Retirement Plans

The Corporation's retirement plans include a qualified defined benefit pension plan, a nonqualified pension plan, a nonqualified postretirement benefit plan, a 401(k) savings plan, and a multi-employer defined benefit plan.

Qualified Defined Benefit Pension Plan

The Chemical Financial Corporation Employees’ Pension Plan (the "Pension Plan") is a qualified defined benefit, noncontributory pension plan, which provides for postretirement pension benefits for certain salaried employees of the Corporation and its subsidiary, Chemical Bank. Benefits under the Pension Plan were partially frozen effective June 30, 2006. Under the partial freeze of the Pension Plan, benefits for employees with less than 15 years of service or whose combined age plus years of service were less than 65 at June 30, 2006, were 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. In addition, no employee hired after January 1, 2006 was eligible to participate in the Pension Plan. Effective September 30, 2017, the Pension and Compensation Committee approved an amendment to the Pension Plan to cease accruing additional benefits under the existing pension benefit formula after the effective date and all accrued benefits were frozen. Retirement benefits under the Pension Plan are based on years of vested service at September 30, 2017, 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 September 30, 2017, except for employees whose benefits were previously frozen during 2006.

Pension Plan benefits are the present value of estimated future periodic payments that are attributable to services rendered by the employees to the valuation date. Benefits include the benefits expected to be paid to (a) retired or terminated employees or their beneficiaries and (b) present employees or their beneficiaries.

The freeze of the Pension Plan effective September 30, 2017, required a remeasurement of the plan's projected benefit obligation. The combined impact of the remeasurement, an increase in fair value of underlying assets, the impact of the freeze and changes to participant's status as a result of the Corporation's restructuring efforts during the year ended December 31, 2017, resulted in an increase of the funded status of the Pension Plan. A discount rate of 3.68% was utilized to remeasure the projected benefit obligation as of December 31, 2017. There was less than $0.1 million of curtailment cost to the Corporation as a result of the amendment. A discount rate of 4.32% was utilized for the projected benefit obligation as of December 31, 2018. The Pension Plan is fully funded as of December 31, 2018. At December 31, 2018, the Corporation had 80 employees who had accrued benefits under the Pension Plan, which contributions are intended to provide benefits attributable to service-to-date employees.

Pension Plan expense was a benefit of $3.8 million in 2018, compared to a benefit of $1.5 million in 2017 and an expense of $0.1 million in 2016.

Nonqualified Pension Plan

The Corporation has a supplemental defined benefit nonqualified pension plan, the Chemical Financial Corporation Supplemental Pension Plan ("SERP"). The Corporation established the SERP to provide payments to certain executive officers of the Corporation, as determined by the Compensation and Pension Committee. 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 SERP was designed to provide benefits to 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 SERP is an unfunded plan and, therefore, has no assets.

Effective September 30, 2017, the Pension and Compensation Committee approved a curtailment to the SERP, due to the retirement of the final remaining participant in the SERP. The curtailment, in addition to changes in valuation of liabilities, resulted in a reduction in obligation during the year ended December 31, 2017. As of December 31, 2018, a $0.3 million liability included in other liabilities was recorded in the Consolidated Statements of Financial Position related to a former participant of the SERP. As of December 31, 2018, the SERP had no active participants.

Nonqualified Postretirement Benefit Plan

The Corporation has a nonqualified 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 is available to all employees and provides employees with tax deferred salary deductions and alternative investment options. Effective January 1, 2018, the Corporation provides a safe harbor matching contribution of the participants elective deferrals up to a maximum of 6.0% of eligible compensation up to the maximum amount allowed under the Internal Revenue Code. Prior to January 1, 2018, the Corporation provided an employer match, in addition to a 4.0% contribution for all employees, with the exception of employees participating the Pension Plan discussed above, during the time period they were eligible to earn service credits. The Corporation previously matched 50.0% of the participants' elective deferrals on the first 4.0% 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 combined amount of the employer match and 4.0% to the 401(k) Savings Plan totaled $8.4 million in 2018, $9.1 million in 2017 and $6.5 million in 2016.

