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Retirement and Benefit Plans
 12 Months Ended
Dec. 31, 2018
Retirement and Benefit Plans  
Retirement and Benefit Plans

20. 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 overfunded and underfunded amounts recognized in other assets and accrued taxes, interest and expense, respectively, on the Consolidated Balance Sheets were as follows as of December 31:
($ in millions)20182017
Prepaid benefit cost$1-
Accrued benefit liability(18)(24)
Net underfunded status$(17)(24)

The following tables summarize the defined benefit retirement plans as of and for the years ended December 31:
Plans with an overfunded status(a)
($ in millions)20182017
Fair value of plan assets at January 1$185-
Actual return on assets(6)-
Settlement(9)-
Benefits paid(6)-
Fair value of plan assets at December 31$164-
Projected benefit obligation at January 1$188-
Interest cost6-
Settlement(9)-
Actuarial gain(16)-
Benefits paid(6)-
Projected benefit obligation at December 31$163-
Overfunded projected benefit obligation at December 31$1-
Accumulated benefit obligation at December 31(b)$163-

  • The Bancorp’s qualified defined benefit plan had an overfunded status at December 31, 2018. The Plan was underfunded at December 31, 2017 and is reflected in the underfunded status table.
  • 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 December 31, 2018.

Plans with an underfunded status
($ in millions)20182017
Fair value of plan assets at January 1$-172
Actual return on assets-28
Contributions36
Settlement-(11)
Benefits paid(3)(10)
Fair value of plan assets at December 31$-185
Projected benefit obligation at January 1$21206
Interest cost18
Settlement-(11)
Actuarial (gain) loss(1)16
Benefits paid(3)(10)
Projected benefit obligation at December 31$18209
Underfunded projected benefit obligation at December 31$(18)(24)
Accumulated benefit obligation at December 31(a)$18209

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, 2018 and 2017.

The estimated net actuarial loss for the Plan that will be amortized from AOCI into net periodic benefit cost during 2019 is $6 million. The estimated net prior service cost for the Plan that will be amortized from AOCI into net periodic benefit cost during 2019 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)201820172016
Components of net periodic benefit cost:
Interest cost$789
Expected return on assets(11)(10)(11)
Amortization of net actuarial loss6711
Settlement347
Net periodic benefit cost$5916
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial (gain) loss$(1)(1)2
Amortization of net actuarial loss(6)(7)(11)
Settlement(3)(4)(7)
Total recognized in other comprehensive income(10)(12)(16)
Total recognized in net periodic benefit cost and other comprehensive income$(5)(3)-

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)
2018 ($ in millions)Level 1(d)Level 2(d)Level 3Total Fair Value
Cash equivalents$25--25
Mutual and exchange-traded funds46--46
Debt securities:
U.S. Treasury and federal agencies securities433-46
Mortgage-backed securities:
Non-agency commercial mortgage-backed securities-1-1
Asset-backed securities and other debt securities(b)-18-18
Total debt securities$4322-65
Total Plan assets, excluding collective funds$11422-136
Collective funds (NAV) 28 (c)
Total Plan assets$164

  • For further information on fair value hierarchy levels, refer to Note 1.
  • Includes corporate bonds.
  • Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of Plan assets presented elsewhere within this footnote.
  • During the year ended December 31, 2018, no assets or liabilities were transferred between Level 1 and Level 2.

Fair Value Measurements Using(a)
2017 ($ in millions)Level 1(d)Level 2(d)Level 3Total Fair Value
Cash equivalents$7--7
Equity securities27--27
Mutual and exchange-traded funds92--92
Debt securities:
U.S. Treasury and federal agencies securities93-12
Mortgage-backed securities:
Non-agency commercial mortgage-backed securities-1-1
Asset-backed securities and other debt securities(b)-17-17
Total debt securities$921-30
Total Plan assets, excluding collective funds$13521-156
Collective funds (NAV) 29 (c)
Total Plan assets$185

  • For further information on fair value hierarchy levels, refer to Note 1.
  • Includes corporate bonds.
  • Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of Plan assets presented elsewhere within this footnote.
  • During the year ended December 31, 2017, no assets or liabilities were transferred between Level 1 and Level 2.

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.

Cash equivalents

Cash equivalents are comprised of money market mutual funds that invest in short-term money market instruments that are issued and payable in U.S. dollars. The Plan measures its cash equivalent funds that are exchange-traded using the fund’s quoted price, which is in an active market. Therefore, these investments are classified within Level 1 of the valuation hierarchy.

Equity securities

The Plan measures its common stock using the stock’s quoted price which is available in an active market. Therefore, these investments are classified within Level 1 of the valuation hierarchy.

Mutual and exchange-traded funds

The Plan measures its mutual and exchange-traded funds, which are registered with the Securities and Exchange Commission, using the funds’ quoted prices which are available in an active market. Therefore, these investments are classified within Level 1 of the valuation hierarchy. The mutual and exchange-traded funds held by the Plan are open-ended funds and are required to publicly publish their NAV on a daily basis. The funds are also required to transact and use the daily NAV as a basis for transactions. Therefore, the NAV reflects the fair value of the Plan’s investment.

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 non-agency commercial mortgage-backed securities and asset-backed securities and other debt securities.

Collective funds

Investments in collective funds are valued based upon the investee’s NAV or its equivalent as a practical expedient. NAV is determined by the fund’s management by dividing the fund’s net assets at fair value by the number of units outstanding at the valuation date. Investments valued using NAV as a practical expedient are not classified within the fair value hierarchy.

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:
201820172016
For measuring benefit obligations at year end:(a)
Discount rate4.10%3.473.97
Expected return on plan assets6.006.007.00
For measuring net periodic benefit cost:(a)
Discount rate3.473.974.16
Expected return on plan assets6.006.007.00

(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 2018 pension expense by approximately $1 million.

Based on the actuarial assumptions, the Bancorp expects to contribute $2 million to the Plan in 2019. Estimated pension benefit payments are $17 million for 2019 and $16 million for each of the years 2020 through 2023. The total estimated payments for the years 2024 through 2028 is $70 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, 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)20182017
Equity securities67%76
Bancorp common stock-1
Total equity securities(a)0-55%6777
Fixed-income securities50-1002316
Alternative strategies0-533
Cash0-10074
Total100%100

  • Includes mutual and exchange-traded funds.
  • These reflect the targeted ranges for the year ended December 31, 2018.

The Bancorp’s investment policy was revised during the third quarter of 2018. The asset allocations as of December 31, 2018 were in line with the revised investment policy. Plan Management’s objective is to maintain the fully-funded status of the qualified defined benefit plan while also minimizing the risk of excess assets. As a result, the portfolio assets of the qualified defined benefit plan will continue to increase the weighting of long duration fixed income, or liability matching assets, as the funded status increases. There were no significant concentrations of risk associated with the investments of the Plan at December 31, 2018 and 2017.

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 and mortgages. The Plan utilizes derivative instruments including puts, calls, straddles or other option strategies, as approved by management.

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, 2018 and 2017, $164 million and $185 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, 2018 and 2017, there was no Bancorp common stock in Plan assets. Plan assets are not expected to be returned to the Bancorp during 2019.

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 $83 million, $79 million and $75 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Bancorp did not make profit sharing contributions during the years ended December 31, 2018, 2017 and 2016. 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 both of the years ended December, 31 2018 and 2017 and $3 million for the year ended December 31, 2016.