Employee Pension and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2011

Employee Pension and Other Postretirement Benefits [Abstract]

Employee Pension and Other Postretirement Benefits

Note 8—Employee Pension and Other Postretirement Benefits

Retirement Plan

The Company maintains the Union Bank Retirement Plan (the Pension Plan), which is a noncontributory qualified defined benefit pension plan covering substantially all of the domestic employees of the Company. The Pension Plan provides retirement benefits based on years of credited service and the final average compensation amount, as defined in the Pension Plan. Employees become eligible for this Plan after one year of service and become fully vested after five years of service. The Company’s funding policy is to make contributions between the minimum required and the maximum deductible amount as allowed by the Internal Revenue Code. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future.

Other Postretirement Benefits

General

The Company maintains the Union Bank Employee Health Benefit Plan, which is a qualified plan and in part provides certain healthcare benefits for its retired employees and life insurance benefits for those employees who retired prior to January 1, 2001, which together are presented as “Other Benefits.” The healthcare cost is shared between the Company and the retiree. The life insurance plan is noncontributory. The accounting for the Other Benefits Plan anticipates future cost-sharing changes that are consistent with the Company’s intent to maintain a level of cost-sharing at approximately 25 to 50 percent, depending on the retiree’s age and length of service with the Company. Assets set aside to cover such obligations are primarily invested in mutual funds and insurance contracts.

The following table sets forth the fair value of the assets in the Company’s Pension Plan and Other Benefits Plan as of December 31, 2011 and 2010.

	Pension Plan						Other Benefits Plan
	Years Ended December 31,						Years Ended December 31,
(Dollars in millions)	2011			2010			2011			2010
Change in plan assets:
Fair value of plan assets, beginning of year	$	1,795		$	1,527		$	172		$	155
Actual return on plan assets		21			221			1			19
Employer contributions		—			100			13			12
Plan participants’ contributions		—			—			5			5
Benefits paid		(59	)		(53	)		(19	)		(19	)
Fair value of plan assets, end of year	$	1,757		$	1,795		$	172		$	172

The investment objective for the Company’s Pension Plan and Other Benefits Plan is to maximize total return within reasonable and prudent levels of risk. The Plans’ asset allocation strategy is the principal determinant in achieving expected investment returns on the Plans’ assets. The asset allocation strategy favors equities, with a target allocation of 65 percent in equity securities, 25 percent in debt securities, and 10 percent in real estate investments. Additionally, the Other Benefits Plan holds investments in an insurance contract with Hartford Life that is separate from the target allocation. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. If market fluctuations cause an asset class to fall outside of its strategic asset allocation range, the portfolio will be re-balanced as appropriate. A core equity position of domestic large cap and small cap stocks will be maintained, in conjunction with a diversified portfolio of international equities and fixed income securities. Plan asset performance is compared against established indices and peer groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.

The Company periodically reviews the Plans’ strategic asset allocation policy and the expected long-term rate of return for plan assets. The investment return volatility of different asset classes and the liability structure of the plans are evaluated to determine whether adjustments are required to the Plans’ strategic asset allocation policy, taking into account the principles established in the Company’s funding policy. Management periodically reviews and adjusts the long-term rate of return on assets assumption for the Plans based on the expected long-term rate of return for the asset classes and their weightings in the Plans’ strategic asset allocation policy and taking into account the prevailing economic and regulatory climate and practices of other companies both within and outside our industry.

The following table provides the fair value by level within the fair value hierarchy of the Company’s period-end assets by major asset category for the Pension Plan and Other Benefits Plan. For information about the fair value hierarchy levels, refer to Note 15 to these consolidated financial statements. The Plans do not hold any equity or debt securities issued by the Company or any related parties.

	December 31, 2011
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Money market funds	$	13	$	—	$	—	$	13
U.S. Government securities		20		76		—		96
Corporate bonds		—		133		—		133
Equity securities		146		—		—		146
Real estate funds		—		—		136		136
Limited partnerships		—		58		12		70
Common collective funds		—		266		—		266
Mutual funds		896		—		—		896
Other		—		1		—		1
Total Plan Investments	$	1,075	$	534	$	148	$	1,757
	December 31, 2010
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Pension Plan Investments:
Money market funds	$	14	$	—	$	—	$	14
U.S. Government securities		41		57		—		98
Corporate bonds		—		108		—		108
Equity securities		176		—		—		176
Real estate funds		—		—		110		110
Limited partnerships		—		65		4		69
Common collective funds		—		243		—		243
Mutual funds		976		—		—		976
Other		—		1		—		1
Total Plan Investments	$	1,207	$	474	$	114	$	1,795

