Employee Pension and Other Postretirement Benefits

Retirement Plan

The Company maintains the MUFG Union Bank, N.A. 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 one 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 three years of vesting service.

In April 2014, the Company announced an amendment to the Pension Plan to transition the majority of participants to the cash balance formula for benefits earned after December 31, 2014. In October 2016, the Company announced an amendment to the Pension Plan such that all participants earn benefits under the cash balance formula effective January 1, 2017. Benefits earned under a final average pay formula became fixed as of the applicable transition dates 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.

Other Postretirement Benefits

The Company maintains the MUFG Union Bank, N.A. Health Benefit Plan (the Health Plan) and the MUFG Union Bank, N.A. Employee Insurance Plan (the Insurance Plan), which provide certain healthcare benefits for its eligible retired employees and life insurance benefits for those eligible employees who retired prior to January 1, 2001. In August 2016 the Company announced an amendment to the Health Plan to provide that effective January 1, 2017, Medicare-eligible post-65 retired employees and dependents do not participate. The Company established the MUFG Union Bank, N.A. Retiree Health Reimbursement Plan (the HRA Plan) effective January 1, 2017 under which eligible post 65-retirees receive Company-provided financial support to purchase individual health coverage through a Health Reimbursement Account (HRA) under the HRA Plan. Annual HRA allocations provided under the HRA Plan are based on the cost sharing in the Health Plan and are designed to keep pace with medical inflation. Costs under the Health Plan are shared between the Company and the retiree at a level of approximately 25% to 50%, depending on the retiree's age and length of service with the Company. The Insurance Plan is noncontributory. Together, the Health Plan, Insurance Plan and HRA Plan are presented as "Other Benefits Plan." The accounting for the Other Benefits Plan anticipates future cost-sharing changes described above that are consistent with the Company's intent. Assets set aside to cover such obligations are primarily invested in mutual funds and insurance contracts. In April 2014 the Health Benefit Plan was amended to discontinue the availability of retiree health benefits for the majority of employees.

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, 2016 and 2015.



	Pension Plan						Other Benefits Plan
	Years Ended December 31,						Years Ended December 31,
(Dollars in millions)	2016			2015			2016			2015
Change in plan assets:
Fair value of plan assets, beginning of year	$	2,992		$	2,897		$	254		$	257
Actual return on plan assets	221			13			17			(2		)
Employer contributions	150			175			9			16
Plan participants' contributions	—			—			8			7
Benefits paid	(109		)	(93		)	(28		)	(24		)
Fair value of plan assets, end of year	$	3,254		$	2,992		$	260		$	254

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 Insurance Company, the cash value of which is invested in alignment with 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 indexes 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 12 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, 2016
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Cash and cash equivalents	$	—	$	9	$	—	$	9
U.S. government securities	—		219		—		219
Fixed and variable income securities	—		476		—		476
Equity securities	333		6		—		339
Mutual funds	685		—		—		685
Municipal bonds	—		22		—		22
Other	2		11		—		13
Total investments in the fair value hierarchy	$	1,020	$	743	$	—	$	1,763
Investments measured at net asset value ⁽¹⁾							1,493
Investments at fair value							3,256
Accrued dividends and interest receivable							7
Net pending trades							(9		)
Total plan assets							$	3,254


(1)	In accordance with ASU No. 2015-07, investments in which fair value was measured based on net asset value per share (or its equivalent) using the practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to total plan assets.



	December 31, 2015
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Cash and cash equivalents	$	3	$	16	$	—	$	19
U.S. government securities	—		248		—		248
Fixed and variable income securities	—		476		—		476
Equity securities	284		9		—		293
Mutual funds	1,435		—		—		1,435
Municipal bonds	—		7		—		7
Other	4		13		—		17
Total investments in the fair value hierarchy	$	1,726	$	769	$	—	$	2,495
Investments measured at net asset value ⁽¹⁾							510
Investments at fair value							3,005
Accrued dividends and interest receivable							6
Net pending trades							(19		)
Total plan assets							$	2,992


(1)	In accordance with ASU No. 2015-07, investments in which fair value was measured based on net asset value per share (or its equivalent) using the practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to total plan assets.



