Retirement Plans

12 Months Ended

Dec. 31, 2011

Retirement Plans [Abstract]

RETIREMENT PLANS

NOTE 17 — RETIREMENT PLANS

Defined Benefit Pension Plan

The Corporation has a noncontributory defined benefit pension plan (Pension Plan) covering certain salaried employees. Benefits under the Pension Plan were frozen for approximately two-thirds of the Corporation’s salaried employees effective June 30, 2006. Pension benefits continued unchanged for the remaining salaried employees. Normal retirement benefits under the Pension Plan are based on years of vested service, up to a maximum of thirty years, and the employee’s average annual pay for the five highest consecutive years during the ten years preceding retirement, except for employees whose benefits were frozen. Benefits, for employees with less than 15 years of service or whose age plus years of service were less than 65 at June 30, 2006, will be based on years of vested service at June 30, 2006 and generally the average of the employee’s salary for the five years ended June 30, 2006. At December 31, 2011, the Corporation had 238 employees who were continuing to earn benefits under the Pension Plan. Pension Plan contributions are intended to provide not only for benefits attributed to service-to-date, but also for those benefits expected to be earned in the future for employees whose benefits were not frozen at June 30, 2006. Employees hired after June 30, 2006 and employees affected by the partial freeze of the Pension Plan began receiving four percent of their eligible pay as a contribution to their 401(k) Savings Plan accounts on July 1, 2006.

Supplemental Plan

The Corporation has a supplemental defined benefit pension plan, the Chemical Financial Corporation Supplemental Pension Plan (Supplemental Plan). The Corporation established the Supplemental Plan to provide payments to certain executive officers of the Corporation, as determined by the Compensation and Pension Committee. At December 31, 2011 and 2010, the only executive officer eligible for benefits under the Supplemental Plan was the Corporation’s chief executive officer. The Internal Revenue Code limits both the amount of eligible compensation for benefit calculation purposes and the amount of annual benefits that may be paid from a tax-qualified retirement plan. The Supplemental Plan is designed to provide benefits to which executive officers of the Corporation would have been entitled, calculated under the provisions of the Pension Plan, as if the limits imposed by the Internal Revenue Code did not apply. The Supplemental Plan is an unfunded plan, and therefore, has no assets. The Supplemental Plan’s projected benefit obligation was $1.3 million and $0.9 million at December 31, 2011 and 2010, respectively. The Supplemental Plan’s accumulated benefit obligation was $1.1 million and $0.8 million at December 31, 2011 and 2010, respectively. Supplemental Plan expense totaled $0.1 million in 2011, 2010 and 2009.

Postretirement Plan

The Corporation has a postretirement benefit plan (Postretirement Plan) that provides medical and dental benefits, upon retirement, through age 65, to a limited number of active and retired employees. The majority of the retirees are required to make contributions toward the cost of their benefits based on their years of credited service and age at retirement. Beginning January 1, 2012, employees who retire at age 60 or older and have at least twenty-five years of service with the Corporation are eligible to participate in the Corporation’s group health insurance coverage, including their spouse, until age 65. Employees and their spouses eligible to participate in the Postretirement Plan will be required to make contributions toward the cost of their benefits upon retirement, with the contribution levels designed to cover the overall cost of these benefits over the long-term. Retiree contributions are generally adjusted annually. The accounting for these postretirement benefits anticipates changes in future cost-sharing features such as retiree contributions, deductibles, copayments and coinsurance. The Corporation reserves the right to amend, modify or terminate these benefits at any time.

401(k) Savings Plan

The Corporation’s 401(k) Savings Plan provides an employer match, in addition to a 4% contribution for employees who are not grandfathered under the Pension Plan discussed above. The 401(k) Savings Plan is available to all regular employees and provides employees with tax deferred salary deductions and alternative investment options. The Corporation matches 50% of the participants’ elective deferrals on the first 4% of the participants’ base compensation. The 401(k) Savings Plan provides employees with the option to invest in the Corporation’s common stock. The Corporation’s match under the 401(k) Savings Plan was $0.86 million in 2011, $0.77 million in 2010 and $0.72 million in 2009. Employer contributions to the 401(k) Savings Plan for the 4% benefit for employees who are not grandfathered under the Pension Plan totaled $1.76 million in 2011, $1.47 million in 2010 and $1.40 million in 2009. The combined amount of the employer match and 4% contribution to the 401(k) Savings Plan totaled $2.62 million in 2011, $2.24 million in 2010 and $2.12 million in 2009.

