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Retirement Plans
 12 Months Ended
Dec. 31, 2018
Defined Benefit Plan [Abstract]  
Retirement Plans
RETIREMENT PLANS
Defined Benefit Plans
Pension – This qualified noncontributory defined benefit plan is frozen to new participation. No service-related benefits have been accrued since July 1, 2013. All participants in the Plan are currently 100% vested in their benefits. Plan assets consist principally of corporate equity securities, mutual fund investments, real estate, and fixed income investments. Plan benefits are paid as a lump-sum cash value or an annuity at retirement age. Contributions to the plan are based on actuarial recommendation and pension regulations. There was no minimum regulatory contribution required in 2018 and 2017. Currently, it is expected that no minimum regulatory contributions will be required in 2019.
In October 2018, the Bank decided to terminate its pension plan subject to obtaining necessary regulatory approval. Completion of this termination is expected in early 2020. Plan participant benefits will not be disadvantaged because of this decision.
Supplemental Retirement – These unfunded nonqualified plans are for certain current and former employees. Each year, Bank contributions to these plans are made in amounts sufficient to meet benefit payments to plan participants.
Postretirement Medical/Life – This unfunded health care and life insurance plan provides postretirement medical benefits to certain full-time employees who meet minimum age and service requirements. The plan also provides specified life insurance benefits to certain employees. The plan is contributory with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. Plan coverage is provided by self-funding or health maintenance organization options. Our contribution towards the retiree medical premium has been permanently frozen at an amount that does not increase in any future year. Retirees pay the difference between the full premium rates and our capped contribution.
Because our contribution rate is capped, there is no effect on the postretirement plan from assumed increases or decreases in health care cost trends. Each year, Bank contributions to the plan are made in amounts sufficient to meet the portion of the premiums that are the Bank’s responsibility.
The following presents the change in benefit obligation, change in fair value of plan assets, and funded status, of the plans and amounts recognized in the balance sheet as of the measurement date of December 31:
 
Pension
 
Supplemental
Retirement
 
Postretirement
(In millions)
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Change in benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
154

 
$
165

 
$
10

 
$
10

 
$
1

 
$
1

Interest cost
6

 
6

 
—

 
1

 
—

 
—

Actuarial loss (gain)
(10
)
 
2

 
—

 
—

 
—

 
—

Benefits paid
(12
)
 
(19
)
 
(1
)
 
(1
)
 
—

 
—

Benefit obligation at end of year
138

 
154

 
9

 
10

 
1

 
1

Change in fair value of plan assets:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
168

 
161

 
—

 
—

 
—

 
—

Actual return on plan assets
1

 
26

 
—

 
—

 
—

 
—

Employer contributions
—

 
—

 
1

 
1

 
—

 
—

Benefits paid
(12
)
 
(19
)
 
(1
)
 
(1
)
 
—

 
—

Fair value of plan assets at end of year
157

 
168

 
—

 
—

 
—

 
—

Funded status
$
19

 
$
14

 
$
(9
)
 
$
(10
)
 
$
(1
)
 
$
(1
)
Amounts recognized in balance sheet:
 
 
 
 
 
 
 
 
 
 
 
Asset (liability) for pension/postretirement benefits
$
19

 
$
14

 
$
(9
)
 
$
(10
)
 
$
(1
)
 
$
(1
)
Accumulated other comprehensive income (loss)
(27
)
 
(28
)
 
(2
)
 
(2
)
 
—

 
—

Accumulated other comprehensive income (loss) consists of:
 
 
 
 
 
 
 
 
 
 
 
Net loss
$
(27
)
 
$
(28
)
 
$
(2
)
 
$
(2
)
 
$
—

 
$
—


The pension asset and the liability for supplement retirement/postretirement benefits are included in other assets and other liabilities, respectively, in the balance sheet. The accumulated benefit obligation is the same as the benefit obligation shown in the preceding schedule. During the third quarter of 2017, the Bank revised its pension plan to offer certain participants a temporary opportunity to make an election to receive an immediate distribution from the pension plan. The window was available between August 1, 2017 and November 24, 2017. The impact of these distributions is included in “benefits paid” in the preceding schedule and in “settlement loss” shown in the net period benefit cost (credit) schedule.
The amounts in AOCI (loss) at December 31, 2018 expected to be recognized as an expense component of net periodic benefit cost in 2019 for the plans are estimated as follows:
(In millions)
Pension
 
Supplemental
Retirement
 
Postretirement
 
 
 