	Level 3 Assets for year ended December 31, 2011
(Dollars in millions)	Real Estate Funds		Limited Partnership		Other			Total
Beginning balance—January 1, 2011	$	110	$	4	$	—		$	114
Unrealized gains (losses)		10		1		—			11
Purchases, issuances, sales, and settlements, net		16		7		—			23
Ending balance—December 31, 2011	$	136	$	12	$	—		$	148
	Level 3 Assets for year ended December 31, 2010
(Dollars in millions)	Real Estate Funds		Limited Partnership		Other			Total
Beginning balance—January 1, 2010	$	52	$	—	$	1		$	53
Unrealized gains (losses)		12		—		—			12
Purchases, issuances, sales, and settlements, net		46		4		(1	)		49
Ending balance—December 31, 2010	$	110	$	4	$	—		$	114

	December 31, 2011
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Other Postretirement Benefits Plan
Investments:
Common collective funds	$	—	$	39	$	—	$	39
Mutual funds		96		—		—		96
Pooled separate account		—		37		—		37
Total Plan Investments	$	96	$	76	$	—	$	172
	December 31, 2010
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Other Postretirement Benefits Plan
Investments:
Common collective funds	$	—	$	36	$	—	$	36
Mutual funds		98		—		—		98
Pooled separate account		—		38		—		38
Total Plan Investments	$	98	$	74	$	—	$	172

A description of the valuation methodologies used to determine the fair value of the Plans’ assets included within the tables above is as follows:

Money Market Funds

Money market funds represent cash and maintain a constant NAV of $1. These money market funds are classified as Level 1 measurements based on unadjusted prices for identical securities in an active market.

U.S. Government Securities

U.S. Treasury securities are fixed income securities that are debt instruments issued by the United States Department of the Treasury. These securities are valued by a third-party pricing provider using secondary transactions in an active market for identical securities. U.S. Treasury securities are classified as Level 1 measurements based on unadjusted prices for identical instruments in active markets.

U.S agency mortgage-backed securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. These securities are classified as Level 2 measurements based on valuations provided by a third-party pricing provider using quoted market prices in an active market for similar securities.

Corporate Bonds

Corporate bonds are fixed income securities in investment-grade bonds of U.S. issuers from diverse industries and include commercial mortgage-backed securities. These securities are classified as Level 2 based on valuations provided by a third-party pricing provider using quoted market prices in an active market for similar securities.

Equity Securities

Equity securities are common stock and the fair value is recorded based on quoted market prices obtained from an exchange. These securities are classified as Level 1 measurements based on unadjusted prices for identical instruments in active markets.

Real Estate Funds

Real estate funds invest in real estate property with a focus on apartment complexes and retail shopping centers. The valuations of these investments require significant judgment due to the absence of quoted market prices, lack of liquidity and the scarcity of observable sales of similar assets. The values are estimated by adjusting the previous quarter’s NAV for the current quarter’s income and depreciation. These funds are classified as Level 3 measurements due to the use of significant unobservable inputs and judgment to estimate fair value.

Limited Partnerships

Limited partnerships invest in equity securities of diverse foreign companies in developed markets across diverse industries. Limited partnerships are valued using the NAV of the partnership at the end of the period. These partnerships are classified as Level 2 measurements due to the use of quoted market prices of the underlying securities in actively traded markets as the primary input to derive the NAV.

Limited partnerships invest in real estate properties. These partnerships’ value is estimated by adjusting the previous quarter’s NAV for the current quarter’s income and depreciation. These partnerships are classified as Level 3 measurements due to the use of significant unobservable inputs and judgment to estimate fair value.

Common Collective Funds

Common collective funds invest in bonds of U.S. and foreign issuers and in equity securities of U.S. and foreign real estate companies. These funds are valued using the NAV of the fund at the end of the period. These funds are classified as Level 2 measurements due to the use of quoted market prices of the underlying securities in actively traded markets as the primary input to derive the NAV.

Mutual Funds

Mutual funds invest in equity securities that seek to track the performance of the Standard & Poor’s 500, S&P Completion and the EAFE^® indexes. These funds are valued using an exchange traded NAV at the end of the period. These mutual funds are classified as Level 1 measurements based on unadjusted quoted prices for identical instruments in active markets.

