MITSUBISHI UFJ FINANCIAL GROUP INC - 20-F filing on 2022-07-08

Severance Indemnities and Pension Plans

12 Months Ended

Mar. 31, 2022

SEVERANCE INDEMNITIES AND PENSION PLANS

Defined Benefit Pension Plans

The MUFG Group has funded non-contributory defined benefit pension plans, which cover substantially all of its employees and mainly provide for lifetime annuity payments commencing at age 65 (“pension benefits”) based on eligible compensation at the time of severance, rank, years of service and other factors.

MUFG Bank and certain domestic subsidiaries, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and some subsidiaries of MUFG have non-contributory Corporate Defined Benefit Pension plans which provide benefits to all their domestic employees.

The MUFG Group also offers qualified and nonqualified defined benefit pension plans in foreign offices and subsidiaries for their employees. The qualified plans are non-contributory defined pension plans, which provide benefits upon retirement based on years of service and average compensation and cover substantially all of the employees of such foreign offices and subsidiaries. With respect to the offices and subsidiaries in the United States of America, the qualified plans are funded on a current basis in compliance with the requirement of the Employee Retirement Income Security Act of the United States of America. The nonqualified plans are non-contributory defined benefit pension plans, under which certain employees earn pay and interest credits on compensation amounts above the maximum stipulated by applicable laws under the qualified plans.

Severance Indemnities Plans

The MUFG Group has SIPs under which their employees in Japan, other than those who are directors, are entitled, under most circumstances, upon mandatory retirement at normal retirement age or earlier termination of employment, to lump-sum severance indemnities based on eligible compensation at the time of severance, rank, years of service and other factors. Under SIPs, benefit payments in the form of a lump-sum cash payment with no option to receive annuity payments, upon mandatory retirement at normal retirement age or earlier termination of employment, are provided. When a benefit is paid in a single payment to a benefit payee under the plans, the payment represents final relief of the obligation.

Other Postretirement Plans

The MUFG Group’s foreign offices and subsidiaries, primarily in the United States of America, provide their employees with certain postretirement medical and life insurance benefits (“other benefits”).

As part of the anticipated transaction discussed in Note 2, assets and obligations of defined benefit pension plan and other postretirement plan, which MUFG Union Bank maintains, will be assigned to MUFG Bank and U.S. Bancorp in proportion to each entity’s share of the underlying participant obligations of the plans. The disclosures in the remainder of this note involving future years disregard the impact of this transaction.

Net periodic cost of pension benefits and other benefits for the fiscal years ended March 31, 2020, 2021 and 2022 include the following components:


	Domestic subsidiaries						Foreign offices and subsidiaries
	2020		2021		2022		2020				2021				2022
	Pension benefits and SIP		Pension benefits and SIP		Pension benefits and SIP		Pension benefits		Other benefits		Pension benefits		Other benefits		Pension benefits		Other benefits
	(in millions)
Service cost—benefits earned during the fiscal year	¥	49,194	¥	46,861	¥	44,160	¥	14,406	¥	366	¥	13,947	¥	229	¥	16,853	¥	140
Interest cost on projected benefit obligation	10,969		11,091		11,995		17,370		1,159		14,295		793		11,233		494
Expected return on plan assets	(74,744)		(71,078)		(81,902)		(31,382)		(1,882)		(31,161)		(2,118)		(33,269)		(2,415)
Amortization of net actuarial loss	5,641		17,019		770		8,685		1,162		11,560		208		16,573		(64)
Amortization of prior service cost	(1,204)		(1,205)		(1,280)		(2,633)		(1,881)		(2,614)		(448)		(2,802)		(385)
Loss (gain) on settlements and curtailment	(2,366)		(4,605)		(5,820)		223		—		30		—		44		—
Net periodic benefit cost (income)	¥	(12,510)	¥	(1,917)	¥	(32,077)	¥	6,669	¥	(1,076)	¥	6,057	¥	(1,336)	¥	8,632	¥	(2,230)

The following table summarizes the assumptions used in computing the present value of the projected benefit obligations and the net periodic benefit cost:


