SunTrust 2011 Annual Report Download - page 90
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of December 31, 2007 received benefits based on a traditional pension formula with benefits linked to employees' final average
pays and years of service. Most other employees received a traditional pension for periods prior to 2008 plus a cash balance benefit
based on annual compensation and interest credits earned after 2007.
Discount Rate
The 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 date obligations are measured. The discount rate for each plan is reset annually or upon occurrence of a triggering
event on the measurement date to reflect current market conditions. As mentioned above, the pension curtailment on November
14, 2011 caused a remeasurement and a reset of the discount rates. See Note 16, “Employee Benefit Plans,” to the Consolidated
Financial Statements in this Form 10-K for discussion of the rate resets.
If we were to assume a 0.25% increase/decrease in the discount rate for all retirement and other postretirement plans, and keep
all other assumptions constant, the benefit cost would decrease/increase by less than $1 million.
Expected Long-term Rate of Return on Plan Assets
Expected returns on plan assets are computed using long-term rate of return assumptions which are selected after considering plan
investments, historical returns, and potential future returns. Our 2011 pension costs reflect an assumed long-term rate of return
on plan assets of 7.75% up to the November 14, 2011 remeasurement date, and 7.25% for the period November 14, 2011 to
December 31, 2011, and 7.00% after December 31, 2011 for the impacted plans.
Any differences between expected and actual returns are included in the unrecognized net actuarial gain or loss amount. We
amortize gains/losses in pension expense when the total unamortized amount exceeds 10% of plan assets or the projected benefit
obligations, whichever is greater. Effective with the November 14, 2011 plan curtailment announcement, all pension gains or
losses are being amortized over participants' average expected future lifetime, which is approximately 36 years. Prior to November
14, 2011, the amortization period for pension plan with ongoing benefit accruals was based on the average expected future service
of active employees, which is approximately 8 years. See Note 16, “Employee Benefit Plans,” to the Consolidated Financial
Statements in this Form 10-K for details on changes in the pension benefit obligation and the fair value of plan assets.
If we were to assume a 0.25% increase/decrease in the expected long-term rate of return for the retirement and other postretirement
plans, holding all other actuarial assumptions constant, the benefit cost would decrease/increase by approximately $6 million.
Recognition of Actual Asset Returns
Accounting guidance allows for the use of an asset value that smoothes investment gains and losses over a period up to five years.
However, we have elected to use a preferable method in determining pension cost. This method uses the actual market value of
the plan assets. Therefore, we will experience more variability in the annual pension cost, as the asset values will be more volatile
than companies who elected to “smooth” their investment experience.
Other Actuarial Assumptions
To estimate the projected benefit obligation, actuarial assumptions are required about factors such as mortality rate, turnover rate,
retirement rate, disability rate, and the rate of compensation increases. These factors do not tend to change significantly over time,
so the range of assumptions, and their impact on pension cost, is generally limited. We annually review the assumptions used
based on historical and expected future experience.
Healthcare Cost
Assumed healthcare cost trend rates also have an impact on the amounts reported for the other postretirement benefit plans. Due
to changing medical inflation, it is important to understand the effect of a one percent change in assumed healthcare cost trend
rates. If we were to assume a one percent increase in healthcare cost trend rates, the effect on the other postretirement benefit
obligation and total interest and service cost would be an $11 million and $1 million increase, respectively. If we were to assume
a one percent decrease in healthcare trend rates, the effect on the other postretirement benefit obligation and total interest and
service cost would be a $10 million and $1 million decrease, respectively.
To estimate the projected benefit obligation as of December 31, 2011, we projected forward the benefit obligations from January 1,
2011 to December 31, 2011, adjusting for benefit payments, expected growth in the benefit obligations, changes in key assumptions
and plan provisions, and any significant changes in the plan demographics that occurred during the year, including (where