Pension and Other Postretirement Benefits

Webster Bank offered a defined benefit noncontributory pension plan through December 31, 2007 for eligible employees who met certain minimum service and age requirements. Pension plan benefits were based upon employee earnings during the period of credited service. A supplemental defined benefit retirement plan was also offered to certain employees who were at the Executive Vice President level or above through December 31, 2007. The supplemental defined benefit retirement plan provides eligible participants with additional pension benefits. Webster also provides postretirement healthcare benefits to certain retired employees (referred to as “other benefits” below).

The Webster Bank Pension Plan and the supplemental defined benefit retirement plan were frozen as of December 31, 2007. Employees hired on or after January 1, 2007 receive no qualified or supplemental retirement income under the plans. All other employees accrue no additional supplemental retirement income after January 1, 2008, and the amount of their qualified and supplemental retirement income will not exceed the amount of benefits determined as of December 31, 2007. There were $114 thousand and $102 thousand in Company contributions to the plans for the years ended December 31, 2013 and 2012, respectively.

December 31^st is the measurement date used for the pension, supplemental pension and postretirement benefit plans. The following table sets forth changes in benefit obligation, changes in plan assets and the funded status of the pension plans and other postretirement benefit plans at December 31:



	Webster Pension						Webster SERP						Other Benefits
(In thousands)	2013			2012			2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation at beginning of year	$	187,145		$	169,176		$	8,660		$	8,093		$	4,229		$	5,126
Service cost	40			30			—			—			—			—
Interest cost	7,365			7,307			289			316			109			177
Actuarial loss (gain)	(17,909		)	15,044			(160		)	353			(239		)	(698		)
Benefits paid and administrative expenses	(5,452		)	(4,412		)	(114		)	(102		)	(278		)	(376		)
Benefit obligation at end of year	171,189			187,145			8,675			8,660			3,821			4,229
Change in plan assets:
Fair value of plan assets at beginning of year	151,191			136,905			—			—			—			—
Actual return on plan assets	16,443			18,698			—			—			—			—
Employer contributions	—			—			114			102			278			376
Benefits paid and administrative expenses	(5,452		)	(4,412		)	(114		)	(102		)	(278		)	(376		)
Fair value of plan assets at end of year	162,182			151,191			—			—			—			—
Underfunded at end of year	$	(9,007	)	$	(35,954	)	$	(8,675	)	$	(8,660	)	$	(3,821	)	$	(4,229	)

The accumulated benefit obligation for the pension plans and the postretirement benefit plan was $183.7 million and $200.0 million at December 31, 2013 and 2012, respectively.

The funded status of the pension and other postretirement benefit plans has been recognized as follows in the accompanying Consolidated Balance Sheets at December 31, 2013 and 2012. An asset is recognized for an overfunded plan, and a liability is recognized for an underfunded plan.



	2013									2012
(In thousands)	Webster Pension			Webster SERP			Other Benefits			Webster Pension			Webster SERP			Other Benefits
Prepaid expenses and other assets	$	—		$	—		$	—		$	—		$	—		$	—
Accrued expenses and other liabilities	(9,007		)	(8,675		)	(3,821		)	(35,954		)	(8,660		)	(4,229		)
Underfunded	$	(9,007	)	$	(8,675	)	$	(3,821	)	$	(35,954	)	$	(8,660	)	$	(4,229	)

The components of accumulated other comprehensive loss related to pensions and other postretirement benefits at December 31, 2013 and 2012 are summarized below. Webster expects that $2.9 million in net actuarial loss and $73 thousand in prior service cost will be recognized as components of net periodic benefit cost in 2014.



	2013						2012
(In thousands)	Webster Pension		Webster SERP		Other Benefits		Webster Pension		Webster SERP		Other Benefits
Net actuarial loss	$	41,267	$	1,419	$	351	$	70,860	$	1,705	$	591
Prior service cost	—		—		159		—		—		232
Total pre-tax amounts included in accumulated other comprehensive loss	$	41,267	$	1,419	$	510	$	70,860	$	1,705	$	823
Deferred tax benefit	14,779		508		183		25,377		611		295
Amounts included in accumulated other comprehensive loss, net of tax	$	26,488	$	911	$	327	$	45,483	$	1,094	$	528

Expected future benefit payments for the pension plans and other postretirement benefit plans are presented below:



(In thousands)	Webster Pension		Webster SERP		Other Benefits
2014	$	6,944	$	2,748	$	387
2015	7,111		1,459		385
2016	6,957		417		378
2017	7,833		380		366
2018	8,104		381		350
2019-2023	46,428		1,162		1,466

The components of the net periodic benefit cost (benefit) for the Company’s defined benefit pension plans were as follows:



