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EMPLOYEE BENEFITS
 12 Months Ended
Dec. 31, 2014
Compensation and Retirement Disclosure [Abstract]  
EMPLOYEE BENEFITS
EMPLOYEE BENEFITS
Pension Plans
The Company maintains a non-contributory pension plan (the “Plan” or “qualified plan”) that was closed to new hires and re-hires effective January 1, 2009, and frozen to all participants effective December 31, 2012. Benefits under the Plan are based on employees' years of service and highest five-year average eligible compensation. The Plan is funded on a current basis, in compliance with the requirements of ERISA. The Company also provides an unfunded, non-qualified supplemental retirement plan (the “non-qualified plan”), which was closed and frozen consistent with the qualified plan.
RBS Group restructured the administration of employee benefit plans during 2008. As a result, the qualified and non-qualified pension plans of certain RBS Group subsidiaries referred to as the Company's “Affiliates” merged with the Company's pension plans.
In September 2014, in preparation for the IPO, the Company divested portions of the qualified and non-qualified plans to newly established plans sponsored by the Affiliates. Citizens remains the sponsor of the original plans, which provides benefits for its current and former employees. RBS is the plan sponsor of the newly established plans, which provide benefits for current and former employees of the Affiliates. As a result of this divestiture, the Company transferred $129 million of plan assets and $148 million of plan liabilities from the qualified plan to the new plan for Affiliates. The Company also transferred liabilities of $7 million related to the non-qualified plan to the new plan established for Affiliates. The Company made a $1 million cash payment to RBS as a result of divesting the portion of the pension and other benefit plans associated with the Affiliates.
During 2012, the Company offered to vested former employees who had not yet retired a one-time opportunity to receive the value of future defined benefit pension payments as a single lump sum payment. In December 2012, the Company made lump sum payments of $196 million to former employees who accepted the offer, which resulted in a $240 million reduction of the defined benefit obligation and a $92 million settlement charge.
The qualified plan's allocation by asset category is as follows:
 
 
Target Asset Allocation
 
Actual Asset Allocation
Asset Category
 
2015
 
2014
 
2013
Equity securities
 
45-55%
 
49.0
%
 
52.6
%
Debt securities
 
40-50%
 
44.7
%
 
42.9
%
Other
 
0-10%
 
6.3
%
 
4.5
%
Total
 
 
 
100.0
%
 
100.0
%

The written Pension Plan Investment Policy, set forth by the CFG Retirement Committee, formulates those investment principles and guidelines that are appropriate to the needs and objectives of the Plan, and defines the management, structure, and monitoring procedures adopted for the ongoing operation of the aggregate funds of the Plan. Stated goals and objectives are:
•
Total return, consistent with prudent investment management, is the primary goal of the Plan. The nominal rate of return objective should meet or exceed the actuarial rate return target. In addition, assets of the Plan shall be invested to ensure that principal is preserved and enhanced over time;
•
The total return for the overall Plan shall meet or exceed the Plan’s Policy Index;
•
Total portfolio risk exposure should generally rank in the mid-range of comparable funds. Risk-adjusted returns are expected to consistently rank in the top-half of comparable funds; and
•
Investment managers shall exceed the return of the designated benchmark index and rank in the top-half of the appropriate asset class and style universe.
The CFG Retirement Committee reviews, at least annually, the assets and net cash flow of the Plan, discusses the current economic outlook and the Plan’s investment strategy with the investment managers, reviews the current asset mix and its compliance with the Policy, and receives and considers statistics on the investment performance of the Plan.
The equity investment mandates follows a global equity approach. Investments are made in broadly diversified portfolios that contain investments in U.S. and non-U.S. developed and developing economies. The fixed income investment mandates are US investment grade mandates and follow a long duration investment approach. Investment in high-yield bonds are not allowed unless an investment grade bond is downgraded to a non-investment grade category.
The assets of the qualified plan may be invested in any or all of the following asset categories:
a) Equity-oriented investments:
•
domestic and foreign common and preferred stocks, and related rights, warrants, convertible debentures, and other common share equivalents

b) Fixed income-oriented investments:
•
domestic and foreign bonds, debentures and notes
•
mortgages
•
mortgage-backed securities
•
asset-backed securities
•
money market securities or cash
•
financial futures and options on financial futures
•
forward contracts

