Comerica 2014 Annual Report Download - page 76

F-39
performed in the third quarter 2014, the estimated fair values of all reporting units substantially exceeded their carrying amounts,
including goodwill. The results of the annual test of the goodwill impairment test for each reporting unit were subjected to stress
testing as appropriate.
Economic conditions impact the assumptions related to interest and growth rates, loss rates and imputed cost of equity
capital. The fair value estimates for each reporting unit incorporated current economic and market conditions, including the recent
Federal Reserve announcements and the impact of legislative and regulatory changes, to the extent known and as described above.
However, further weakening in the economic environment, such as adverse changes in interest rates, a decline in the performance
of the reporting units or other factors could cause the fair value of one or more of the reporting units to fall below their carrying
value, resulting in a goodwill impairment charge. Additionally, new legislative or regulatory changes not anticipated in
management's expectations may cause the fair value of one or more of the reporting units to fall below the carrying value, resulting
in a goodwill impairment charge. Any impairment charge would not affect the Corporation's regulatory capital ratios, tangible
common equity ratio or liquidity position.
For further information about the Corporation's goodwill accounting policy, refer to Note 1 to the consolidated financial
statements.
PENSION PLAN ACCOUNTING
The Corporation has defined benefit pension plans in effect for substantially all full-time employees hired before January
1, 2007. Benefits under the plans are based on years of service, age and compensation. Assumptions are made concerning future
events that will determine the amount and timing of required benefit payments, funding requirements and defined benefit pension
expense. The major assumptions are the discount rate used in determining the current benefit obligation, the long-term rate of
return expected on plan assets, the rate of compensation increase and the estimated mortality rate. The discount rate is determined
by matching the expected cash flows of the pension plans to a portfolio of high quality corporate bonds as of the measurement
date, December 31. The long-term rate of return expected on plan assets is set after considering both long-term returns in the
general market and long-term returns experienced by the assets in the plan. The current target asset allocation model for the plans
is detailed in Note 17 to the consolidated financial statements. The expected returns on these various asset categories are blended
to derive one long-term return assumption. The assets are invested in certain collective investment and mutual funds, common
stocks, U.S. Treasury and other U.S. government agency securities, and corporate and municipal bonds and notes. The rate of
compensation increase is based on reviewing recent annual pension-eligible compensation increases as well as the expectation of
future increases. Mortality rate assumptions are based on mortality tables published by third-parties such as the Society of Actuaries
(SOA), considering other available information including historical data as well as studies and publications from reputable sources.
The Corporation reviews its pension plan assumptions on an annual basis with its actuarial consultants to determine if the
assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations.
The assumptions used to calculate 2015 expense for the defined benefit pension plans were a discount rate of 4.28 percent,
a long-term rate of return on plan assets of 6.75 percent and a rate of compensation increase of 3.75 percent. The Corporation
adopted the RP-2014 mortality tables and the MP-2014 mortality improvement scales issued by the SOA in October 2014, with
certain entity-specific adjustments. The new mortality assumptions increased the projected benefit obligations for the qualified
and non-qualified defined benefit pension plans by approximately $119 million and $17 million, respectively, at December 31,
2014 and increased expected 2015 pension expense by approximately $25 million. Had the new mortality tables been adopted as
published, expected 2015 pension expense would have increased by approximately $34 million. Defined benefit pension expense
in 2015 is expected to increase approximately 14 percent to about $45 million from the $39 million recorded in 2014, primarily
driven by a decrease in the discount rate and the impact of changes in mortality assumptions, partially offset by the benefit from
a $350 million cash contribution from the Corporation in December 2014.
Changing the 2015 key actuarial assumptions discussed above by 25 basis points would have the following impact on
defined benefit pension expense in 2015:
25 Basis Point
(in millions) Increase Decrease
Key Actuarial Assumption:
Discount rate $(10.7) $ 10.7
Long-term rate of return (5.9) 5.9
Rate of compensation increase 3.0 (3.0)
Due to the long-term nature of pension plan assumptions, actual results may differ significantly from the actuarial-based
estimates. Differences resulting in actuarial gains or losses are required to be recorded in shareholders' equity as part of accumulated
other comprehensive loss and amortized to defined benefit pension expense in future years. In 2014, the actual return on plan
assets in the qualified defined benefit pension plan was $278 million, compared to an expected return on plan assets of $131
million. In 2013, the actual return on plan assets was $136 million, compared to an expected return on plan assets of $132 million.
Total pretax losses recognized in accumulated other comprehensive loss at December 31, 2014 were $593 million for the qualified