	Webster Pension									Webster SERP						Other Benefits
(In thousands)	2013			2012			2011			2013		2012		2011		2013		2012		2011
Net Periodic Benefit Cost Recognized in Net Income:
Service cost (benefits earned during the period)	$	40		$	30		$	175		$	—	$	—	$	—	$	—	$	—	$	—
Interest cost on benefit obligations	7,365			7,307			7,463			289		316		350		109		177		215
Expected return on plan assets	(11,114		)	(10,069		)	(10,550		)	—		—		—		—		—		—
Amortization of prior service cost	—			—			—			—		—		—		73		73		73
Net amortization	6,355			6,103			2,674			125		71		—		—		107		65
Net periodic benefit cost (income) recognized in net income	$	2,646		$	3,371		$	(238	)	$	414	$	387	$	350	$	182	$	357	$	353

Amounts related to the Company’s defined benefit pension plans recognized as a component of other comprehensive income were as follows:



	Webster Pension									Webster SERP								Other Benefits
(In thousands)	2013			2012			2011			2013			2012			2011		2013			2012			2011
Changes in Funded Status Recognized in Other Comprehensive Income:
Net loss (gain)	$	(23,238	)	$	6,416		$	36,272		$	(160	)	$	353		$	760	$	(239	)	$	(698	)	$	452
Amounts reclassified from accumulated other comprehensive income	(6,355		)	(6,103		)	(2,674		)	(125		)	(71		)	—		—			(107		)	(65		)
Amortization of prior service cost	—			—			—			—			—			—		(73		)	(73		)	(73		)
Total loss (gain) recognized in other comprehensive income (loss)	$	(29,593	)	$	313		$	33,598		$	(285	)	$	282		$	760	$	(312	)	$	(878	)	$	314

Fair Value Measurements: The following is a description of the valuation methodologies used for the pension plan assets measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy:

Registered investment companies: Exchange traded funds are quoted at market prices in an exchange and active market, which represent the net asset values of shares held by the plan at year end. Money market funds are shown at cost, which approximates fair value. The exchange traded fund is benchmarked against the S&P 500 Index.

Common collective trusts: There are no readily available market quotations for these funds. The fair value of the fund is based on the securities in the portfolio, which typically is the amount that the fund might reasonably expect to receive for the securities upon a sale. These funds are either valued on a daily or monthly basis. The common collective trust funds performance are benchmarked against the S&P 500, S&P 400, Russell 2000, MSCI ACWI ex US and Barclays Capital U.S. Long Credit indexes.

Investment contract with insurance company: These investments are valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. Holdings of insurance company investment contracts are classified as Level 3 investments.

A summary of fair values of the pension plan assets measured at fair value, including the classification of such instruments pursuant to the valuation hierarchy follows:



	December 31, 2013								December 31, 2012
(In thousands)	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fair value of financial assets of the Plan:
Registered investment companies:
Exchange traded funds	$	29,831	$	29,831	$	—	$	—	$	31,745	$	31,745	$	—	$	—
Cash and cash equivalents	269		269		—		—		14		14		—		—
Common collective funds	130,886		—		130,886		—		118,096		—		118,096		—
Insurance company investment contract	1,196		—		—		1,196		1,336		—		—		1,336
Total	$	162,182	$	30,100	$	130,886	$	1,196	$	151,191	$	31,759	$	118,096	$	1,336

The following table sets forth a summary of changes in the fair value of the plan’s level 3 assets for the years ended December 31, 2013 and 2012:



(In thousands)	2013			2012
Level 3—pension assets, beginning of period	$	1,336		$	1,401
Transfers into Level 3	—			—
Unrealized gains relating to instruments still held at the reporting date	(39		)	21
Benefit payments, administrative expenses and interest income, net	(101		)	(86		)
Balance, end of year	$	1,196		$	1,336

The allocation of the fair value of the pension plan’s assets at the December 31 measurement date is shown in the following table:



	2013		2012
Assets Category:
Fixed income investments	50	%	40	%
Equity investments	50		60
Total	100	%	100	%

The Retirement Plan Committee (the “Committee”) is a fiduciary under ERISA and is charged with the responsibility for directing and monitoring the investment management of the pension plan. To assist the Committee in this function, it engages the services of investment managers and advisors who possess the necessary expertise to manage the pension plan assets within the established investment policy guidelines and objectives. The statement of investment policy guidelines and objectives is reviewed no less often than annually by the Committee.

The investment policy guidelines in effect as of December 31, 2013 set the following asset allocation targets:



	Target
Assets Category:
Fixed income investments	50	%
Equity investments	50
Total	100	%

The primary objective of the pension plan investment strategy is to provide long-term total return through capital appreciation and dividend and interest income. The Plan invests in registered investment companies and bank collective trusts. The performance benchmarks for the plan include a composite of the Standard and Poor’s 500 Stock Index, the S&P 400 Mid Cap Index, the Russell 2000 Index, the MSCI ACWI ex U.S. Index and the Barclays Capital U.S. Long Credit Index. The volatility, as measured by standard deviation, of the pension plan’s assets should not exceed that of the Composite Index. The investment policy guidelines allow the plan assets to be invested in certain types of cash equivalents, fixed income securities, equity securities, mutual funds and collective trusts. Investments in mutual funds and collective trust funds are substantially limited to funds with the securities characteristics of their assigned benchmarks.