In addition, derivatives may be employed under the guidelines established for individual managers in order to manage risk exposures and/or to increase the efficiency of strategies. The extent to which derivatives will be utilized will be specified in the investment guidelines for each manager. The Plan will not be exposed to losses through derivatives that exceed the capital invested.
In selecting the expected long-term rate of return on assets, the Company considers the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of this Plan. This includes considering the trust’s asset allocation and the expected returns likely to be earned over the life of the Plan. This basis is consistent with the prior year.
Changes in the fair value of defined benefit pension plan assets, projected benefit obligation, funded status, and accumulated benefit obligation are summarized as follows:
 
Year Ended December 31,
 
Qualified Plan
 
Non-Qualified Plan
(in millions)
2014

(1) 
2013

 
2012

 
2014

(1) 
2013

 
2012

Fair value of plan assets as of January 1

$1,031

 

$998

 

$1,106

 

$—

 

$—

 

$—

Actual return (loss) on plan assets
98

 
111

 
142

 
—

 
—

 
—

Employer contributions
—

 
—

 
—

 
9

 
8

 
8

Settlements
—

 
—

 
(196
)
 
—

 
—

 
—

Divestitures
(129
)
 
—

 
—

 
—

 
—

 
—

Benefits and administrative expenses paid
(77
)
 
(78
)
 
(54
)
 
(9
)
 
(8
)
 
(8
)
Fair value of plan assets as of December 31
923

 
1,031

 
998

 
—

 
—

 
—

Projected benefit obligation
1,093

 
1,026

 
1,185

 
117

 
107

 
116

Pension asset (obligation)

($170
)
 

$5

 

($187
)
 

($117
)
 

($107
)
 

($116
)
Accumulated benefit obligation

$1,093

 

$1,026

 

$1,185

 

$117

 

$107

 

$116

(1) December 31, 2014 amounts excluded $129 million in qualified plan assets, $148 million in qualified plan liabilities and $7 million in non-qualified plan liabilities transferred to Affiliates on September 1, 2014.

The Company’s share of the 2012 single lump sum payments to vested former employees described earlier in this Note for the qualified plan was $146 million as of December 31, 2012.
The pre-tax amounts recognized (for the qualified and non-qualified plans) in AOCI are as follows:
 
Year Ended December 31,
(in millions)

2014

(1) 
2013

Net prior service credit

$—

 

$—

Net actuarial loss
606

 
414

Total loss recognized in accumulated other comprehensive income

$606

 

$414

(1) December 31, 2014 amount excluded $35 million transferred to Affiliates on September 1, 2014.
Approximately $15 million of net actuarial loss recorded in AOCI as of December 31, 2014 is expected to be recognized as a component of net periodic benefit costs during 2015.
Other changes in plan assets and benefit obligations (for the qualified and non-qualified plans) recognized in OCI include the following:
 
Year Ended December 31,
(in millions)
2014

(1) 
2013

 
2012

Net periodic pension (income) cost

($8
)
 

($3
)
 

$150

Net actuarial (gain) loss
237

 
(174
)
 
169

Amortization of prior service credit
—

 
—

 
1

Amortization of net actuarial loss
(10
)
 
(14
)
 
(38
)
Settlement
—

 
—

 
(92
)
Divestiture
(35
)
 
—

 
—

Total recognized in other comprehensive income
192

 
(188
)
 
40

Total recognized in net periodic pension cost and other comprehensive income

$184

 

($191
)
 

$190

(1) Results for the period September 1, 2014 through December 31, 2014 excluded $129 million in qualified plan assets, $148 million in qualified plan liabilities and $7 million in non-qualified plan liabilities transferred to Affiliates on September 1, 2014.
There were no settlements for the years ended December 31, 2014 and December 31, 2013. The Company’s share of the $92 million settlement was $77 million for the year ended December 31, 2012.
The following table presents the components of net periodic (income) cost for the Company's qualified and non-qualified plans:
 
Year Ended December 31
 
Qualified Plan
 
Non-Qualified Plan
 
Total
(in millions)
2014

(1) 
2013

 
2012

 
2014

(1) 
2013

 
2012

 
2014

(1) 
2013

 
2012

Service cost

$3

 

$3

 

$42

 

$—

 

$—

 

$—

 

$3

 

$3

 

$42

Interest cost
47

 
48

 
58

 
5

 
5

 
5

 
52

 
53

 
63

Expected return on plan assets
(73
)
 
(73
)
 
(84
)
 
—

 
—

 
—

 
(73
)
 
(73
)
 
(84
)
Amortization of actuarial loss
9

 
13

 
35

 
1

 
1

 
3

 
10

 
14

 
38

Amortization of prior service cost
—

 
—

 
(1
)
 
—

 
—

 
—

 
—

 
—

 
(1
)
Settlement

$—

 

$—

 

$92

 

$—

 

$—

 

$—

 

$—

 

$—

 

$92

Net periodic pension (income) cost

($14
)
 

($9
)
 

$142

 

$6

 

$6

 

$8

 

($8
)
 

($3
)
 

$150


(1) Results for the period September 1, 2014 through December 31, 2014 excluded $129 million in qualified plan assets, $148 million in qualified plan liabilities and $7 million in non-qualified plan liabilities transferred to Affiliates on September 1, 2014.

