KeyBank 2007 Annual Report Download - page 94

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
The following table summarizes changes in the projected benefit
obligation (“PBO”) related to Key’s pension plans.
The following table summarizes changes in the fair value of pension plan
assets (“FVA”).
The following table summarizes the funded status of the pension plans,
reconciled to the amounts recognized in the consolidated balance sheets
at December 31, 2007, and 2006.
At December 31, 2007, Key’s primary qualified cash balance pension plan
was sufficiently funded under the requirements of the Employee Retirement
Income Security Act of 1974. Consequently, Key is not required to make
a minimum contribution to that plan in 2008. Also, Key does not expect
to make any significant discretionary contributions during 2008.
Benefits from all funded and unfunded pension plans at December 31, 2007,
are expected to be paid as follows: 2008 — $105 million; 2009 — $108
million; 2010 — $106 million; 2011 — $109 million; 2012 — $114
million; and $559 million in the aggregate from 2013 through 2017.
The accumulated benefit obligation (“ABO”) for all of Key’s pension plans
was $1.1 billion at December 31, 2007, and 2006. Information for those
pension plans that had an ABO in excess of plan assets is as follows:
Key’s primary qualified Cash Balance Pension Plan is excluded from the
preceding table because that plan was overfunded (i.e., the fair value of
plan assets exceeded the projected benefit obligation) by $266 million
at December 31, 2007, and $185 million at December 31, 2006.
Prior to December 31, 2006, SFAS No. 87, “Employers’ Accounting for
Pensions,” required employers to recognize an additional minimum
liability (“AML”) equal to any excess of the unfunded ABO over the
liability already recognized as unfunded accrued pension cost. Key’s
AML, which excluded the overfunded Cash Balance Pension Plan
mentioned above, was $55 million at December 31, 2005. To comply
with changes prescribed by SFAS No. 158, this balance and the amount
of any subsequent change in the AML were reversed during 2006. The
after-tax change in AML included in “accumulated other comprehensive
income (loss)” for 2006 and 2005 is shown in the Consolidated
Statements of Changes in Shareholders’ Equity on page 63.
To determine the actuarial present value of benefit obligations,
management assumed the following weighted-average rates:
To determine net pension cost, management assumed the following
weighted-average rates:
Management estimates that Key’s net pension cost will be $37 million
for 2008, compared to $46 million for 2007 and $45 million for 2006.
The decrease is due primarily to an anticipated reduction in the
amortization of losses, and the favorable effect of asset and liability gains
calculated at the last measurement date and used in determining net
pension cost for 2008.
The slight increase in 2007 cost was attributable to increases in service
and interest costs resulting from a 25 basis point increase in the
assumed discount rate, offset in part by a decrease in the amortization
of losses and a $3 million curtailment gain recorded in 2007.
Management determines the expected return on plan assets using a
calculated market-related value of plan assets that smoothes what
might otherwise be significant year-to-year volatility in net pension cost.
Asset gains and losses are not recognized in the year they occur.
Year ended December 31,
in millions 2007 2006
FVA at beginning of year $1,119 $1,096
Actual return on plan assets 201 102
Employer contributions 15 12
Benefit payments (115) (91)
FVA at end of year $1,220 $1,119
December 31,
in millions 2007 2006
Funded status
a
$105 $7
Benefits paid subsequent
to measurement date 33
Net prepaid pension cost recognized $108 $10
Net prepaid pension cost
recognized consists of:
Prepaid benefit cost $ 269 $ 185
Accrued benefit liability (161) (175)
Net prepaid pension cost recognized $ 108 $ 10
a
The excess of the fair value of plan assets over the projected benefit obligation.
December 31,
in millions 2007 2006
Projected benefit obligation $164 $230
Accumulated benefit obligation 163 228
Fair value of plan assets —52
Year ended December 31, 2007 2006 2005
Discount rate 5.50% 5.25% 5.75%
Compensation increase rate 4.00 4.00 4.00
Expected return on plan assets 8.75 8.75 9.00
December 31, 2007 2006
Discount rate 6.00% 5.50%
Compensation increase rate 4.56 4.00
Year ended December 31,
in millions 2007 2006
PBO at beginning of year $1,112 $1,094
Service cost 51 48
Interest cost 58 55
Plan amendments 6—
Actuarial losses 66
Benefit payments (115) (91)
Curtailment gain (3) —
PBO at end of year $1,115 $1,112