KeyBank 2013 Annual Report Download - page 207

To determine the actuarial present value of benefit obligations, we assumed the following weighted-average
rates.
December 31, 2013 2012
Discount rate 4.25 % 3.25 %
Compensation increase rate N/A N/A
To determine net pension cost, we assumed the following weighted-average rates.
Year ended December 31, 2013 2012 2011
Discount rate 3.25 % 4.00 % 4.75 %
Compensation increase rate N/A N/A N/A
Expected return on plan assets 7.25 7.25 7.75
We estimate that we will recognize a $3 million credit in net pension cost for 2014, compared to an expense of
$21 million for 2013 and a credit of $7 million for 2012. Costs are expected be less in 2014 than in 2013 unless
the 2014 lump sum payments made under our primary qualified cash balance pension plan are greater than the
plan’s interest cost component of net pension cost for the year. If this situation occurs during 2014, in accordance
with the applicable accounting guidance for defined benefit plans, we will recognize in earnings a portion of the
aggregate gain or loss recorded in AOCI. Costs increased in 2013 because the amount of lump sum payments
made under certain pension plans triggered settlement accounting, resulting in a settlement loss of $27 million.
Costs were less in 2012 than they were in 2013 due to the 2013 settlement loss.
We determine 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. Changes in the value of
plan assets are not recognized in the year they occur. Rather, they are combined with any other cumulative
unrecognized asset- and obligation-related gains and losses, and are reflected evenly in the market-related value
during the five years after they occur as long as the market-related value does not vary more than 10% from the
plan’s FVA.
We estimate that a 25 basis point increase or decrease in the expected return on plan assets would either decrease
or increase, respectively, our net pension cost for 2014 by approximately $2 million. Pension cost also is affected
by an assumed discount rate. We estimate that a 25 basis point change in the assumed discount rate would change
net pension cost for 2014 by approximately $1 million.
We determine the assumed discount rate based on the rate of return on a hypothetical portfolio of high quality
corporate bonds with interest rates and maturities that provide the necessary cash flows to pay benefits when due.
The expected return on plan assets is determined by considering a number of factors, the most significant of
which are:
/Our expectations for returns on plan assets over the long term, weighted for the investment mix of the
assets. These expectations consider, among other factors, historical capital market returns of equity, fixed
income, convertible and other securities, and forecasted returns that are modeled under various economic
scenarios.
/Historical returns on our plan assets. Based on an annual reassessment of current and expected future capital
market returns, our expected return on plan assets was 7.25% for both 2013 and 2012, and 7.75% for 2011.
As part of an annual reassessment of current and expected future capital market returns, we deemed a rate of
7.25% to be appropriate in estimating 2014 pension cost.
The investment objectives of the pension funds are developed to reflect the characteristics of the plans, such as
pension formulas and cash lump sum distribution features, and the liability profiles created by the plans’
participants. An executive oversight committee reviews the plans’ investment performance at least quarterly, and
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