Weighted-average rates assumed in determining the actuarial present value of benefit obligations and net periodic benefit cost are as follows:
 
As of and for the
Year Ended December 31,
 
2014

 
2013

 
2012

Assumptions for benefit obligations
 
 
 
 
 
Discount rate--qualified plan
4.125
%
 
5.00
%
 
4.125
%
Discount rate--non-qualified plan
3.875
%
 
4.75
%
 
4.00
%
Compensation increase rate
N/A

 
N/A

 
N/A

Expected long-term rate of return on plan assets
7.50
%
 
7.50
%
 
7.75
%
Assumptions for net periodic pension cost
 
 
 
 
 
Discount rate--qualified plan
5.00/4.25%

(1) 
4.125
%
 
5.25
%
Discount rate--non-qualified plan
4.75/4.00%

(2) 
4.00
%
 
5.00
%
Compensation increases--qualified and non-qualified plans
N/A

 
N/A

 
4.75
%
Expected long-term rate of return on plan assets
7.50
%
 
7.50
%
 
7.75
%
(1) 5.00% for January 1 - August 31, 2014 period; 4.25% for September 1 - December 31, 2014 period.
(2) 4.75% for January 1 - August 31, 2014 period; 4.00% for September 1 - December 31, 2014 period.

The Company expects to contribute approximately $100 million to the qualified pension plan and $8 million to the non-qualified plan in 2015.
The following benefit payments for the qualified and non-qualified plans reflect expected future service, as appropriate, that are expected to be paid, are as follows:
 
(in millions)


Expected benefit payments by fiscal year ended
 
December 31, 2015

$63

December 31, 2016
64

December 31, 2017
64

December 31, 2018
65

December 31, 2019
66

December 31, 2020 - 2024
345



Fair Value Measurements
The following valuation techniques are used to measure the qualified pension plan assets at fair value:
Cash and money market funds:
Cash and money market funds represent instruments that generally mature in one year or less and are valued at cost, which approximates fair value. Cash and money market funds are classified as Level 2.
Mutual funds:
Where observable quoted prices are available in an active market, mutual funds are classified as Level 1 in the fair value hierarchy. If quoted market prices are not available, mutual funds are classified as Level 2 because they currently trade in active markets and the Company expects all future purchases and sales to be valued at current net asset value.
Corporate bonds, municipal obligations, U.S. government obligations and Non-U.S. government obligations:
Corporate bonds, municipal obligations, U.S. government obligations and Non-U.S. government obligations are valued at the quoted market prices determined in the active markets in which the bonds are traded. If quoted market prices are not available, the fair value of the security is estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. These investments are classified as Level 2, because they currently trade in active markets for similar securities and the inputs to the valuations are observable.
Limited partnerships:
Limited partnerships are valued at estimated fair value based on their proportionate share of the limited partnerships’ fair value as recorded in the limited partnerships’ audited financial statements. The limited partnerships invest primarily in readily marketable securities. The limited partnerships allocate gains, losses and expenses to the partners based on ownership percentage as described in the partnership agreements. The instruments that can be transacted at the investment net asset value are classified as Level 2 because the Company expects all future purchases and sales to be valued at current net asset value. The instruments that cannot be transacted at the investment net asset value are classified as Level 3 investments.
Common collective funds:
The fair value is estimated using the net asset value received from the investment companies. The instruments that can be transacted at the investment net asset value are classified as Level 2 because the Company expects all future purchases to be valued at current net asset value. Instruments that cannot be transacted at the investment net asset value are classified as Level 3 investments.
Derivatives-Managed portfolio:
The managed portfolio invests in certain derivatives that are valued at the settlement price determined by the relevant exchange and are classified as Level 2 in the fair value hierarchy.
The following tables present the qualified pension plan assets measured at fair value within the fair value hierarchy:
 
Fair Value Measurements as of December 31, 2014
(in millions)
Total

Level 1

Level 2

Level 3

Cash and money market funds

$18


$—


$18


$—

Mutual funds
 
 
 
 
International equity funds
24

24

—

—

Income funds
39

—

39

—

Common and collective funds
 
 
 
 
Global equities common and collective funds
241

—

241

—

Fixed income common and collective funds
305

—

305

—

Managed portfolio
 
 
 