Pooled Separate Account

The pooled separate account is an investment with Hartford Life Company. The investment consists of four funds that mainly invest in U.S. agency guaranteed mortgage-backed securities, investment-grade bonds of U.S. issuers from diverse industries, and exchange traded equity securities of U.S. and foreign companies. These funds are valued using quoted market prices of the funds’ underlying investments to derive the funds’ NAV at the end of the period. The investment is comprised of equity securities and U.S. bonds. This investment is classified as a Level 2 measurement due to the use of quoted market prices of the underlying securities in actively traded markets as the primary input to derive the NAV.

The following table sets forth the benefit obligation activity and the funded status for each of the Company’s plans at December 31, 2011 and 2010. In addition, the table sets forth the over/(under) funded status at December 31, 2011 and 2010. This pension benefits table does not include the obligations for the Executive Supplemental Benefit Plans (ESBPs).

	Pension Benefits						Other Benefits
	Years Ended December 31,						Years Ended December 31,
(Dollars in millions)	2011			2010			2011			2010
Accumulated benefit obligation	$	1,938		$	1,545
Change in benefit obligation
Benefit obligation, beginning of year	$	1,700		$	1,454		$	254		$	225
Service cost		58			50			12			9
Interest cost		98			91			13			13
Plan participants’ contributions		—			—			5			5
Actuarial loss (gain)		338			158			4			20
Medicare part D employer subsidy payments		—			—			1			1
Benefits paid		(59	)		(53	)		(19	)		(19	)
Benefit obligation, end of year		2,135			1,700			270			254
Fair value of plan assets, end of year		1,757			1,795			172			172
Over/(under) funded status	$	(378	)	$	95		$	(98	)	$	(82	)

The following table illustrates the changes that were reflected in accumulated other comprehensive income during 2011, 2010 and 2009. The pension benefits table does not include the ESBPs.

	Pension Benefits					Other Benefits
(Dollars in millions)	Net Actuarial (Gain)/Loss			Prior Service Costs		Transition Assets			Net Actuarial (Gain)/Loss			Prior Service Costs (Credits)
Amounts Recognized in Other Comprehensive Loss:
Balance, December 31, 2008	$	752		$	—	$	5		$	99		$	—
Arising during the year		(213	)		—		—			(21	)		—
Recognized in net loss during the year		(12	)		—		(1	)		(7	)		—
Balance, December 31, 2009	$	527		$	—	$	4		$	71		$	—
Arising during the year		83			—		—			13			—
Recognized in net income during the year		(15	)		—		(1	)		(6	)		—
Balance, December 31, 2010	$	595		$	—	$	3		$	78		$	—
Arising during the year		465			—		—			18			—
Recognized in net income during the year		(44	)		—		(2	)		(6	)		—
Balance, December 31, 2011	$	1,016		$	—	$	1		$	90		$	—

At December 31, 2011 and 2010, the following amounts were recognized in accumulated other comprehensive loss for pension, including ESBPs, and other benefits.

	December 31, 2011
	Pension Benefits						Other Benefits
(Dollars in millions)	Gross		Tax		Net of Tax		Gross		Tax		Net of Tax
Transition liability	$	—	$	—	$	—	$	1	$	—	$	1
Net actuarial loss		1,016		400		616		90		36		54
Prior service costs (credits)		—		—		—		—		—		—
Pension and other benefits adjustment		1,016		400		616		91		36		55
Executive Supplemental Benefits Plans
Net actuarial loss		23		9		14		—		—		—
Prior service costs (credits)		—		—		—		—		—		—
Executive supplemental benefits plans adjustment		23		9		14		—		—		—
Pension and other benefits adjustment	$	1,039	$	409	$	630	$	91	$	36	$	55
	December 31, 2010
	Pension Benefits						Other Benefits
(Dollars in millions)	Gross		Tax		Net of Tax		Gross		Tax		Net of Tax
Transition liability	$	—	$	—	$	—	$	3	$	1	$	2
Net actuarial loss		595		235		360		78		31		47
Prior service costs (credits)		—		—		—		—		—		—
Pension and other benefits adjustment		595		235		360		81		32		49
Executive Supplemental Benefits Plans
Net actuarial loss		16		6		10		—		—		—
Prior service costs (credits)		—		—		—		—		—		—
Executive supplemental benefits plans adjustment		16		6		10		—		—		—
Pension and other benefits adjustment	$	611	$	241	$	370	$	81	$	32	$	49

The Company made a $150 million cash contribution to the Pension Plan in February 2012.