	December 31, 2016
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Other Postretirement Benefits Plan Investments:
U.S. government securities	$	—	$	40	$	—	$	40
Fixed and variable income securities	—		26		—		26
Mutual funds	128		—		—		128
Total investments in the fair value hierarchy	$	128	$	66	$	—	$	194
Investments measured at net asset value ⁽¹⁾							72
Investments at fair value							266
Net pending trades							(6		)
Total plan assets							$	260


(1)	In accordance with ASU No. 2015-07, investments in which fair value was measured based on net asset value per share (or its equivalent) using the practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to total plan assets.



	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
Fixed and variable income securities	—		24		—		24
Municipal bonds	—		1		—		1
Equity securities	—		1		—		1
Mutual funds	134		—		—		134
Total investments in the fair value hierarchy	$	134	$	63	$	—	$	197
Investments measured at net asset value ⁽¹⁾							62
Investments at fair value							259
Net pending trades							(5		)
Total plan assets							$	254


(1)	In accordance with ASU No. 2015-07, investments in which fair value was measured based on net asset value per share (or its equivalent) using the practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to total plan assets.

The following tables as of December 31, 2016 and 2015 present the Company's Pension Plan and Other Benefits Plan investments in which fair value measured using net asset value per share (or its equivalent) as a practical expedient.

December 31, 2016

(Dollars in millions)

Fair Value

Unfunded Commitment

Redemption Frequency

Other Redemption Restrictions

Redemption Notice Period

Pension Plan Investments

Domestic equity funds

936

—

Daily

None

Real estate funds

329

—

Quarterly

Availability of fund's liquid assets and approval of the board of directors

45-90 days

Real estate funds

None

Hold until dissolution; approximately five to seven years from original final closing date

None

International equity funds

173

—

Monthly

None

15 days

Money market funds

—

Immediate

None

Total

1,493

December 31, 2015

(Dollars in millions)

Fair Value

Unfunded Commitment

Redemption Frequency

Other Redemption Restrictions

Redemption Notice Period

Pension Plan Investments

Real estate funds

310

—

Quarterly

Availability of fund's liquid assets and approval of the board of directors

45-90 days

Real estate funds

None

Hold until dissolution; approximately six to eight years from original final closing date

None

International equity funds

151

—

Monthly

None

15 days

Money market funds

—

Immediate

None

Total

510

December 31, 2016

(Dollars in millions)

Fair Value

Unfunded Commitment

Redemption Frequency

Other Redemption Restrictions

Redemption Notice Period

Other Postretirement Benefits Plan Investments

Domestic equity funds

—

Daily

None

Pooled separate account - variable life insurance policies

—

Quarterly

Proof of death for death claim redemptions

7 business days

Money market funds

—

Immediate

None

Total

—

December 31, 2015

(Dollars in millions)

Fair Value

Unfunded Commitment

Redemption Frequency

Other Redemption Restrictions

Redemption Notice Period

Other Postretirement Benefits Plan Investments

Pooled separate account - variable life insurance policies

—

Quarterly

Proof of death for death claim redemptions

7 business days

Money market funds

—

Immediate

None

Total

—

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 based on unadjusted prices in active markets for similar securities. Money market funds were measured at net asset value (NAV) per share and are included in the tables above showing Plan investments that are measured using NAV per share (or its equivalent) as a practical expedient.

U.S. Government Securities

U.S. government securities include U.S. Treasury securities and U.S. agency mortgage-backed securities. U.S. Treasury securities are fixed income securities that are debt instruments issued by the United States Department of the Treasury. U.S. agency mortgage-backed securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. U.S. government are classified as Level 2 based on valuations provided by third-party pricing services using quoted market prices in active markets for similar securities.

Fixed and Variable Income Securities

Fixed and variable income securities include a variety of debt instruments, including corporate bonds, private placements and asset-backed securities. These securities are classified as Level 2 based on valuations provided by a third-party pricing services using quoted market prices in active markets 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 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 based on valuations provided by third-party pricing services 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. These investments were measured at NAV per share and are included in the tables above showing Plan investments that are measured using NAV per share (or its equivalent) as a practical expedient.

International Equity Funds

International equity funds invest in equity securities of diverse foreign companies in developed markets across diverse industries. These investments were measured at NAV per share and are included in the tables above showing Plan investments that are measured using NAV per share (or its equivalent) as a practical expedient.

