Employee Pension and Other Postretirement Benefits

Retirement Plan

The Company maintains the Union Bank Retirement Plan (the Pension Plan), which is a noncontributory qualified defined benefit pension plan covering substantially all of the domestic employees of the Company. The Pension Plan provides retirement benefits based on years of credited service and the final average compensation amount, as defined in the Pension Plan. Employees become eligible for the Pension Plan after 1 year of service. Effective October 1, 2012, the Company established a new cash balance formula for all future eligible employees; such participants receive annual pay credits based on eligible pay multiplied by a percentage determined by their age and years of service, and also receive an annual interest credit based on 30-year Treasury bond yields. All participants become vested upon completing 3 years of vesting service.

In April 2014, the Company amended the Pension Plan to transition the majority of participants to the cash balance formula for benefits earned after December 31, 2014. Benefits earned under a final average pay formula became fixed as of that date for such participants. The cash balance formula provides the same benefits that apply to all eligible employees hired after October 1, 2012.

Effective July 1, 2014, the U.S. branch banking operations of BTMU were integrated under the Bank's operations. The Company assumed the service cost associated with employees of BTMU’s banking operations in the Americas who became employees of the Bank. These employees became eligible to participate in the Pension Plan on January 1, 2015.

The Company's funding policy is to make contributions between the minimum required and the maximum deductible amount as allowed by the Internal Revenue Code. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future.

As of January 1, 2015, the Company's Pension Plan was amended and restated as the MUFG Union Bank, N.A. Retirement Plan.

Other Postretirement Benefits

The Company maintains the Union Bank Health Benefit Plan and the Union Bank Employee Insurance Plan, which are qualified plans providing certain healthcare benefits for its retired employees and life insurance benefits for those employees who retired prior to January 1, 2001, which together are presented as "Other Benefits Plan." The healthcare cost is shared between the Company and the retiree. The life insurance plan is noncontributory. The accounting for the Other Benefits Plan anticipates future cost-sharing changes that are consistent with the Company's intent to maintain a level of cost-sharing at approximately 25% to 50%, depending on the retiree's age and length of service with the Company. Assets set aside to cover such obligations are primarily invested in mutual funds and insurance contracts. The Union Bank Health Benefit Plan was also amended in April 2014 to discontinue the availability of retiree health benefits for the majority of employees.

As of January 1, 2015, the Union Bank Health Benefit Plan and the Union Bank Employee Insurance Plan were amended and restated as the MUFG Union Bank, N.A. Health Benefit Plan and MUFG Union Bank, N.A. Employee Insurance Plan, respectively.

The following table sets forth the fair value of the assets in the Company's Pension Plan and Other Benefits Plan as of December 31, 2015 and 2014.



	Pension Plan						Other Benefits Plan
	Years Ended December 31,						Years Ended December 31,
(Dollars in millions)	2015			2014			2015			2014
Change in plan assets:
Fair value of plan assets, beginning of year	$	2,897		$	2,716		$	257		$	245
Actual return on plan assets	13			164			(2		)	14
Employer contributions	175			100			16			13
Plan participants' contributions	—			—			7			7
Benefits paid	(93		)	(83		)	(24		)	(22		)
Fair value of plan assets, end of year	$	2,992		$	2,897		$	254		$	257

The investment objective for the Company's Pension Plan and Other Benefits Plan, collectively the Plans, is to maximize total return within reasonable and prudent levels of risk. The Plans' asset allocation strategy is the principal determinant in achieving expected investment returns on the Plans' assets. The Pension Plan asset allocation strategy favors equities, with a target allocation of 63% in equity securities, 25% in debt securities, and 12% in real estate investments. Similarly, the Other Benefits Plan asset allocation strategy favors equities with a target allocation of 70% in equity securities and 30% in debt securities. Additionally, the Other Benefits Plan holds an investment in an insurance contract with Hartford Life that is separate from the target allocation. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. If market fluctuations cause an asset class to fall outside of its strategic asset allocation range, the portfolio will be re-balanced as appropriate. A core equity position of domestic large cap and small cap stocks will be maintained, in conjunction with a diversified portfolio of international equities and fixed income securities. Plan asset performance is compared against established indices and peer groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.

