RETIREMENT PLANS

Defined Benefit Pension Plan

The Corporation has a noncontributory defined benefit pension plan (Pension Plan) covering certain salaried employees. Benefits under the Pension Plan were frozen for approximately two-thirds of the Corporation's salaried employees effective June 30, 2006. Pension benefits continued unchanged for the remaining salaried employees. Normal retirement benefits under the Pension Plan are based on years of vested service, up to a maximum of thirty years, and the employee's average annual pay for the five highest consecutive years during the ten years preceding retirement, except for employees whose benefits were frozen. Benefits, for employees with less than 15 years of service or whose age plus years of service were less than 65 at June 30, 2006, will be based on years of vested service at June 30, 2006 and generally the average of the employee's salary for the five years ended June 30, 2006. At December 31, 2014, the Corporation had 179 employees who were continuing to earn benefits under the Pension Plan. Pension Plan contributions are intended to provide not only for benefits attributed to service-to-date, but also for those benefits expected to be earned in the future for employees whose benefits were not frozen at June 30, 2006. Employees hired after June 30, 2006 and employees affected by the partial freeze of the Pension Plan began receiving 4% of their eligible pay as a contribution to their 401(k) Savings Plan accounts on July 1, 2006. Pension Plan expense was zero in 2014, $1.7 million in 2013 and $1.4 million in 2012.

Supplemental Plan

The Corporation has a supplemental defined benefit pension plan, the Chemical Financial Corporation Supplemental Pension Plan (Supplemental Plan). The Corporation established the Supplemental Plan to provide payments to certain executive officers of the Corporation, as determined by the Compensation and Pension Committee. At December 31, 2014 and 2013, the only executive officer eligible for benefits under the Supplemental Plan was the Corporation's chief executive officer. The Internal Revenue Code limits both the amount of eligible compensation for benefit calculation purposes and the amount of annual benefits that may be paid from a tax-qualified retirement plan. The Supplemental Plan is designed to provide benefits to which executive officers of the Corporation would have been entitled, calculated under the provisions of the Pension Plan, as if the limits imposed by the Internal Revenue Code did not apply. The Supplemental Plan is an unfunded plan, and therefore, has no assets. The Supplemental Plan's projected benefit obligation was $2.1 million and $1.7 million at December 31, 2014 and 2013, respectively. The Supplemental Plan's accumulated benefit obligation was $2.0 million and $1.5 million at December 31, 2014 and 2013, respectively. Supplemental Plan expense totaled $0.3 million in 2014 and $0.2 million in both 2013 and 2012.

Postretirement Plan

The Corporation has a postretirement benefit plan (Postretirement Plan) that provides medical and dental benefits, upon retirement, to a limited number of active and retired employees. The majority of the retirees are required to make contributions toward the cost of their benefits based on their years of credited service and age at retirement. Beginning January 1, 2012, the Corporation amended the Postretirement Plan to extend coverage to employees who were at least age 50 as of January 1, 2012. These employees must also retire at age 60 or older, have at least twenty-five years of service with the Corporation and be participating in the active employee group health insurance plan in order to be eligible to participate in the Corporation's Postretirement Plan. Eligible employees may also cover their spouse until age 65 as long as the spouse is not offered health insurance coverage through his or her employer. Employees and their spouses eligible to participate in the Postretirement Plan will be required to make contributions toward the cost of their benefits upon retirement, with the contribution levels designed to cover the projected overall cost of these benefits over the long-term. Retiree contributions are generally adjusted annually. The accounting for these postretirement benefits anticipates changes in future cost-sharing features such as retiree contributions, deductibles, copayments and coinsurance. The Corporation reserves the right to amend, modify or terminate these benefits at any time.

401(k) Savings Plan

The Corporation's 401(k) Savings Plan provides an employer match, in addition to a 4% contribution for employees who are not grandfathered under the Pension Plan discussed above. The 401(k) Savings Plan is available to all regular employees and provides employees with tax deferred salary deductions and alternative investment options. The Corporation matches 50% of the participants' elective deferrals on the first 4% of the participants' base compensation up to the maximum amount allowed under the Internal Revenue Code. The 401(k) Savings Plan provides employees with the option to invest in the Corporation's common stock. The Corporation's match under the 401(k) Savings Plan was $1.0 million in 2014, $1.1 million in 2013 and $0.9 million in 2012. Employer contributions to the 401(k) Savings Plan for the 4% benefit for employees who are not grandfathered under the Pension Plan totaled $2.3 million in 2014, $2.3 million in 2013 and $2.0 million in 2012. The combined amount of the employer match and 4% contribution to the 401(k) Savings Plan totaled $3.3 million in 2014, $3.4 million in 2013 and $2.9 million in 2012.

