EMPLOYEE BENEFIT PLANS

Defined Benefit Pension and Postretirement Benefit Plans

The Corporation has a qualified and a non-qualified defined benefit pension plan, which together provide benefits for substantially all full-time employees hired before January 1, 2007. Employee benefits expense included defined benefit pension expense of $47 million, $30 million and $57 million in the years ended December 31, 2011, 2010 and 2009, respectively, for the plans. Benefits under the defined benefit plans are based primarily on years of service, age and compensation during the five highest paid consecutive calendar years occurring during the last ten years before retirement.

The Corporation’s postretirement benefit plan continues to provide postretirement health care and life insurance benefits for retirees as of December 31, 1992. The plan also provides certain postretirement health care and life insurance benefits for a limited number of retirees who retired prior to January 1, 2000. For all other employees hired prior to January 1, 2000, a nominal benefit is provided. Employees hired on or after January 1, 2000 are not eligible to participate in the plan. The Corporation funds the pre-1992 retiree plan benefits with bank-owned life insurance.

The following table sets forth reconciliations of plan assets and the projected benefit obligation, the weighted-average assumptions used to determine year-end benefit obligations, and the amounts recognized in accumulated other comprehensive income (loss) for the Corporation’s defined benefit pension plans and postretirement benefit plan at December 31, 2011 and 2010. The Corporation used a measurement date of December 31, 2011 for these plans.



	Defined Benefit Pension Plans
	Qualified						Non-Qualified						Postretirement Benefit Plan
(dollar amounts in millions)	2011			2010			2011			2010			2011			2010
Change in fair value of plan assets:
Fair value of plan assets at January 1	$	1,464		$	1,338		$	—		$	—		$	73		$	73
Actual return on plan assets	92			172			—			—			3			4
Employer contributions	—			—			—			—			(1		)	3
Benefits paid	(48		)	(46		)	—			—			(6		)	(7		)
Fair value of plan assets at December 31	$	1,508		$	1,464		$	—		$	—		$	69		$	73
Change in projected benefit obligation:
Projected benefit obligation at January 1	$	1,409		$	1,213		$	177		$	156		$	82		$	84
Service cost	29			28			3			3			—			—
Interest cost	76			73			11			9			4			4
Actuarial (gain) loss	126			141			28			16			(2		)	1
Benefits paid	(48		)	(46		)	(9		)	(7		)	(6		)	(7		)
Projected benefit obligation at December 31	$	1,592		$	1,409		$	210		$	177		$	78		$	82
Accumulated benefit obligation	$	1,465		$	1,281		$	184		$	164		$	78		$	82
Funded status at December 31 (a) (b)	$	(84	)	$	55		$	(210	)	$	(177	)	$	(9	)	$	(9	)
Weighted-average assumptions used:
Discount rate	4.99		%	5.51		%	4.99		%	5.51		%	4.55		%	4.95		%
Rate of compensation increase	4.00			4.00			4.00			4.00			n/a			n/a
Healthcare cost trend rate:
Cost trend rate assumed for next year	n/a			n/a			n/a			n/a			8.00			8.00
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	n/a			n/a			n/a			n/a			5.00			5.00
Year when rate reaches the ultimate trend rate	n/a			n/a			n/a			n/a			2032			2031
Amounts recognized in accumulated other comprehensive income (loss) before income taxes:
Net actuarial gain (loss)	$	(637	)	$	(522	)	$	(83	)	$	(61	)	$	(26	)	$	(29	)
Prior service (cost) credit	(9		)	(13		)	4			6			(4		)	(5		)
Net transition obligation	—			—			—			—			(4		)	(8		)
Balance at December 31	$	(646	)	$	(535	)	$	(79	)	$	(55	)	$	(34	)	$	(42	)


(a)	Based on projected benefit obligation for defined benefit pension plans and accumulated benefit obligation for postretirement benefit plan.


(b)	The Corporation recognizes the overfunded and underfunded status of the plans in “accrued income and other assets” and “accrued expenses and other liabilities,” respectively, on the consolidated balance sheets.

n/a - not applicable

The accumulated benefit obligation exceeded the fair value of plan assets for the non-qualified defined benefit pension plan and the postretirement benefit plan at December 31, 2011 and 2010.

