Note 15 – Defined Benefit and Other Postretirement Benefits

Qualified Pension Plans

Trustmark maintains a noncontributory tax-qualified defined benefit pension plan (Trustmark Capital Accumulation Plan, the “Plan”), in which substantially all associates who began employment prior to 2007 participate. The Plan provides retirement benefits that are based on the length of credited service and final average compensation, as defined in the Plan, and vest upon three years of service. Benefit accruals under the Plan have been frozen since 2009, with the exception of certain associates covered through plans obtained in acquisitions that were subsequently merged into the Plan. Other than the associates covered through these acquired plans that were merged into the Plan, associates have not earned additional benefits, except for interest as required by law, since the Plan was frozen. Current and former associates who participate in the Plan retain their right to receive benefits that accrued before the Plan was frozen.

On July 26, 2016, the Board of Directors of Trustmark authorized the termination of the Plan, effective as of December 31, 2016. To satisfy commitments made by Trustmark to associates (collectively, the “Continuing Associates”) covered through acquired plans that were merged into the Plan, the Board also approved the spin-off of the portion of the Plan associated with the accrued benefits of the Continuing Associates into a new plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the “Spin-Off Plan”), effective as of December 30, 2016, immediately prior to the termination of the Plan.

In order to terminate the Plan, in accordance with Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC) requirements, Trustmark is required to fully fund the Plan on a termination basis and will contribute the additional assets necessary to do so. The final distributions will be made from current plan assets and a one-time pension settlement expense will be recognized when paid by Trustmark during the second quarter of 2017. Further, as a result of Trustmark’s de-risking investment strategy for the Plan as of June 30, 2016, the expected rate of return on plan assets during the second half of 2016 decreased from 6.0% to 2.5%. Accordingly, Trustmark's increased periodic benefit costs for the Plan during the second half of 2016 was $1.3 million. Participants in the Plan will have a choice of receiving a lump sum cash payment or annuity payments under a group annuity contract purchased from an insurance carrier, subject to certain exceptions. As a result of the termination of the Plan, each participant will become fully vested in his or her accrued benefits under the Plan.

The Board of Directors of Trustmark reserved the right to defer or revoke the termination of the Plan if circumstances change such that deferral or revocation would be warranted, but has no intent to do so at this time.

As a result of the merger with BancTrust on February 15, 2013, Trustmark became the sponsor of the Retirement Plan for Employees of BancTrust Financial Group, Inc. (BancTrust Pension Plan), a tax-qualified defined benefit pension plan, which was frozen prior to the merger date. On January 28, 2014, the Board of Directors of Trustmark authorized the termination of the BancTrust Pension Plan effective as of April 15, 2014. On October 1, 2015, Trustmark received a favorable determination letter from the IRS with respect to the BancTrust Pension Plan’s termination. In addition, as required by law, a termination notice was filed with the PBGC, and it is not anticipated that the PBGC will raise any issues with respect to the BancTrust Pension Plan’s termination. During 2014, the assets of the BancTrust Pension Plan were held in trust and distributed in conjunction with the plan termination. All assets of the BancTrust Pension Plan were distributed as of December 31, 2014. Benefits that were not paid to participants were annuitized under annuity contracts. As a result of the termination of the BancTrust Pension Plan, Trustmark recognized a pre-tax gain of $1.2 million during 2014.

The following tables present information regarding the benefit obligation, plan assets, funded status, amounts recognized in accumulated other comprehensive loss, net periodic benefit cost and other statistical disclosures for Trustmark’s tax-qualified defined benefit pension plans (Trustmark Capital Accumulation Plan and BancTrust Pension Plan) for the periods presented ($ in thousands):

	December 31,
	2016			2015
Change in benefit obligation:
Benefit obligation, beginning of year	$	91,403		$	101,904
Service cost		428			513
Interest cost		3,355			3,461
Actuarial gain		(893	)		(2,807	)
Benefits paid for the Plan		(18,393	)		(11,668	)
Benefit obligation, end of year	$	75,900		$	91,403

Change in plan assets:
Fair value of plan assets, beginning of year	$	74,137		$	86,287
Actual return on plan assets		(1,079	)		(547	)
Employer contributions		69			65
Benefit payments for the Plan		(18,393	)		(11,668	)
Fair value of plan assets, end of year	$	54,734		$	74,137

