PNC Bank 2008 Annual Report Download - page 133

The weighted-average assumptions used (as of the beginning
of each year) to determine net periodic costs shown above
were as follows:
Net Periodic Cost Determination
Year ended December 31 2008 2007 2006
Discount rate
Qualified pension 5.95% 5.70% 5.50%
Nonqualified pension 5.75 5.60 5.40
Postretirement benefits 5.95 5.80 5.60
Rate of compensation increase (average) 4.00 4.00 4.00
Assumed health care cost trend rate
Initial trend 9.50 10.00 10.00
Ultimate trend 5.00 5.00 5.00
Year ultimate reached 2014 2012 2011
Expected long-term return on plan assets 8.25 8.25 8.25
The weighted-average assumptions used (as of the end of each
year) to determine year-end obligations for pension and
postretirement benefits were as follows:
At December 31
2008 2007
Discount rate
Qualified pension 6.05% 5.95%
Nonqualified pension 5.90 5.75
Postretirement benefits 5.95 5.95
Rate of compensation increase (average) 4.00 4.00
Assumed health care cost trend rate
Initial trend 9.00 9.50
Ultimate trend 5.00 5.00
Year ultimate reached 2014 2014
The discount rate assumptions were determined independently
for each plan reflecting the duration of each plan’s
obligations. Specifically, a yield curve was produced for a
universe containing the majority of US-issued Aa grade
corporate bonds, all of which were non-callable (or callable
with make-whole provisions). Excluded from this yield curve
were the 10% of the bonds with the highest yields and the
10% with the lowest yields. For each plan, the discount rate
was determined as the level equivalent rate that would
produce the same present value obligation as that using spot
rates aligned with the projected benefit payments.
The expected return on plan assets is a long-term assumption
established by considering historical and anticipated returns of
the asset classes invested in by the pension plan and the
allocation strategy currently in place among those classes. We
review this assumption at each measurement date and adjust it
if warranted.
The health care cost trend rate assumptions shown in the
preceding tables relate only to the postretirement benefit
plans. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
Year ended December 31, 2008
In millions Increase Decrease
Effect on total service and interest cost $1 —
Effect on year-end benefit obligation 9 $ (8)
Under SFAS 158, unamortized actuarial gains and losses and
prior service costs and credits are recognized in AOCI each
December 31, while amortization of these amounts through
net periodic benefit cost occurs in accordance with SFAS 87
and SFAS 106. The estimated amounts that will be amortized
in 2009 are as follows:
2009 Estimate
Year ended December 31
In millions
Qualified
Pension
Nonqualified
Pension
Postretirement
Benefits
Prior service cost (credit) $ (2) — $ (5)
Net actuarial loss 80 — —
Total $78 — $ (5)
D EFINED C ONTRIBUTION P LANS
We have a contributory, qualified defined contribution plan
that covers substantially all employees except those covered
by other plans as identified below. Under this plan, employee
contributions up to 6% of eligible compensation as defined by
the plan are matched 100%, subject to Code limitations. The
plan is a 401(k) plan and includes an employee stock
ownership (“ESOP”) feature. Employee contributions are
invested in a number of investment options available under the
plan, including a PNC common stock fund and several
BlackRock mutual funds, at the direction of the employee. All
shares of PNC common stock held by the plan are part of the
ESOP. Employee contributions to the plan for 2008, 2007 and
2006 were matched primarily by shares of PNC common
stock held in treasury, except in the case of those participants
who have exercised their diversification election rights to have
their matching portion in other investments available within
the plan. Employee benefits expense related to this plan was
$57 million in 2008, $52 million in 2007 and $52 million in
2006. We measured employee benefits expense as the fair
value of the shares and cash contributed to the plan by PNC.
We have a separate qualified defined contribution plan that
covers substantially all US-based Global Investment Servicing
employees not covered by our plan. The plan is a 401(k) plan
and includes an ESOP feature. Under this plan, employee
contributions of up to 6% of eligible compensation as defined
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