12. Pension plans and other postretirement benefits

The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. The Company uses a December 31 measurement date for all of its plans.

Net periodic pension expense for defined benefit plans consisted of the following:

	Year Ended December 31
	2016			2015			2014
	(In thousands)

Service cost	$	25,037		$	24,372		$	20,520
Interest cost on benefit obligation		83,410			72,731			69,162
Expected return on plan assets		(108,473	)		(96,155	)		(91,568	)
Amortization of prior service credit		(3,228	)		(6,005	)		(6,552	)
Recognized net actuarial loss		30,145			44,825			14,494
Net periodic pension expense	$	26,891		$	39,768		$	6,056

Net other postretirement benefits expense for defined benefit plans consisted of the following:

	Year Ended December 31
	2016			2015			2014
	(In thousands)

Service cost	$	1,595		$	914		$	605
Interest cost on benefit obligation		4,971			2,995			2,778
Amortization of prior service credit		(1,359	)		(1,359	)		(1,359	)
Recognized net actuarial loss		60			106			—
Net other postretirement benefits expense	$	5,267		$	2,656		$	2,024

Data relating to the funding position of the defined benefit plans were as follows:

	Pension Benefits						Other Postretirement Benefits
	2016			2015			2016			2015
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	2,004,531		$	1,813,409		$	121,497		$	67,502
Service cost		25,037			24,372			1,595			914
Interest cost		83,410			72,731			4,971			2,995
Plan participants’ contributions		—			—			3,085			2,619
Amendments and curtailments		(28,308	)		—			—			—
Actuarial (gain) loss		4,827			(83,593	)		(10,553	)		(2,431	)
Business combinations		—			247,340			—			56,539
Medicare Part D reimbursement		—			—			592			420
Benefits paid		(82,339	)		(69,728	)		(11,265	)		(7,061	)
Benefit obligation at end of year		2,007,158			2,004,531			109,922			121,497
Change in plan assets:
Fair value of plan assets at beginning of year		1,625,134			1,505,661			—			—
Actual return on plan assets		88,564			(14,069	)		—			—
Employer contributions		10,772			8,367			7,588			4,022
Plan participants’ contributions		—			—			3,085			2,619
Business combinations		—			194,903			—			—
Medicare Part D reimbursement		—			—			592			420
Benefits paid		(82,339	)		(69,728	)		(11,265	)		(7,061	)
Fair value of plan assets at end of year		1,642,131			1,625,134			—			—
Funded status	$	(365,027	)	$	(379,397	)	$	(109,922	)	$	(121,497	)
Accrued liabilities recognized in the consolidated balance sheet	$	(365,027	)	$	(379,397	)	$	(109,922	)	$	(121,497	)
Amounts recognized in accumulated other comprehensive income (“AOCI”) were:
Net loss (gain)	$	460,562		$	494,279		$	(6,413	)	$	4,200
Net prior service cost (credit)		3,505			277			(7,737	)		(9,096	)
Pre-tax adjustment to AOCI		464,067			494,556			(14,150	)		(4,896	)
Taxes		(182,611	)		(194,608	)		5,568			1,927
Net adjustment to AOCI	$	281,456		$	299,948		$	(8,582	)	$	(2,969	)

The Company has an unfunded supplemental pension plan for certain key executives and others. The projected benefit obligation and accumulated benefit obligation included in the preceding data related to such plan were $160,433,000 as of December 31, 2016 and $161,657,000 as of December 31, 2015.

The accumulated benefit obligation for all defined benefit pension plans was $1,979,225,000 and $1,951,425,000 at December 31, 2016 and 2015, respectively.