Funded status at end of year - net liability	$	(21,166	)	$	(17,266	)

Amounts recognized in accumulated other comprehensive loss:
Net loss - amount recognized	$	21,355		$	24,927

	Years Ended December 31,
	2016			2015			2014
Net periodic benefit cost:
Service cost	$	428		$	513		$	495
Interest cost		3,355			3,461			5,299
Expected return on plan assets		(2,897	)		(5,187	)		(6,245	)
Recognized net loss due to BancTrust termination		—			—			1,355
Recognized net loss due to lump sum settlements		3,906			2,221			905
Recognized net actuarial loss (gain)		2,749			3,878			(283	)
Net periodic benefit cost	$	7,541		$	4,886		$	1,526

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss), before taxes:
Net (gain) loss - Total recognized in other comprehensive income (loss)	$	(3,572	)	$	(3,173	)	$	12,664
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	3,969		$	1,713		$	14,190

Weighted-average assumptions as of end of year:
Discount rate for benefit obligation		3.71	%		3.86	%		3.57	%
Discount rate for net periodic benefit cost		3.86	%		3.57	%		4.30	%
Expected long-term return on plan assets		4.25	%		7.00	%		7.50	%

Plan Assets

The weighted-average asset allocations by asset category for the Plan at December 31, 2016 and 2015 are presented below.

	December 31,
	2016			2015
Money market fund		13.0	%		3.6	%
Fixed income mutual funds		—			29.0	%
Equity mutual funds		—			16.1	%
Equity securities		—			51.3	%
U.S. Treasuries		87.0	%		—
Total		100.0	%		100.0	%

The strategic objective of the investments of the assets in the Plan was changed significantly after the decision to terminate the Plan. The Plan is no longer managed on a total return basis. The Plan is managed with as little market value fluctuation as possible. Given the known fixed actuarial discount rate used until termination to match liabilities, the asset allocation of the Plan has been changed to reflect a very conservative posture. Money market and individual U.S. Treasury securities are used solely to maintain a stable market value and achieve a small level of interest income. The Treasury securities will mature at or before the projected distribution date. Similarly, a money market allocation will be maintained for liquidity purposes due to monthly reoccurring distributions and lump sum distributions until final termination.

Fair Value Measurements

At this time, Trustmark presents no fair values that are derived through internal modeling. Should positions requiring fair valuation arise that are not relevant to existing methodologies, Trustmark will make every reasonable effort to obtain market participant assumptions, or independent evaluation.

The following table sets forth by level, within the fair value hierarchy, the Plan’s assets measured at fair value at December 31, 2016 and 2015 ($ in thousands):

	December 31, 2016
	Total		Level 1		Level 2		Level 3
Money market fund	$	6,859	$	6,859	$	—	$	—
U.S. Treasuries		47,875		47,875		—		—
Total assets at fair value	$	54,734	$	54,734	$	—	$	—

	December 31, 2015
	Total		Level 1		Level 2		Level 3
Money market fund	$	2,678	$	2,678	$	—	$	—
Fixed income mutual funds		21,472		21,472		—		—
Equity mutual funds		11,922		11,922		—		—
Equity securities		38,065		38,065		—		—
Total assets at fair value	$	74,137	$	74,137	$	—	$	—

There have been no changes in the methodologies used in estimating the fair value of plan assets at December 31, 2016. The money market fund approximates fair value due to its immediate maturity.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although Trustmark believes their valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Contributions

The range of potential contributions to the Plan is determined annually by the Plan’s actuary in accordance with applicable IRS rules and regulations. Trustmark’s policy is to fund amounts that are sufficient to satisfy the annual minimum funding requirements and do not exceed the maximum that is deductible for federal income tax purposes. The actual amount of the contribution is determined annually based on the Plan’s funded status and return on plan assets as of the measurement date, which is December 31. For the plan years ending December 31, 2016 and 2015, Trustmark’s minimum required contribution to the Plan was zero. Since the Plan has terminated, there will be no additional contributions required in the future other than amounts necessary to facilitate the Plan termination. For the plan year ending December 31, 2017, Trustmark’s minimum required contribution to the Spin-Off Plan is expected to be zero; however, Management and the Board of Directors of Trustmark will monitor the Spin-Off Plan throughout 2017 to determine any additional funding requirements by the plan’s measurement date.

