12. Pension plans and other postretirement benefits

The Company provides defined benefit pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. The Company uses a December 31 measurement date for all of its plans.

Net periodic pension expense for defined benefit plans consisted of the following:


	Year Ended December 31
	2015			2014			2013
	(In thousands)
Service cost	$	24,372		$	20,520		$	24,360
Interest cost on benefit obligation		72,731			69,162			60,130
Expected return on plan assets		(96,155	)		(91,568	)		(87,353	)
Amortization of prior service credit		(6,005	)		(6,552	)		(6,556	)
Recognized net actuarial loss		44,825			14,494			41,076

Net periodic pension expense	$	39,768		$	6,056		$	31,657

Net other postretirement benefits expense for defined benefit plans consisted of the following:


	Year Ended December 31
	2015			2014			2013
	(In thousands)
Service cost	$	914		$	605		$	742
Interest cost on benefit obligation		2,995			2,778			2,691
Amortization of prior service credit		(1,359	)		(1,359	)		(1,359	)
Recognized net actuarial loss		106			—			360

Net other postretirement benefits expense	$	2,656		$	2,024		$	2,434

Data relating to the funding position of the defined benefit plans were as follows:


	Pension Benefits						Other Postretirement Benefits
	2015			2014			2015			2014
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,813,409		$	1,484,193		$	67,502		$	60,592
Service cost		24,372			20,520			914			605
Interest cost		72,731			69,162			2,995			2,778
Plan participants’ contributions		—			—			2,619			3,498
Amendments		—			4,619			—			—
Actuarial (gain) loss		(83,593	)		300,444			(2,431	)		7,793
Business combinations		247,340			—			56,539			—
Medicare Part D reimbursement		—			—			420			495
Benefits paid		(69,728	)		(65,529	)		(7,061	)		(8,259	)

Benefit obligation at end of year		2,004,531			1,813,409			121,497			67,502

Change in plan assets:
Fair value of plan assets at beginning of year		1,505,661			1,506,684			—			—
Actual return on plan assets		(14,069	)		56,430			—			—
Employer contributions		8,367			8,076			4,022			4,266
Plan participants’ contributions		—			—			2,619			3,498
Business combinations		194,903			—			—			—
Medicare Part D reimbursement		—			—			420			495
Benefits and other payments		(69,728	)		(65,529	)		(7,061	)		(8,259	)

Fair value of plan assets at end of year		1,625,134			1,505,661			—			—

Funded status	$	(379,397	)	$	(307,748	)	$	(121,497	)	$	(67,502	)

Accrued liabilities recognized in the consolidated balance sheet	$	(379,397	)	$	(307,748	)	$	(121,497	)	$	(67,502	)

Amounts recognized in accumulated other comprehensive income (“AOCI”) were:
Net loss	$	494,279		$	512,473		$	4,200		$	6,737
Net prior service cost		277			(5,728	)		(9,096	)		(10,455	)

Pre-tax adjustment to AOCI		494,556			506,745			(4,896	)		(3,718	)
Taxes.		(194,608	)		(198,897	)		1,927			1,459

Net adjustment to AOCI.	$	299,948		$	307,848		$	(2,969	)	$	(2,259	)

The Company has an unfunded supplemental pension plan for certain key executives and others. The projected benefit obligation and accumulated benefit obligation included in the preceding data related to such plan were $161,657,000 as of December 31, 2015 and $135,891,000 as of December 31, 2014. Included in the amount at December 31, 2015 was $30,439,000 assumed in the Hudson City acquisition.

The accumulated benefit obligation for all defined benefit pension plans was $1,951,425,000 and $1,782,387,000 at December 31, 2015 and 2014, respectively.