	Domestic subsidiaries						Foreign offices and subsidiaries
	2020		2021		2022		2020				2021				2022
	Pension benefits and SIP		Pension benefits and SIP		Pension benefits and SIP		Pension benefits		Other benefits		Pension benefits		Other benefits		Pension benefits		Other benefits
	(in millions)
Weighted-average assumptions used:
Discount rates in determining expense	0.61	%	0.63	%	0.71	%	3.80	%	3.87	%	2.94	%	2.72	%	2.19	%	1.82	%
Discount rates in determining benefit obligation	0.63		0.71		0.86		3.05		2.96		2.34		2.23		2.78		2.63
Rates of increase in future compensation level for determining expense	3.21		3.46		3.46		5.01		—		5.12		—		5.09		—
Rates of increase in future compensation level for determining benefit obligation	3.46		3.46		3.46		5.12		—		5.09		—		5.04		—
Expected rates of return on plan assets	2.89		2.93		2.89		6.25		7.00		6.19		7.00		5.91		7.00
Cash balance crediting rate for determining expense	2.46		2.46		2.46		3.03		—		2.39		—		1.62		—
Cash balance crediting rate for determining benefit obligation	2.46		2.46		2.46		2.39		—		1.62		—		1.94		—

The following tables present the assumed health care cost trend rates for foreign offices and subsidiaries, which are used to measure the expected cost of benefits for the next year:


	MUAH				Other than MUAH
	2021(1)		2022(1)			2021(1)		2022(1)
Initial trend rate	4.17	%	4.13	%		6.50	%	6.50	%
Ultimate trend rate	3.78	%	3.77	%		4.50	%	4.50	%
Year the rate reaches the ultimate trend rate	2028		2029			2028		2029

Note:

(1)Fiscal years of MUFG Americas Holdings and foreign subsidiaries end on December 31. Therefore, the above tables present the rates and amounts at December 31, 2020 and 2021, respectively.

The following table sets forth the combined funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 2021 and 2022:


	Domestic subsidiaries				Foreign offices and subsidiaries
	2021		2022		2021					2022
	Non-contributory pension benefits and SIP		Non-contributory pension benefits and SIP		Pension benefits			Other benefits		Pension benefits			Other benefits
	(in millions)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	¥	1,807,905	¥	1,753,483	¥	547,013		¥	32,383	¥	580,953		¥	31,354
Service cost	46,861		44,160		13,947			229		16,853			140
Interest cost	11,091		11,995		14,295			793		11,233			494
Plan participants’ contributions	—		—		30			440		—			433
Acquisitions/ Divestitures	(2,845)		(242)		(260)			—		(130)			—
Amendments	(22)		(1,054)		(1,187)			—		402			—
Actuarial loss (gain)	(21,558)		(28,814)		51,724		(1)	1,506		(24,611)		(1)	(2,269)
Benefits paid	(65,730)		(65,853)		(20,816)			(2,488)		(24,501)			(2,580)
Lump-sum payment	(22,219)		(21,570)		(2,825)			—		(3,591)			—
Translation adjustments and other	—		—		(20,968)			(1,509)		63,131			3,219
Benefit obligation at end of fiscal year	1,753,483		1,692,105		580,953			31,354		619,739			30,791
Change in plan assets:
Fair value of plan assets at beginning of fiscal year	2,432,847		2,858,013		559,508			31,919		604,404			33,349
Actual return on plan assets	472,185		77,848		82,615			5,165		49,277			4,619
Employer contributions	21,151		20,487		3,896			181		4,627			(116)
Acquisitions/ Divestitures	(2,440)		8		—			—		—			—
Plan participants’ contributions	—		—		30			440		—			433
Benefits paid	(65,730)		(65,853)		(20,816)			(2,488)		(24,501)			(2,580)
Translation adjustments and other	—		—		(20,829)			(1,868)		72,057			3,823
Fair value of plan assets at end of fiscal year	2,858,013		2,890,503		604,404			33,349		705,864			39,528
Amounts recognized in the consolidated balance sheets:
Prepaid benefit cost	¥	1,122,507	¥	1,216,703	¥	94,445		¥	6,754	¥	153,861		¥	12,104
Accrued benefit cost	(17,977)		(18,305)		(70,994)			(4,759)		(67,736)			(3,367)
Net amount recognized	¥	1,104,530	¥	1,198,398	¥	23,451		¥	1,995	¥	86,125		¥	8,737

Note:

(1)Significant gains and losses related to changes in the benefit obligation for the fiscal years ended March 31, 2021 and 2022 primarily result from changes in the discount rate.

