PNC Bank 2011 Annual Report Download - page 176

PNC P ENSION P LAN A SSETS
Assets related to our qualified pension plan (the Plan) are held
in trust (the Trust). Effective July 1, 2011, the trustee is The
Bank of New York Mellon; prior to that date, the trustee was
PNC Bank, National Association, (PNC Bank, N.A). The
Trust is exempt from tax pursuant to section 501(a) of the
Internal Revenue Code (the Code). The Plan is qualified under
section 401(a) of the Code. Plan assets consist primarily of
listed domestic and international equity securities and US
government, agency, and corporate debt securities and real
estate investments. Plan assets as of December 31, 2011 and
2010 include common stock of PNC. PNC Common Stock
was $11 million and $12 million at December 31, 2011 and
December 31, 2010, respectively. At December 31, 2011, this
accounted for less than 1% of our total asset balance.
The Pension Plan Administrative Committee (the Committee)
adopted a current Pension Plan Investment Policy Statement,
including target allocations and allowable ranges, on
August 13, 2008. On February 25, 2010, the Committee
amended the investment policy to include a dynamic asset
allocation approach and also updated target allocation ranges
for certain asset categories. On March 1, 2011, the Committee
amended the investment policy to update the target allocation
ranges for certain asset categories.
The long-term investment strategy for pension plan assets is
to:
• Meet present and future benefit obligations to all
participants and beneficiaries,
• Cover reasonable expenses incurred to provide such
benefits, including expenses incurred in the
administration of the Trust and the Plan,
• Provide sufficient liquidity to meet benefit and
expense payment requirements on a timely basis, and
• Provide a total return that, over the long term,
maximizes the ratio of trust assets to liabilities by
maximizing investment return, at an appropriate level
of risk.
Under the dynamic asset allocation strategy, scenarios are
outlined in which the Committee has the ability to make short
to intermediate term asset allocation shifts based on factors
such as the Plan’s funded status, the Committee’s view of
return on equities relative to long term expectations, the
Committee’s view on the direction of interest rates and credit
spreads, and other relevant financial or economic factors
which would be expected to impact the ability of the Trust to
meet its obligation to beneficiaries. Accordingly, the
allowable asset allocation ranges have been updated to
incorporate the flexibility required by the dynamic allocation
policy.
The Plan’s specific investment objective is to meet or exceed
the investment policy benchmark over the long term. The
investment policy benchmark compares actual performance to
a weighted market index, and measures the contribution of
active investment management and policy implementation.
This investment objective is expected to be achieved over the
long term (one or more market cycles) and is measured over
rolling five-year periods. Total return calculations are time-
weighted and are net of investment-related fees and expenses.
The asset strategy allocations for the Trust at the end of 2011
and 2010, and the target allocation range at the end of 2011,
by asset category, are as follows:
Asset Strategy Allocations
Target
Allocation
Range
Percentage
of Plan
Assets by
Strategy at
December 31
PNC Pension Plan 2011 2010
Asset Category
Domestic Equity 20-40% 41% 40%
International Equity 10-25% 21% 21%
Private Equity 0-10% 3% 2%
Total Equity 40-70% 65% 63%
Domestic Fixed Income 20-40% 20% 24%
High Yield Fixed Income 0-15% 12% 10%
Total Fixed Income 20-55% 32% 34%
Real estate 0-10% 3% 3%
Other 0-5% 0% 0%
Total 100% 100%
The asset category represents the allocation of Plan assets in
accordance with the investment objective of each of the Plan’s
investment managers. Certain domestic equity investment
managers utilize derivatives and fixed income securities as
described in their Investment Management Agreements to
achieve their investment objective under the Investment
Policy Statement. Other investment managers may invest in
eligible securities outside of their assigned asset category to
meet their investment objectives. The actual percentage of the
fair value of total plan assets held as of December 31, 2011 for
equity securities, fixed income securities, real estate and all
other assets are 61%, 31%, 3%, and 5%, respectively.
We believe that, over the long term, asset allocation is the
single greatest determinant of risk. Asset allocation will
deviate from the target percentages due to market movement,
cash flows, investment manager performance and
implementation of shifts under the dynamic allocation policy.
Material deviations from the asset allocation targets can alter
the expected return and risk of the Trust. On the other hand,
frequent rebalancing to the asset allocation targets may result
in significant transaction costs, which can impair the Trust’s
ability to meet its investment objective. Accordingly, the Trust
portfolio is periodically rebalanced to maintain asset
allocation within the target ranges described above.
The PNC Financial Services Group, Inc. – Form 10-K 167