Benefit Obligations and Plan Expenses

The following schedule sets forth the changes in the projected benefit obligation and plan assets of the Corporation's Pension and Postretirement Plans:



	Pension Plan						Postretirement Plan
	2014			2013			2014			2013
	(In thousands)
Projected benefit obligation:
Benefit obligation at beginning of year	$	105,914		$	115,177		$	3,477		$	3,243
Service cost	944			1,247			18			18
Interest cost	5,167			4,603			142			143
Plan amendments	—			—			—			720
Net actuarial (gain) loss	21,314			(10,926		)	312			(428		)
Benefits paid	(4,179		)	(4,187		)	(247		)	(219		)
Benefit obligation at end of year	129,160			105,914			3,702			3,477
Fair value of plan assets:
Fair value of plan assets at beginning of year	128,829			98,187			—			—
Actual return on plan assets	6,125			19,829			—			—
Employer contributions	—			15,000			247			219
Benefits paid	(4,179		)	(4,187		)	(247		)	(219		)
Fair value of plan assets at end of year	130,775			128,829			—			—
Funded (unfunded) status at December 31	$	1,615		$	22,915		$	(3,702	)	$	(3,477	)
Accumulated benefit obligation	$	121,826		$	99,551		$	3,702		$	3,477

The increases in the projected and accumulated benefit obligations of the Pension Plan during 2014 were attributable to a combination of a decrease in the discount rate used to value these benefit obligations and changes in the mortality tables utilized to estimate life expectancies. The Corporation did not make a contribution to the Pension Plan in 2014. The Corporation contributed $15.0 million to the Pension Plan in 2013 and $12.0 million in 2012. The Corporation is not required to make a contribution to the Pension Plan in 2015.

Weighted-average rate assumptions of the Pension and Postretirement Plans follow:



	Pension Plan						Postretirement Plan
	2014		2013		2012		2014		2013		2012
Discount rate used in determining benefit obligation — December 31	4.15	%	5.00	%	4.08	%	3.75	%	4.27	%	4.08	%
Discount rate used in determining expense	5.00		4.08		4.90		4.27		4.08		4.90
Expected long-term return on Pension Plan assets	7.00		7.00		7.00		—		—		—
Rate of compensation increase used in determining benefit obligation — December 31	3.50		3.50		3.50		—		—		—
Rate of compensation increase used in determining pension expense	3.50		3.50		3.50		—		—		—
Year 1 increase in cost of postretirement benefits	—		—		—		8.0		8.5		8.0

The weighted-average rate assumptions of the Supplemental Plan were the same as the Pension Plan for 2014, 2013 and 2012, except for the discount rate used in determining the benefit obligation for the Supplemental Plan, which was 4.07%, 4.87% and 4.08% at December 31, 2014, 2013 and 2012, respectively.

Net periodic pension cost (income) of the Pension and Postretirement Plans was as follows for the years ended December 31:



	Pension Plan									Postretirement Plan
	2014			2013			2012			2014			2013			2012
	(In thousands)
Service cost	$	944		$	1,247		$	1,168		$	18		$	18		$	—
Interest cost	5,167			4,603			4,795			142			143			146
Expected return on plan assets	(8,314		)	(7,794		)	(6,925		)	—			—			—
Amortization of prior service credit	(1		)	(1		)	(1		)	130			343			(300		)
Amortization of net actuarial loss (gain)	2,159			3,670			2,382			(104		)	(73		)	(28		)
Net cost (income)	$	(45	)	$	1,725		$	1,419		$	186		$	431		$	(182	)

The following schedule presents estimated future benefit payments under the Pension and Postretirement Plans for retirees already receiving benefits and future retirees, assuming they retire and begin receiving unreduced benefits as soon as they are eligible:



	Pension Plan		Postretirement Plan
	(In thousands)
2015	$	5,693	$	300
2016	6,402		310
2017	6,297		310
2018	6,241		310
2019	6,820		320
2020 - 2024	36,448		1,510
Total	$	67,901	$	3,060

For measurement purposes for the Postretirement Plan, the annual rates of increase in the per capita cost of covered health care benefits and dental benefits for 2015 were each assumed at 8.0%. These rates were assumed to decrease gradually to 5.0% in 2020 and remain at that level thereafter.

The assumed health care and dental cost trend rates could have a significant effect on the amounts reported for the Postretirement Plan. A one percentage-point change in these rates would have the following effects:



	One Percentage-Point
	Increase		Decrease
	(In thousands)
Effect on total of service and interest cost components in 2014	$	13	$	(12	)
Effect on postretirement benefit obligation as of December 31, 2014	327		(289		)

Pension Plan Assets

The assets of the Pension Plan are invested by the Wealth Management department of Chemical Bank. The investment policy and allocation of the assets of the pension trust were approved by the Compensation and Pension Committee of the board of directors of the Corporation.

