Fifth Third Bank 2009 Annual Report Download - page 99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 97
Plan Assumptions
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:
Lowering both the expected rate of return on the plan and
the discount rate by 0.25% would have increased the 2009
pension expense by approximately $1 million.
Based on the actuarial assumptions, the Bancorp does not
expect to contribute to the Plan in 2010. Estimated pension
benefit payments, which reflect expected future service, are $19
million in 2010, $19 million in 2011, $19 million in 2012, $17
million in 2013 and $16 million in 2014. The total estimated
payments for the years 2015 through 2019 is $73 million.
Investment Policies and Strategies
The Bancorp’s policy for the investment of plan assets is to
employ investment strategies that achieve a range of weighted-
average target asset allocations relating to equity securities
(including the Bancorp’s common stock), fixed income securities
(including federal agency obligations, corporate bonds and notes)
and cash. The following table provides the Bancorp’s targeted and
actual weighted-average asset allocations by asset category for
2009 and 2008:
Weighted-average asset allocation
Targeted
range 2009 2008
Equity securities 71% 68
Bancorp common stock 2 2
Total equity securities (a) 70 – 80% 73 70
Total fixed income securities 20 – 25 24 27
Cash 0 - 5 3 3
Total 100% 100
(a) Includes mutual and exchange traded funds.
The risk tolerance for the plan is determined by management
to be “moderate to aggressive”, recognizing that higher returns
involve some volatility and that periodic declines in the portfolio’s
value are tolerated in an effort to achieve real capital growth.
There were no significant concentrations of risk associated with
the investments of the Bancorp’s benefit and retirement plans at
December 31, 2009 and 2008.
Permitted asset classes of the plan include cash and cash
equivalents, fixed income (domestic and non-U.S. bonds), equities
(U.S., non-U.S., emerging markets and REITS), equipment leasing
precious metals, commodity transactions and mortgages. The Plan
utilizes derivative instruments including puts, calls, straddles or
other option strategies, as approved by management.
Prohibited asset classes of the plan include venture capital,
short sales, limited partnerships and leveraged transactions. Per
the Employee Retirement Income Security Act (ERISA), the
Bancorp’s common stock cannot exceed ten percent of the fair
value of plan assets.
Fifth Third Bank, as Trustee, is expected to manage the plan
assets in a manner consistent with the plan agreement and other
regulatory, federal and state laws. The Fifth Third Bank Pension,
Profit Sharing and Medical Plan Committee (the “Committee”) is
the plan administrator. The Trustee is required to provide to the
Committee monthly and quarterly reports covering a list of plan
assets, portfolio performance, transactions and asset allocation.
The Trustee is also required to keep the Committee apprised of
any material changes in the Trustee’s outlook and recommended
investment policy.
Other Information on Retirement and Benefit Plans
The accumulated benefit obligation for all defined benefit plans
was $217 million and $227 million at December 31, 2009 and
2008, respectively. At December 31, 2009 and 2008, amounts
relating to the Bancorp’s defined benefit plans with benefit
obligations exceeding assets were as follows:
($ in millions) 2009 2008
Projected benefit obligation $217 228
Accumulated benefit obligation 217 227
Fair value of plan assets 182 144
As of December 31, 2009 and 2008, $160 million and $124
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 of Bancorp common stock
for both years. Plan assets are not expected to be returned to the
Bancorp during 2010.
The Bancorp’s qualified defined 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.
The Bancorp’s profit sharing plan expense was $17 million
for 2009, $18 million for 2008 and $13 million for 2007.
Expenses recognized during the years ended December 31, 2009,
2008 and 2007 for matching contributions to the Bancorp’s
defined contribution savings plans were $36 million, $37 million
and $37 million, respectively.
Weighted-average assumptions 2009 2008 2007
For measuring benefit obligations at
year end:
Discount rate 5.88 % 6.11 6.26
Rate of compensation increase 5.00 5.00 5.00
Expected return on plan assets 8.50 8.53 8.52
For measuring net periodic benefit cost:
Discount rate 6.11 6.45 5.80
Rate of compensation increase 5.00 5.00 5.00
Expected return on plan assets 8.50 8.50 8.50