Retirement Benefit Plans

Defined benefit 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 are based upon employee earnings during the period of credited service. A SERP was also offered to certain employees who were at the Executive Vice President level or above through December 31, 2007. The SERP provides eligible participants with additional pension benefits. Webster Bank also provides other postretirement healthcare benefits to certain retired employees.

The Webster Bank Pension Plan and the SERP were frozen as of December 31, 2007. No additional benefits have been accrued since that time. Employees hired on or after January 1, 2007 receive no qualified or supplemental retirement income under the plans. All other employees accrue no additional qualified or 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.

During 2016, the Company made a discretionary $20.0 million contribution to the Webster Bank Pension Plan. Additional contributions to the Webster Bank Pension Plan will be made, as deemed appropriate by management, in conjunction with information provided by the plan’s actuaries.

There were $124 thousand and $241 thousand in company contributions to the SERP for the years ended December 31, 2016 and 2015, respectively.

The mortality assumptions used in the pension liability assessment for the year ended December 31, 2016 were the RP-2014 adjusted to 2006 dataset mortality table projected to measurement date with Mercer's mortality improvement scale MMP-2007.

The measurement date is December 31 for the Webster Bank Pension Plan, SERP, and other postretirement healthcare benefits.

The following table sets forth changes in benefit obligation, changes in plan assets, and the funded status of the defined benefit pension and other postretirement benefits at December 31:



	Pension Plan						SERP						Other Benefits
(In thousands)	2016			2015			2016			2015			2016			2015
Change in benefit obligation:
Beginning balance	$	203,645		$	210,548		$	10,518		$	10,041		$	3,853		$	4,133
Service cost	45			45			—			—			—			—
Interest cost	8,441			8,008			389			345			125			123
Actuarial loss (gain)	6,108			(8,588		)	1,023			373			59			(178		)
Benefits paid and administrative expenses	(6,731		)	(6,368		)	(124		)	(241		)	(185		)	(225		)
Ending balance	211,508			203,645			11,806			10,518			3,852			3,853
Change in plan assets:
Beginning balance	161,369			172,976			—			—			—			—
Actual return on plan assets	18,284			(5,239		)	—			—			—			—
Employer contributions	20,000			—			124			241			185			225
Benefits paid and administrative expenses	(6,731		)	(6,368		)	(124		)	(241		)	(185		)	(225		)
Ending balance	192,922			161,369			—			—			—			—
Funded status of the plan at year end	$	(18,586	)	$	(42,276	)	$	(11,806	)	$	(10,518	)	$	(3,852	)	$	(3,853	)

The accumulated benefit obligation for the defined benefit pension and other postretirement benefits was $227.2 million and $218.0 million at December 31, 2016 and 2015, respectively.

Amounts recognized in the accompanying Consolidated Balance Sheets consist of the following:



	Pension Plan						SERP						Other Benefits
(In thousands)	2016			2015			2016			2015			2016			2015
Accrued expenses and other liabilities	$	(18,586	)	$	(42,276	)	$	(11,806	)	$	(10,518	)	$	(3,852	)	$	(3,853	)

The Company expects that $6.5 million in net actuarial loss will be recognized as a component of net periodic benefit cost in 2017.

The components of AOCL related to the defined benefit pension and other postretirement benefits at December 31, 2016 and 2015 are summarized below:



	Pension Plan				SERP				Other Benefits
(In thousands)	2016		2015		2016		2015		2016		2015
Net actuarial loss	$	65,857	$	73,238	$	3,009	$	2,412	$	616	$	591
Prior service cost	—		—		—		—		—		14
Total pre-tax amounts included in AOCL	65,857		73,238		3,009		2,412		616		605
Deferred tax benefit	23,727		26,447		1,084		871		222		218
Amounts included in accumulated AOCL, net of tax	$	42,130	$	46,791	$	1,925	$	1,541	$	394	$	387

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



(In thousands)	Pension Plan		SERP		Other Benefits
2017	$	7,786	$	1,208	$	404
2018	8,604		1,091		398
2019	8,654		8,104		387
2020	9,072		141		375
2021	9,828		140		358
2022-2026	53,711		683		1,457

The components of the net periodic benefit cost (benefit) for the defined benefit pension and other postretirement benefits were as follows for the years ended December 31:



	Pension Plan									SERP						Other Benefits
(In thousands)	2016			2015			2014			2016		2015		2014		2016		2015		2014
Service cost	$	45		$	45		$	40		$	—	$	—	$	—	$	—	$	—	$	—
Interest cost on benefit obligations	8,441			8,008			8,068			389		345		364		125		123		139
Expected return on plan assets	(11,461		)	(11,873		)	(11,495		)	—		—		—		—		—		—
Amortization of prior service cost	—			—			—			—		—		—		14		73		73
Recognized net loss	6,665			5,724			2,781			426		390		135		35		47		5
Net periodic benefit cost (benefit)	$	3,690		$	1,904		$	(606	)	$	815	$	735	$	499	$	174	$	243	$	217

Changes in funded status related to the defined benefit pension and other postretirement benefits and recognized as a component of OCI in the accompanying Consolidated Statements of Comprehensive Income as follows for the years ended December 31:



	Pension Plan									SERP									Other Benefits
(In thousands)	2016			2015			2014			2016			2015			2014			2016			2015			2014
Net (gain) loss	$	(715	)	$	8,525		$	31,951		$	1,023		$	372		$	1,145		$	60		$	(178	)	$	470
Amounts reclassified from AOCL	(6,665		)	(5,724		)	(2,781		)	(426		)	(390		)	(134		)	(35		)	(47		)	(5		)
Amortization of prior service cost	—			—			—			—			—			—			(14		)	(73		)	(73		)
Total (gain) loss recognized in OCI	$	(7,380	)	$	2,801		$	29,170		$	597		$	(18	)	$	1,011		$	11		$	(298	)	$	392

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 Standard & Poor's 500 Index.