The following table details the changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the year ended December 31, 2011.



	Defined Benefit Pension Plans
(in millions)	Qualified			Non-Qualified			Postretirement Benefit Plan		Total
Actuarial gain (loss) arising during the period	$	(149	)	$	(29	)	$	2	$	(176	)
Amortization of net actuarial gain (loss)	34			7			1		42
Amortization of prior service (cost) credit	4			(2		)	1		3
Amortization of transition obligation	—			—			4		4
Total recognized in other comprehensive income (loss)	$	(111	)	$	(24	)	$	8	$	(127	)

Components of net periodic defined benefit cost and postretirement benefit cost, the actual return (loss) on plan assets and the weighted-average assumptions used were as follows.



	Defined Benefit Pension Plans
(dollar amounts in millions)	Qualified									Non-Qualified
Years Ended December 31	2011			2010			2009			2011			2010			2009
Service cost	$	29		$	28		$	28		$	3		$	3		$	4
Interest cost	76			73			69			11			9			9
Expected return on plan assets	(115		)	(116		)	(104		)	—			—			—
Amortization of prior service cost (credit)	4			6			6			(2		)	(2		)	(2		)
Amortization of net loss	34			25			38			7			4			5
Recognition of special agreement benefits	—			—			—			—			—			4
Net periodic defined benefit cost	$	28		$	16		$	37		$	19		$	14		$	20
Actual return on plan assets	$	92		$	172		$	200		$	—		$	—		$	—
Actual rate of return on plan assets	5.85		%	13.10		%	17.35		%	n/a			n/a			n/a
Weighted-average assumptions used:
Discount rate	5.51		%	5.92		%	6.03		%	5.51		%	5.92		%	6.03		%
Expected long-term return on plan assets	7.75			8.00			8.25			n/a			n/a			n/a
Rate of compensation increase	4.00			3.50			4.00			4.00			3.50			4.00

n/a - not applicable



(dollar amounts in millions)	Postretirement Benefit Plan
Years Ended December 31	2011			2010			2009
Interest cost	$	4		$	4		$	5
Expected return on plan assets	(4		)	(3		)	(4		)
Amortization of transition obligation	4			4			4
Amortization of prior service cost	1			1			1
Amortization of net loss	1			1			1
Net periodic postretirement benefit cost	$	6		$	7		$	7
Actual return on plan assets	$	3		$	4		$	7
Actual rate of return on plan assets	5.00		%	5.65		%	10.74		%
Weighted-average assumptions used:
Discount rate	4.95		%	5.41		%	6.20		%
Expected long-term return on plan assets	5.00			5.00			5.00
Healthcare cost trend rate:
Cost trend rate assumed for next year	8.00			8.00			8.00
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00			5.00			5.00
Year that the rate reaches the ultimate trend rate	2031			2030			2028

The expected long-term rate of return of plan assets is the average rate of return expected to be realized on funds invested or expected to be invested over the life of the plan, which has an estimated average life of approximately 15 years as of December 31, 2011. The expected long-term rate of return on plan assets is set after considering both long-term returns in the general market and long-term returns experienced by the assets in the plan. The returns on the various asset categories are blended to derive one long-term rate of return. The Corporation reviews its pension plan assumptions on an annual basis with its actuarial consultants to determine if assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations.

The estimated portion of balances remaining in accumulated other comprehensive income (loss) that are expected to be recognized as a component of net periodic benefit cost in the year ended December 31, 2012 are as follows.



	Defined Benefit Pension Plans
(in millions)	Qualified		Non-Qualified			Postretirement Benefit Plan		Total
Net loss	$	51	$	8		$	1	$	60
Transition obligation	—		—			4		4
Prior service cost (credit)	4		(2		)	1		3

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefit plan. A one-percentage-point change in 2011 assumed healthcare and prescription drug cost trend rates would have the following effects.