The Company periodically reviews the Plans' strategic asset allocation policy and the expected long-term rate of return for plan assets. The investment return volatility of different asset classes and the liability structure of the plans are evaluated to determine whether adjustments are required to the Plans' strategic asset allocation policy, taking into account the principles established in the Company's funding policy. Management periodically reviews and adjusts the long-term rate of return on assets assumption for the Plans based on the expected long-term rate of return for the asset classes and their weightings in the Plans' strategic asset allocation policy and taking into account the prevailing economic and regulatory climate and practices of other companies both within and outside our industry.

The following table provides the fair value by level within the fair value hierarchy of the Company's period-end assets by major asset category for the Pension Plan and Other Benefits Plan. For information about the fair value hierarchy levels, refer to Note 10 to these consolidated financial statements. The Plans do not hold any equity or debt securities issued by the Company or any related parties.



	December 31, 2015
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Cash and cash equivalents	$	3	$	36	$	—	$	39
U.S. government securities	—		248		—		248
Corporate bonds	—		476		—		476
Equity securities	284		9		—		293
Real estate funds	—		—		310		310
Limited partnerships	—		152		28		180
Mutual funds	1,435		—		—		1,435
Other	4		20		—		24
Total plan investments	$	1,726	$	941	$	338	$	3,005
Accrued dividends and interest receivable							6
Net pending trades							(19		)
Total plan assets							$	2,992



	December 31, 2014
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Cash and cash equivalents	$	1	$	52	$	—	$	53
U.S. government securities	—		251		—		251
Corporate bonds	—		442		—		442
Equity securities	295		6		—		301
Real estate funds	—		—		270		270
Limited partnerships	—		138		28		166
Mutual funds	1,422		—		—		1,422
Other	6		23		—		29
Total plan investments	$	1,724	$	912	$	298	$	2,934
Accrued dividends and interest receivable							7
Net pending trades							(44		)
Total plan assets							$	2,897



	Level 3 Assets for Year Ended December 31, 2015
(Dollars in millions)	Real Estate Funds		Limited Partnership			Total
Beginning balance—January 1, 2015	$	270	$	28		$	298
Unrealized gains (losses)	31		4			35
Purchases, issuances, sales, and settlements, net	9		(4		)	5
Ending balance—December 31, 2015	$	310	$	28		$	338



	Level 3 Assets for Year Ended December 31, 2014
(Dollars in millions)	Real Estate Funds		Limited Partnership		Total
Beginning balance—January 1, 2014	$	242	$	22	$	264
Unrealized gains (losses)	21		5		26
Purchases, issuances, sales, and settlements, net	7		1		8
Ending balance—December 31, 2014	$	270	$	28	$	298



	December 31, 2015
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Other Postretirement Benefits Plan Investments:
Cash and cash equivalents	$	—	$	3	—		$	3
U.S. government securities	—		34		—		34
Corporate bonds	—		24		—		24
Municipal bonds	—		1		—		1
Equity securities	—		1		—		1
Mutual funds	134		—		—		134
Pooled separate account	—		62		—		62
Total plan investments	$	134	$	125	$	—	$	259
Net pending trades							(5		)
Total plan assets							$	254



	December 31, 2014
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Other Postretirement Benefits Plan Investments:
Cash and cash equivalents	$	—	$	3	$	—	$	3
U.S. government securities	—		36		—		36
Corporate bonds	—		23		—		23
Municipal bonds	—		1		—		1
Mutual funds	136		—		—		136
Pooled separate account	—		65		—		65
Total plan investments	$	136	$	128	$	—	$	264
Net pending trades							(7		)
Total plan assets							$	257

A description of the valuation methodologies used to determine the fair value of the Plans' assets included within the tables above is as follows:

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments of government securities and other debt securities with remaining maturities of less than three months. These short-term investments are classified as Level 2 measurements based on unadjusted prices for similar securities in an active market.

U.S. Government Securities

U.S. Treasury securities are fixed income securities that are debt instruments issued by the United States Department of the Treasury. These securities are classified as Level 2 measurements based on valuations provided by a third-party pricing provider using quoted market prices in an active market for similar securities.

U.S. agency mortgage-backed securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. These securities are classified as Level 2 measurements based on valuations provided by a third-party pricing provider using quoted market prices in an active market for similar securities.

