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 a cash balance formula, with annual pay credits based on a participant's eligible pay multiplied by a percentage determined by their age and years of service, with annual interest credits based on 30-year Treasury bond yields. Employees become eligible for the Pension Plan after 1 year of service, and participants become vested upon completing 3 years of vesting service. Prior to 2017, certain participants earned retirement benefits based on years of credited service and the final average earnings amount, as defined in the Pension Plan; such benefits became fixed as of the effective date of certain Plan amendments implementing the cash balance formula.

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. Retiree Health Reimbursement Plan (the HRA Plan), 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). Under the HRA Plan, which became effective January 1, 2017, eligible post-65 retirees and dependents receive Company-provided financial support to purchase individual health coverage through annual allocations to a Health Reimbursement Account (HRA) that are designed to keep pace with medical inflation. The Health Plan provides certain healthcare benefits for eligible pre-65 retired employees and dependents; costs 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 provides life insurance benefits for those eligible employees who retired prior to January 1, 2001 and is noncontributory. Together, the HRA Plan, the Health Plan, and the Insurance 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, 2018 and 2017.



	Pension Plan						Other Benefits Plan
	Years Ended December 31,						Years Ended December 31,
(Dollars in millions)	2018			2017			2018			2017
Change in plan assets:
Fair value of plan assets, beginning of year	$	3,854		$	3,254		$	288		$	260
Actual return on plan assets	(196		)	608			(18		)	44
Employer contributions	—			115			—			1
Plan participants' contributions	—			—			4			4
Benefits paid	(129		)	(123		)	(19		)	(21		)
Fair value of plan assets, end of year	$	3,529		$	3,854		$	255		$	288

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 53% in equity securities, 35% in debt securities, and 12% in real estate investments as of December 31, 2018. The previous targets, until the 4th quarter of 2018, were 63%, 25%, and 12%, respectively. 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 Talcott Resolution 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 11 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, 2018
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Cash and cash equivalents	$	—	$	25	$	—	$	25
U.S. government securities	—		382		—		382
Fixed and variable income securities	—		824		—		824
Equity securities	185		6		—		191
Mutual funds	620		—		—		620
Municipal bonds	—		37		—		37
Other	—		20		—		20
Total investments in the fair value hierarchy	$	805	$	1,294	$	—	$	2,099
Investments measured at net asset value ⁽¹⁾							1,420
Investments at fair value							3,519
Accrued dividends and interest receivable							12
Net pending trades							(2		)
Total plan assets							$	3,529


(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, 2017
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Cash and cash equivalents	$	—	$	26	$	—	$	26
U.S. government securities	—		195		—		195
Fixed and variable income securities	—		638		—		638
Equity securities	381		7		—		388
Mutual funds	830		—		—		830
Municipal bonds	—		43		—		43
Other	5		11		—		16
Total investments in the fair value hierarchy	$	1,216	$	920	$	—	$	2,136
Investments measured at net asset value ⁽¹⁾							1,704
Investments at fair value							3,840
Accrued dividends and interest receivable							8
Net pending trades							6
Total plan assets							$	3,854


(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, 2018
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Other Postretirement Benefits Plan Investments:
Cash and cash equivalents	$	—	$	1	$	—	$	1
U.S. government securities	—		37		—		37
Fixed and variable income securities	—		32		—		32
Equity securities	—		—		—		—
Mutual funds	54		—		—		54
Total investments in the fair value hierarchy	$	54	$	70	$	—	$	124
Investments measured at net asset value ⁽¹⁾							134
Investments at fair value							258
Net pending trades							(3		)
Total plan assets							$	255


(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, 2017
(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	—		44		—		44
Fixed and variable income securities	—		29		—		29
Equity securities	—		1		—		1
Mutual funds	66		—		—		66
Total investments in the fair value hierarchy	$	66	$	77	$	—	$	143
Investments measured at net asset value ⁽¹⁾							157
Investments at fair value							300
Net pending trades							(12		)
Total plan assets							$	288


(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, 2018 and 2017 present the Company's Pension Plan and Other Benefits Plan investments in which fair value is measured using net asset value per share (or its equivalent) as a practical expedient.