GAAP requires an employer to recognize in its balance sheet as an asset or liability the overfunded or underfunded status of a defined benefit postretirement plan, measured as the difference between the fair value of plan assets and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. Gains or losses and prior service costs or credits that arise during the period, but are not included as components of net periodic benefit expense, are recognized as a component of other comprehensive income. As indicated in the preceding table, as of December 31, 2015 the Company recorded a minimum liability adjustment of $489,660,000 ($494,556,000 related to pension plans and $(4,896,000) related to other postretirement benefits) with a corresponding reduction of shareholders’ equity, net of applicable deferred taxes, of $296,979,000. In aggregate, the benefit plans realized a net gain during 2015 that resulted from several factors, including: an increase in the discount rate used in the measurement of the benefit obligations to 4.25% at December 31, 2015 from 4.00% at December 31, 2014 and the amortization during 2015 of unrealized losses previously recorded in accumulated other comprehensive income as of December 31, 2014. Both of these factors increased other comprehensive income, but were largely offset by losses incurred in the qualified pension plan as a result of investment returns that were less than the expected return. As a result, the Company decreased its minimum liability adjustment from that which was recorded at December 31, 2014 by $13,367,000 with a corresponding increase to shareholders’ equity that, net of applicable deferred taxes, was $8,610,000. The table below reflects the changes in plan assets and benefit obligations recognized in other comprehensive income related to the Company’s postretirement benefit plans.


	Pension Plans			Other Postretirement Benefit Plans			Total
	(In thousands)
2015
Net loss (gain)	$	26,631		$	(2,431	)	$	24,200
Amortization of prior service credit		6,005			1,359			7,364
Amortization of loss		(44,825	)		(106	)		(44,931	)

Total recognized in other comprehensive income, pre-tax	$	(12,189	)	$	(1,178	)	$	(13,367	)

2014
Net loss	$	335,581		$	7,793		$	343,374
Prior service cost		4,619			—			4,619
Amortization of prior service credit		6,552			1,359			7,911
Amortization of loss		(14,494	)		—			(14,494	)

Total recognized in other comprehensive income, pre-tax	$	332,258		$	9,152		$	341,410

The following table reflects the amortization of amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit expense during 2016:


	Pension Plans			Other Postretirement Benefit Plans
	(In thousands)
Amortization of net prior service credit	$	(3,228	)	$	(1,359	)
Amortization of net loss		30,912			8

The Company also provides a qualified defined contribution pension plan to eligible employees who were not participants in the defined benefit pension plan as of December 31, 2005 and to other employees who have elected to participate in the defined contribution plan. The Company makes contributions to the defined contribution plan each year in an amount that is based on an individual participant’s total compensation (generally defined as total wages, incentive compensation, commissions and bonuses) and years of service. Participants do not contribute to the defined contribution pension plan. Pension expense recorded in 2015, 2014 and 2013 associated with the defined contribution pension plan was approximately $23 million, $22 million and $21 million, respectively.

Assumptions

The assumed weighted-average rates used to determine benefit obligations at December 31 were:


	Pension Benefits						Other Postretirement Benefits
	2015			2014			2015			2014
Discount rate		4.25	%		4.00	%		4.25	%		4.00	%
Rate of increase in future compensation levels		4.37	%		4.39	%		—			—

The assumed weighted-average rates used to determine net benefit expense for the years ended December 31 were:


	Pension Benefits									Other Postretirement Benefits
	2015			2014			2013			2015			2014			2013
Discount rate		4.00	%		4.75	%		3.75	%		4.00	%		4.75	%		3.75	%
Long-term rate of return on plan assets		6.50	%		6.50	%		6.50	%		—			—			—
Rate of increase in future compensation levels		4.39	%		4.42	%		4.50	%		—			—			—

On November 1, 2015 pension and other benefit obligations were assumed as a result of the acquisition of Hudson City. Initial liabilities and net costs were determined using a 4.25% discount rate, a 3.50% increase in compensation and a 6.50% expected return on assets.

The expected long-term rate of return assumption as of each measurement date was developed through analysis of historical market returns, current market conditions, anticipated future asset allocations, the funds’ past experience, and expectations on potential future market returns. The expected rate of return assumption represents a long-term average view of the performance of the plan assets, a return that may or may not be achieved during any one calendar year.