The aggregated accumulated benefit obligations of these plans at March 31, 2021 and 2022 were as follows:


	Domestic subsidiaries				Foreign offices and subsidiaries
	2021		2022		2021		2022
	(in millions)
Aggregated accumulated benefit obligations	¥	1,719,798	¥	1,663,543	¥	554,375	¥	596,153

The projected benefit obligations, accumulated benefit obligations and fair value of plan assets for the plans with accumulated benefit obligations in excess of plan assets at March 31, 2021 and 2022 were as follows:


	Domestic subsidiaries				Foreign offices and subsidiaries
	2021		2022		2021		2022
	(in millions)
Projected benefit obligations	¥	24,527	¥	25,327	¥	92,527	¥	87,876
Accumulated benefit obligations	24,527		25,327		68,720		67,612
Fair value of plan assets	6,738		7,223		21,532		20,139

MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and other subsidiaries paid special lump-sum termination benefits which are not a part of pension plans to certain early-terminated employees. The amounts charged to operations for such early termination benefits for the fiscal years ended March 31, 2020, 2021 and 2022 were ¥13,883 million, ¥16,716 million and ¥16,235 million, respectively.

The following table presents the amounts recognized in Accumulated OCI of the MUFG Group at March 31, 2021 and 2022:


	Domestic subsidiaries				Foreign offices and subsidiaries
	2021		2022		2021				2022
	Pension benefits and SIP		Pension benefits and SIP		Pension benefits		Other benefits		Pension benefits		Other benefits
	(in millions)
Net actuarial loss (gain)	¥	1,557	¥	(18,183)	¥	96,807	¥	3,255	¥	47,093	¥	(1,070)
Prior service cost	(3,072)		(2,845)		(6,167)		(1,869)		(3,742)		(1,650)
Gross amount recognized in Accumulated OCI	(1,515)		(21,028)		90,640		1,386		43,351		(2,720)
Taxes	(41,639)		(36,389)		(23,900)		(489)		(12,092)		616
Net amount recognized in Accumulated OCI	¥	(43,154)	¥	(57,417)	¥	66,740	¥	897	¥	31,259	¥	(2,104)

The following table presents OCI for the fiscal years ended March 31, 2021 and 2022:


	Domestic subsidiaries				Foreign offices and subsidiaries
	2021		2022		2021				2022
	Pension benefits and SIP		Pension benefits and SIP		Pension benefits		Other benefits		Pension benefits		Other benefits
	(in millions)
Net actuarial loss (gain) arising during the year	¥	(423,283)	¥	(24,790)	¥	319	¥	(1,541)	¥	(40,559)	¥	(4,471)
Prior service cost arising during the year	(22)		(1,053)		(1,187)		—		402		55
Losses (gains) due to amortization:
Net actuarial loss (gain)	(17,019)		(770)		(11,560)		(208)		(16,573)		64
Prior service cost	1,205		1,280		2,614		448		2,802		385
Curtailment and settlement	4,605		5,820		(30)		—		(44)		—
Foreign currency translation adjustments	—		—		(5,808)		(173)		6,683		(139)
Total changes in Accumulated OCI	¥	(434,514)	¥	(19,513)	¥	(15,652)	¥	(1,474)	¥	(47,289)	¥	(4,106)

Investment policies

MUFG’s investment policy for plan assets is based on an asset liability matching strategy which is intended to maintain adequate liquidity for benefit payments and to achieve a stable increase in the plan assets in the medium and long-term through proper risk control and return maximization. As a general rule, investment policies for plan assets are reviewed periodically for some plans and in the following situations for all plans: (1) large fluctuations in pension plan liabilities caused by modifications to pension plans, or (2) changes in the market environment. The plan assets allocation strategies are the principal determinant in achieving expected investment returns on the plan assets. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. Plan assets are managed by a combination of internal and external asset management companies and are rebalanced when market fluctuations cause an asset category to fall outside of its strategic asset allocation range. Performance of each plan asset category is compared against established indices and similar plan asset groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.

The weighted-average target asset allocation of plan assets for the pension benefits and other benefits at March 31, 2022 was as follows:


	Domestic subsidiaries		Foreign offices and subsidiaries
Asset category	Pension benefits and SIP		Pension benefits		Other benefits
Japanese equity securities	35.5	%	—	%	—	%
Japanese debt securities	28.4		—		—
Non-Japanese equity securities	14.8		41.3		63.0
Non-Japanese debt securities	14.5		42.0		27.0
Real estate	1.5		10.2		10.0
Short-term assets and other	5.3		6.5		—
Total	100.0	%	100.0	%	100.0	%

Basis and procedure for estimating long-term return of each asset category

MUFG’s expected long-term rate of return on plan assets for domestic defined benefit pension plans and SIPs is based on a building-block methodology, which calculates the total long-term rate of return of the plan assets by aggregating the weighted rate of return derived from both long-term historical performance and forward-looking return expectations from each asset category.