December 31, 2018

(Dollars in millions)

Fair Value

Unfunded Commitment

Redemption Frequency

Other Redemption Restrictions

Redemption Notice Period

Pension Plan Investments

Domestic equity funds

789

—

Daily

None

Real estate funds

415

—

Quarterly

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

45-90 days

Real estate funds

None

Hold until dissolution date

None

International equity funds

159

—

Monthly

None

15 days

Money market funds

—

Immediate

None

Total

1,420

December 31, 2017

(Dollars in millions)

Fair Value

Unfunded Commitment

Redemption Frequency

Other Redemption Restrictions

Redemption Notice Period

Pension Plan Investments

Domestic equity funds

1,101

—

Daily

None

Real estate funds

343

—

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 four to six years from original final closing date

None

International equity funds

228

—

Monthly

None

15 days

Money market funds

—

Immediate

None

Total

1,704

December 31, 2018

(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

134

—

December 31, 2017

(Dollars in millions)

Fair Value

Unfunded Commitment

Redemption Frequency

Other Redemption Restrictions

Redemption Notice Period

Other Postretirement Benefits Plan Investments

Domestic equity funds

100

—

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

157

—

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 securities 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, office, industrial and retail properties. 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 foreign companies in developed and emerging markets across diverse industries and may seek to track the performance of the MSCI EAFE® or MSCI All-Country World ex-US indices. 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 index. 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 Talcott Resolution Life Insurance Company, a successor to 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, 2018 and 2017. In addition, the table sets forth the over (under) funded status at December 31, 2018 and 2017. 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)	2018			2017			2018			2017
Accumulated benefit obligation	$	3,038		$	3,101
Change in benefit obligation
Benefit obligation, beginning of year	$	3,242		$	2,942		$	265		$	261
Service cost	80			71			4			6
Interest cost	100			100			8			8
Plan participants' contributions	—			—			4			4
Actuarial loss/(gain)	(246		)	252			(21		)	6
Effect of plan amendments	—			—			—			—
Medicare Part D subsidy	—			—			1			1
Benefits paid	(129		)	(123		)	(19		)	(21		)
Benefit obligation, end of year	3,047			3,242			242			265
Fair value of plan assets, end of year	3,529			3,854			255			288
Over (Under) funded status	$	482		$	612		$	13		$	23

The Pension Plan obligation experienced a net gain of $246 million and a net loss of $252 million during 2018 and 2017, respectively, primarily due to changes in the discount rate. The discount rate decreased from 3.98% at December 31, 2016 to 3.48% at December 31, 2017 and increased to 4.12% at December 31, 2018. The Other Benefits Plan obligation experienced a net gain of $21 million and a net loss of $6 million during 2018 and 2017, respectively, primarily due to changes in the discount rate. The discount rate decreased from 3.81% at December 31, 2016 to 3.37% at December 31, 2017 and increased to 4.01% at December 31, 2018.

The following table illustrates the changes that were reflected in AOCI during 2018, 2017 and 2016. 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, 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	)
Arising during the year	(101		)	—			(19		)	—
Recognized in net income during the year	(79		)	27			(8		)	21
Balance, December 31, 2017	$	905		$	(152	)	$	51		$	(29	)
Arising during the year	218			—			18			—
Recognized in net income during the year	(87		)	26			(5		)	15
Balance, December 31, 2018	$	1,036		$	(126	)	$	64		$	(14	)

At December 31, 2018 and 2017, the following amounts were recognized in accumulated other comprehensive loss for pension, including ESBPs, and other benefits.



	December 31, 2018
	Pension Benefits									Other Postretirement Benefits
(Dollars in millions)	Gross			Tax			Net of Tax			Gross			Tax			Net of Tax
Net actuarial loss	$	1,036		$	273		$	763		$	64		$	18		$	46
Prior service credit	(126		)	(33		)	(93		)	(14		)	(4		)	(10		)
Pension and other postretirement benefits	910			240			670			50			14			36
Executive Supplemental Benefits Plans
Net actuarial loss	32			8			24			—			—			—
Prior service credit	—			—			—			—			—			—
Executive supplemental benefits plans adjustment	32			8			24			—			—			—
Pension and other postretirement benefits, as adjusted	$	942		$	248		$	694		$	50		$	14		$	36



