plan automatically shall effect a termination of all Participants’ rights and benefits hereunder.

8.4 No Attachment

(a) Except as required by law, no right to receive payments under this Plan shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect such action shall be null, void, and of no effect.

(b) This Plan shall be binding upon, and inure to the benefit of, Employee and the Bank and their respective successors and assigns.

ARTICLE IX

LEGAL FEES AND EXPENSES

9.1 All reasonable legal fees and other expenses paid or incurred by a party hereto pursuant to any dispute or question of interpretation relating to this Plan shall be paid or reimbursed by the non-prevailing party in any legal judgment, arbitration or settlement.

ARTICLE X

REQUIRED PROVISIONS

10.1 The Employer may terminate an Employee’s employment at any time, but any termination by the Employer, other than Termination for Cause, shall not prejudice the Employee’s right to compensation or other benefits under this Plan. Employee shall not have the right to receive compensation or other benefits for any period after Termination for Cause as otherwise provided hereunder.

10.2 If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(3) or (g)(1), the Bank’s obligations under this contract shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while their contract obligations were suspended and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

8

10.3 If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(x)(1), all obligations of the Bank under this contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

10.5 All obligations under the Plan shall be terminated, except to the extent determined that continuation of the Plan is necessary for the continued operation of the Bank:

(a) by the Director or his designee, at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the Federal Deposit Insurance Act; or

(b) by the Director or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.

Any rights of the parties that have already vested, however, shall not be affected by such action.

10.6 Any payments made to a Participant pursuant to this Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and any regulations promulgated thereunder.

ARTICLE XI

ADMINISTRATIVE PROVISIONS

11.1 Plan Administrator The administrator of the Plan shall be under the supervision of the Board of Directors of the Bank or a Committee appointed by the Board of Directors of the Bank (the “Board”). It shall be a principal duty of the Board to see that the Plan is carried out in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan without discrimination among them. The Board will have full power to administer the Plan in all of its details subject, however, to the requirements of ERISA if the Plan is subject to such requirements. For this purpose, the Board’s powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (a) to make and enforce such rules and regulations as it

9

deems necessary or proper for the efficient administration of the Plan; (b) to interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; (c) to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) to compute the amount of benefits that will be payable to any Participant or other person in accordance with the provisions of the Plan, and to determine the person or persons to whom such benefits will be paid; (e) to authorize the payment of benefits; (f) to appoint such agents, counsel, accountants, consultants and actuaries as may be required to assist in administering the Plan; and (g) to allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be by written instrument and in accordance with Section 405 of ERISA if applicable.

11.2 Named fiduciary The Board will be a “named fiduciary” for purposes of Section 402(a)(1) of ERISA with authority to control and manage the operation and administration of the Plan, and will be responsible for complying with all, if any, of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA.

11.3 Claims and review procedures

(a) Claims procedure If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Board. If any such claim is wholly or partially denied, the Board will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Board (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90 day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his claim.

(b) Review procedure Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) such person (or his duly authorized representative) may (i) file a written request with the Board for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Board. The Board will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Board (or within 120 days, if special circumstances require an

10

extension of time for processing the requests such as an election by the Board to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60 day period). If the decision on review is not made within such period, the claim will be considered denied.

11.4 Nondiscriminatory exercise of authority Whenever, in the administration of the Plan, any discretionary action by the Board is required, the Board shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment.

11.5 Indemnification of Board The Bank will indemnify and defend to the fullest extent permitted by law any person serving on the Board or as a member of a committee designated as Board (including any person who formerly served as a Board member or as a member of such committee) against all liabilities, damages, costs and expenses (including attorneys fees and amounts paid in settlement of any claims approved by the Bank) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith.

11.6 Benefits solely from general assets The benefits provided hereunder will be paid solely from the general assets of the Employer. Nothing herein will be construed to require the Employer or the Board to maintain any fund or segregate any amount for the benefit of any Participant, and no Participant or other person shall have any claim against, right to, or security or other interest in, any fund, account or asset of the Employer from which any payment of benefits under the Plan may be made.

ARTICLE XII

SECTION 409A OF THE INTERNAL REVENUE CODE

12.1 Section 409A of the Internal Revenue Code

If when termination of employment occurs an employee is a “specified employee” (within the meaning of Section 409A of the Code), and if the cash severance payment under Article IV of this Plan would be considered deferred compensation under Section 409A of the Code, and, finally, if an exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i) of the Code is not available, the employee’s severance benefit shall be paid to the employee in a single lump sum, without interest, on the first payroll date of the seventh month after the month in which the employee’s employment terminates, provided the termination of employment constitutes a “separation from service” under Section 409A of the Code. References in this Plan to Section 409A of the Code include rules, regulations, and guidance of general application issued by the Department of the Treasury under Section 409A of the Code.

11

This Plan was originally adopted by the Board of Directors of the Bank on August 18, 2004, and is hereby amended and restated in its entirety as of December 17, 2008.

12