Fifth Third Bank 2006 Annual Report Download - page 79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 77
22. RETIREMENT AND BENEFIT PLANS
The following tables summarize the defined benefit retirement plans as of and for the years ended December 31:
Plans With an Overfunded Status
($ in millions) 2006 2005
Fair value of plan assets at January 1 $238 196
Actual return on assets 26 11
Contributions 15 50
Settlement (20) (17)
Benefits paid (7) (6)
Plan merger -4
Fair value of plan assets at December 31 $252 238
Projected benefit obligation at January 1 $220 216
Service cost 11
Interest cost 12 12
Settlement (20) (16)
Actuarial loss 78
Benefits paid (7) (6)
Plan merger -5
Projected benefit obligation at December 31 $213 220
Overfunded projected benefit obligation recognized
in the Consolidated Balance Sheets as an asset (a) $39
Plans With an Underfunded Status
($ in millions) 2006 2005
Fair value of plan assets at January 1 $ - 5
Actual return on assets --
Contributions 313
Settlement -(11)
Benefits paid (3) (3)
Plan merger -(4)
Fair value of plan assets at December 31 $ - -
Projected benefit obligation at January 1 $38 38
Service cost 12
Interest cost -(10)
Settlement -10
Actuarial loss 16
Benefits paid (3) (3)
Plan merger -(5)
Projected benefit obligation at December 31 $37 38
Unfunded pro
j
ected benefit obligation recognized in
the Consolidated Balance Sheets as a liability (a) ($37)
(a) SFAS No. 158 was implemented prospectively at December 31, 2006. As a result, the Bancorp recognized the overfunded and unfunded projected benefit obligation of its pension plans as an
asset and liability, respectively, in the Consolidated Balance Sheet as of December 31, 2006.
Amounts recognized in accumulated other comprehensive income
consist of:
($ in millions) 2006
Net actuarial loss $89
Net prior service cost 3
Total $92
The Bancorp implemented SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No.
87, 88 106, and 132(R)” at December 31, 2006. SFAS No. 158
requires the funded status of pension plans to be recorded in the
balance sheet as an asset for plans with an overfunded status and a
liability for plans with an underfunded status. The Bancorp
recognized the overfunded and underfunded status of its pension
plans as an asset and liability, respectively, in the Consolidated
Balance Sheet as of December 31, 2006.
The Bancorp’s qualified defined benefit plan is currently
overfunded. This plan’s benefits were frozen in 1998, except for
grandfathered employees. The Bancorp’s retirement plans with an
underfunded status are nonqualified, supplemental retirement
plans, which are funded on an as needed basis. A majority of
these plans were obtained in acquisitions from prior years.
The following table summarizes the incremental effect of
applying SFAS No. 158 on individual line items in the
Consolidated Balance Sheet as of December 31, 2006:
($ in millions)
Before
Application
of SFAS
No. 158 Adjustment
After
Application
of SFAS
No. 158
Financial statement line item:
Prepaid benefit cost $124 (85) 39
Deferred tax asset 3 30 33
Total assets 127 (55) 72
Accrued benefit liability 38 (1) 37
Total liabilities 38 (1) 37
Accumulated other
comprehensive income (5) (54) (59)
Total shareholders’ equity (5) (54) (59)
The following tables summarize net periodic pension cost and
other changes in plan assets and benefit obligations recognized in
other comprehensive income for the years ended December 31:
($ in millions) 2006 2005 2004
Components of net periodic pension cost:
Service cost $1 11
Interest cost 13 14 15
Expected return on assets (19) (18) (18)
Amortization and deferral of
transition amount --(2)
Amortization of actuarial loss 989
Amortization of net prior service cost 1-1
Settlement 8910
Net periodic pension cost $13 14 16
($ in millions) 2006
Other changes in plan assets and benefit obligations
recognized in other comprehensive income:
Net actuarial loss $89
Prior service cost 3
Total recognized in other comprehensive income 92
Amortization of actuarial loss 9
Amortization of prior service cost 1
Total recognized in net periodic pension cost and
other comprehensive income $102
The estimated net actuarial loss and prior service cost for the
defined benefit pension plans that will be amortized from
accumulated other comprehensive income into net periodic
pension cost during 2007 are $7 million and $1 million,
respectively.
The plan assumptions are evaluated annually and are updated
as necessary. The discount rate assumption reflects the yield on a
portfolio of high quality fixed-income instruments that have a
similar duration to the plan’s liabilities. The expected long-term
rate of return assumption reflects the average return expected on
the assets invested to provide for the plan’s liabilities. In
determining the expected long-term rate of return, the Bancorp
evaluated actuarial and economic inputs, including long-term
inflation rate assumptions and broad equity and bond indices
long-term return projections, as well as actual long-term historical
plan performance.