Fifth Third Bank 2012 Annual Report Download - page 138

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
136 Fifth Third Bancorp
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:
W
eighted-Average Assumptions 2012 2011 2010
For measuring benefit obligations at year end:
Discount rate 3.83 % 4.27 5.39
Rate of compensation increase 4.00 5.00 5.00
Expected return on plan assets 8.00 8.25 8.25
For measuring net periodic benefit cost:
Discount rate 4.27 5.39 5.88
Rate of compensation increase 5.00 5.00 5.00
Expected return on plan assets 8.00 8.25 8.25
Lowering both the expected rate of return on the plan assets and
the discount rate by 0.25% would have increased the 2012 pension
expense by approximately $1 million. Lowering the rate of
compensation increase by 0.25% would have an immaterial impact
on the Bancorp’s Consolidated Financial Statements.
Based on the actuarial assumptions, the Bancorp does not
expect to contribute to the plan in 2013. Estimated pension benefit
payments, which reflect expected future service, are $19 million in
2013, $18 million in 2014, $17 million in 2015, $16 million in 2016
and $15 million in 2017. The total estimated payments for the years
2018 through 2022 is $67 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 the years ended Decembe
r
31:
 
W
eighted-average asset allocationTargeted range 2012 2011
Equity securities 76 %74
Bancorp common stock 1 2
Total equity securities(a) 70-80 % 77 76
Total fixed income securities 20-25 20 21
Cash(b) 0-5 3 3
Total 100 %100
(a) Includes mutual and exchange traded funds
(b) Cash held in a Fifth Third Money Market Fund.
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 plan at December 31, 2012
and 2011.
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
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
$256 million and $253 million at December 31, 2012 and 2011,
respectively. The Bancorp does not have any defined benefit plans
with assets exceeding benefit obligations at December 31, 2012 and
2011, respectively.