Comerica 2009 Annual Report Download - page 66

discount rate used in determining the current benefit obligation, the long-term rate of return expected on plan
assets and the rate of compensation increase. The assumed discount rate is determined by matching the expected
cash flows of the pension plans to a yield curve that is representative of long-term, high-quality fixed income
debt instruments as of the measurement date, December 31. The long-term rate of return expected on plan
assets is set after considering both long-term returns in the general market and long-term returns experienced by
the assets in the plan. The current target asset allocation model for the plans is detailed in Note 19 to the
consolidated financial statements. The expected returns on these various asset categories are blended to derive
one long-term return assumption. The assets are invested in certain collective investment and mutual funds,
common stocks, U.S. Treasury and other U.S. government agency securities, and corporate and municipal bonds
and notes. The rate of compensation increase is based on reviewing recent annual pension-eligible compensation
increases as well as the expectation of future increases. The Corporation reviews its pension plan assumptions on
an annual basis with its actuarial consultants to determine if the assumptions are reasonable and adjusts the
assumptions to reflect changes in future expectations.
The key actuarial assumptions used to calculate 2010 expense for the defined benefit pension plans were a
discount rate of 5.92 percent, a long-term rate of return on plan assets of 8.00 percent and a rate of compensation
increase of 3.5 percent. Defined benefit pension expense in 2010 is expected to be approximately $19 million, a
decrease of $38 million from the $57 million recorded in 2009, primarily driven by the improvement in plan asset
values in 2009 and changes in plan demographics.
Changing the 2010 key actuarial assumptions discussed above by 25 basis points would have the following
impact on defined benefit pension expense in 2010:
25 Basis Point
Increase Decrease
(in millions)
Key Actuarial Assumption
Discount rate ..................................................... $(6.0) $ 6.0
Long-term rate of return ............................................. (3.6) 3.6
Rate of compensation increase ......................................... 2.6 (2.6)
If the assumed long-term return on plan assets differs from the actual return on plan assets, the asset gains
or losses are incorporated in the market-related value, which is used to determine the expected return on assets,
over a five-year period. The Employee Benefits Committee, which consists of executive and senior managers
from various areas of the Corporation, provides broad asset allocation guidelines to the asset managers, who
report results and investment strategy quarterly to the Employee Benefits Committee. Actual asset allocations
are compared to target allocations by asset category and investment returns for each class of investment are
compared to expected results based on broad market indices.
The net funded status of the qualified defined benefit pension plan was an asset of $125 million at
December 31, 2009. Due to the long-term nature of pension plan assumptions, actual results may differ
significantly from the actuarial-based estimates. Differences between estimates and experience not recovered in
the market or by future assumption changes are required to be recorded in shareholders’ equity as part of
accumulated other comprehensive income (loss) and amortized to defined benefit pension expense in future
years. For further information, refer to Note 1 to the consolidated financial statements. The actuarial net gain in
the qualified defined benefit plan recognized in accumulated other comprehensive income (loss) at
December 31, 2009 was $89 million, net of tax. In 2009, the actual return on plan assets was $200 million,
compared to an expected return on plan assets of $104 million. In 2008, the actual loss on plan assets was
$293 million, compared to an expected return on plan assets of $100 million. The Corporation may make
contributions from time to time to the qualified defined benefit plan to mitigate the impact of the actuarial losses
on future years. A contribution of $100 million was made to the plan in 2009.
Defined benefit pension expense is recorded in ‘‘employee benefits’’ expense on the consolidated
statements of income and is allocated to business segments based on the segment’s share of salaries expense.
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