Domestic Equity Funds

Domestic equity funds invest in equity securities that seek to track the performance of market indexes including the S&P 500, MSCI EAFE® and MSCI Emerging Markets. These funds are valued using NAV at the end of the period. Mutual funds are classified as Level 1 based on unadjusted prices for identical instruments in active markets. Collective investment funds are included in the tables above showing Plan investments that are measured using NAV per share (or its equivalent) as a practical expedient.

Pooled Separate Account

The pooled separate account refers to private placement, variable life insurance policies with Hartford Life Insurance Company. The cash value of the life insurance is invested in four managed divisions that seek to track the S&P 500, Russell 2000, MSCI EAFE® and Bloomberg Barclays U.S. Aggregate Bond indexes. Each division is valued using quoted market prices of its underlying investments to derive the division's NAV at the end of the period. This investment was measured at NAV per share and is included in the tables above showing Plan investments that are measured using NAV per share (or its equivalent) as a practical expedient.

The following table sets forth the benefit obligation activity and the funded status for each of the Company's plans at December 31, 2016 and 2015. In addition, the table sets forth the over (under) funded status at December 31, 2016 and 2015. This pension benefits table does not include the obligations for Executive Supplemental Benefit Plans (ESBPs).



	Pension Benefits						Other Postretirement Benefits
	Years Ended December 31,						Years Ended December 31,
(Dollars in millions)	2016			2015			2016			2015
Accumulated benefit obligation	$	2,850		$	2,679
Change in benefit obligation
Benefit obligation, beginning of year	$	2,816		$	2,817		$	305		$	290
Service cost	91			96			8			10
Interest cost	103			110			9			12
Plan participants' contributions	—			—			8			7
Actuarial loss/(gain)	117			(114		)	5			10
Effect of plan amendments	(76		)	—			(47		)	—
Medicare Part D subsidy	—			—			1			—
Benefits paid	(109		)	(93		)	(28		)	(24		)
Benefit obligation, end of year	2,942			2,816			261			305
Fair value of plan assets, end of year	3,254			2,992			260			254
Over (Under) funded status	$	312		$	176		$	(1	)	$	(51	)

The following table illustrates the changes that were reflected in AOCI during 2016, 2015 and 2014. Pension benefits do not include the ESBPs.



	Pension Benefits						Other Postretirement 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, 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	)
Arising during the year	133			(76		)	6			(47		)
Recognized in net income during the year	(75		)	18			(10		)	12
Balance, December 31, 2016	$	1,085		$	(179	)	$	78		$	(50	)

At December 31, 2016 and 2015, the following amounts were recognized in accumulated other comprehensive loss for pension, including ESBPs, and other benefits.



	December 31, 2016
	Pension Benefits									Other Postretirement Benefits
(Dollars in millions)	Gross			Tax			Net of Tax			Gross			Tax			Net of Tax
Net actuarial loss	$	1,085		$	427		$	658		$	78		$	32		$	46
Prior service credit	(179		)	(70		)	(109		)	(50		)	(20		)	(30		)
Pension and other postretirement benefits	906			357			549			28			12			16
Executive Supplemental Benefits Plans
Net actuarial loss	40			15			25			—			—			—
Prior service credit	—			—			—			—			—			—
Executive supplemental benefits plans adjustment	40			15			25			—			—			—
Pension and other postretirement benefits, as adjusted	$	946		$	372		$	574		$	28		$	12		$	16



	December 31, 2015
	Pension Benefits									Other Postretirement 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 postretirement benefits	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 postretirement benefits, as adjusted	$	943		$	371		$	572		$	67		$	27		$	40

Pension Benefits

Our net actuarial pre-tax losses were unchanged in 2016 from 2015. At December 31, 2016, the net actuarial loss totaled $906 million, which included $1.1 billion of net actuarial loss separated between a non-amortizing amount of $444 million and a $641 million amount subject to amortization over approximately nine years. The non-amortizing amount included $107 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 $179 million in prior service credit that is being amortized over 8.7 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 2017 net periodic pension cost will be $77 million of amortization related to net actuarial losses. We estimate that our total 2017 net periodic pension cost will be a credit of approximately $30 million, assuming $115 million of contributions in 2017. 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 2017 compared to $16 million in 2016 are higher expected return of plan assets due to higher assets, lower service cost and higher amortization of prior service credit. The 2017 estimate for net periodic pension cost was actuarially determined using the individual spot rates of 3.79% for service cost and 3.42% 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 2017 periodic pension cost by $19 million and $17 million, respectively, while a 50 basis point increase in the rate of future compensation levels would increase the 2017 periodic pension cost by $1 million. A 50 basis point decrease in the discount rate or in the expected return on plan assets would increase the 2017 periodic pension cost by $19 million and $17 million, respectively, while a 50 basis point decrease in the rate of future compensation levels would decrease the 2017 periodic pension cost by $1 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. This table does not include the ESBPs.



