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 of 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 effective December 31, 2012.

The qualified plan’s allocation by asset category is presented below:



	Target Asset Allocation	Actual Asset Allocation
Asset Category	2016	2016		2015
Equity securities	45-55%	49.6	%	47.1	%
Debt securities	40-50%	45.2	%	47.3	%
Other	0-10%	5.2	%	5.6	%
Total		100.0	%	100.0	%

The written Pension Plan Investment Policy, set forth by the CFG Retirement Committee, formulates investment principles and guidelines that are appropriate for 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:


•	Equity-oriented investments:


◦	domestic and foreign common and preferred stocks, and related rights, warrants, convertible debentures, and other common share equivalents


•	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 are 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 presented below:



	Year Ended December 31,
	Qualified Plan						Non-Qualified Plan
(in millions)	2016			2015			2016			2015
Fair value of plan assets as of January 1		$917			$923			$—			$—
Actual return (loss) on plan assets	82			(41		)	—			—
Employer contributions	75			100			8			9
Benefits and administrative expenses paid	(59		)	(65		)	(8		)	(9		)
Fair value of plan assets as of December 31	1,015			917			—			—
Projected benefit obligation	1,024			977			105			103
Pension obligation		($9	)		($60	)		($105	)		($103	)
Accumulated benefit obligation		$1,024			$977			$105			$103

We recognized net actuarial losses (for the qualified and non-qualified plans) in AOCI resulting in an ending balance of $634 million and $599 million at December 31, 2016 and 2015, respectively. Approximately $18 million of net actuarial loss recorded in AOCI as of December 31, 2016 is expected to be recognized as a component of net periodic benefit costs during 2017.

Other changes in plan assets and benefit obligations recognized in OCI are presented below:



	Year Ended December 31,
(in millions)	2016			2015			2014
Net periodic pension income		($1	)		($7	)		($8	)
Net actuarial loss	54			7			237
Amortization of prior service credit	1			—			—
Amortization of net actuarial loss	(16		)	(15		)	(10		)
Divestiture	—			—			(35		)
Total recognized in other comprehensive income (loss)	39			(8		)	192
Total recognized in net periodic pension cost and other comprehensive income (loss)		$38			($15	)		$184

The components of net periodic pension (income) cost for the Company's qualified and non-qualified plans are presented below:



	Year Ended December 31,
	Qualified Plan									Non-Qualified Plan						Total
(in millions)	2016			2015			2014			2016		2015		2014		2016			2015			2014
Service cost		$3			$3			$3			$—		$—		$—		$3			$3			$3
Interest cost	44			44			47			4		4		5		48			48			52
Expected return on plan assets	(68		)	(74		)	(73		)	—		—		—		(68		)	(74		)	(73		)
Amortization of actuarial loss	14			13			9			2		2		1		16			15			10
Net periodic pension (income) cost		($7	)		($14	)		($14	)		$6		$6		$6		($1	)		($8	)		($8	)

Weighted-average rates assumed in determining the actuarial present value of benefit obligations and net periodic benefit cost are presented below:



	As of and for the Year Ended December 31,
	2016		2015		2014
Assumptions for benefit obligations
Discount rate-qualified plan	4.190	%	4.640	%	4.125	%
Discount rate-non-qualified plan	4.050	%	4.540	%	3.875	%
Expected long-term rate of return on plan assets	7.500	%	7.500	%	7.500	%
Assumptions for net periodic pension cost
Discount rate-qualified plan	4.640	%	4.125	%	5.00/4.25%		⁽¹⁾
Discount rate-non-qualified plan	4.540	%	3.875	%	4.75/4.00%		⁽²⁾
Expected long-term rate of return on plan assets	7.500	%	7.500	%	7.500	%

⁽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.

On September 7, 2016, the Company made a contribution of $75 million to the qualified plan. The Company expects to contribute $8 million to the non-qualified plan in 2017. No contribution to the qualified plan is expected in 2017.

Expected future benefit payments for the qualified and non-qualified plans are presented below:



	(in millions)
Expected benefit payments by fiscal year ended
December 31, 2017		$62
December 31, 2018	63
December 31, 2019	63
December 31, 2020	64
December 31, 2021	66
December 31, 2022 - 2026	339

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.

U.S. government obligations, municipal obligations, corporate bonds, asset-backed securities and mortgage-backed securities-Managed portfolio:

U.S. government obligations, municipal obligations, corporate bonds, asset-backed securities and mortgage-backed securities are valued at the quoted market prices determined in the active markets in which the securities are traded. If quoted market prices are not available, the fair value for the security is estimated by 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.