For measurement of other postretirement benefits, a 6.50% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016. The rate was assumed to decrease to 5.00% over 27 years. A one-percentage point change in assumed health care cost trend rates would have had the following effects:


	+1%		-1%
	(In thousands)
Increase (decrease) in:
Service and interest cost	$	108	$	(96	)
Accumulated postretirement benefit obligation		3,180		(2,729	)

Plan Assets

The Company’s policy is to invest the pension plan assets in a prudent manner for the purpose of providing benefit payments to participants and mitigating reasonable expenses of administration. The Company’s investment strategy is designed to provide a total return that, over the long-term, places an emphasis on the preservation of capital. The strategy attempts to maximize investment returns on assets at a level of risk deemed appropriate by the Company while complying with applicable regulations and laws. The investment strategy utilizes asset diversification as a principal determinant for establishing an appropriate risk profile while emphasizing total return realized from capital appreciation, dividends and interest income. The target allocations for plan assets are generally 45 to 80 percent equity securities, 5 to 40 percent debt securities, and 5 to 30 percent money-market funds/cash equivalents and other investments, although holdings could be more or less than these general guidelines based on market conditions at the time and actions taken or recommended by the investment managers providing advice to the Company. Equity securities include investments in domestic and international equities, including through mutual funds. Debt securities include investments in corporate bonds of companies from diversified industries, mortgage-backed securities guaranteed by government agencies, U.S. Treasury securities, and mutual funds that invest in debt securities. Additionally, the Company’s defined benefit pension plan held $209,878,000 (12.9% of total assets) of real estate, private investments, hedge funds and other investments at December 31, 2015. Returns on invested assets are periodically compared with target market indices for each asset type to aid management in evaluating such returns. Furthermore, management regularly reviews the investment policy and may, if deemed appropriate, make changes to the target allocations noted above.

The fair values of the Company’s pension plan assets at December 31, 2015, by asset category, were as follows:


	Fair Value Measurement of Plan Assets At December 31, 2015
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Asset category:
Money-market funds	$	69,634	$	37,958	$	31,676	$	—
Equity securities:
M&T		148,800		148,800		—		—
Domestic(a)		106,993		106,993		—		—
International(b)		9,433		9,433		—		—
Mutual funds:
Domestic(a)		445,663		445,663		—		—
International(b)		348,869		348,869		—		—

		1,059,758		1,059,758		—		—

Debt securities:
Corporate(c)		105,499		—		105,499		—
Government		120,346		—		120,346		—
International		7,492		—		7,492		—
Mutual funds:
Domestic(d)		51,028		51,028		—		—

		284,365		51,028		233,337		—

Other:
Diversified mutual fund		70,343		70,343		—		—
Private real estate		2,787		—		—		2,787
Private equity		5,603		—		—		5,603
Hedge funds		119,549		81,861		—		37,688
Guaranteed deposit fund		11,596		—		—		11,596

		209,878		152,204		—		57,674

Total(e)	$	1,623,635	$	1,300,948	$	265,013	$	57,674

The fair values of the Company’s pension plan assets at December 31, 2014, by asset category, were as follows:


	Fair Value Measurement of Plan Assets At December 31, 2014
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Asset category:
Money-market funds	$	29,458	$	29,458	$	—	$	—
Equity securities:
M&T		154,252		154,252		—		—
Domestic(a)		214,127		214,127		—		—
International(b)		16,170		16,170		—		—
Mutual funds:
Domestic(a)		305,817		305,817		—		—
International(b)		381,101		381,101		—		—

		1,071,467		1,071,467		—		—

Debt securities:
Corporate(c)		102,848		—		102,848		—
Government		92,772		—		92,772		—
International		7,196		—		7,196		—
Mutual funds:
Domestic(d)		27,847		27,847		—		—

		230,663		27,847		202,816		—

Other:
Diversified mutual fund		96,936		96,936		—		—
Private real estate		2,162		—		—		2,162
Private equity		6,234		—		—		6,234
Hedge funds		66,694		42,430		—		24,264

		172,026		139,366		—		32,660

Total(e)	$	1,503,614	$	1,268,138	$	202,816	$	32,660

(a)

This category is comprised of equities of companies primarily within the mid-cap and large-cap sectors of the U.S. economy and range across diverse industries.