MUFG has determined the expected long-term rate of return for each asset category as follows:

•Japanese equity securities: the rate for Japanese debt securities plus a premium for the risk associated with Japanese equity securities

•Japanese debt securities: economic growth rate of Japan

•Non-Japanese equity securities: the rate for non-Japanese debt securities plus a premium for the risk associated with non-Japanese equity securities

•Non-Japanese debt securities: global economic growth rate

Foreign offices and subsidiaries periodically reconsider the expected long-term rate of return for their plan assets. They evaluate the investment return volatility of different asset categories and compare the liability structure of their pension and other benefits to those of other companies, while considering their funding policy to maintain a funded status sufficient to meet participants’ benefit obligations, and reduce long-term funding requirements and pension costs. Based on this information, foreign offices and subsidiaries update the expected long-term rate of return.

Estimated future benefit payments

The following table presents benefit payments expected to be paid, which include the effect of expected future service for the fiscal years indicated:


	Domestic subsidiaries		Foreign offices and subsidiaries
	Pension benefits and SIP		Pension benefits		Other benefits
	(in millions)
Fiscal year ending March 31:
2023	¥	80,812	¥	26,258	¥	2,198
2024	79,376		27,869		2,228
2025	79,934		28,678		2,203
2026	78,977		30,656		2,142
2027	77,807		32,659		2,062
Thereafter (2028-2032)	380,256		197,642		8,335

Fair value measurement of the plan assets

The following is a description of the valuation methodologies used for plan assets measured at fair value as well as the classification of the plan assets pursuant to the fair value hierarchy described in Note 31.

Government bonds and other debt securities

When quoted prices are available in an active market, the MUFG Group adopts the quoted prices to measure the fair value of securities and such securities are classified in Level 1 of the fair value hierarchy. Level 1 securities include Japanese government bonds, most non-Japanese government bonds and certain corporate bonds. When quoted prices are available but not traded actively, such securities are classified in Level 2 of the fair value hierarchy. When quoted prices are not available, the MUFG Group generally estimates fair values by using non-binding prices obtained from independent pricing vendors. Such securities are generally classified in Level 2 of the fair value hierarchy. Level 2 securities include certain non-Japanese government bonds, official institution bonds and corporate bonds. When there is lack of liquidity for securities or significant inputs adopted to the fair value measurements are unobservable, such securities are classified in Level 3 of the fair value hierarchy. Such Level 3 securities mainly consist of non-Japanese corporate bonds.

Marketable equity securities

When quoted prices are available in an active market, the MUFG Group adopts the quoted prices to measure the fair value of marketable equity securities and such securities are classified in Level 1 of the fair value hierarchy. When quoted prices are available but not traded actively, such securities are classified in Level 2 of the fair value hierarchy.

Japanese pooled funds

Japanese pooled funds are investment fund vehicles designed for Japanese pension plan investments under Japanese pension trust fund regulations. Based upon the nature of the funds’ investments, Japanese pooled funds are categorized into four major fund types: Japanese marketable equity securities type, Japanese debt securities type, Non-Japanese marketable equity securities type and Non-Japanese debt securities type. The other types of funds invest in short-term financial instruments or loans receivable. Japanese pooled funds are generally readily redeemable at their net asset values. The fair values of Japanese pooled funds are measured at their net asset values per share (or its equivalent) as a practical expedient.

Other investment funds

Other investment funds include mutual funds, private investments funds, common collective funds, private equity funds and real estate funds. The listed investment funds or mutual funds are valued at quoted prices and classified in Level 1 or Level 2 of the fair value hierarchy. When there is no available market quotation, the fair values are generally determined at net asset values per share (or its equivalent) as a practical expedient. Other investment funds classified in Level 3 of the fair value hierarchy consist of certain real estate funds whose fair values are not measured at their net asset values but by using significant unobservable inputs and there is inherent lack of the funds’ liquidity.

Japanese general accounts of life insurance companies

These instruments are contracts with life insurance companies that guarantee return of a certain level of fixed income, which are mainly invested in assets with low market risk such as Japanese debt securities. They are measured at conversion value and classified in Level 2 of the fair value hierarchy.

Other investments

Other investments mainly consist of call loans and the rest consist of miscellaneous accounts such as deposits with banks and short-term investments. These instruments are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on observability of the inputs to measure their fair values.