The following table presents qualified pension plan assets measured at fair value within the fair value hierarchy:



	Fair Value Measurements as of December 31, 2016
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and money market funds		$—		$—		$—		$—
Managed portfolio assets:
Cash and money market funds	2		—		2		—
U.S. government obligations	10		—		10		—
Municipal obligations	2		—		2		—
Corporate bonds	89		—		89		—
Asset-backed securities	1		—		1		—
Total assets in the fair value hierarchy	104		—		104		—
Investments measured at net asset value ⁽¹⁾	918
Assets at fair value at measurement date of December 31, 2016		$1,022		$—		$104		$—

⁽¹⁾Certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

The following table presents qualified pension plan assets and liabilities measured at fair value within the fair value hierarchy:



	Fair Value Measurements as of December 31, 2015
(in millions)	Total		Level 1		Level 2		Level 3
Assets:
Cash and money market funds		$4		$—		$4		$—
Mutual funds
International equity funds	47		47		—		—
Managed portfolio assets
Cash and money market funds	4		—		4		—
U.S. government obligations	35		—		35		—
Municipal obligations	1		—		1		—
Corporate bonds	84		—		84		—
Asset-backed securities	5		—		5		—
Mortgage-backed securities	1		—		1		—
Derivative assets - interest rate forwards	1		—		1		—
Total assets in the fair value hierarchy	182		47		135		—
Investments measured at net asset value	767
Assets at fair value at measurement date of December 31, 2015		$949		$47		$135		$—

Liabilities:
Managed portfolio liabilities:
Derivative liabilities - interest rate forwards		$1		$—		$1		$—
Derivative liabilities - credit default swaps	1		—		1		—
Total liabilities measured at fair value		$2		$—		$2		$—

There were no transfers among Levels 1, 2 or 3 during the years ended December 31, 2016, and 2015. The fair values of participation units held in the common and collective funds and limited partnerships are based on NAV.

The following table presents the unfunded commitments, redemption frequency and redemption notice period for Plan investments that utilize net asset value to determine fair value:

Fair Value Estimated Using Net Asset Value per Share December 31,

Unfunded

Redemption

Investment (dollars in millions)

2016

2015

Commitment

Frequency

Restrictions

Notice Period

Liquid Cash Fund

$—

Daily

None

Same day before 5:30pm ET

Equity Mutual Fund⁽¹⁾

—

Daily

None

7 days

Common and Collective Funds:

Global equities funds

386

220

—

Daily

None

3 days

Balanced funds

193

196

—

Daily

None

2 days

Fixed income fund

133

120

—

Daily

None

3 days

Managed Portfolio - Fixed Income Mutual Fund ⁽²⁾

—

Daily

None

1 days

Limited Partnerships:

International equity fund

117

107

—

Monthly

None

3 days

International equity

—

Daily

None

10 days

Offshore feeder fund

—

Monthly

None

14 days

Total

$918

$767

$—

⁽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 principal investment objective is to generate positive total return.

⁽²⁾ The managed portfolio fixed income mutual fund seeks to outperform the Barclay’s U.S. Long Credit Index or similar benchmark.

Postretirement Benefits

The Company provides health care insurance benefits to eligible retirees and their spouses through age 65, at which time Medicare becomes the primary coverage provider.

Employees enrolled in medical coverage immediately prior to retirement and meeting eligibility requirements can elect retiree medical coverage. 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. 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.

Expected future benefit payments for the postretirement benefit plan are presented below:



	(in millions)
Expected benefit payments by fiscal year ended
December 31, 2017		$2
December 31, 2018	2
December 31, 2019	1
December 31, 2020	1
December 31, 2021	1
December 31, 2022 - 2026	6

The Company expects to contribute $2 million to the plan during 2017.

The discount rate assumed in determining the actuarial present value of benefit obligations was 3.53% as of December 31, 2016 compared with 3.93% as of December 31, 2015.

For measurement purposes, the assumed annual rate of increase in the per capita cost of covered health care benefits was 7% in December 31, 2016 and 2015, and is expected to decrease gradually to 5.0% by 2022.

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)	2016			2015
Discount rate	3.930		%	3.500		%
Rate of compensation increase	N/A			N/A
Ultimate health care cost trend rate	5.000		%	5.000		%

Effect on accumulated postretirement benefit obligation:
One percent increase in assumed health care cost trend		$—			$—
One percent decrease in assumed health care cost trend	—			—

401(k) Plan

The Company sponsors a 401(k) plan under which employee tax-deferred/Roth after-tax contributions to the plan are matched by the Company after completion of one year of service. Effective January 1, 2013, contributions were matched at 100% up to an overall limitation of 5% on a pay period basis. Subsequently, effective January 1, 2015, 100% of matching contributions was reduced from 5% to 4% on a pay period basis. Substantially all employees will receive an additional 2% of earnings after completion of one year of service, subject to limits set by the Internal Revenue Service. Amounts contributed and expensed by the Company were $55 million in 2016 compared to $52 million in 2015 and $60 million in 2014.