GAAP requires an employer to recognize in its balance sheet as an asset or liability the overfunded or underfunded status of a defined benefit postretirement plan, measured as the difference between the fair value of plan assets and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. Gains or losses and prior service costs or credits that arise during the period, but are not included as components of net periodic benefit expense, are recognized as a component of other comprehensive income. As indicated in the preceding table, as of December 31, 2016 the Company recorded a minimum liability adjustment of $449,916,000 ($464,066,000 related to pension plans and $(14,150,000) related to other postretirement benefits) with a corresponding reduction of shareholders’ equity, net of applicable deferred taxes, of $272,874,000. In aggregate, the benefit plans realized a net gain during 2016 that allowed the Company to decrease its minimum liability adjustment from that which was recorded at December 31, 2015 by $39,743,000 with a corresponding increase to shareholders’ equity that, net of applicable deferred taxes, was $24,105,000. The net gain reflects the amortization of unrealized losses previously recorded in other comprehensive income and the reduction of future benefit accruals under the former Hudson City retirement plan upon its merger with the Company’s qualified pension plan as of December 31, 2016. The table below reflects the changes in plan assets and benefit obligations recognized in other comprehensive income related to the Company’s postretirement benefit plans.

	Pension Plans			Other Postretirement Benefit Plans			Total
	(In thousands)
2016
Net loss (gain)	$	24,736		$	(10,553	)	$	14,183
Amendments and curtailments		(28,308	)		—			(28,308	)
Amortization of prior service credit		3,228			1,359			4,587
Amortization of actuarial loss		(30,145	)		(60	)		(30,205	)
Total recognized in other comprehensive income, pre-tax	$	(30,489	)	$	(9,254	)	$	(39,743	)
2015
Net loss (gain)	$	26,631		$	(2,431	)	$	24,200
Amortization of prior service credit		6,005			1,359			7,364
Amortization of actuarial loss		(44,825	)		(106	)		(44,931	)
Total recognized in other comprehensive income, pre-tax	$	(12,189	)	$	(1,178	)	$	(13,367	)

The following table reflects the amortization of amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit expense during 2017:

	Pension Plans		Other Postretirement Benefit Plans
	(In thousands)

Amortization of net prior service cost (credit)	$	557	$	(1,359	)
Amortization of net loss (gain)		27,196		(44	)

The Company also provides a qualified defined contribution pension plan to eligible employees who were not participants in the defined benefit pension plan as of December 31, 2005 and to other employees who have elected to participate in the defined contribution plan. The Company makes contributions to the defined contribution plan each year in an amount that is based on an individual participant’s total compensation (generally defined as total wages, incentive compensation, commissions and bonuses) and years of service. Participants do not contribute to the defined contribution pension plan. Pension expense recorded in 2016, 2015 and 2014 associated with the defined contribution pension plan was approximately $25 million, $23 million and $22 million, respectively.

Assumptions

The assumed weighted-average rates used to determine benefit obligations at December 31 were:

	Pension Benefits						Other Postretirement Benefits
	2016			2015			2016			2015

Discount rate		4.00	%		4.25	%		4.00	%		4.25	%
Rate of increase in future compensation levels		4.39	%		4.37	%		—			—

The assumed weighted-average rates used to determine net benefit expense for the years ended December 31 were:

	Pension Benefits									Other Postretirement Benefits
	2016			2015			2014			2016			2015			2014

Discount rate		4.25	%		4.00	%		4.75	%		4.25	%		4.00	%		4.75	%
Long-term rate of return on plan assets		6.50	%		6.50	%		6.50	%		—			—			—
Rate of increase in future compensation levels		4.37	%		4.39	%		4.42	%		—			—			—

The expected long-term rate of return assumption as of each measurement date was developed through analysis of historical market returns, current market conditions, anticipated future asset allocations, the funds’ past experience, and expectations on potential future market returns. The expected rate of return assumption represents a long-term average view of the performance of the plan assets, a return that may or may not be achieved during any one calendar year.