The following table presents the fair value of each major category of plan assets as of March 31, 2021 and 2022:

Pension benefits and SIP Investments:


At March 31, 2021	Domestic subsidiaries								Foreign offices and subsidiaries
Assets category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Japanese government bonds	¥	145,236	¥	—	¥	—	¥	145,236	¥	—	¥	—	¥	—	¥	—
Non-Japanese government bonds	—		—		—		—		44,105		4,645		—		48,750
Other debt securities	10,136		14,065		230		24,431		—		117,696		—		117,696
Japanese marketable equity securities	862,096		—		—		862,096		—		—		—		—
Non-Japanese marketable equity securities	81,525		588		—		82,113		34,584		671		—		35,255
Other investment funds	—		—		—		—		76,520		164,810		—		241,330		(2)
Japanese general account of life insurance companies(1)	—		217,827		—		217,827		—		—		—		—
Other investments	8,390		5,092		—		13,482		812		13,502		333		14,647
Total	¥	1,107,383	¥	237,572	¥	230	¥	1,345,185	¥	156,021	¥	301,324	¥	333	¥	457,678

At March 31, 2022	Domestic subsidiaries								Foreign offices and subsidiaries
Assets category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Japanese government bonds	¥	140,538	¥	—	¥	—	¥	140,538	¥	—	¥	—	¥	—	¥	—
Non-Japanese government bonds	—		—		—		—		68,887		5,385		—		74,272
Other debt securities	9,950		14,648		232		24,830		—		133,815		—		133,815
Japanese marketable equity securities	848,482		—		—		848,482		—		—		—		—
Non-Japanese marketable equity securities	87,983		176		—		88,159		34,659		556		—		35,215
Other investment funds	—		—		—		—		83,442		186,372		—		269,814		(2)
Japanese general account of life insurance companies(1)	—		209,482		—		209,482		—		—		—		—
Other investments	11,819		17,563		—		29,382		1,001		11,095		39,729		51,825
Total	¥	1,098,772	¥	241,869	¥	232	¥	1,340,873	¥	187,989	¥	337,223	¥	39,729	¥	564,941

Notes:

(1)“Japanese general accounts of life insurance companies” is a contract with life insurance companies that guarantees a return of approximately 1.25% from April 1, 2020 to March 31, 2021 and 1.25% from April 1, 2021 to March 31, 2022.

(2)Other investment funds of the foreign offices and subsidiaries include mutual funds and common collective funds of ¥80,717 million and ¥128,005 million, respectively, which were held by MUFG Americas Holdings at December 31, 2020 and ¥86,724 million and ¥146,169 million, respectively, at December 31, 2021.

The following table presents fair values of certain investments valued at net asset value per share (or its equivalent) as a practical expedient that were excluded from the above table as of March 31, 2021 and 2022:


	Domestic subsidiaries						Foreign offices and subsidiaries
Assets category	2021			2022			2021			2022
	(in millions)
Japanese pooled funds:
Japanese marketable equity securities	¥	118,509		¥	104,793		¥	—		¥	—
Japanese debt securities	324,700			221,250			—			—
Non-Japanese marketable equity securities	90,598			219,018			—			—
Non-Japanese debt securities	215,015			249,274			—			—
Other	153,483			92,558			—			—
Total pooled funds	902,305			886,893			—			—
Other investment funds	610,523		(1)	662,737		(1)	146,726		(2)	140,923		(2)
Total	¥	1,512,828		¥	1,549,630		¥	146,726		¥	140,923

Notes:

(1)Other investment funds of the domestic subsidiaries include mutual funds and real estate funds of ¥580,617 million and ¥14,763 million, respectively, at March 31, 2021 and ¥625,237 million and ¥15,417 million, respectively, at March 31, 2022.

(2)Other investment funds of the foreign offices and subsidiaries include mutual funds, real estate funds and common collective funds of ¥58,086 million, ¥51,318 million and ¥37,161 million, respectively, at March 31, 2021 and ¥25,356 million, ¥80,349 million and ¥34,971 million, respectively, at March 31, 2022.

Other debt securities and Japanese debt securities in the above Pension benefits and SIP tables include ¥600 million (0.02% of plan assets) of debt securities issued by the MUFG Group at March 31, 2021 and ¥625 million (0.02% of plan assets) at March 31, 2022, respectively. Japanese marketable equity securities in the above Pension benefits and SIP tables include ¥6,116 million (0.18% of plan assets) of common stock issued by the MUFG Group at March 31, 2021 and ¥4,606 million (0.13% of plan assets) at March 31, 2022, respectively.