Retirement and Benefit Plans

12 Months Ended

Dec. 31, 2017

21. RETIREMENT AND BENEFIT PLANS

The Bancorp’s qualified defined benefit plan’s benefits were frozen in 1998, except for grandfathered employees. The Bancorp’s other retirement plans consist of non-qualified defined benefit plans which are frozen and funded on an as needed basis. A majority of these plans were obtained in acquisitions from prior years and are included with the qualified defined benefit plan in the following tables (“the Plan”). The Bancorp recognizes the overfunded and underfunded status of the Plan as an asset and liability, respectively, in the Consolidated Balance Sheets. The Plan had an underfunded projected benefit obligation at both December 31, 2017 and 2016. The underfunded amounts recognized in other liabilities in the Consolidated Balance Sheets were $24 million and $34 million at December 31, 2017 and 2016, respectively.

The following table summarizes the Plan as of and for the years ended December 31:

($ in millions)		2017	2016
Fair value of plan assets at January 1	$	172	166
Actual return on assets		28	11
Contributions		6	20
Settlement		(11)	(15)
Benefits paid		(10)	(10)
Fair value of plan assets at December 31	$	185	172
Projected benefit obligation at January 1	$	206	220
Interest cost		8	9
Settlement		(11)	(15)
Actuarial loss		16	2
Benefits paid		(10)	(10)
Projected benefit obligation at December 31	$	209	206
Underfunded projected benefit obligation at December 31	$	(24)	(34)
Accumulated benefit obligation at December 31^(a)	$	209	206

(a) Since the Plan’s benefits are frozen, the rate of compensation increase is no longer an assumption used to calculate the accumulated benefit obligation. Therefore, the accumulated benefit obligation was the same as the projected benefit obligation at both December 31, 2017 and 2016.

The estimated net actuarial loss for the Plan that will be amortized from AOCI into net periodic benefit cost during 2018 is $7 million. The estimated net prior service cost for the Plan that will be amortized from AOCI into net periodic benefit cost during 2018 is immaterial to the Consolidated Financial Statements.

The following table summarizes net periodic benefit cost and other changes in the Plan's assets and benefit obligations recognized in OCI for the years ended December 31:

($ in millions)			2017	2016	2015
Components of net periodic benefit cost:
	Interest cost	$	8	9	9
	Expected return on assets		(10)	(11)	(13)
	Amortization of net actuarial loss		7	11	10
	Settlement		4	7	7
Net periodic benefit cost		$	9	16	13
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
	Net actuarial (gain) loss	$	(1)	2	9
	Amortization of net actuarial loss		(7)	(11)	(10)
	Settlement		(4)	(7)	(7)
Total recognized in other comprehensive income			(12)	(16)	(8)
Total recognized in net periodic benefit cost and other comprehensive income		$	(3)	-	5

Fair Value Measurements of Plan Assets

The following tables summarize plan assets measured at fair value on a recurring basis as of December 31:

		Fair Value Measurements Using^(a)
2017 ($ in millions)			Level 1	Level 2	Level 3	Total Fair Value
Equity securities		$	73	-	-	73
Mutual and exchange-traded funds:
	Money market funds		7	-	-	7
	International funds		-	30	-	30
	Domestic funds		-	29	-	29
	Debt funds		-	1	-	1
	Alternative strategies		1	9	-	10
	Commodity funds		5	-	-	5
Total mutual and exchange-traded funds		$	13	69	-	82
Debt securities:
	U.S. Treasury and federal agencies securities		8	2	-	10
	Mortgage-backed securities:
	Agency residential mortgage-backed securities		-	1	-	1
	Agency commercial mortgage-backed securities		-	2	-	2
	Non-agency commercial mortgage-backed securities		-	1	-	1
	Asset-backed securities and other debt securities^(b)		-	16	-	16
Total debt securities		$	8	22	-	30
Total plan assets		$	94	91	-	185

For further information on fair value hierarchy levels, refer to Note 1.
Includes corporate bonds.

		Fair Value Measurements Using^(a)
2016 ($ in millions)			Level 1	Level 2	Level 3	Total Fair Value
Equity securities^(b)		$	56	-	-	56
Mutual and exchange-traded funds:
	Money market funds		6	-	-	6
	International funds		-	31	-	31
	Domestic funds		-	39	-	39
	Debt funds		-	5	-	5
	Alternative strategies		1	9	-	10
	Commodity funds		6	-	-	6
Total mutual and exchange-traded funds		$	13	84	-	97
Debt securities:
	U.S. Treasury and federal agencies securities		7	1	-	8
	Mortgage-backed securities:
	Agency residential mortgage-backed securities		-	1	-	1
	Agency commercial mortgage-backed securities		-	2	-	2
	Asset-backed securities and other debt securities^(c)		-	8	-	8
Total debt securities		$	7	12	-	19
Total plan assets		$	76	96	-	172

For further information on fair value hierarchy levels, refer to Note 1.
Includes holdings in Bancorp common stock.
Includes corporate bonds.