For measurement of other postretirement benefits, a 6.50% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2017. The rate was assumed to decrease to 5.00% over 12 years. A one-percentage point change in assumed health care cost trend rates would have had the following effects:

	+1%			-1%
	(In thousands)
Increase (decrease) in:
Service and interest cost	$	106	$	(87	)
Accumulated postretirement benefit obligation		1,548		(1,400	)

Plan assets

The Company’s policy is to invest the pension plan assets in a prudent manner for the purpose of providing benefit payments to participants and mitigating reasonable expenses of administration. The Company’s investment strategy is designed to provide a total return that, over the long-term, places an emphasis on the preservation of capital. The strategy attempts to maximize investment returns on assets at a level of risk deemed appropriate by the Company while complying with applicable regulations and laws. The investment strategy utilizes asset diversification as a principal determinant for establishing an appropriate risk profile while emphasizing total return realized from capital appreciation, dividends and interest income. The target allocations for plan assets are generally 25 to 60 percent equity securities, 10 to 65 percent debt securities, and 10 to 85 percent money-market funds/cash equivalents and other investments, although holdings could be more or less than these general guidelines based on market conditions at the time and actions taken or recommended by the investment managers providing advice to the Company. Assets are managed by a combination of internal and external investment managers. Equity securities may include investments in domestic and international equities, through individual securities, mutual funds and exchange-traded funds. Debt securities may include investments in corporate bonds of companies from diversified industries, mortgage-backed securities guaranteed by government agencies and U.S. Treasury securities, through individual securities and mutual funds. Additionally, the Company’s defined benefit pension plan held $234,969,000 (14.3% of total assets) of real estate, private investments, hedge funds and other investments at December 31, 2016. Returns on invested assets are periodically compared with target market indices for each asset type to aid management in evaluating such returns. Furthermore, management regularly reviews the investment policy and may, if deemed appropriate, make changes to the target allocations noted above.

The fair values of the Company’s pension plan assets at December 31, 2016, by asset category, were as follows:

	Fair Value Measurement of Plan Assets At December 31, 2016
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Asset category:
Money-market funds	$	39,556	$	35,562	$	3,994	$	—
Equity securities:
M&T		164,474		164,474		—		—
Domestic(a)		200,595		200,595		—		—
International(b)		14,364		14,364		—		—
Mutual funds:
Domestic(a)		250,472		250,472		—		—
International(b)		290,172		290,172		—		—
		920,077		920,077		—		—
Debt securities:
Corporate(c)		104,909		—		104,909		—
Government		121,869		—		121,869		—
International		13,073		—		13,073		—
Mutual funds:
Domestic(d)		205,847		205,847		—		—
		445,698		205,847		239,851		—
Other:
Diversified mutual fund		92,691		92,691		—		—
Real estate partnerships		3,112		768		—		2,344
Private equity		21,924		—		—		21,924
Hedge funds		106,250		85,270		—		20,980
Guaranteed deposit fund		10,992		—		—		10,992
		234,969		178,729		—		56,240
Total(e)	$	1,640,300	$	1,340,215	$	243,845	$	56,240

The fair values of the Company’s pension plan assets at December 31, 2015, by asset category, were as follows:

	Fair Value Measurement of Plan Assets At December 31, 2015
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Asset category:
Money-market funds	$	69,634	$	37,958	$	31,676	$	—
Equity securities:
M&T		148,800		148,800		—		—
Domestic(a)		106,993		106,993		—		—
International(b)		9,433		9,433		—		—
Mutual funds:
Domestic(a)		445,663		445,663		—		—
International(b)		348,869		348,869		—		—
		1,059,758		1,059,758		—		—
Debt securities:
Corporate(c)		105,499		—		105,499		—
Government		120,346		—		120,346		—
International		7,492		—		7,492		—
Mutual funds:
Domestic(d)		51,028		51,028		—		—
		284,365		51,028		233,337		—
Other:
Diversified mutual fund		70,343		70,343		—		—
Real estate partnerships		2,787		—		—		2,787
Private equity		5,603		—		—		5,603
Hedge funds		119,549		81,861		—		37,688
Guaranteed deposit fund		11,596		—		—		11,596
		209,878		152,204		—		57,674
Total(e)	$	1,623,635	$	1,300,948	$	265,013	$	57,674

(a)	This category is comprised of equities of companies primarily within the mid-cap and large-cap sectors of the U.S. economy and range across diverse industries.