 
 
 
Net loss
$
(2
)
 
$
—

 
$
—


The following presents the components of net periodic benefit cost (credit) for the plans:
 
Pension
 
Supplemental
Retirement
 
Postretirement
(In millions)
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost
$
6

 
$
6

 
$
7

 
$
—

 
$
1

 
$
1

 
$
—

 
$
—

 
$
—

Expected return on plan assets
(11
)
 
(11
)
 
(11
)
 
—

 
—

 
—

 
—

 
—

 
—

Amortization of net actuarial loss
1

 
4

 
6

 
—

 
—

 
—

 
—

 
—

 
—

Settlement loss
1

 
3

 
2

 
—

 
—

 
—

 
—

 
—

 
—

Net periodic benefit cost
$
(3
)
 
$
2

 
$
4

 
$
—

 
$
1

 
$
1

 
$
—

 
$
—

 
$
—


Weighted average assumptions based on the pension plan are the same where applicable for each of the plans and are as follows:
 
2018
 
2017
 
2016
Used to determine benefit obligation at year-end:
 
 
 
 
 
Discount rate
4.20
%
 
3.50
%
 
4.10
%
Used to determine net periodic benefit cost for the years ended December 31:
 
 
 
 
 
Discount rate
3.50

 
4.10

 
4.20

Expected long-term return on plan assets
5.75

 
7.25

 
7.50


The discount rate reflects the yields available on long-term, high-quality fixed income debt instruments with cash flows similar to the obligations of the pension plan, and is reset annually on the measurement date. The expected long-term rate of return on plan assets is based on a review of the target asset allocation of the plan. This rate is intended to approximate the long-term rate of return that we anticipate receiving on the plan’s investments, considering the mix of the assets that the plan holds as investments, the expected return on these underlying investments, the diversification of these investments, and the rebalancing strategies employed. An expected long-term rate of return is assumed for each asset class and an underlying inflation rate assumption is determined.
Benefit payments to the plans’ participants are estimated in the following schedule for the years succeeding December 31, 2018. If the necessary regulatory approvals are obtained, and the pension plan is terminated, there would not be payments made by the Bank to plan participants after termination of the plan.
(In millions)
Pension
 
Supplemental
Retirement
 
Postretirement
 
 
 
 
 
 
2019
$
10

 
$
2

 
$
—

2020
10

 
1

 
—

2021
10

 
1

 
—

2022
9

 
1

 
—

2023
9

 
1

 
—

Years 2024 - 2028
42

 
3

 
—


We are also obligated under other supplemental retirement plans for certain current and former employees. Our liability for these plans was $5 million and $6 million at December 31, 2018 and 2017, respectively.
For the pension plan, the investment strategy is predicated on its investment objectives and the risk and return expectations of asset classes appropriate for the plan. Investment objectives have been established by considering the plan’s liquidity needs and time horizon and the fiduciary standards under the Employee Retirement Income Security Act of 1974. The asset allocation strategy is developed to meet the plan’s long-term needs in a manner designed to control volatility and to reflect risk tolerance. Target investment allocation percentages as of December 31, 2018 are 9% in equity, 88% in fixed income and cash, and 3% in real estate assets. During the second quarter of 2018 the asset allocation was changed from primarily equity focused to fixed income focused.
The following presents the fair values of pension plan investments according to the fair value hierarchy described in Note 3, and the weighted average allocations:
(In millions)
December 31, 2018
 
December 31, 2017
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank common stock
$
10