(Dollars in millions)	Pension Benefits		Postretirement Benefits
Years ending December 31,
2017	$	124	$	16
2018	139		16
2019	148		17
2020	156		18
2021	163		18
Years 2022 - 2026	961		94

Due to the adoption of the HRA Plan, the Company is not expecting to receive any Medicare part D subsidiaries after 2016.

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 Postretirement Benefits
	Years Ended December 31,				Years Ended December 31,
	2016		2015		2016		2015
Discount rate in determining net periodic benefit cost prior to Plan amendments
For service cost	n/a		n/a		4.23	%	n/a
For interest cost	n/a		n/a		3.43		n/a
Discount rate in determining net periodic benefit cost after Plan amendments
For service cost	4.13	%	3.90	%	3.22		3.80	%
For interest cost	3.72		3.90		2.43		3.80
Discount rate in determining benefit obligations at year end	3.98		4.29		3.81		4.11
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 Postretirement Benefits									ESBPs
	Years Ended December 31,									Years Ended December 31,									Years Ended December 31,
(Dollars in millions)	2016			2015			2014			2016			2015			2014			2016			2015		2014
Components of net periodic benefit cost:
Service cost ⁽¹⁾	$	91		$	96		$	81		$	8		$	10		$	10		$	2		$	1	$	1
Interest cost	103			110			105			9			12			11			2			2		4
Expected return on plan assets	(235		)	(216		)	(193		)	(19		)	(19		)	(18		)	—			—		—
Amortization of prior service credit	(18		)	(17		)	(12		)	(12		)	(8		)	(5		)	—			—		—
Recognized net actuarial loss	75			106			59			10			12			1			3			3		2
Curtailment gain	—			—			—			—			—			—			(2		)	—		—
Total net periodic benefit cost	$	16		$	79		$	40		$	(4	)	$	7		$	(1	)	$	5		$	6	$	7


(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, 2016 and 2015, the following amounts were forecasted to be recognized in 2017 and 2016 net periodic benefit cost, respectively.



	Years Ended December 31,
	2017						2016
(Dollars in millions)	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Net actuarial loss	$	77		$	12		$	76		$	10
Prior service credit	(27		)	(21		)	(18		)	(8		)
Amounts to be reclassified from AOCI	$	50		$	(9	)	$	58		$	2

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



	Years Ended December 31,
	2016		2015		2014
Healthcare cost trend rate assumed for next year	4.64	%	6.29	%	7.53	%
Rate to which cost trend rate is assumed to decline (the ultimate trend rate)	3.96	%	4.50	%	4.50	%
Year the rate reaches the ultimate trend rate	2026		2026		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	$	2	$	(2	)
Effect on postretirement benefit obligation	33		(28		)

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 $98 million and $101 million at December 31, 2016 and 2015, respectively. In October 2016, the Company announced amendments to certain ESBPs such that all ESBPs were frozen to future service accruals effective December 31, 2016.

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 eligible compensation on a pre-tax or Roth basis, or up to 10% of their eligible compensation on an after-tax basis, through payroll deductions, to a combined maximum of 75% of eligible compensation, subject to statutory limits. The Company contributes 100% of every pre-tax or Roth dollar an employee contributes up to the first 3% of the employee's eligible compensation and 50% of every pre-tax or Roth dollar an employee contributes on the next 2% of the employee's eligible compensation, for a maximum matching opportunity of 4%. Company matching contributions are credited to eligible participants' accounts annually following year-end. Matching contributions are fully vested when credited. All employer contributions are tax deductible by the Company. The Company's combined matching contribution expense was $48 million, $47 million and $37 million for the years ended December 31, 2016, 2015 and 2014, respectively.