Estimated Future Benefit Payments and Other Disclosures

The following table presents the expected benefit payments, which reflect expected future service, for the Plan ($ in thousands):

Year	Amount
2017	$	67,400
2018		210
2019		285
2020		334
2021		391
2022 - 2026		2,706

Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2017 include a net loss of $18.4 million.

Supplemental Retirement Plans

Trustmark maintains a nonqualified supplemental retirement plan covering key executive officers and senior officers as well as directors who have elected to defer fees. The plan provides for retirement and/or death benefits based on a participant’s covered salary or deferred fees. Although plan benefits may be paid from Trustmark’s general assets, Trustmark has purchased life insurance contracts on the participants covered under the plan, which may be used to fund future benefit payments under the plan. The measurement date for the plan is December 31. As a result of mergers prior to 2014, Trustmark became the administrator of small nonqualified supplemental retirement plans, for which the plan benefits were frozen prior to the merger date.

The following tables present information regarding the benefit obligation, plan assets, funded status, amounts recognized in accumulated other comprehensive loss, net periodic benefit cost and other statistical disclosures for Trustmark’s nonqualified supplemental retirement plans ($ in thousands):

	December 31,
	2016			2015
Change in benefit obligation:
Benefit obligation, beginning of year	$	57,766		$	59,744
Service cost		295			431
Interest cost		2,223			2,082
Actuarial loss (gain)		1,537			(1,702	)
Benefits paid		(3,326	)		(2,789	)
Benefit obligation, end of year	$	58,495		$	57,766
Change in plan assets:
Fair value of plan assets, beginning of year	$	—		$	—
Employer contributions		3,326			2,789
Benefit payments		(3,326	)		(2,789	)
Fair value of plan assets, end of year	$	—		$	—

Funded status at end of year - net liability	$	(58,495	)	$	(57,766	)

Amounts recognized in accumulated other comprehensive loss:
Net loss	$	17,739		$	18,548
Prior service cost		1,359			1,609
Amounts recognized	$	19,098		$	20,157

	Years Ended December 31,
	2016			2015			2014
Net periodic benefit cost:
Service cost	$	295		$	431		$	296
Interest cost		2,223			2,082			2,198
Amortization of prior service cost		250			250			250
Recognized net actuarial loss		864			992			661
Net periodic benefit cost	$	3,632		$	3,755		$	3,405

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss), before taxes:
Net (gain) loss	$	(810	)	$	(2,694	)	$	6,733
Amortization of prior service cost		(250	)		(250	)		(250	)
Total recognized in other comprehensive income (loss)	$	(1,060	)	$	(2,944	)	$	6,483
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	2,572		$	811		$	9,888

Weighted-average assumptions as of end of year:
Discount rate for benefit obligation		3.71	%		3.86	%		3.57	%
Discount rate for net periodic benefit cost		3.86	%		3.57	%		4.30	%

Estimated Supplemental Retirement Plan Payments and Other Disclosures

The following table presents the expected benefits payments for Trustmark’s supplemental retirement plans ($ in thousands):

Year	Amount
2017	$	3,648
2018		3,766
2019		3,845
2020		4,067
2021		4,113
2022 - 2026		19,982

Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2017 include a loss of $866 thousand and prior service cost of $250 thousand.

Other Benefit Plans

Defined Contribution Plan

Trustmark provides associates with a self-directed 401(k) retirement plan that allows associates to contribute a percentage of base pay, within limits provided by the Internal Revenue Code and accompanying regulations, into the plan. Trustmark matches 100% of associate contributions to the plan based on the amount of each participant’s contributions up to a maximum of 6% of eligible compensation. Associates may become eligible to make elective deferral contributions the first of the month following 30 days of employment. Eligible associates must complete one year of service in order to vest in Trustmark’s matching contributions. Trustmark’s contributions to this plan were $7.2 million in 2016, $7.0 million in 2015 and $6.7 million in 2014.