SunTrust 2004 Annual Report Download - page 94

92 SUNTRUST 2004 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
begin to earn benefits in the SunTrust Retirement Plan effective
January 1, 2005. In addition, participants’ benefits in the nonquali-
fied retirement plan will be frozen for both pay and service. Certain
covered participants (but not all) who were eligible for NCF non-
qualified retirement plan will be nominated to earn future benefits
in the SunTrust nonqualified plan.Active NCF employees will partic-
ipate in the SunTrust post retirement welfare plans and have the
same benefits as SunTrust employees of a similar age and service.
Prior NCF retirees will be continued in postretirement benefit plans
administered by SunTrust.
SunTrust uses a measurement date of December 31 for the majority
of its pension and other postretirement benefit plans.
The change in benefit obligations for the years ended December 31 was as follows:
Supplemental Other
Retirement Benefits Retirement Benefits Post Retirement Benefits
(Dollars in thousands) 2004 2003 2004 2003 2004 2003
Projected benefit obligation,
beginning of year $1,268,690 $1,046,260 $100,436 $ 89,305 $176,400 $158,201
Service cost 50,085 43,071 1,713 1,520 2,277 2,515
Interest cost 82,084 74,574 5,082 4,991 9,803 10,823
Plan participants’ contributions ————14,122 9,192
Amendments ——1,883 1,434 ——
Actuarial loss (gain) 77,448 186,775 10,333 6,304 (4,860) 20,012
NCF acquisition 149,297 —11,713 —14,056 —
Benefits paid (56,876) (81,990) (3,191) (3,118) (29,507) (24,343)
Projected benefit obligation,
end of year $1,570,728 $1,268,690 $127,969 $100,436 $182,291 $176,400
The accumulated benefit obligation for the Retirement Benefits at
the end of 2004 and 2003 was $1.4 billion and $1.1 billion, respec-
tively. For the Supplemental Retirement Benefits, the accumulated
benefit obligation at the end of 2004 and 2003 was $113.7 million
and $86.9 million, respectively.
(Dollars in thousands) 1% Increase 1% Decrease
Effect on postretirement benefit obligation $8,733 $(7,706)
Assumed health care cost trend rates have a significant effect on
the amounts reported for the post retirement health care plans.As
of December 31, 2004, SunTrust has assumed that retiree health
care costs will increase at an initial rate of 10.50% per year.
SunTrust’s medical plans are managed carefully and retirees share a
large portion of the medical cost.Therefore, SunTrust expects this
annual cost increase to decrease over time to 5.25% per year. Due
to changing medical inflation, it is important to understand the
effect of a one-percent point change in assumed health care cost
trend rates.These amounts are shown below:
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the “Act”) was enacted.The Act
established a prescription drug benefit under Medicare, known as
“Medicare Part D,” and a federal subsidy to sponsors of retiree
health care benefit plans that provide a prescription drug benefit
that is at least actuarially equivalent to Medicare Part D. The
Company anticipates that benefits provided to some groups of plan
participants will be actuarially equivalent and therefore entitle the
Company to a federal subsidy.
In May 2004, the FASB issued FASB Staff Position No. FAS 106-2,
“Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act (“FSP
106-2”). FSP 106-2 provides definitive guidance on the recognition
of the effects of the Act and related disclosure requirements for
employers that sponsor prescription drug benefit plans for retirees.
In the quarter beginning July 1, the Company adopted FSP 106-2
retroactively to January 1, 2004.The expected subsidy reduced the
accumulated post retirement benefit obligation (APBO) as of
January 1, 2004 by $9.7 million, and net periodic cost for 2004
by $1.6 million.The $1.6 million reduction in the net periodic cost
was recognized in the Company’s Consolidated Statements of
Income for 2004.
Supplemental Other
(Weighted-average assumptions used to determine Retirement Benefits Retirement Benefits Post Retirement Benefits
benefit obligations, end of year) 2004 2003 2004 2003 2004 2003
Discount rate 5.90% 6.25% 4.59% 4.88% 5.35% 6.25%
Rate of compensation increase 4.00 3.50 4.00 3.50 N/A N/A