Corporate Bonds

Corporate bonds are fixed income securities in investment-grade bonds of U.S. issuers from diverse industries. These securities are classified as Level 2 based on valuations provided by a third-party pricing provider using quoted market prices in an active market for similar securities.

Equity Securities

Equity securities are comprised of common stock and preferred securities. The fair value of common stock is recorded based on quoted market prices obtained from an exchange. These securities are classified as Level 1 measurements based on unadjusted prices for identical instruments in active markets. The fair value of preferred securities is based on discounted cash flow models. These securities are classified as Level 2 measurements based on valuations provided by a third-party pricing provider using observable market data.

Real Estate Funds

Real estate funds invest in real estate property with a focus on apartment complexes and retail shopping centers. The valuations of these investments require significant judgment due to the absence of quoted market prices, lack of liquidity and the scarcity of observable sales of similar assets. The values are estimated by adjusting the previous quarter's net asset value for the current quarter's income and depreciation. These funds are classified as Level 3 measurements due to the use of significant unobservable inputs and judgment to estimate fair value.

Limited Partnerships

Limited partnerships invest in equity securities of diverse foreign companies in developed markets across diverse industries. Limited partnerships are valued using the net asset value of the partnership at the end of the period. These partnerships are classified as Level 2 measurements due to the use of quoted market prices of the underlying securities in actively traded markets as the primary input to derive the net asset value.

Limited partnerships also invest in real estate properties. These partnerships' value is estimated by adjusting the previous quarter's net asset value for the current quarter's income and depreciation. These partnerships are classified as Level 3 measurements due to the use of significant unobservable inputs and judgment to estimate fair value.

Mutual Funds

Mutual funds invest in equity securities that seek to track the performance of the S&P 500, S&P Completion and the EAFE® indexes. These funds are valued using an exchange traded net asset value at the end of the period. These mutual funds are classified as Level 1 measurements based on unadjusted quoted prices for identical instruments in active markets.

Pooled Separate Account

The pooled separate account is an investment with Hartford Life Company. The investment consists of four funds that mainly invest in U.S. agency guaranteed mortgage-backed securities, investment-grade bonds of U.S. issuers from diverse industries, and exchange traded equity securities of U.S. and foreign companies. These funds are valued using quoted market prices of the funds' underlying investments to derive the funds' net asset value at the end of the period. This investment is classified as a Level 2 measurement due to the use of quoted market prices of similar securities in actively traded markets as the primary input to derive the net asset value.

The following table sets forth the benefit obligation activity and the funded status for each of the Company's plans at December 31, 2015 and 2014. In addition, the table sets forth the over (under) funded status at December 31, 2015 and 2014. This pension benefits table does not include the obligations for the ESBPs.



	Pension Benefits						Other Benefits
	Years Ended December 31,						Years Ended December 31,
(Dollars in millions)	2015			2014			2015			2014
Accumulated benefit obligation	$	2,679		$	2,717
Change in benefit obligation
Benefit obligation, beginning of year	$	2,817		$	2,263		$	290		$	270
Service cost	96			75			10			10
Interest cost	110			105			12			11
Plan participants' contributions	—			—			7			7
Actuarial loss/(gain)	(114		)	607			10			42
Effect of plan amendments	—			(150		)	—			(29		)
Medicare Part D subsidy	—			—			—			1
Benefits paid	(93		)	(83		)	(24		)	(22		)
Benefit obligation, end of year	2,816			2,817			305			290
Fair value of plan assets, end of year	2,992			2,897			254			257
Over (Under) funded status	$	176		$	80		$	(51	)	$	(33	)

The following table illustrates the changes that were reflected in AOCI during 2015, 2014 and 2013. Pension benefits do not include the ESBPs.



	Pension Benefits						Other Benefits
(Dollars in millions)	Net Actuarial (Gain) Loss			Prior Service Credit			Net Actuarial (Gain) Loss			Prior Service Credit
Amounts Recognized in Other Comprehensive Loss:
Balance, December 31, 2012	$	1,042		$	—		$	80		$	—
Arising during the year	(468		)	—			(56		)	—
Recognized in net income during the year	(107		)	—			(7		)	—
Balance, December 31, 2013	$	467		$	—		$	17		$	—
Arising during the year	636			(150		)	46			(28		)
Recognized in net income during the year	(59		)	12			(1		)	5
Balance, December 31, 2014	$	1,044		$	(138	)	$	62		$	(23	)
Arising during the year	89			—			32			—
Recognized in net income during the year	(106		)	17			(12		)	8
Balance, December 31, 2015	$	1,027		$	(121	)	$	82		$	(15	)

At December 31, 2015 and 2014, the following amounts were recognized in accumulated other comprehensive loss for pension, including ESBPs, and other benefits.