 
$
—

 
$
—

 
$
10

 
$
12

 
$
—

 
$
—

 
$
12

Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt
—

 
—

 
—

 
—

 
7

 
—

 
—

 
7

Guaranteed deposit account
—

 
—

 
$
12

 
12

 
—

 
—

 
$
9

 
9


In addition to the investments listed in the previous schedule, as of December 31, 2018, pension plan investments valued using NAV as the practical expedient for fair value consist of $15 million in equity investments, and $116 million in debt investments, which are in pooled separate accounts, as well as $4 million in limited partnerships. As of December 31, 2017, pension plan investments valued using NAV as the practical expedient for fair value consist of $97 million in equity investments, $31 million in debt investments, and $8 million in real estate investments, which are in pooled separate accounts, as well as $4 million in limited partnerships.
No transfers of assets occurred among Levels 1, 2 or 3 during 2018 or 2017.
The following describes the pension plan investments and the valuation methodologies used to measure their fair value:
Bank common stock – Shares of the Bank’s common stock are valued at the last reported sales price on the last business day of the plan year in the active market where individual securities are traded.
Mutual funds – These funds are valued at quoted market prices which represent the NAVs of shares held by the plan at year-end.
Insurance company pooled separate accounts – These funds are invested in by more than one investor. They are offered through separate accounts of the trustee’s insurance company and managed by internal and professional advisors. Participation units in these accounts are valued at the NAV as the practical expedient for fair value as determined by the insurance company.
Guaranteed deposit account – This account is a group annuity product issued by the trustee’s insurance company with guaranteed crediting rates established at the beginning of each calendar year. The account balance is stated at fair value as estimated by the trustee. The account is credited with deposits made, plus earnings at guaranteed crediting rates, less withdrawals and administrative expenses. The underlying investments generally include investment-grade public and privately traded debt securities, mortgage loans and, to a lesser extent, real estate and other equity investments. Market value adjustments are applied at the time of redemption if certain withdrawal limits are exceeded.
Additional fair value quantitative information for the guaranteed deposit account is as follows:
Principal valuation techniques
 
Significant unobservable inputs
 
Range (weighted average)
of significant input values
 
 
 
 
 
 
 
For the underlying investments – reported fair values when available for market traded investments; when not applicable, discounted cash flows under an income approach using U.S. Treasury rates and spreads based on cash flow timing and quality of assets.
 
Earnings at guaranteed crediting rate
 
Gross guaranteed crediting rate must be greater than or equal to contractual minimum crediting rate
 
Composite market value factor
 
At December 31,
 
 
2018
 
0.962521 - 1.005471 (actual = 0.994488)
 
 
 
2017
 
0.992941 - 1.037825 (actual = 1.023838)
The Bank’s Benefits Committee evaluates the methodology and factors used, including review of the contract, economic conditions, industry and market developments, and overall credit ratings of the underlying investments.
Limited partnerships – These partnerships invest in limited partnerships, limited liability companies, or similar investment vehicles that consist of PEIs in a wide variety of investment types, including venture and growth capital, real estate, energy and natural resources, and other private investments. The plan’s investments are valued by the limited partnerships at NAV as the practical expedient for fair value. The estimation process takes into account the plan’s proportional interests credited with realized and unrealized earnings from the underlying investments and charged for operating expenses and distributions. Investments are increased by capital calls and are part of an overall capital commitment by the plan of up to approximately $9 million at December 31, 2018.
The following presents additional information as of December 31, 2018 and 2017 for the pooled separate accounts and limited partnerships whose fair values under Levels 2 and 3 are based on NAV per share:
Investment
 
Unfunded commitments
(in millions, approximately)
 
Redemption
 
 
Frequency
 
Notice period
 
 
 
 
 
 
 
Pooled separate accounts
 
na
 
Daily
 
< $1 million, 1 day
>= $1 million, 3 days
 
 
 
 
 
 
Limited partnerships
 
$
1

 
Investments in these limited partnerships are illiquid and voluntary withdrawal is prohibited.
 
 
 
 

The following reconciles the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs:
 
Level 3 Instruments
 
Guaranteed deposit account
 
Year Ended December 31,
(In millions)
2018
 
2017
 
 
 
 
Balance at beginning of year
$
9

 
$
11

Purchases
15

 
17

Sales
(12
)
 
(19
)
Balance at end of year
$
12

 
$
9


Shares of Bank common stock were 233,849 at both December 31, 2018 and 2017. Dividends received by the plan were not significant in 2018 and 2017.
Defined Contribution Plan
The Bank offers a 401(k) and employee stock ownership plan under which employees select from several investment alternatives. Employees can contribute up to 80% of their earnings subject to the annual maximum allowed contribution. The Bank matches 100% of the first 3% of employee contributions and 50% of the next 2% of employee contributions. Matching contributions to participants, which were shares of the Bank’s common stock purchased in the open market, amounted to $29 million in 2018, $26 million in 2017 and 2016.
The 401(k) plan also has a noncontributory profit sharing feature which is discretionary and may range from 0% to 4% of eligible compensation based upon the Bank’s return on average common equity for the year. The profit sharing expense was computed at a contribution rate of 2.50%, 1.75%, and 1% in 2018, 2017, and 2016 respectively. The profit sharing expense was $17 million, $11 million, and $6 million in 2018, 2017, and 2016 respectively. The profit sharing contribution to participants consisted of shares of the Bank’s common stock purchased in the open market.