The Pension Plan's primary investment objective is long-term growth coupled with income. In consideration of the Pension Plan's fiduciary responsibilities, emphasis is placed on quality investments with sufficient liquidity to meet benefit payments and plan expenses, as well as providing the flexibility to manage the investments to accommodate current economic and financial market conditions. To meet the Pension Plan's long-term objective within the constraints of prudent management, target ranges have been set for the three primary asset classes: an equity securities range from 60% to 70%, a debt securities range from 30% to 40%, and a cash and cash equivalents and other range from 0% to 10%. Modest asset positions outside of these targeted ranges may occur due to the repositioning of assets within industries or other activity in the financial markets. Equity securities are primarily comprised of both individual securities and equity-based mutual funds, invested in either domestic or international markets. The stocks are diversified among the major economic sectors of the market and are selected based on balance sheet strength, expected earnings growth, the management team and position within their industries, among other characteristics. Debt securities are comprised of U.S. dollar denominated bonds issued by the U.S. Treasury, U.S. government agencies and investment grade bonds issued by corporations. The notes and bonds purchased are primarily rated A or better by the major bond rating companies from diverse industries.

The Pension Plan's asset allocation by asset category was as follows:



	December 31,
Asset Category	2014		2013
Equity securities	68	%	70	%
Debt securities	30		29
Other	2		1
Total	100	%	100	%

The following schedule sets forth the fair value of the Pension Plan's assets and the level of the valuation inputs used to value those assets at December 31, 2014 and 2013:



Asset Category	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
December 31, 2014
Cash	$	2,594	$	—	$	—	$	2,594
Equity securities:
U.S. large- and mid-cap stocks^(a)	56,718		—		—		56,718
U.S. small-cap mutual funds	5,409		—		—		5,409
International large-cap mutual funds	14,805		—		—		14,805
Emerging markets mutual funds	6,004		—		—		6,004
Chemical Financial Corporation common stock	6,455		—		—		6,455
Debt securities:
U.S. Treasury and government sponsored agency bonds and notes	998		2,043		—		3,041
Corporate bonds^(b)	—		6,814		—		6,814
Mutual funds^(c)	28,795		—		—		28,795
Other	140		—		—		140
Total	$	121,918	$	8,857	$	—	$	130,775
December 31, 2013
Cash	$	902	$	—	$	—	$	902
Equity securities:
U.S. large- and mid-cap stocks^(a)	56,015		—		—		56,015
U.S. small-cap mutual funds	5,608		—		—		5,608
International large-cap mutual funds	15,504		—		—		15,504
Emerging markets mutual funds	6,360		—		—		6,360
Chemical Financial Corporation common stock	6,672		—		—		6,672
Debt securities:
U.S. Treasury and government sponsored agency bonds and notes	4,600		2,574		—		7,174
Corporate bonds^(b)	—		8,693		—		8,693
Mutual funds^(c)	21,901		—		—		21,901
Other	—		—		—		—
Total	$	117,562	$	11,267	$	—	$	128,829


(a)	Comprised of common stocks and mutual funds traded on U.S. Exchanges whose issuers had market capitalizations exceeding $3 billion.


(b)	Comprised of investment grade bonds of U.S. issuers from diverse industries.


(c)	Comprised primarily of fixed-income bonds issued by the U.S. Treasury and government sponsored agencies and bonds of U.S. and foreign issuers from diverse industries.

At both December 31, 2014 and 2013, equity securities included 210,663 shares of the Corporation's common stock. During each of 2014 and 2013, cash dividends of $0.2 million were paid on the Corporation's common stock held by the Pension Plan. The fair value of the Corporation's common stock held in the Pension Plan was $6.5 million at December 31, 2014 and $6.7 million at December 31, 2013, which represented 4.9% and 5.2% of Pension Plan assets at December 31, 2014 and 2013, respectively.

Accumulated Other Comprehensive Loss

The following sets forth the changes in accumulated other comprehensive income (loss), net of tax, related to the Corporation's Pension, Postretirement and Supplemental Plans during 2014:



	Pension Plan			Postretirement Plan			Supplemental Plan			Total
	(In thousands)
Accumulated other comprehensive income (loss) at beginning of year	$	(17,979	)	$	269		$	(330	)	$	(18,040	)
Comprehensive income (loss) adjustment:
Prior service costs (credits)	(1		)	84			—			83
Net actuarial loss	(13,873		)	(270		)	(143		)	(14,286		)
Comprehensive income (loss) adjustment	(13,874		)	(186		)	(143		)	(14,203		)
Accumulated other comprehensive income (loss) at end of year	$	(31,853	)	$	83		$	(473	)	$	(32,243	)

The estimated income (loss) that will be amortized from accumulated other comprehensive income (loss) into net periodic cost, net of tax, in 2015 is as follows:



	Pension Plan			Postretirement Plan			Supplemental Plan			Total
	(In thousands)
Prior service (costs) credits	$	3		$	(84	)	$	—		$	(81	)
Net gain (loss)	(2,576		)	1			(170		)	(2,745		)
Total	$	(2,573	)	$	(83	)	$	(170	)	$	(2,826	)