 
Cash and money market funds
(6
)
—

(6
)
—

Corporate bonds
85

—

85

—

Municipal obligations
2

—

2

—

U.S. government obligations
17

—

17

—

Non-U.S. government obligations
2

—

2

—

Derivative assets - credit default swaps
1

—

1

—

Derivative liabilities - interest rate swaps
(1
)
—

(1
)
—

Derivative liabilities - foreign currency futures
(1
)
—

(1
)
—

Other
14

—

14

—

Limited partnerships
183

—

183

—

Total assets measured at fair value

$923


$24


$899


$—

 
Fair Value Measurements as of December 31, 2013
(in millions)
Total

Level 1

Level 2

Level 3

Cash and money market funds

$8


$—


$8


$—

Mutual funds
 
 
 
 
International equity funds
28

28

—

—

Income funds
43

—

43

—

Common and collective funds
 
 
 
 
International equity common and collective funds
115

—

115

—

Balanced common and collective funds
474

—

474

—

Fixed income common and collective funds
117

—

117

—

Managed portfolio
 
 
 
 
Cash and money market funds
1

—

1

—

Corporate bonds
105

—

105

—

Municipal obligations
2

—

2

—

U.S. government obligations
9

—

9

—

Non-U.S. government obligations
3

—

3

—

Limited partnerships
126

—

126

—

Total assets measured at fair value

$1,031


$28


$1,003


$—


In keeping with the Plan’s fixed income strategic objectives, the December 31, 2013 holdings of the managed fund included exchange traded Eurodollar futures contracts with a notional value of $324 million and an unrealized gain (fair value) of under $1 million.
There were no transfers among Levels 1, 2 or 3 during the years ended December 31, 2014, 2013, and 2012. The fair values of participation units in the common and collective trusts are based on net asset value after adjustments to reflect all fund investments at fair value. The unfunded commitments, redemption frequency, and redemption notice period for those Plan investments that utilize net asset value to determine the fair value as of December 31, 2014 and 2013, are as follows:
 
Fair Value Estimated Using Net Asset Value per Share December 31,
 
 
 
 
 
Unfunded
 
Redemption
 
Redemption
 
Redemption
Investment (dollars in millions)
2014

 
2013

 
Commitment
 
Frequency
 
Restrictions
 
Notice Period
Equity Mutual Fund(1)

$39

 

$43

 
$—
 
Daily
 
None
 
 1-7 days
Common and Collective Funds:
 
 
 
 
 
 
 
 
 
 
 
     International equity fund(2)
—

 
115

 
—
 
Monthly
 
None
 
 3 days
     Global equities funds(3)
241

 
—

 
—
 
Daily
 
None
 
2-3 days
     Balanced funds(4)
—

 
474

 
—
 
Daily
 
None
 
 2-3 days
     Fixed income fund(5)
305

 
117

 
—
 
Daily
 
None
 
 3 days
Limited Partnerships:
 
 
 
 
 
 
 
 
 
 
 
     International equity fund(2)
90

 
—

 
—
 
Monthly
 
None
 
 3 days
     International equity(6)
84

 
116

 
—
 
Daily
 
None
 
 10 days
     Offshore feeder fund(7)
9

 
10

 
—
 
Daily
 
None
 
1-14 days
Total

$768

 

$875

 
$—
 
 
 
 
 
 
(1) The equity mutual fund seeks to offer participants capital appreciation by primarily investing in common stocks via investments in several underlying funds of the same fund family. The principle investment objective is to generate positive total return.
(2) The international equity fund seeks medium to long-term capital appreciation principally through global investments in readily marketable high-quality equity securities of companies with improving fundamentals and attractive valuations.
(3) The global equities funds objective is to track the MSCI All Country World Index.
(4) The balanced funds seek to maximize total return by investing in global equities and fixed income transferable securities which may include some high yield income transferable securities. The funds may invest in securities denominated in currencies other than U.S. dollars.
(5) The fixed income fund seeks to outperform the Barclays US Long Corporate Bond Index or similar benchmark.
(6) The international equity limited partnership seeks to outperform the MSCI World Index by investing primarily in the common stock of Non-U.S. issuers.
(7) The offshore feeder fund operates under a “master/feeder” structure whereby it invests substantially all of its assets in GMO Multi-Strategy Fund (Onshore) (the “master fund”). The investment objective of the master fund is capital appreciation with a target performance of the Citigroup Three-Month Treasury Bill plus 8% with a standard deviation of 5%. The investment adviser plans to pursue the master fund’s objective through a combination of investments in other pooled vehicles.

