KeyBank 2006 Annual Report Download - page 92

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92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
16. EMPLOYEE BENEFITS
On December 31, 2006, Key adopted SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans,” which requires an employer to recognize an asset or liability for
the overfunded or underfunded status, respectively, of its defined benefit
plans. The overfunded or underfunded status is to be measured solely as
the difference between the fair value of plan assets and the projected
benefit obligation. In addition, any change in a plan’s funded status must
be recognized in comprehensive income in the year in which it occurs.
Most requirements of SFAS No. 158 were effective for Key for the year
ended December 31, 2006. However, the requirement to measure plan
assets and liabilities as of the end of the fiscal year will not be effective
until the year ending December 31, 2008. As a result of adopting this
guidance, Key recorded an after-tax charge of $154 million to the
accumulated other comprehensive loss component of shareholders’
equity for the year ended December 31, 2006.
The charge to accumulated other comprehensive loss represents the net
unrecognized actuarial losses and unrecognized prior service costs
remaining from the initial adoption of SFAS No. 87, “Employers’
Accounting for Pensions,” both of which were previously netted against
the plans’ funded status. These amounts will be subsequently recognized
as net pension cost. In addition, actuarial gains and losses that arise in
subsequent periods that are not recognized as net pension cost in the same
period will be recognized as a component of comprehensive income.
The incremental pre-tax effect of adopting SFAS No. 158 on Key’s
Consolidated Balance Sheet is shown below:
PENSION PLANS
The components of pre-tax accumulated other comprehensive loss not
yet recognized as net pension cost are shown below:
During 2007, Key expects to recognize $28 million of pre-tax
accumulated other comprehensive loss, relating entirely to net losses, as
net pension cost.
Net pension cost for all funded and unfunded plans includes the
following components:
The information related to Key’s pension plans presented in the following
tables as of or for the years ended December 31 is based on current
actuarial reports using a September 30 measurement date.
Changes in the projected benefit obligation (“PBO”) related to Key’s
pension plans are summarized as follows:
Changes in the fair value of pension plan assets (“FVA”) are summarized
as follows:
The funded status of the pension plans, reconciled to the amounts
recognized in the consolidated balance sheets at December 31, 2006
and 2005, is as follows:
Year ended December 31,
in millions 2006 2005 2004
Service cost of benefits earned $ 48 $ 49 $ 46
Interest cost on projected
benefit obligation 55 57 56
Expected return on plan assets (88) (93) (92)
Amortization of prior service benefit (1) (1) —
Amortization of losses 31 21 22
Net pension cost $ 45 $ 33 $ 32
Before Effect of
Adoption Adopting
December 31, 2006 of SFAS SFAS As
in millions No. 158 No. 158 Reported
Other intangible assets $ 121 $ (1) $ 120
Accrued income and
other assets 4,128 (115) 4,013
Accrued expense and
other liabilities 5,190 38 5,228
Accumulated other
comprehensive loss (30) (154) (184)
December 31,
in millions 2006
Net unrecognized losses $252
Net unrecognized prior service cost 1
Total unrecognized accumulated other comprehensive loss
$253
Year ended December 31,
in millions 2006 2005
PBO at beginning of year $1,094 $1,037
Service cost 48 49
Interest cost 55 57
Actuarial losses 635
Benefit payments (91) (84)
PBO at end of year $1,112 $1,094
Year ended December 31,
in millions 2006 2005
FVA at beginning of year $1,096 $1,027
Actual return on plan assets 102 141
Employer contributions 12 12
Benefit payments (91) (84)
FVA at end of year $1,119 $1,096
December 31,
in millions 2006 2005
Funded status
a
$ 7 $ 2
Unrecognized net loss —291
Benefits paid subsequent
to measurement date 33
Net prepaid pension cost recognized $ 10 $ 296
Net prepaid pension cost recognized
consists of:
Prepaid benefit cost $ 185 $ 418
Accrued benefit liability (175) (177)
Deferred tax asset —20
Intangible asset —1
Accumulated other comprehensive loss —34
Net prepaid pension cost recognized $ 10 $ 296
a
The excess of the fair value of plan assets over the projected benefit obligation.
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