Fifth Third Bank 2004 Annual Report Download - page 62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
60 Fifth Third Bancorp
The measurement date for all of the Bancorp’s defi ned benefi t
retirement plans is December 31. A combined summary of the
defi ned benefi t retirement plans as of and for the years ended
December 31:
($ in millions) 2004 2003
Projected benefi t obligation at January 1 . . . . . . . . $ 264 243
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (27)
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Benefi ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (9)
Projected benefi t obligation at December 31 . . . . . $ 254 264
Fair value of plan assets at January 1 . . . . . . . . . . . . $ 223 177
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . 728
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (35)
Benefi ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (9)
Fair value of plan assets at December 31 . . . . . . . . . $ 201 223
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (53) (41)
Unrecognized transition amount . . . . . . . . . . . . . . —(1)
Unrecognized prior service cost . . . . . . . . . . . . . . . 34
Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . 101 103
Net amount recognized $ 51 65
Amounts recognized in the Consolidated Balance
Sheets consist of:
Prepaid benefi t cost . . . . . . . . . . . . . . . . . . . . $— 3
Accrued benefi t liability . . . . . . . . . . . . . . . . . (51) (39)
Intangible asset . . . . . . . . . . . . . . . . . . . . . . . 44
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . 34 34
Accumulated other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 63
Net amount recognized . . . . . . . . . . . . . . . . . . . . . $ 51 65
($ in millions) 2004 2003 2002
Components of net periodic pension cost:
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1 11
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 16
Curtailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ——2
Expected return on assets . . . . . . . . . . . . . . . . . . . (18) (15) (23)
Amortization and deferral of transition amount . . (2) (2) (2)
Amortization of actuarial loss . . . . . . . . . . . . . . . . 915 —
Amortization of unrecognized prior service cost . . 11—
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 15 19
Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . $16 31 13
Net periodic pension cost is recorded as a component of
employee benefi ts in the Consolidated Statements of Income.
Net periodic pension cost for 2004, 2003 and 2002 included
settlement charges of $10 million, $15 million and $19 million,
respectively, primarily related to an increased level of lump-sum
distributions made during the respective years as a result of the
headcount reductions that occurred in connection with the inte-
gration of Old Kent.
The Plan assumptions are evaluated annually and are updated
as necessary. The discount rate assumption refl ects the yield of a
portfolio of high quality fi xed-income instruments that have a
similar duration to the Plan’s liabilities. The expected long-term
rate of return assumption refl ects the average return expected on
the assets invested to provide for the Plan’s liabilities. In determin-
ing the expected long-term rate of return assumption, the Bancorp
evaluated actuarial and economic inputs, including long-term
infl ation rate assumptions and broad equity and bond indices long-
term return projections, as well as actual long-term historical Plan
performance.
Weighted-average assumptions 2004 2003 2002
For disclosure:
Discount rate . . . . . . . . . . . . . . . . . . . . . 5.85% 6.00 6.75
Rate of compensation increase . . . . . . . . 5.10 5.00 5.10
Expected return on plan assets . . . . . . . . 8.00 8.75 9.00
For measuring net periodic pension cost:
Discount rate . . . . . . . . . . . . . . . . . . . . . 6.00 6.75 7.25
Rate of compensation increase . . . . . . . . 5.00 5.10 4.86
Expected return on plan assets . . . . . . . . 8.75 9.00 8.99
Plan assets consist primarily of common trust and mutual
funds (equities and fi xed income) managed by Fifth Third Bank, a
subsidiary of the Bancorp, and Bancorp common stock securities.
The following table provides the Bancorp’s weighted-average asset
allocations by asset category for 2004 and 2003:
Weighted-average asset allocation 2004 2003
Equity securities . . . . . . . . . . . . . . . . . . . . . . 65% 54
Bancorp common stock . . . . . . . . . . . . . . . . 10 18
Total equity securities . . . . . . . . . . . . . . . . . . 75 72
Fixed income securities . . . . . . . . . . . . . . . . . 25 26
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100
The Bancorp’s policy for the investment of Plan assets is to
employ investment strategies that achieve a weighted-average
target asset allocation of 70% to 80% in equity securities, 20%
to 25% in fi xed income securities and up to fi ve percent in cash.
The accumulated benefi t obligation for all defi ned benefi t plans
was $251 million and $262 million at December 31, 2004 and
2003, respectively. For the Bancorp’s defi ned benefi t plans, with
an accumulated benefi t obligation exceeding assets, the total
projected benefi t obligation, accumulated benefi t obligation and
fair value of plan assets were $254 million, $251 million and
$201 million, respectively, as of December 31, 2004 and $260
million, $257 million and $218 million, respectively, as of Decem-
ber 31, 2003. The increase in the additional minimum pension
liability, recorded as a reduction to shareholders’ equity, was $1
million, net of a tax benefi t of less than $1 million, in 2004 and
$11 million, net of a tax benefi t of $6 million, in 2003. Based
on the actuarial assumptions, the Bancorp expects to make no
cash contribution to the Plan in 2005. Estimated pension benefi t
payments, which refl ect expected future service, are $22 million
in 2005 and $18 million in each year from 2006 to 2009. The
total estimated payments for the years 2010 to 2014 is $82 million.
The Bancorp’s profi t sharing plan expense was $69 million for
2004, $48 million for 2003 and $58 million for 2002. Expenses
recognized during the years ended December 31, 2004, 2003
and 2002 for matching contributions to the Bancorp’s defi ned
contribution savings plans were $28 million, $12 million and $14
million, respectively.
23. RETIREMENT AND BENEFIT PLANS