	December 31, 2017
	Pension Benefits									Other Postretirement Benefits
(Dollars in millions)	Gross			Tax			Net of Tax			Gross			Tax			Net of Tax
Net actuarial loss	$	905		$	238		$	667		$	51		$	14		$	37
Prior service credit	(152		)	(40		)	(112		)	(29		)	(8		)	(21		)
Pension and other postretirement benefits	753			198			555			22			6			16
Executive Supplemental Benefits Plans
Net actuarial loss	40			11			29			—			—			—
Prior service credit	—			—			—			—			—			—
Executive supplemental benefits plans adjustment	40			11			29			—			—			—
Pension and other postretirement benefits, as adjusted	$	793		$	209		$	584		$	22		$	6		$	16

Pension Benefits

Our pre-tax net actuarial losses increased $157 million in 2018 from 2017. At December 31, 2018, the net actuarial loss totaled $910 million, which is net of $126 million in prior service credits. In addition, $214 million, representing the deficiency of the fair value of plan assets over the market-related value of plan assets, is recognized separately through the asset smoothing method over four years. $447 million of loss is subject to amortization over approximately eight years, and the prior service credits are being amortized until 2022 and 2025. 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 2019 net periodic pension cost will be $62 million of amortization related to net actuarial losses. We estimate that our total 2019 net periodic pension cost will be a credit of approximately $27 million, assuming no contributions in 2019. The 2019 estimate for net periodic pension cost was actuarially determined using the individual spot rates of 4.19% for service cost and 3.9% for interest cost, an expected return on plan assets of 7.0% and an expected compensation increase assumption of 5.1%.

A 50 basis point increase in the discount rate or in the expected return on plan assets would decrease the 2019 periodic pension cost by $25 million and $18 million, respectively, while a 50 basis point increase in the rate of future compensation levels would increase the 2019 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 2019 periodic pension cost by $27 million and $18 million, respectively, while a 50 basis point decrease in the rate of future compensation levels would decrease the 2019 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,
2019	$	140	$	17
2020	147		17
2021	153		18
2022	160		18
2023	166		18
Years 2024 - 2028	914		82

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,
	2018		2017		2018		2017
Discount rate in determining net periodic benefit cost
For service cost	3.26	%	3.79	%	3.49	%	3.97	%
For interest cost	3.16		3.42		3.02		3.19
Discount rate in determining benefit obligations at year end	4.12		3.48		4.01		3.37
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	5.10		4.70		n/a		n/a
Expected return on plan assets	7.50		7.50		7.50		7.50
Cash balance crediting rate for determining net periodic benefit cost	2.74		3.06		n/a		n/a
Cash balance crediting rate for determining benefit obligations at year end	3.02		2.74		n/a		n/a



	Pension Benefits									Other Postretirement Benefits									ESBPs
	Years Ended December 31,									Years Ended December 31,									Years Ended December 31,
(Dollars in millions)	2018			2017			2016			2018			2017			2016			2018		2017		2016
Components of net periodic benefit cost:
Service cost	$	80		$	71		$	91		$	4		$	6		$	8		$	—	$	—	$	2
Interest cost	100			100			103			8			8			9			3		3		2
Expected return on plan assets	(268		)	(254		)	(235		)	(21		)	(19		)	(19		)	—		—		—
Amortization of prior service credit	(26		)	(27		)	(18		)	(15		)	(21		)	(12		)	—		—		—
Recognized net actuarial loss	87			79			75			5			8			10			3		4		3
Curtailment gain	—			—			—			—			—			—			—		—		(2		)
Total net periodic benefit cost	$	(27	)	$	(31	)	$	16		$	(19	)	$	(18	)	$	(4	)	$	6	$	7	$	5

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



	Years Ended December 31,
	2018		2017		2016
Healthcare cost trend rate assumed for next year	4.44	%	4.44	%	4.64	%
Rate to which cost trend rate is assumed to decline (the ultimate trend rate)	3.94	%	3.94	%	3.96	%
Year the rate reaches the ultimate trend rate	2027		2026		2026

Executive Supplemental Benefit Plans

The Company has several frozen ESBPs, which provide covered participants 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 $89 million and $98 million at December 31, 2018 and 2017, 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 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 makes a matching contribution equal to 100% of every pre-tax or Roth dollar an employee contributes on 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 $59 million, $55 million and $48 million for the years ended December 31, 2018, 2017 and 2016, respectively.