SunTrust 2012 Annual Report Download - page 165

Notes to Consolidated Financial Statements (Continued)
149
benefits are distributed and service will continue to be recognized for vesting and eligibility requirements for early retirement.
Additionally, the NCF Retirement Plan, which had been previously curtailed with respect to future benefit accruals, was amended
to cease any adjustments for pay increases after December 31, 2011. As a result of the curtailment, the SunTrust Retirement Plan
for Inactive Participants was merged into the Retirement Plan effective January 1, 2012. The Company recorded a curtailment
gain of $88 million during 2011, which is reflected in employee benefits expense in the Consolidated Statements of Income, and
a reduction to the pension benefit obligation of $96 million, which is reflected in the Consolidated Balance Sheets. The curtailment
gain was partially offset by the $28 million special 401(k) contribution discussed above.
Other Postretirement Benefits
Although not under contractual obligation, SunTrust provides certain health care and life insurance benefits to retired employees
(“Other Postretirement Benefits” in the tables below). At the option of SunTrust, retirees may continue certain health and life
insurance benefits if they meet specific age and service requirements at the time of retirement. The health care plans are contributory
with participant contributions adjusted annually, and the life insurance plans are noncontributory. Certain retiree health benefits
are funded in a Retiree Health Trust. Additionally, certain retiree life insurance benefits are funded in a VEBA. SunTrust reserves
the right to amend or terminate any of the benefits at any time.
Assumptions
Each year, the SunTrust Benefits Finance Committee reviews and approves the assumptions used in the year-end measurement
calculations for each plan. The discount rate for each plan, used to determine the present value of future benefit obligations, 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 series of benefit payments projected to be paid by the plan is developed based
on the most recent census data, plan provisions, and assumptions. The benefit payments at each future maturity are discounted by
the year-appropriate spot interest rates. 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 interest rate. Prior to curtailment, a rate
of compensation growth was used to determine future obligations for those plans whose benefits vary by pay.
Actuarial gains and losses are created when actual experience deviates from assumptions. The actuarial losses on obligations
generated within the Pension Plans during 2012 and 2011 resulted primarily from lower interest rates during these years.
The change in benefit obligations during the year ended December 31, were as follows:
Pension Benefits Other Postretirement Benefits
(Dollars in millions) 2012 2011 2012 2011
Benefit obligation, beginning of year $2,661 $2,261 $173 $189
Service cost —62 ——
Interest cost 119 128 79
Plan participants’ contributions ——22 22
Actuarial loss/(gain) 242 415 (2)(17)
Benefits paid (184)(109)(36)(33)
Less federal Medicare drug subsidy ——33
Curtailments —(96)——
Benefit obligation, end of year $2,838 $2,661 $167 $173
The accumulated benefit obligation for the Pension Benefits at December 31, 2012 and 2011 was $2.8 billion and $2.7 billion,
respectively.