	December 31, 2015
	Pension Benefits									Other Benefits
(Dollars in millions)	Gross			Tax			Net of Tax			Gross			Tax			Net of Tax
Net actuarial loss	$	1,027		$	404		$	623		$	82		$	33		$	49
Prior service credit	(121		)	(47		)	(74		)	(15		)	(6		)	(9		)
Pension and other benefits adjustment	906			357			549			67			27			40
Executive Supplemental Benefits Plans
Net actuarial loss	39			15			24			—			—			—
Prior service credit	(2		)	(1		)	(1		)	—			—			—
Executive supplemental benefits plans adjustment	37			14			23			—			—			—
Pension and other benefits adjustment	$	943		$	371		$	572		$	67		$	27		$	40



	December 31, 2014
	Pension Benefits									Other Benefits
(Dollars in millions)	Gross			Tax			Net of Tax			Gross			Tax			Net of Tax
Net actuarial loss	$	1,044		$	411		$	633		$	62		$	25		$	37
Prior service credit	(138		)	(54		)	(84		)	(23		)	(9		)	(14		)
Pension and other benefits adjustment	906			357			549			39			16			23
Executive Supplemental Benefits Plans
Net actuarial loss	39			15			24			—			—			—
Prior service credit	(2		)	(1		)	(1		)	—			—			—
Executive supplemental benefits plans adjustment	37			14			23			—			—			—
Pension and other benefits adjustment	$	943		$	371		$	572		$	39		$	16		$	23

Pension Benefits

Our net actuarial pre-tax losses were unchanged in 2015 from 2014. At December 31, 2015, the net actuarial loss totaled $906 million, which included $1.0 billion of net actuarial loss separated between a non-amortizing amount of $392 million and a $635 million amount subject to amortization over approximately nine years. The non-amortizing amount included $85 million representing the excess of the market value of plan assets over the fair value of plan assets, which is recognized separately through the asset smoothing method over four years. Additionally, the actuarial loss is partially offset by $121 million in prior service credit that is being amortized over 8.46 years. The cumulative net actuarial loss resulted primarily from differences between expected and actual rate of return on plan assets and the discount rate. Included in our 2016 net periodic pension cost will be $76 million of amortization related to net actuarial losses. We estimate that our total 2016 net periodic pension cost will be approximately $17 million, assuming $150 million of contributions in 2016. Additionally, beginning in 2016, management decided to change the use of the discount rate for determining the service and interest cost components of net periodic cost using individual spot rates versus the average single rate for determining the projected benefit obligation. The primary reasons for the decrease in net periodic pension cost for 2016 compared to $79 million in 2015 are lower amortization of actuarial losses and higher expected return on plan assets due to increased assets. The 2016 estimate for net periodic pension cost was actuarially determined using the individual spot rates of 4.15% for service cost and 3.72% for interest cost, an expected return on plan assets of 7.5% and an expected compensation increase assumption of 4.7%.

A 50 basis point increase in the discount rate or in the expected return on plan assets would decrease the 2016 periodic pension cost by $19 million and $16 million, respectively, while a 50 basis point increase in the rate of future compensation levels would increase the 2016 periodic pension cost by $2 million. A 50 basis point decrease in the discount rate or in the expected return on plan assets would increase the 2016 periodic pension cost by $21 million and $16 million, respectively, while a 50 basis point decrease in the rate of future compensation levels would decrease the 2016 periodic pension cost by $2 million.

Estimated Future Benefit Payments and Subsidies

The following pension and postretirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next 10 years and Medicare Part D Subsidies are expected to be received over the next 10 years. This table does not include the ESBPs.



(Dollars in millions)	Pension Benefits		Postretirement Benefits		Medicare Part D Subsidies
Years ending December 31,
2016	$	110	$	18	$	1
2017	126		19		1
2018	136		20		1
2019	145		21		1
2020	153		22		1
Years 2021 - 2025	905		117		7

The following tables summarize the weighted average assumptions used in computing the present value of the benefit obligations and the net periodic benefit cost.