Multi-Employer Defined Benefit Plan

In conjunction with the April 1, 2015 acquisition of Monarch, the Corporation acquired a participation in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB Plan), a qualified defined benefit plan. Employee benefits for Monarch employees under the Pentegra DB Plan were frozen effective April 1, 2004. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code (IRC). The Pentegra DB Plan is a single plan under IRC Section 413(c) and, as a result, all the plan's assets stand behind all of the plan's liabilities. Accordingly, contributions made by a participating employer may be used to provide benefits to participants of other participating employers. No contributions were made to the Pentegra DB Plan during the years ended December 31, 2018, 2017 and 2016.

The Pentegra DB Plan's Employer Identification Number is 13-5645888 and the Plan Number is 333. Financial information for the Pentegra DB Plan, which maintains a June 30 year end, is made available through the public Form 5500 which is available by April 15th of the year following the plan year end. The Pentegra DB Plan was fully funded as of its most recent year end. The Corporation's allocation of assets and liabilities in the Pentegra DB Plan totaled $3.8 million and $3.7 million respectively, as of December 31, 2018 and 2017, and the Corporation's allocation of assets comprised 0.1% of the plan's total assets at those dates.

Benefit Obligations and Plan Expenses

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



	Pension Plan						Postretirement Plan						SERP
(Dollars in thousands)	2018			2017			2018			2017			2018			2017
Projected benefit obligation:
Benefit obligation at beginning of year	$	121,361		$	123,968		$	2,512		$	2,601		$	2,423		$	2,567
Service cost	—			639			3			5			—			61
Interest cost	4,356			4,966			82			94			12			69
Net actuarial loss (gain)	(7,048		)	10,131			(208		)	10			(36		)	(274		)
Benefits paid	(7,237		)	(6,432		)	(189		)	(198		)	(2,062		)	—
Curtailment	—			(11,911		)	—			—			—			—
Benefit obligation at end of year	111,432			121,361			2,200			2,512			337			2,423
Fair value of plan assets:
Fair value of plan assets at beginning of year	145,901			132,751			—			—			—			—
Actual return on plan assets	(10,312		)	19,582			—			—			—			—
Employer contributions	—			—			—			198			—			—
Benefits paid	(7,237		)	(6,432		)	—			(198		)	—			—
Fair value of plan assets at end of year	128,352			145,901			—			—			—			—
Funded (unfunded) status at December 31	$	16,920		$	24,540		$	(2,200	)	$	(2,512	)	$	(337	)	$	(2,423	)
Accumulated benefit obligation	$	111,432		$	121,361		$	2,200		$	2,512		$	337		$	2,423

The Corporation did not make a contribution to the Pension Plan in either 2018 or 2017. The Corporation is not required to make a contribution to the Pension Plan in 2019.

Weighted-average rate assumptions of the Corporation's Plans follow:



	Pension Plan						Postretirement Plan						SERP
	2018		2017		2016		2018		2017		2016		2018		2017		2016
Discount rate used in determining benefit obligation — December 31	4.32	%	3.68	%	4.22	%	4.11	%	3.41	%	3.79	%	4.32	%	3.38	%	3.63	%
Discount rate used in determining expense	3.68		4.22		4.55		3.41		3.79		4.23		—		—		4.51
Discount rate used in determining expense — prior to remeasurement	—		3.81		—		—		—		—		3.38		3.63		2.87
Expected long-term return on Pension Plan assets	6.50		6.75		6.75		—		—		—		—		—		—
Rate of compensation increase used in determining benefit obligation — December 31	—		—		3.50		—		—		—		—		—		3.50
Rate of compensation increase used in determining pension expense	—		3.50		3.50		—		—		—		—		3.50		3.50
Year 1 increase in cost of postretirement benefits	—		—		—		7.50		6.50		7.00		—		—		—

Net periodic pension cost (income) of the Corporation's Plans was as follows for the years ended December 31:



	Pension Plan									Postretirement Plan									SERP
(Dollars in thousands)	2018			2017			2016			2018			2017			2016			2018			2017		2016
Service cost	$	—		$	639		$	1,041		$	3		$	5		$	9		$	—		$	61	$	77
Interest cost	4,356			4,966			5,335			82			94			132			12			69		92
Expected return on plan assets	(8,879		)	(8,938		)	(8,562		)	—			—			—			—			—		—
Amortization of prior service credit	—			—			—			—			—			117			—			—		—
Amortization of net actuarial loss (gain)	710			1,837			2,259			(143		)	(162		)	(100		)	(7		)	77		78
Curtailment	—			1			—			—			—			—			—			—		—
Settlement ⁽¹⁾	—			—			—			—			—			—			—			322		120
Net cost (income)	$	(3,813	)	$	(1,495	)	$	73		$	(58	)	$	(63	)	$	158		$	5		$	529	$	367