Benefit Obligations and Plan Expenses

The following schedule sets forth the changes in the projected benefit obligation and plan assets of the Corporation’s Pension and Postretirement Plans:

	Pension Plan						Postretirement Plan
	2011			2010			2011			2010
	(In thousands)
Projected benefit obligation:
Benefit obligation at beginning of year	$	86,704		$	79,682		$	3,757		$	4,740
Service cost		1,133			1,228			—			—
Interest cost		4,779			4,785			167			217
Net actuarial (gain) loss		11,082			4,294			(490	)		(909	)
Benefits paid		(3,482	)		(3,285	)		(144	)		(291	)
Benefit obligation at end of year		100,216			86,704			3,290			3,757
Fair value of plan assets:
Fair value of plan assets at beginning of year		86,741			73,701			—			—
Actual gain (loss) on plan assets		(738	)		6,325			—			—
Employer contributions		—			10,000			144			291
Benefits paid		(3,482	)		(3,285	)		(144	)		(291	)
Fair value of plan assets at end of year		82,521			86,741			—			—
Funded (unfunded) projected benefit obligation at December 31	$	(17,695	)	$	37		$	(3,290	)	$	(3,757	)
Accumulated benefit obligation	$	(94,089	)	$	(80,946	)	$	(3,290	)	$	(3,757	)

The increases in the projected and accumulated benefit obligations of the Pension Plan were primarily attributable to a decrease in the discount rate used to value these benefit obligations. The Corporation contributed $10.0 million to the Pension Plan in 2010. There were no required contributions for the 2011 plan year and no contributions were made to the Pension Plan during 2011; however, the Corporation made a $12.0 million contribution to the Pension Plan in January 2012 related to the 2011 plan year. There is no minimum required Pension Plan contribution in 2012, as prescribed by the Internal Revenue Code.

Weighted-average rate assumptions of the Pension and Postretirement Plans follow:

	Pension Plan									Postretirement Plan
	2011			2010			2009			2011			2010			2009
Discount rate used in determining benefit obligation — December 31		4.90	%		5.65	%		6.15	%		4.90	%		5.65	%		6.15	%
Discount rate used in determining expense		5.65			6.15			6.50			5.65			6.15			6.50
Expected long-term return on Pension Plan assets		7.00			7.00			7.00			—			—			—
Rate of compensation increase used in determining benefit obligation — December 31		3.50			3.50			3.50			—			—			—
Rate of compensation increase used in determining pension expense		3.50			3.50			4.25			—			—			—
Year 1 increase in cost of postretirement benefits		—			—			—			9.0			9.0			9.0

The weighted-average rate assumptions of the Supplemental Plan were the same as the Pension Plan for 2011, 2010 and 2009.

Net periodic pension cost (income) of the Pension and Postretirement Plans consisted of the following for the years ended December 31:

	Pension Plan									Postretirement Plan
	2011			2010			2009			2011			2010			2009
	(In thousands)
Service cost	$	1,133		$	1,228		$	1,354		$	—		$	—		$	—
Interest cost		4,779			4,785			4,720			167			217			282
Expected return on plan assets		(6,328	)		(5,724	)		(5,417	)		—			—			—
Amortization of prior service credit		(2	)		(2	)		(4	)		(325	)		(324	)		(324	)
Amortization of net actuarial loss (gain)		1,073			491			—			(31	)		—			24
Net cost (income)	$	655		$	778		$	653		$	(189	)	$	(107	)	$	(18	)

The following schedule presents estimated future benefit payments under the Pension and Postretirement Plans for retirees already receiving benefits and future retirees, assuming they retire and begin receiving unreduced benefits as soon as they are eligible (in thousands):

	Pension Plan		Postretirement Plan
2012	$	4,699	$	285
2013		4,596		286
2014		4,862		284
2015		5,249		279
2016		5,836		271
2017 - 2021		30,924		1,209
Total	$	56,166	$	2,614

For measurement purposes for the Postretirement Plan, the annual rates of increase in the per capita cost of covered health care benefits and dental benefits for 2012 were each assumed at 9%. These rates were assumed to decrease gradually to 5% in 2016 and remain at that level thereafter.

The assumed health care and dental cost trend rates could have a significant effect on the amounts reported for the Postretirement Plan. A one percentage-point change in these rates would have the following effects:

	One Percentage-Point Increase		One Percentage-Point Decrease
	(In thousands)
Effect on total of service and interest cost components in 2011	$	12	$	(12	)
Effect on postretirement benefit obligation as of December 31, 2011		249		(239	)

Pension Plan Assets

The assets of the Pension Plan are invested by the Wealth Management department of Chemical Bank. The investment policy and allocation of the assets of the pension trust were approved by the Compensation and Pension Committee of the board of directors of the Corporation.

