KeyBank 2008 Annual Report Download - page 108

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106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
16. EMPLOYEE BENEFITS
On December 31, 2006, Key adopted SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans,” which requires an employer to recognize an asset for the
overfunded, or liability for the underfunded, status of its defined benefit
plans. The overfunded or underfunded status is to be measured solely as
the difference between the fair value of plan assets and the projected
benefit obligation. In addition, any change in a plan’s funded status must
be recognized in comprehensive income in the year in which it occurs.
As a result of adopting SFAS No. 158, Key recorded an after-tax charge
of $154 million to the accumulated other comprehensive income
component of shareholders’ equity for the year ended December 31,
2006. This charge represents the net unrecognized actuarial losses and
unrecognized prior service costs remaining from the initial adoption of
SFAS No. 87, “Employers’ Accounting for Pensions.” These items were
previously netted against the plans’ funded status, but now are recognized
as net pension cost. In addition, actuarial gains and losses that are not
recognized as net pension cost in the period in which they arise have been
recognized as a component of comprehensive income.
Most requirements of SFAS No. 158 were effective for Key for the year
ended December 31, 2006. However,the requirement to measureplan
assets and liabilities as of the end of the fiscal year became effective for
Key for the year ended December 31, 2008. In years prior to 2008, Key
used a September 30 measurement date. As a result of this accounting
change, Key recorded an after-tax charge of $7 million to the retained
earnings component of shareholders’ equity in the fourth quarter of 2008.
PENSION PLANS
The components of pre-tax accumulated other comprehensive loss not
yet recognized as net pension cost are shown below:
During 2009, Key expects to recognize $42 million of pre-tax
accumulated other comprehensive loss as net pension cost. The charge
will consist of net unrecognized losses of $41 million and net
unrecognized prior service cost of $1 million.
The components of net pension cost and the amount recognized in other
comprehensive income for all funded and unfunded plans are as follows:
The information related to Key’s pension plans presented in the following
tables is based on current actuarial reports using December 31, 2008,
and September 30, 2007, measurement dates.
The following table summarizes changes in the projected benefit
obligation (“PBO”) related to Key’s pension plans.
December 31,
in millions 2008 2007
Net unrecognized losses $497 $117
Net unrecognized prior service cost 68
Total unrecognized accumulated
other comprehensive loss $503 $125
Year ended December 31,
in millions 2008 2007 2006
Service cost of benefits earned $ 52 $51 $ 48
Interest cost on projected
benefit obligation 64 58 55
Expected return on plan assets (93) (88) (88)
Amortization of prior service
cost (benefit) 1— (1)
Amortization of losses 13 28 31
Curtailment gain —(3) —
Net pension cost $ 37 $46 $ 45
Other changes in plan assets and
benefit obligations recognized
in other comprehensive income:
Minimum pension liability
adjustment ——$8
Net loss (gain) $397 $(106) —
Prior service (benefit) cost (1) 6—
Amortization of losses (13) (28) —
Total recognized in
comprehensive income $383 $(128) $ 8
Total recognized in net
pension cost and
comprehensive income $420 $(82) $53
106
month of payment. Key issued 337,544 shares at a weighted-average cost
of $13.77 during 2008, 165,061 shares at a weighted-average cost of
$32.00 during 2007 and 134,390 shares at a weighted-average cost of
$36.24 during 2006.
Information pertaining to Key’s method of accounting for stock-based
compensation is included in Note 1 (“Summary of Significant Accounting
Policies”) under the heading “Stock-Based Compensation” on page 83.
Year ended December 31,
in millions 2008 2007
PBO at beginning of year $1,115 $1,112
Service cost 65 51
Interest cost 79 58
Plan amendments —6
Actuarial (gains) losses (66) 6
Benefit payments (127) (115)
Curtailment gain —(3)
PBO at end of year $1,066 $1,115