Estimated Future Benefit Payments and Subsidies

The following pension and postretirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next 10 years and Medicare Part D Subsidies are expected to be received over the next 10 years. This table does not include the ESBPs.

(Dollars in millions)	Pension Benefits		Postretirement Benefits		Medical Part D Subsidies
Years ending December 31,
2012	$	70	$	15	$	1
2013		77		16		1
2014		84		17		1
2015		91		18		1
2016		99		18		1
Years 2017-2021		606		99		7

The following tables summarize the weighted average assumptions used in computing the present value of the benefit obligations and the net periodic benefit cost.

	Pension Benefits						Other Benefits
	Years Ended December 31,						Years Ended December 31,
	2011			2010			2011			2010
Discount rate in determining net periodic benefit cost		5.75	%		6.25	%		5.25	%		6.00	%
Discount rate in determining benefit obligations at year end		4.70			5.75			4.50			5.25
Rate of increase in future compensation levels for determining net periodic benefit cost		4.70			4.70			—			—
Rate of increase in future compensation levels for determining benefit obligations at year end		4.70			4.70			—			—
Expected return on plan assets		8.00			8.00			8.00			8.00

	Pension Benefits									Other Benefits									Superannuation, SERP and ESBP
	Years Ended December 31,									Years Ended December 31,									Years Ended December 31,
(Dollars in millions)	2011			2010			2009			2011			2010			2009			2011		2010		2009
Components of net periodic benefit cost
Service cost	$	58		$	50		$	53		$	11		$	9		$	9		$	1	$	1	$	1
Interest cost		98			90			83			13			13			11			4		4		3
Expected return on plan assets		(147	)		(146	)		(141	)		(14	)		(12	)		(10	)		—		—		—
Amortization of transition amount		—			—			—			2			2			1			—		—		—
Recognized net actuarial loss		44			15			12			6			5			7			1		1		2
Net periodic benefit cost	$	53		$	9		$	7		$	18		$	17		$	18		$	6	$	6	$	6

At December 31, 2011 and 2010, the following amounts were forecasted to be recognized in 2012 and 2011 net periodic benefit costs, respectively.

	Years ended December 31,
	2012				2011
(Dollars in millions)	Pension Benefits		Other Benefits		Pension Benefits		Other Benefits
Transition liability	$	—	$	1	$	—	$	1
Net actuarial loss		92		8		40		6
Amounts to be reclassified from accumulated other comprehensive loss	$	92	$	9	$	40	$	7

The Company’s assumed weighted-average healthcare cost trend rates are as follows.

	Years ended December 31,
	2011			2010			2009
Healthcare cost trend rate assumed for next year		8.90	%		9.12	%		9.38	%
Rate to which cost trend rate is assumed to decline (the ultimate trend rate)		5.00	%		5.00	%		5.00	%
Year the rate reaches the ultimate trend rate		2018			2018			2018

The healthcare cost trend rate assumptions have a significant effect on the amounts reported for the Health Plan. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:

(Dollars in millions)	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on total of service and interest cost components	$	4	$	(3	)
Effect on postretirement benefit obligation		31		(26	)

Executive Supplemental Benefit Plans

The Company has several ESBPs, which provide eligible employees with supplemental retirement benefits. The plans are nonqualified defined benefit plans and unfunded. The accrued liability for ESBPs included in other liabilities on the Company’s consolidated balance sheets was $75 million and $66 million at December 31, 2011 and 2010, respectively.

Section 401(k) Savings Plans

The Company has a defined contribution plan authorized under Section 401(k) of the Internal Revenue Code. All benefits-eligible employees are eligible to participate in the plan. Employees may contribute up to 25 percent of their pre-tax covered compensation or up to 10 percent of their after-tax covered compensation through salary deductions to a combined maximum of 25 percent. The Company contributes 50 percent of every pre-tax dollar an employee contributes up to the first 6 percent of the employee’s pre-tax covered compensation. Employees are fully vested in the employer’s contributions immediately. In addition, the Company may make a discretionary annual profit-sharing contribution up to 2.5 percent of an employee’s pay. This profit-sharing contribution is for all eligible employees, regardless of whether an employee is participating in the 401(k) plan, and is dependent upon the Company’s annual financial performance. All employer contributions are tax deductible by the Company. The Company’s combined matching contribution expense was $29 million, $27 million and $19 million for the years ended December 31, 2011, 2010 and 2009, respectively.