(b)

This category is comprised of equities in companies primarily within the mid-cap and large-cap sectors of international markets mainly in developed markets in Europe and the Pacific Rim.

(c)

This category represents investment grade bonds of U.S. issuers from diverse industries.

(d)

Approximately 33% of the mutual funds were invested in investment grade bonds and 67% in high-yielding bonds at December 31, 2015. Approximately 55% of the mutual funds were invested in investment grade bonds and 45% in high-yielding bonds at December 31, 2014. The holdings within the funds were spread across diverse industries.

(e)

Excludes dividends and interest receivable totaling $1,499,000 and $2,047,000 at December 31, 2015 and 2014, respectively.

Pension plan assets included common stock of M&T with a fair value of $148,800,000 (9.2% of total plan assets) at December 31, 2015 and $154,252,000 (10.2% of total plan assets) at December 31, 2014. No investment in securities of a non-U.S. Government or government agency issuer exceeded ten percent of plan assets at December 31, 2015. Assets subject to Level 3 valuations did not constitute a significant portion of plan assets at December 31, 2015 or December 31, 2014.

The changes in Level 3 pension plan assets measured at estimated fair value on a recurring basis during the year ended December 31, 2015 were as follows:


	Balance – January 1, 2015		Purchases (Sales)			Total Realized/ Unrealized Gains (Losses)			Balance – December 31, 2015
	(In thousands)
Other
Private real estate	$	2,162	$	(125	)	$	750		$	2,787
Private equity		6,234		(975	)		344			5,603
Hedge funds		24,264		14,258			(834	)		37,688
Guaranteed deposit fund		—		11,407			189			11,596

Total	$	32,660	$	24,565		$	449		$	57,674

The Company makes contributions to its funded qualified defined benefit pension plan as required by government regulation or as deemed appropriate by management after considering factors such as the fair value of plan assets, expected returns on such assets, and the present value of benefit obligations of the plan. Subject to the impact of actual events and circumstances that may occur in 2016, the Company may make contributions to the qualified defined benefit pension plan in 2016, but the amount of any such contribution has not yet been determined. The Company did not make any contributions to the plan in 2015 or 2014. The Company regularly funds the payment of benefit obligations for the supplemental defined benefit pension and postretirement benefit plans because such plans do not hold assets for investment. Payments made by the Company for supplemental pension benefits were $8,367,000 and $8,076,000 in 2015 and 2014, respectively. Payments made by the Company for postretirement benefits were $4,022,000 and $4,266,000 in 2015 and 2014, respectively. Payments for supplemental pension and other postretirement benefits for 2016 are not expected to differ from those made in 2015 by an amount that will be material to the Company’s consolidated financial position.

Estimated benefits expected to be paid in future years related to the Company’s defined benefit pension and other postretirement benefits plans are as follows:


	Pension Benefits		Other Postretirement Benefits
	(In thousands)
Year ending December 31:
2016	$	77,923	$	8,771
2017		82,899		8,834
2018		87,480		8,952
2019		93,309		8,979
2020		98,138		8,973
2021 through 2025		561,736		44,338

The Company has a retirement savings plan (“RSP”) that is a defined contribution plan in which eligible employees of the Company may defer up to 50% of qualified compensation via contributions to the plan. The Company makes an employer matching contribution in an amount equal to 75% of an employee’s contribution, up to 4.5% of the employee’s qualified compensation. Employees’ accounts, including employee contributions, employer matching contributions and accumulated earnings thereon, are at all times fully vested and nonforfeitable. Employee benefits expense resulting from the Company’s contributions to the RSP totaled $34,145,000, $32,466,000 and $31,797,000 in 2015, 2014 and 2013, respectively.