(b)	This category is comprised of equities in companies primarily within the mid-cap and large-cap sectors of international markets mainly in developed markets in Europe and the Pacific Rim.

(c)	This category represents investment grade bonds of U.S. issuers from diverse industries.

(d)

Approximately 75% of the mutual funds were invested in investment grade bonds and 25% in high-yielding bonds at December 31, 2016. Approximately 33% of the mutual funds were invested in investment grade bonds and 67% in high-yielding bonds at December 31, 2015. The holdings within the funds were spread across diverse industries.

(e)	Excludes dividends and interest receivable totaling $1,831,000 and $1,499,000 at December 31, 2016 and 2015, respectively.

Pension plan assets included common stock of M&T with a fair value of $164,474,000 (10.0% of total plan assets) at December 31, 2016 and $148,800,000 (9.2% of total plan assets) at December 31, 2015. No other investment in securities of a non-U.S. Government or government agency issuer exceeded ten percent of plan assets at December 31, 2016. Assets subject to Level 3 valuations did not constitute a significant portion of plan assets at December 31, 2016 or December 31, 2015.

The changes in Level 3 pension plan assets measured at estimated fair value on a recurring basis during the year ended December 31, 2016 were as follows:

	Balance – January 1, 2016		Purchases (Sales)			Total Realized/ Unrealized Gains (Losses)			Balance – December 31, 2016
	(In thousands)
Other
Private real estate	$	2,787	$	(1,111	)	$	668		$	2,344
Private equity		5,603		17,177			(856	)		21,924
Hedge funds		37,688		(16,337	)		(371	)		20,980
Guaranteed deposit fund		11,596		(540	)		(64	)		10,992
Total	$	57,674	$	(811	)	$	(623	)	$	56,240

The Company makes contributions to its funded qualified defined benefit pension plan as required by government regulation or as deemed appropriate by management after considering factors such as the fair value of plan assets, expected returns on such assets, and the present value of benefit obligations of the plan. Subject to the impact of actual events and circumstances that may occur in 2017, the Company may make contributions to the qualified defined benefit pension plan in 2017, but the amount of any such contribution has not yet been determined. The Company did not make any contributions to the plan in 2016 or 2015. The Company regularly funds the payment of benefit obligations for the supplemental defined benefit pension and postretirement benefit plans because such plans do not hold assets for investment. Payments made by the Company for supplemental pension benefits were $10,772,000 and $8,367,000 in 2016 and 2015, respectively. Payments made by the Company for postretirement benefits were $7,588,000 and $4,022,000 in 2016 and 2015, respectively. Payments for supplemental pension and other postretirement benefits for 2017 are not expected to differ from those made in 2016 by an amount that will be material to the Company’s consolidated financial position.

Estimated benefits expected to be paid in future years related to the Company’s defined benefit pension and other postretirement benefits plans are as follows:

	Pension Benefits		Other Postretirement Benefits
	(In thousands)
Year ending December 31:
2017	$	81,927	$	8,142
2018		85,715		8,220
2019		91,819		8,251
2020		96,465		8,259
2021		101,698		8,235
2022 through 2026		568,830		40,282

The Company has a retirement savings plan (“RSP”) that is a defined contribution plan in which eligible employees of the Company may defer up to 50% of qualified compensation via contributions to the plan. The Company makes an employer matching contribution in an amount equal to 75% of an employee’s contribution, up to 4.5% of the employee’s qualified compensation. Employees’ accounts, including employee contributions, employer matching contributions and accumulated earnings thereon, are at all times fully vested and nonforfeitable. Employee benefits expense resulting from the Company’s contributions to the RSP totaled $36,766,000, $34,145,000 and $32,466,000 in 2016, 2015 and 2014, respectively.