Postretirement Benefits
The Company and Affiliates merged their postretirement plans into a single postretirement plan in 2008 and continue to provide health care insurance benefits for certain retired employees and their spouses. In preparation for the IPO, the Company divested the portion of the postretirement plan associated with the Affiliates in September 2014. As a result, the Company transferred liabilities of approximately $7 million to the Affiliates.
Employees enrolled in medical coverage immediately prior to retirement and meeting eligibility requirements can elect retiree medical coverage. Employees and covered spouses can continue coverage at the full cost, except for a small group described below. However, coverage must be elected at the time of retirement and cannot be elected at a future date. Spouses may be covered only if the spouse is covered at the time of the employee’s retirement.
The Company reviews coverage on an annual basis and reserves the right to modify or cancel coverage at any renewal date. The Company’s cost sharing for certain full-time employees, who were hired prior to August 1, 1993 with 25 years of service who reach retirement age (under age 65) while employed by the Company is 70%; for those with 15-24 years of service, the Company’s share is 50%. Also, the Company shares in the cost for retiree medical benefits for a closed group of grandfathered arrangements from acquisitions. A small, closed group of retirees receive life insurance coverage. Effective July 1, 2014, the Company utilizes a private health care exchange to provide medical and dental benefits to current and future Medicare-eligible plan participants. The Company provides a fixed subsidy to a small, closed group of retirees and spouses based on the subsidy levels prior to July 1, 2014; retirees and spouses pay the cost of benefits in excess of the fixed subsidy.
The accumulated postretirement benefit obligation was $14 million and $27 million at December 31, 2014 and 2013, respectively. The funded status was a liability of $14 million and $27 million at December 31, 2014 and 2013, respectively, and is reported in other liabilities in the accompanying Consolidated Balance Sheets. The total gain recognized in OCI was $1 million and $367 thousand at December 31, 2014 and 2013, respectively. The Company contributed and paid benefits of $3 million, $3 million, and $2 million during 2014, 2013, and 2012, respectively.
The following benefit payments for the postretirement benefit plan reflect expected future service, as appropriate, that are expected to be paid, are as follows:
 
(in millions)

Expected benefit payments by fiscal year ended
 
December 31, 2015

$1

December 31, 2016
1

December 31, 2017
1

December 31, 2018
1

December 31, 2019
1

December 31, 2020 - 2024
5



The Company expects to contribute approximately $1 million to the plan during 2015.
The weighted-average discount rate assumed in determining the actuarial present value of benefit obligations was 3.50% and 4.625% as of December 31, 2014 and 2013, respectively.
For measurement purposes, a 7.0% and 7.5% assumed annual rate of increase in the per capita cost of covered health care benefits was used for the years ended December 31, 2014 and 2013, respectively. This is expected to decrease gradually down to a 5% ultimate rate over the next several years.
Weighted-average rates assumed in determining the net periodic benefit cost of the postretirement benefits plan are as follows:
 
For the Year Ended December 31,
(dollars in millions)

2014

 
2013

Discount rate
4.625/3.875/3.75%

(1) 
3.875
%
Rate of compensation increase
—
%
 
—
%
Ultimate health care cost trend rate
5.00
%
 
5.00
%
Effect on accumulated postretirement benefit obligation
 
 
 
One percent increase

$—

 

$2

One percent decrease
—

 
(2
)
(1) 4.625% for January 1 - May 31, 2014 period; 3.875% for June 1 - August 31, 2014 period; and, 3.75% for September 1 - December 31, 2014 period.

Postemployment Benefits
The Company provides postemployment benefits to certain former and inactive employees, primarily the Company’s long-term disability plan. Effective January 1, 2013, the Company required claimants receiving long-term disability benefits for 24 months to apply for Medicare approval so that Medicare is the primary payer of medical benefits. Benefit recorded for the years ended December 31, 2014, 2013, and 2012 were $1 million, $3 million, and $1 million, respectively.
401(k) Plan
The Company sponsors an employee tax-deferred 401(k) plan under which individual employee contributions to the plan are matched by the Company. Employees hired or rehired on or after January 1, 2009 receive an additional 3% of earnings, subject to limits set by the Internal Revenue Service. Effective January 1, 2013, contributions are matched at 100% up to an overall limitation of 5% on a pay period basis. Substantially all employees will receive an additional 2% of earnings, subject to limits set by the Internal Revenue Service. Effective January 1, 2015, the match was reduced from 5% to 4%. Amounts contributed by the Company for the years ended December 31, 2014, 2013, and 2012 were $60 million, $70 million, and $60 million, respectively.