Common collective trust funds. The net asset value (NAV), as provided by the trustee, is used as the fair value of the investments. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. Plan transactions (purchases and sales) may occur daily. Were the Plan to initiate a full redemption of the collective trust, the investment adviser reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities liquidations will be carried out in an orderly business manner. The common collective trust funds performance are benchmarked against 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.

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 the fair value and hierarchy classification of financial assets of the pension plan is as follows:



	At December 31,
	2016								2015
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Registered investment companies:
Exchange traded funds	$	31,526	$	—	$	—	$	31,526	$	28,329	$	—	$	—	$	28,329
Cash and cash equivalents	701		—		—		701		295		—		—		295
Common collective trust funds:
Fixed Income funds	—		96,429		—		96,429		—		80,783		—		80,783
Equity Funds	—		63,285		—		63,285		—		51,028		—		51,028
Insurance company investment contract	—		—		793		793		—		—		934		934
Total	$	32,227	$	159,714	$	793	$	192,734	$	28,624	$	131,811	$	934	$	161,369

The following table sets forth a summary of changes in the fair value of Level 3 assets of the pension plan:



	Years ended December 31,
(In thousands)	2016			2015
Beginning balance	$	934		$	1,077
Unrealized gains relating to instruments still held at the reporting date	(10		)	(28		)
Benefit payments, administrative expenses, and interest income, net	(131		)	(115		)
Ending balance	$	793		$	934

Asset Management

The following table presents the target allocation and the pension plan asset allocation for the periods indicated, by asset category:



	Target Allocation		Percentage of Pension Plan assets
	2017		2016		2015
Fixed income investments	50	%	51	%	51	%
Equity investments	50		49		49
Total	100	%	100	%	100	%

The Retirement Plan 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 Retirement Plan 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 investment policy guidelines and objectives is reviewed at a minimum annually by the Retirement Plan Committee.

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 volatility, as measured by standard deviation, of the pension plan assets should not exceed that of the Composite Index. The investment policy guidelines allow the pension 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 characteristic of their assigned benchmarks.

The pension plan investment strategy is designed to maintain a diversified portfolio, with a target average long-term rate of 7.00%, however, there is no certainty that the portfolio will perform to expectations. Asset allocations are monitored monthly, and the portfolio is rebalanced as needed.

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



	Pension Plan				SERP				Other Benefits
	2016		2015		2016		2015		2016		2015
Discount rate	4.01	%	4.20	%	3.63	%	3.75	%	3.27	%	3.35	%
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:



	Pension Plan						SERP						Other Benefits
	2016		2015		2014		2016		2015		2014		2016		2015		2014
Discount rate	4.20	%	3.85	%	4.80	%	3.75	%	3.50	%	4.25	%	3.35	%	3.15	%	3.75	%
Expected long-term return on assets	7.00	%	7.00	%	7.25	%	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		8.25	%	8.00	%	8.00	%

The assumed healthcare cost-trend rate is 8.25% for 2016 and 2017, declining 1.0% each year thereafter until 2024 when the rate will be 4.75%. An increase of 1.0% in the assumed healthcare cost-trend rate for 2016 would have increased the net periodic postretirement benefit cost by $6 thousand and increased the accumulated benefit obligation by $205 thousand. A decrease of 1.0% in the assumed healthcare cost trend rate for 2016 would have decreased the net periodic postretirement benefit cost by $6 thousand and decreased the accumulated postretirement benefit obligation by $185 thousand.

Multiple-employer plan

Webster Bank, for the benefit of former employees of a bank acquired by the Company, is a sponsor of a multiple-employer pension plan that does not segregate the assets or liabilities of its employers participating in the plan. According to the plan administrator, as of July 1, 2016, the date of the latest actuarial valuation, Webster Bank’s portion of this plan was under-funded by $1.1 million.

The following table sets forth contributions and funding status of Webster Bank's portion of this plan:



(Dollars in thousands)			Contributions by Webster Bank for the year ended December 31,			Funded Status of the Plan at December 31,
Plan Name	Employer Identification Number	Plan Number	2016	2015	2014	2016	2015
Pentegra Defined Benefit Plan for Financial Institutions	13-5645888	333	$690	$340	$765	At least 80 percent	At least 80 percent

Multi-employer accounting is applied to the Fund. As a multiple-employer pension plan, there are no collective bargained contracts affecting its contribution or benefit provisions. Any shortfall amortization basis is 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 this plan did not exceed more than 5% of total contributions in the plan for the years ended December 31, 2016, 2015, and 2014.

Webster Bank Retirement Savings Plan

Webster Bank provides an employee retirement savings plan governed by section 401(k) of the Internal Revenue Code. Webster Bank matches 100% of the first 2% and 50% of the next 6% of employees’ pre-tax contributions based on annual 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.

Compensation and benefit expense included $11.1 million, $10.9 million, and $10.6 million for the years ended December 31, 2016, 2015, and 2014, respectively, for employer contributions.