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Equity securities

The Plan measures common stock using quoted prices which are available in an active market and classifies these investments within Level 1 of the valuation hierarchy.

Mutual and exchange-traded funds

All of the Plan’s mutual and exchange-traded funds are publicly traded. The Plan measures the value of these investments using the fund’s quoted prices which are available in an active market and classifies these investments within Level 1 of the valuation hierarchy. Level 1 securities include money market funds, alternative strategies and commodity funds. Where quoted prices are not available, the Plan measures the fair value of these investments based on the redemption price of units held, which is based on the current fair value of the fund’s underlying assets. Unit values are determined by dividing the fund’s net assets at fair value by its units outstanding at the valuation dates to obtain the investment’s net asset value. Therefore, investments such as international funds, domestic funds, debt funds and alternative strategies are classified within Level 2 of the valuation hierarchy.

Debt securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include U.S. Treasury securities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or DCFs. Examples of such instruments, which are classified within Level 2 of the valuation hierarchy, include federal agencies securities, agency residential mortgage-backed securities, agency commercial mortgage-backed securities, non-agency commercial mortgage-backed securities and asset-backed securities and other debt securities.

Plan Assumptions

The Plan’s 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 weighted-average plan assumptions for the years ended December 31:

		2017		2016	2015
For measuring benefit obligations at year end:^(a)
	Discount rate	3.47	%	3.97	4.16
	Expected return on plan assets	6.00		7.00	7.00
For measuring net periodic benefit cost:^(a)
	Discount rate	3.97		4.16	3.82
	Expected return on plan assets	6.00		7.00	7.00

(a) Since the Plan’s benefits were frozen, except for grandfathered employees, the rate of compensation increase is no longer applicable beginning in 2014 since minimal grandfathered employees are still accruing benefits.

Lowering both the expected rate of return on the plan assets and the discount rate by 0.25% would have increased the 2017 pension expense by approximately $1 million.

Based on the actuarial assumptions, the Bancorp expects to contribute $3 million to the Plan in 2018. Estimated pension benefit payments are $17 million for each of the years 2018 through 2022. The total estimated payments for the years 2023 through 2027 is $77 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 U.S. Treasury and federal agencies securities, mortgage-backed securities, asset-backed securities and corporate bonds), alternative strategies (including traditional mutual funds, precious metals and commodities) and cash.

The following table provides the Bancorp’s targeted and actual weighted-average asset allocations by asset category for the years ended December 31:

	Targeted Range^(b)		2017		2016
Equity securities			76	%	73
Bancorp common stock			1		2
Total equity securities^(a)	60-90	%	77		75
Fixed-income securities	5-25		16		14
Alternative strategies	3-11		3		6
Cash	0-13		4		5
Total			100	%	100

Includes mutual and exchange-traded funds.
These reflect the targeted ranges for both the years ended December 31, 2017 and 2016.

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 Plan at December 31, 2017 and 2016.

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 real estate investment trusts), 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. Per ERISA, the Bancorp’s common stock cannot exceed 10% of the fair value of plan assets.

Fifth Third Bank, as Trustee, is expected to manage plan assets in a manner consistent with the plan agreement and other regulatory, federal and state laws. As of December 31, 2017 and 2016, $185 million and $172 million, respectively, of plan assets were managed by Fifth Third Bank. The Fifth Third Bank Pension, 401(k) 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. There were no fees paid by the Plan for investment management, accounting or administrative services provided by the Trustee. As of December 31, 2017, there was no Bancorp common stock in Plan assets. As of December 31, 2016, Plan assets included $5 million of Bancorp common stock, which was below the 10% ERISA threshold previously discussed. Plan assets are not expected to be returned to the Bancorp during 2018.

Other Information on Retirement and Benefit Plans

The Bancorp has a qualified defined contribution savings plan that allows participants to make voluntary 401(k) contributions on a pre-tax or Roth basis, subject to statutory limitations. The Bancorp amended and restated the qualified defined contribution savings plan in its entirety, effective as of January 1, 2015. Beginning with the 2015 plan year, the Bancorp provides a higher company 401(k) match contribution. Expenses recognized for matching contributions to the Bancorp’s qualified defined contribution savings plan were $79 million, $75 million and $71 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Bancorp did not make profit sharing contributions during the years ended December 31, 2017, 2016 and 2015. In addition, the Bancorp has a non-qualified defined contribution plan that allows certain employees to make voluntary contributions into a deferred compensation plan. Expenses recognized by the Bancorp for its non-qualified defined contribution plan were $4 million for the year ended December, 31 2017 and $3 million for both of the years ended December 31, 2016 and 2015.