PNC Bank 2014 Annual Report Download - page 196

At December 31, 2014, the fair value of the qualified pension
plan assets was less than both the accumulated benefit
obligation and the projected benefit obligation.
The nonqualified pension plan is unfunded. Contributions
from PNC and, in the case of the postretirement benefit plans,
participant contributions cover all benefits paid under the
nonqualified pension plan and postretirement benefit plans.
The postretirement plan provides benefits to certain retirees
that are at least actuarially equivalent to those provided by
Medicare Part D and accordingly, we receive a federal subsidy
as shown in Table 109.
In March 2010, the Patient Protection and Affordable Care Act
(PPACA) was enacted. Key aspects of the PPACA which are
reflected in our consolidated financial statements include the
excise tax on high-cost health plans beginning in 2018 and fees
for the Transitional Reinsurance Program and the Patient-
Centered Outcomes Research Institute. These provisions did not
have a significant effect on our postretirement medical liability
or costs. The Early Retiree Reinsurance Program (ERRP) was
established by the PPACA. Congress appropriated funding of
$5.0 billion for this temporary ERRP to provide financial
assistance to employers, unions, and state and local
governments to help them maintain coverage for early retirees
age 55 and older who are not yet eligible for Medicare,
including their spouses, surviving spouses, and dependents. In
2014, PNC did not receive reimbursement related to the 2013
plan year and did not receive reimbursement in 2013 related to
the 2012 plan year. In 2012, the amount of reimbursement PNC
received related to the 2011 plan year was not significant.
PNC Pension Plan Assets
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. 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, U.S. government and agency
securities, corporate debt securities, and real estate
investments. The Plan held no PNC common stock as of
December 31, 2014 and December 31, 2013.
The PNC Financial Services Group, Inc. Administrative
Committee (the Administrative Committee) adopted the
Pension Plan Investment Policy Statement, including target
allocations and allowable ranges, on August 13, 2008. On
February 25, 2010, the Administrative Committee amended
the investment policy to include a dynamic asset allocation
approach and also updated target allocation ranges for certain
asset categories. On February 24, 2014, the Administrative
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 Administrative Committee has the
ability to make short to intermediate term asset allocation
shifts based on factors such as the Plan’s funded status, the
Administrative Committee’s view of return on equities
relative to long term expectations, the Administrative
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 participants and 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 2014
and 2013, and the target allocation range at the end of 2014,
by asset category, are as follows.
Table 110: Asset Strategy Allocations
Target
Allocation
Range
Percentage of
Plan Assets by
Strategy at
December 31
PNC Pension Plan 2014 2013
Asset Category
Domestic Equity 20 – 40% 34% 33%
International Equity 10 – 25% 23% 23%
Private Equity 0 – 15% 6% 4%
Total Equity 40 – 70% 63% 60%
Domestic Fixed Income 10 – 40% 17% 21%
High Yield Fixed Income 0 – 25% 13% 13%
Total Fixed Income 10 – 65% 30% 34%
Real estate 0 – 15% 5% 5%
Other 0 – 5% 2% 1%
Total 100% 100%
178 The PNC Financial Services Group, Inc. – Form 10-K