The Pension Plan’s primary investment objective is long-term growth coupled with income. In consideration of the Pension Plan’s fiduciary responsibilities, emphasis is placed on quality investments with sufficient liquidity to meet benefit payments and plan expenses, as well as providing the flexibility to manage the investments to accommodate current economic and financial market conditions. To meet the Pension Plan’s long-term objective within the constraints of prudent management, target ranges have been set for the three primary asset classes: an equity securities range from 60% to 70%, a debt securities range from 30% to 40%; and a cash and cash equivalents and other range from 0% to 10%. Equity securities are primarily comprised of both individual securities and equity-based mutual funds, invested in either domestic or international markets. The stocks are diversified among the major economic sectors of the market and are selected based on balance sheet strength, expected earnings growth, the management team and position within their industries, among other characteristics. Debt securities are comprised of U.S. dollar denominated bonds issued by the U.S. Treasury, U.S. government agencies and investment grade bonds issued by corporations. The notes and bonds purchased are primarily rated A or better by the major bond rating companies from diverse industries.

The Pension Plan’s asset allocation by asset category was as follows:

	December 31,
Asset Category	2011			2010
Equity securities		71	%		68	%
Debt securities		27			30
Other		2			2
Total		100	%		100	%

At December 31, 2011, the Pension Plan’s equity and debt securities asset classes were outside of prescribed target ranges. During the first quarter of 2012, the Pension Plan sold certain equity securities and invested in debt securities in order to rebalance Pension Plan asset categories in line with the prescribed target ranges.

The following schedules set forth the fair value of Pension Plan assets and the level of the valuation inputs used to value the assets at December 31, 2011 and 2010:

Asset Category	Quoted Prices In Active Markets  for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In thousands)
December 31, 2011
Cash	$	1,773	$	—	$	—	$	1,773
Equity securities:
U.S. large- and mid-cap stocks (a)		35,503		—		—		35,503
U.S. small-cap mutual funds		3,303		—		—		3,303
International large-cap mutual funds		10,659		—		—		10,659
Emerging markets mutual funds		3,954		—		—		3,954
Chemical Financial Corporation common stock		4,726		—		—		4,726
Debt securities:
U.S. Treasury and government sponsored agency bonds and notes		5,717		2,053		—		7,770
Corporate bonds (b)		—		14,603				14,603
Other		230		—		—		230
Total	$	65,865	$	16,656	$	—	$	82,521
December 31, 2010
Cash	$	1,752	$	—	$	—	$	1,752
Equity securities:
U.S. large- and mid-cap stocks (a)		35,157		—		—		35,157
U.S. small-cap mutual funds		2,610		—		—		2,610
International large-cap mutual funds		11,353		—		—		11,353
Emerging markets mutual funds		6,176		—		—		6,176
Chemical Financial Corporation common stock		3,685		—		—		3,685
Debt securities:
U.S. Treasury and government sponsored agency bonds and notes		5,983		3,143		—		9,126
Corporate bonds (b)		—		16,634		—		16,634
Other		248		—		—		248
Total	$	66,964	$	19,777	$	—	$	86,741

(a) Comprised of common stocks traded on U.S. Exchanges whose issuers had market capitalizations exceeding $3 billion.

(b) Comprised of investment grade bonds of U.S. issuers from diverse industries.

At December 31, 2011 and 2010, equity securities included 221,663 shares and 166,363 shares, respectively, of the Corporation’s common stock. During 2011 and 2010, cash dividends of $0.18 million and $0.13 million, respectively, were paid on the Corporation’s common stock held by the Pension Plan. The fair value of the Corporation’s common stock held in the Pension Plan was $4.7 million at December 31, 2011 and $3.7 million at December 31, 2010, which represented 5.7% and 4.2% of Pension Plan assets at December 31, 2011 and 2010, respectively.

Accumulated Other Comprehensive Loss

The following sets forth the changes in accumulated other comprehensive income (loss), net of tax, related to the Corporation’s Pension, Postretirement and Supplemental Plans during 2011:

	Pension Plan			Postretirement Plan			Supplemental Plan			Total
	(In thousands)
Accumulated other comprehensive income (loss) at beginning of year	$	(17,769	)	$	426		$	(85	)	$	(17,428	)
Comprehensive income (loss) adjustment:
Prior service credits		(1	)		(211	)		—			(212	)
Net actuarial gain (loss)		(11,099	)		298			(224	)		(11,025	)
Comprehensive income (loss) adjustment		(11,100	)		87			(224	)		(11,237	)
Accumulated other comprehensive income (loss) at end of year	$	(28,869	)	$	513		$	(309	)	$	(28,665	)

The estimated income (loss) that will be amortized from accumulated other comprehensive income (loss) into net periodic cost, net of tax, in 2012 is as follows:

	Pension Plan			Postretirement Plan		Supplemental Plan			Total
	(In thousands)
Prior service credits	$	1		$	195	$	—		$	196
Net gain (loss)		(1,548	)		8		(49	)		(1,589	)
Total	$	(1,547	)	$	203	$	(49	)	$	(1,393	)