Fifth Third Bank 2008 Annual Report Download - page 93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 91
23. RETIREMENT AND BENEFIT PLANS
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)” 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 Sheets
as of December 31, 2008 and 2007.
Overfunded and underfunded amounts recognized in other
assets and other liabilities in the Consolidated Balance Sheets for
the defined benefit retirement plans as of December 31 consist of:
($ in millions) 2008 2007
Prepaid benefit cost $ - 37
Accrued benefit liability (84) (36)
Net (underfunded) overfunded status ($84) 1
The following tables summarize the defined benefit
retirement plans as of and for the years ended December 31:
Plans With an Overfunded Status (a)
($ in millions) 2008 2007
Fair value of plan assets at January 1 $ - 252
Actual return on assets -12
Settlement -(20)
Benefits paid -(7)
Fair value of plan assets at December 31 $ - 237
Projected benefit obligation at January 1 $ - 213
Service cost --
Interest cost -12
Settlement -(20)
Actuarial loss -2
Benefits paid -(7)
Projected benefit obligation at December 31 $ - 200
Overfunded projected benefit obligation recognized
in the Consolidated Balance Sheets as an asset $ - 37
(a) The Bancorp’s defined benefit plan had an overfunded status for December 31, 2007. The
plan was underfunded at December 31, 2008 and is reflected in the Underfunded Status table.
Plans With an Underfunded Status
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
benefit cost during 2009 are $16 million and $1 million,
respectively.
The following tables summarize net periodic benefit cost and other
changes in plan assets and benefit obligations recognized in other
comprehensive income for the years ended December 31:
($ in millions) 2008 2007 2006
Components of net periodic benefit cost:
Service cost $ - -1
Interest cost 13 14 13
Expected return on assets (18) (19) (19)
Amortization of net actuarial loss 779
Amortization of net prior service cost 111
Settlement 10 78
Net periodic benefit cost $13 10 13
($ in millions) 2008 2007
Other changes in plan assets and benefit
obligations recognized in other
comprehensive income:
Net actuarial loss $93 10
Net prior service cost --
Amortization of net actuarial loss (7) (7)
Amortization of prior service cost (1) (1)
Settlements (10) (7)
Total recognized in other comprehensive
income 75 (5)
Total recognized in net periodic benefit
cost and other comprehensive income $88 5
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.
The following table summarizes the plan assumptions for
the years ended December 31:
The Bancorp’s qualified defined benefit plan and other retirement
plans are currently underfunded. The benefit plan’s benefits were
frozen in 1998, except for grandfathered employees. The
Bancorp’s other retirement plans consist of nonqualified,
supplemental retirement plans, which are funded on an as needed
basis. A majority of these plans were obtained in acquisitions
from prior years.
Lowering both the expected rate of return on the plan and
the discount rate by 0.25% would have increased the 2008
pension expense by approximately $1 million.
Plan assets consist primarily of common trust and mutual
funds (equities and fixed income) and Bancorp common stock.
As of December 31, 2008 and 2007, $124 million and $153
million, respectively, of plan assets were managed by Fifth Third
Bank, a subsidiary of the Bancorp, through common trust and
mutual funds and included $3 million and $9 million, respectively,
of Bancorp common stock. Plan assets are not expected to be
returned to the Bancorp during 2009.
($ in millions) 2008 2007
Fair value of plan assets at January 1 $237 -
Actual return on assets (70) -
Contributions 43
Settlement (17) -
Benefits paid (10) (3)
Fair value of plan assets at December 31 $144 -
Projected benefit obligation at January 1 $236 37
Service cost --
Interest cost 13 2
Settlement (17) -
Actuarial loss 6-
Benefits paid (10) (3)
Projected benefit obligation at December 31 $228 36
Unfunded pro
j
ected benefit obligation recognized in
the Consolidated Balance Sheets as a liability ($84) (36)
Weighted-average assumptions 2008 2007 2006
For measuring benefit obligations at
year end:
Discount rate 6.11 %6.26 5.80
Rate of compensation increase 5.00 5.00 5.00
Expected return on plan assets 8.53 8.52 8.50
For measuring net periodic benefit cost:
Discount rate 6.45 5.80 5.375
Rate of compensation increase 5.00 5.00 5.00
Expected return on plan assets 8.50 8.50 8.45