SunTrust 2006 Annual Report Download - page 122

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
On October 1, 2004, SunTrust acquired NCF. Prior to the acquisition, NCF sponsored a funded qualified
retirement plan, an unfunded nonqualified retirement plan for some of its participants, and certain
postretirement health benefits for its employees. Effective December 31, 2004, participants no longer
earned future service in the NCF Retirement Plan (qualified plan), and participants’ benefits were frozen
with the exception of adjustments for pay increases after 2004. All former NCF employees who met the
service requirements began to earn benefits in the SunTrust Retirement Plan effective January 1, 2005.
The NCF Retirement Plan was fully funded at the beginning of both fiscal years 2005 and 2006;
therefore, no tax deductible contributions were permitted. It is anticipated that no contributions will be
required during fiscal year 2007.
SunTrust also maintains unfunded, noncontributory non-qualified supplemental defined benefit pension
plans that cover key executives of the Company. The plans provide defined benefits based on years of
service and final average salary. SunTrust’s obligations for these non-qualified supplemental defined
benefit pension plans are shown separately under the “Supplemental Retirement Benefits” section of the
tables.
Although not under contractual obligation, SunTrust provides certain health care and life insurance
benefits to retired employees (“Other Postretirement Benefits” in the tables). At the option of SunTrust,
retirees may continue certain health and life insurance benefits if they meet age and service requirements
for Postretirement Benefits while working for the Company. The health care plans are contributory with
participant contributions adjusted annually; the life insurance plans are noncontributory. Employees retired
after December 31, 2003 are not eligible for retiree life insurance or subsidized post-65 medical benefits.
Certain retiree health benefits are funded in a Retiree Health Trust. In addition, certain retiree life
insurance benefits are funded in a Voluntary Employees’ Beneficiary Association (“VEBA”). SunTrust
reserves the right to amend or terminate any of the benefits at any time.
On February 16, 2007, the Company filed a Form 8-K dated February 13, 2007 announcing certain
changes to the Company’s pension and other postretirement benefit plans, as well as the matching
contribution related to the Company’s 401(k) Plan. Please refer to the Form 8-K for more information
regarding the plan changes.
As part of SunTrust’s year end assumption setting process in 2005, SunTrust authorized a study to
examine recent experience in its plan populations. The scope of this study included analysis of the
turnover, retirement, disability, medical participation, and compensation increases in the past three to
five years. In general, the assumptions SunTrust used as of year-end 2006 were consistent with recent
experience and the 2005 study.
A discount rate is used to determine the present value of future benefit obligations. The discount rate for
each plan is determined by matching the expected cash flows of each plan to a yield curve based on long
term, high quality fixed income debt instruments available as of the measurement date. A string of
benefit payments projected to be paid by the plan for the next 100 years is developed based on most
recent census data, plan provisions and assumptions. The benefit payments at each future maturity are
discounted by the year-appropriate spot interest rates (which are developed from a yield curve of
approximately 500 Aa quality bonds with similar maturities as the benefit payments). The model then
solves for the discount rate that produces the same present value of the projected benefit payments as
generated by discounting each year’s payments by the spot rate. This assumption is reviewed by the
SunTrust Benefit Plan Committee and updated every year for each plan.
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