The basis for Webster’s 2013 assumption for the expected long-term rate of return on assets is as follows:



	Portfolio		Return
Asset Category:
Fixed income investments	50	%	5.4	%
U.S. equity investments	35		8.9
International equity investments	15		9.3

The investment strategy for the pension plan assets is to maintain a diversified portfolio designed to achieve our target rate of an average long-term rate of 7.25%. While we believe we can achieve a long-term average rate of return of 7.25%, we cannot be certain that portfolio will perform to our expectations. Actual asset allocations are monitored monthly, and rebalancing actions are executed at least quarterly, if needed.

Weighted-average assumptions used to determine benefit obligations at December 31 are as follows:



	Webster Pension				Webster SERP				Other Benefits
	2013		2012		2013		2012		2013		2012
Discount rate	4.80	%	3.90	%	4.25	%	3.40	%	3.75	%	2.85	%
Rate of compensation increase	n/a		n/a		n/a		n/a		n/a		n/a

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows:



	Webster Pension						Webster SERP						Other Benefits
	2013		2012		2011		2013		2012		2011		2013		2012		2011
Discount rate	3.90	%	4.35	%	5.50	%	3.40	%	4.00	%	5.10	%	2.85	%	3.60	%	4.55	%
Expected long-term return on assets	7.25	%	7.50	%	7.75	%	n/a		n/a		n/a		n/a		n/a		n/a
Rate of compensation increase	n/a		n/a		n/a		n/a		n/a		n/a		n/a		n/a		n/a
Assumed healthcare cost trend	n/a		n/a		n/a		n/a		n/a		n/a		8.0	%	8.0	%	8.0	%

The assumed healthcare cost-trend rate is 8.0% for 2013 and 2014, declining 1.0% each year after until 2017 when the rate will be 5.0%. An increase of 1.0% in the assumed healthcare cost trend rate for 2013 would have increased the net periodic postretirement benefit cost by $6 thousand and increased the accumulated benefit obligation by $206 thousand. A decrease of 1.0% in the assumed healthcare cost trend rate for 2013 would have decreased the net periodic postretirement benefit cost by $5 thousand and decreased the accumulated benefit obligation by $185 thousand.

Multiple-employer plan

Webster Bank is a sponsor of a multiple-employer plan administered by Pentegra (the “Fund”) for the benefit of former employees of a bank acquired by Webster. The Fund does not segregate the assets or liabilities of its participating employers in the ongoing administration of this plan. According to the Fund’s administrators, as of July 1, 2013, the date of the latest actuarial valuation, Webster’s portion of the plan was underfunded by $2.2 million.

The following table sets forth contributions and funding status of the Fund:



	Contributions by Webster Bank Period Ending December 31,						Funded Status of Plan		Surcharge Imposed
(In thousands) EIN/Pension Plan Number	2013		2012		2011		2013	2012
13-5645888/333	$	870	$	1,230	$	1,429	At least 80 percent	At least 80 percent	No

Multi-employer accounting is applied to the Fund. As a multiple-employer plan, there are no collective bargained contracts affecting the Fund's contribution or benefit provisions. All shortfall amortization bases are being amortized over seven years, as required by the Pension Protection Act.

All benefit accruals were frozen as of September 1, 2004.

The Company's contributions to the Fund did not exceed more than 5 percent of total Fund contributions for the years ended December 31, 2013, 2012 and 2011.

Webster Bank Retirement Savings Plan

Webster provides an employee retirement savings plan governed by section 401(k) of the Internal Revenue Code (the "Code”). For the period March 1, 2009 through February 1, 2012, Webster matched 100% of a participant’s pre-tax contributions to the extent the pre-tax contributions do not exceed 5% of compensation. If a participant fails to make a pre-tax contribution election within 90 days of his or her date of hire, automatic pre-tax contributions will commence 90 days after his or her date of hire at a rate equal to 3% of compensation. The 2% non-elective contribution has been eliminated; however, Webster continues to contribute the special transition credits.

Effective February 1, 2012, Webster matches 100% of the first 2% and 50% of the next 6% of employees’ pretax contributions based on annual compensation. Webster continues to contribute the special transition credits under the employee retirement savings plan.

Compensation expense included $11.2 million, $11.4 million and $12.1 million for the years ending December 31, 2013, 2012 and 2011, respectively, for employer contributions.

Webster Financial Corporation Employee Stock Purchase Plan

The Webster Financial Corporation Employee Stock Purchase Plan ("ESPP") is a shareholder approved plan governed by section 423 of the Code under which eligible employees may elect to purchase the Company's common stock through payroll deductions, of between 1% and 10%, up to a maximum $25,000 during any calendar year. Effective April 1, 2013, participants are able to purchase shares at a price equal to 95% of the fair market value of the stock as of the end of each three-month offering period.