⁽¹⁾	The settlement charge relates to the settlement of liabilities under the SERP for the retirement of the plan participant during the third quarter of 2017 and the change in control as a result of the merger with Talmer as of August 31, 2016.

The following schedule presents estimated future benefit payments for the next 10 years under the Corporation's Plans for retirees already receiving benefits and future retirees, assuming they retire and begin receiving unreduced benefits as soon as they are eligible:



(Dollars in thousands)	Pension Plan		Postretirement Plan		SERP
2019	$	6,387	$	241	$	22
2020	6,522		237		22
2021	6,680		231		22
2022	6,795		221		22
2023	6,895		209		22
2024 - 2028	35,908		853		106
Total	$	69,187	$	1,992	$	216

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 2019 were each assumed at 7.5%. 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
(Dollars in thousands)	Increase		Decrease
Effect on total of service and interest cost component in 2017	$	7	$	(6	)
Effect on postretirement benefit obligation as of December 31, 2017	157		(143		)

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 40.0% to 70.0%, a debt securities range from 20.0% to 60.0%, and a cash and cash equivalents and other range from 0.0% to 10.0%. 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	2018		2017
Equity securities	67	%	68	%
Debt securities	26		28
Other	7		4
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, 2018 and 2017:



(Dollars in thousands)	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
December 31, 2018
Cash	$	8,770	$	—	$	—	$	8,770
Equity securities:
U.S. large- and mid-cap stocks⁽¹⁾	63,823		—		—		63,823
U.S. small-cap mutual funds	4,713		—		—		4,713
International large-cap mutual funds	11,091		—		—		11,091
Emerging markets mutual funds	6,439		—		—		6,439
Debt securities:
U.S. Treasury and government sponsored agency bonds and notes	—		547		—		547
Mutual funds⁽²⁾	32,969		—		—		32,969
Total	$	127,805	$	547	$	—	$	128,352
December 31, 2017
Cash	$	5,238	$	—	$	—	$	5,238
Equity securities:
U.S. large- and mid-cap stocks⁽¹⁾	68,909		—		—		68,909
U.S. small-cap mutual funds	5,377		—		—		5,377
International large-cap mutual funds	18,341		—		—		18,341
Emerging markets mutual funds	7,363		—		—		7,363
Debt securities:
U.S. Treasury and government sponsored agency bonds and notes	—		548		—		548
Mutual funds⁽²⁾	40,046		—		—		40,046
Other	79		—		—		79
Total	$	145,353	$	548	$	—	$	145,901


⁽¹⁾	Comprised of common stocks and mutual funds traded on U.S. Exchanges whose issuers had market capitalizations exceeding $3 billion.


⁽²⁾	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 December 31, 2018 and 2017, the Pension Plan did not hold any shares of the Corporation's common stock. During 2017, cash dividends of $0.2 million were paid on the Corporation's common stock held by the Pension Plan.

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 Plan, Postretirement Plan and SERP during 2018:



(Dollars in thousands)	Pension Plan			Postretirement Plan		SERP			Total
Accumulated other comprehensive income (loss) at beginning of year	$	(20,483	)	$	744	$	(69	)	$	(19,808	)
Comprehensive income (loss) adjustment:
Net actuarial income (loss)	(9,032		)	51		23			(8,958		)
Comprehensive income (loss) adjustment	(9,032		)	51		23			(8,958		)
Accumulated other comprehensive income (loss) at end of year	$	(29,515	)	$	795	$	(46	)	$	(28,766	)

The estimated income (loss) that will be amortized from accumulated other comprehensive income (loss) into net periodic cost, net of tax, in 2019 is as follows:



(Dollars in thousands)	Pension Plan			Postretirement Plan		SERP			Total
Net gain (loss)	$	(444	)	$	143	$	(1	)	$	(302	)