	One-Percentage-Point
(in millions)	Increase		Decrease
Effect on postretirement benefit obligation	$	5	$	(4	)
Effect on total service and interest cost	—		—

Plan Assets

The Corporation’s overall investment goals for the qualified defined benefit pension plan are to maintain a portfolio of assets of appropriate liquidity and diversification; to generate investment returns (net of operating costs) that are reasonably anticipated to maintain the plan’s fully funded status or to reduce a funding deficit, after taking into account various factors, including reasonably anticipated future contributions and expense and the interest rate sensitivity of the plan’s assets relative to that of the plan’s liabilities; and to generate investment returns (net of operating costs) that meet or exceed a customized benchmark as defined in the plan investment policy. Derivative instruments, are permissible for hedging and transactional efficiency, but only to the extent that the derivative use enhances the efficient execution of the plan’s investment policy. The plan does not directly invest in securities issued by the Corporation and its subsidiaries. The Corporation’s target allocations for plan investments are 55 percent to 65 percent equity securities and 35 percent to 45 percent fixed income, including cash. Equity securities include collective investment and mutual funds and common stock. Fixed income securities include U.S. Treasury and other U.S. government agency securities, mortgage-backed securities, corporate bonds and notes, municipal bonds, collateralized mortgage obligations and money market funds.

Fair Value Measurements

The Corporation’s qualified defined benefit pension plan utilizes fair value measurements to record fair value adjustments and to determine fair value disclosures. The Corporation’s qualified benefit pension plan categorizes investments recorded at fair value into a three-level hierarchy, based on the markets in which the investment are traded and the reliability of the assumptions used to determine fair value. Refer to Note 3 for a description of the three-level hierarchy.

Following is a description of the valuation methodologies and key inputs used to measure the fair value of the Corporation’s qualified defined benefit pension plan investments, including an indication of the level of the fair value hierarchy in which the investments are classified.

Collective investment and mutual funds

Fair value measurement is based upon the NAV provided by the administrator of the fund. Mutual fund NAVs are quoted in an active market exchange, such as the New York Stock Exchange, and are included in Level 1 of the fair value hierarchy. Collective investment funds NAVs are based primarily on observable inputs, generally the quoted prices for underlying assets owned by the fund, and are included in Level 2 of the fair value hierarchy.

Common stock

Fair value measurement is based upon the closing price reported on the New York Stock Exchange. Level 1 common stock includes domestic and foreign stock and real estate investment trusts. Level 2 common stock includes American Depositary Receipts.

U.S. Treasury and other U.S. government agency securities

Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques, such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. Level 1 securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.

Mortgage-backed securities

Fair value measurement is based upon quoted prices of securities with similar characteristics or pricing models based on observable market data inputs, primarily interest rates, spreads and prepayment information and are included in Level 2 of the fair value hierarchy.

Corporate and municipal bonds and notes

Fair value measurement is based upon quoted prices of securities with similar characteristics or pricing models based on observable market data inputs, primarily interest rates, spreads and prepayment information. Level 2 securities include corporate bonds, municipal bonds, other asset-backed securities and foreign bonds and notes.

Private placements

Fair value is measured using the NAV provided by fund management as quoted prices in active markets are not available. Management considers additional discounts to the provided NAV for market and credit risk. Private placements are included in Level 3 of the fair value hierarchy.

Derivative instruments

The fair value of the Plan’s derivative instruments, which could include futures, forwards and/or swaps, was determined using pricing models that use primarily market observable inputs, such as yield curves and option volatilities, and include adjustments to reflect credit quality of the counterparty. Derivative instruments are categorized as Level 2 in the fair value hierarchy.

Fair Values

The fair values of the Corporation’s qualified defined benefit pension plan investments measured at fair value on a recurring basis at December 31, 2011 and 2010, by asset category and level within the fair value hierarchy, are detailed in the table below.