	Pension Benefits			Other Benefits
	Years Ended December 31,			Years Ended December 31,
	2015	2014		2015	2014
Discount rate in determining net periodic benefit cost prior to Plan amendments	n/a	4.90	%	n/a	4.60	%
Discount rate in determining net periodic benefit cost after Plan amendments	3.90	4.50		3.80	4.20
Discount rate in determining benefit obligations at year end	4.29	3.90		4.11	3.80
Rate of increase in future compensation levels for determining net periodic benefit cost	4.70	4.70		n/a	n/a
Rate of increase in future compensation levels for determining benefit obligations at year end	4.70	4.70		n/a	n/a
Expected return on plan assets	7.50	7.50		7.50	7.50



	Pension Benefits									Other Benefits									Superannuation, SERP and ESBP
	Years Ended December 31,									Years Ended December 31,									Years Ended December 31,
(Dollars in millions)	2015			2014			2013			2015			2014			2013			2015		2014		2013
Components of net periodic benefit cost:
Service cost ⁽¹⁾	$	96		$	81		$	87		$	10		$	10		$	14		$	1	$	1	$	1
Interest cost	110			105			99			12			11			11			2		4		3
Expected return on plan assets	(216		)	(193		)	(166		)	(19		)	(18		)	(15		)	—		—		—
Amortization of prior service credit	(17		)	(12		)	—			(8		)	(5		)	—			—		—		—
Recognized net actuarial loss	106			59			107			12			1			7			3		2		2
Total net periodic benefit cost	$	79		$	40		$	127		$	7		$	(1	)	$	17		$	6	$	7	$	6


(1)	Pension Benefits for 2014 includes $6 million of service cost associated with transferred employees as a result of the business integration initiative.

At December 31, 2015 and 2014, the following amounts were forecasted to be recognized in 2016 and 2015 net periodic benefit costs, respectively.



	Years Ended December 31,
	2016						2015
(Dollars in millions)	Pension Benefits			Other Benefits			Pension Benefits			Other Benefits
Net actuarial loss	$	76		$	10		$	109		$	5
Prior service credit	(18		)	(8		)	(18		)	(8		)
Amounts to be reclassified from accumulated other comprehensive loss	$	58		$	2		$	91		$	(3	)

The Company's assumed weighted-average healthcare cost trend rates are as follows.



	Years Ended December 31,
	2015		2014		2013
Healthcare cost trend rate assumed for next year	6.29	%	7.53	%	7.71	%
Rate to which cost trend rate is assumed to decline (the ultimate trend rate)	4.50	%	4.50	%	4.50	%
Year the rate reaches the ultimate trend rate	2026		2021		2021

The healthcare cost trend rate assumptions have a significant effect on the amounts reported for the Health Plan. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:



(Dollars in millions)	One-Percentage- Point Increase		One-Percentage- Point Decrease
Effect on total of service and interest cost components	$	1	$	(2	)
Effect on postretirement benefit obligation	23		(26		)

Executive Supplemental Benefit Plans

The Company has several ESBPs, which provide eligible employees with supplemental retirement benefits. The plans are nonqualified defined benefit plans and unfunded. The accrued liability for ESBPs included in other liabilities on the Company's consolidated balance sheets was $101 million and $98 million at December 31, 2015 and 2014, respectively.

Section 401(k) Savings Plans

The Company has a defined contribution plan authorized under Section 401(k) of the Internal Revenue Code. All benefits-eligible employees are eligible to participate in the plan. Employees may contribute up to 75% of their pre-tax covered compensation or up to 10% of their after-tax covered compensation through salary deductions to a combined maximum of 75% of total covered compensation, subject to statutory limits. Effective January 1, 2014, the Company contributes 100% of every pre-tax dollar an employee contributes up to the first 3% of the employee's pre-tax covered compensation and 50% of every pre-tax dollar an employee contributes on the next 2% of the employee's pre-tax covered compensation, for a maximum matching opportunity of 4%. Employees are fully vested in the Company's matching contributions immediately. All employer contributions are tax deductible by the Company. The Company's combined matching contribution expense was $47 million, $37 million and $32 million for the years ended December 31, 2015, 2014 and 2013, respectively.