(in millions)	Total		Level 1		Level 2		Level 3
December 31, 2011
Equity securities:
Collective investment and mutual funds	$	494	$	154	$	340	$	—
Common stock	368		368		—		—
Fixed income securities:
U.S. Treasury and other U.S. government agency bonds	236		236		—		—
Corporate and municipal bonds and notes	344		—		344		—
Collective investments and mutual funds	43		43		—		—
Mortgage-backed securities	2		—		2		—
Private placements	26		—		—		26
Other assets:
Derivatives	1		—		1		—
Total investments at fair value	$	1,514	$	801	$	687	$	26
December 31, 2010
Equity securities:
Collective investment and mutual funds	$	538	$	181	$	357	$	—
Common stock	371		370		1		—
Fixed income securities:
U.S. Treasury and other U.S. government agency bonds	198		198		—		—
Corporate and municipal bonds and notes	311		—		311		—
Collective investments and mutual funds	24		24		—		—
Private placements	28		—		—		28
Other assets:
Derivatives	1		—		1		—
Total investments at fair value	$	1,471	$	773	$	670	$	28

The table below provides a summary of changes in the Corporation’s qualified defined benefit pension plan’s Level 3 investments measured at fair value on a recurring basis for the years ended December 31, 2011 and 2010.



			Gains (Losses)
(in millions)	Balance at Beginning of Period		Realized		Unrealized		Purchases		Sales			Balance at End of Period
Year Ended December 31, 2011
Private placements	$	28	$	—	$	1	$	9	$	(12	)	$	26
Year Ended December 31, 2010
Private placements	$	28	$	—	$	1	$	10	$	(11	)	$	28

There were no assets in the non-qualified defined benefit pension plan at December 31, 2011 and 2010. The postretirement benefit plan is fully invested in bank-owned life insurance policies. The fair value of bank-owned life insurance policies is based on the cash surrender values of the policies as reported by the insurance companies and are classified in Level 2 of the fair value hierarchy.

Cash Flows

Estimated future employer contributions were zero for the qualified and non-qualified defined benefit pension plans and postretirement benefit plan for the year ended December 31, 2011.



(in millions)	Estimated Future Benefit Payments
Years Ended December 31	Qualified Defined Benefit Pension Plan		Non-Qualified Defined Benefit Pension Plan		Postretirement Benefit Plan (a)
2012	$	55	$	9	$	7
2013	59		10		7
2014	63		11		7
2015	67		12		7
2016	72		13		7
2017 - 2021	436		70		29


(a)	Estimated benefit payments in the postretirement benefit plan are net of estimated Medicare subsidies.

Defined Contribution Plans

Substantially all of the Corporation’s employees are eligible to participate in the Corporation’s principal defined contribution plan (a 401(k) plan). Under this plan, the Corporation makes core matching cash contributions of 100 percent of the first four percent of qualified earnings contributed by employees (up to the current IRS compensation limit), invested based on employee investment elections. Employee benefits expense included expense for the plan of $20 million, $19 million and $20 million in the years ended December 31, 2011, 2010 and 2009, respectively.

The Corporation also provides a noncontributory defined contribution pension plan for the benefit of substantially all full-time employees hired on or after January 1, 2007. Under the defined contribution pension plan, the Corporation makes an annual contribution to the individual account of each eligible employee ranging from three percent to eight percent of annual compensation, determined based on combined age and years of service. The contributions are invested based on employee investment elections. The employee fully vests in the defined contribution pension plan after three years of service. Before an employee is eligible to participate, the plan requires the equivalent of six months of service. The Corporation recognized $4 million, $3 million and $3 million in employee benefits expense for this plan for the years ended December 31, 2011, 2010 and 2009, respectively.

Deferred Compensation Plans

The Corporation offers optional deferred compensation plans under which certain employees may make an irrevocable election to defer incentive compensation and/or a portion of base salary until retirement or separation from the Corporation. The employee may direct deferred compensation into one or more deemed investment options. Although not required to do so, the Corporation invests actual funds into the deemed investments as directed by employees, resulting in a deferred compensation asset, recorded in “other short-term investments” on the consolidated balance sheets that offsets the liability to employees under the plan, recorded in “accrued expenses and other liabilities.” The earnings from the deferred compensation asset are recorded in “interest on short-term investments” and “other noninterest income” and the related change in the liability to employees under the plan is recorded in “salaries” expense on the consolidated statements of income.