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Employee Benefit Plans
12 Months Ended
Dec. 31, 2011
Employee Benefit Plans [Abstract]  
Compensation and Employee Benefit Plans [Text Block]

Note 14 Employee Benefit Plans

PENSION AND POSTRETIREMENT PLANS

We have a noncontributory, qualified defined benefit pension plan covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are a percentage of eligible compensation. Earnings credit percentages for plan participants on December 31, 2009 are frozen at their level earned to that point. Earnings credits for all employees who become participants on or after January 1, 2010 are a flat 3% of eligible compensation. Participants at December 31, 2009 earn interest based on 30-year Treasury securities with a minimum rate, while new participants on or after January 1, 2010 are not subject to the minimum rate. Pension contributions are based on an actuarially determined amount necessary to fund total benefits payable to plan participants.

We also maintain nonqualified supplemental retirement plans for certain employees and provide certain health care and life insurance benefits for qualifying retired employees (postretirement benefits) through various plans. The nonqualified pension and postretirement benefit plans are unfunded. The Company reserves the right to terminate or make plan changes at any time.

 

We use a measurement date of December 31 for plan assets and benefit obligations. A reconciliation of the changes in the projected benefit obligation for qualified pension, nonqualified pension and postretirement benefit plans as well as the change in plan assets for the qualified pension plan follows:

Reconciliation of Changes in Projected Benefit Obligation and Change in Plan Assets           
                    
  Qualified Nonqualified Postretirement 
  Pension Pension Benefits 
December 31 (Measurement Date) – in millions 2011  2010  2011  2010  2011  2010 
Accumulated benefit obligation at end of year$ 4,095 $ 3,619 $ 289 $ 286       
Projected benefit obligation at beginning of year$ 3,803 $ 3,611 $ 290 $ 282 $ 393 $ 374 
Service cost  94   102   4   3   7   5 
Interest cost  196   203   13   14   19   20 
Actuarial losses and changes in assumptions  304   92   15   11   (1)   20 
Participant contributions              13   14 
Federal Medicare subsidy on benefits paid              2   2 
Early Retirement Reinsurance Program payments received              1    
Benefits paid  (209)   (205)   (25)   (20)   (37)   (42) 
 Projected benefit obligation at end of year$ 4,188 $ 3,803 $ 297 $ 290 $ 397 $ 393 
Fair value of plan assets at beginning of year$ 3,991 $ 3,721             
Actual return on plan assets  23   475             
Employer contribution      $ 25 $ 20 $ 22 $ 26 
Participant contributions              13   14 
Federal Medicare subsidy on benefits paid              2   2 
Benefits paid  (209)   (205)   (25)   (20)   (37)   (42) 
 Fair value of plan assets at end of year$ 3,805 $ 3,991             
Funded status$ (383) $ 188 $ (297) $ (290) $ (397) $ (393) 
Amounts recognized in the statement of financial positions                  
 Noncurrent asset     188             
 Current liability        (30)   (33)   (34)   (35) 
 Noncurrent liability  (383)      (267)   (257)   (363)   (358) 
 Net amount recognized on the balance sheet$ (383) $ 188 $ (297) $ (290) $ (397) $ (393) 
Amounts recognized in accumulated other comprehensive                   
 income consist of:                  
Prior service cost (credit)$ (39) $ (46) $ 2 $ 2 $ (11) $ (14) 
Net actuarial loss  1,087   526   71   61   54   55 
 Amount recognized in AOCI$ 1,048 $ 480 $ 73 $ 63 $ 43 $ 41 

At December 31, 2011, the fair value of the qualified pension plan assets were less than both the accumulated benefit obligation and the projected benefit obligation. This is due to unfavorable 2011 investment returns, as well as an increase in obligations due to a drop in the discount rate. The nonqualified pension plan is unfunded. Contributions from us and, in the case of postretirement benefit plans, participant contributions cover all benefits paid under the nonqualified pension plan and postretirement benefit plans. The postretirement plan provides benefits to certain retirees that are at least actuarially equivalent to those provided by Medicare Part D and accordingly, we receive a federal subsidy as shown in the table.

The Early Retiree Reinsurance Program (ERRP) was established by the Patient Protection and Affordable Care Act. Congress appropriated funding of $5 billion for this temporary ERRP to provide financial assistance to employers, unions, and state and local governments to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare, including their spouses, surviving spouses, and dependents. The ERRP ceased accepting applications after May 5, 2011. PNC submitted an application for reimbursement from the ERRP in 2011 for the 2010 and 2011 plan years. In 2011, PNC received reimbursement of $.6 million related to the 2010 plan year. The reimbursement for the 2011 plan year is not reflected in the above financial statements because the reimbursement of $.9 million was not approved until 2012. These reimbursements will be used to offset increases in the employer's costs of maintaining coverage.

PNC PENSION PLAN ASSETS

Assets related to our qualified pension plan (the Plan) are held in trust (the Trust). Effective July 1, 2011, the trustee is The Bank of New York Mellon; prior to that date, the trustee was PNC Bank, National Association, (PNC Bank, N.A). The Trust is exempt from tax pursuant to section 501(a) of the Internal Revenue Code (the Code). The Plan is qualified under section 401(a) of the Code. Plan assets consist primarily of listed domestic and international equity securities and US government, agency, and corporate debt securities and real estate investments. Plan assets as of December 31, 2011 and 2010 include common stock of PNC. PNC Common Stock was $11 million and $12 million at December 31, 2011 and December 31, 2010, respectively. At December 31, 2011, this accounted for less than 1% of our total asset balance.

The Pension Plan Administrative Committee (the Committee) adopted a current Pension Plan Investment Policy Statement, including target allocations and allowable ranges, on August 13, 2008. On February 25, 2010, the Committee amended the investment policy to include a dynamic asset allocation approach and also updated target allocation ranges for certain asset categories. On March 1, 2011, the Committee amended the investment policy to update the target allocation ranges for certain asset categories.

The long-term investment strategy for pension plan assets is to:

•       Meet present and future benefit obligations to all participants and beneficiaries,

•       Cover reasonable expenses incurred to provide such benefits, including expenses incurred in the administration of the Trust and the Plan,

•       Provide sufficient liquidity to meet benefit and expense payment requirements on a timely basis, and

•       Provide a total return that, over the long term, maximizes the ratio of trust assets to liabilities by maximizing investment return, at an appropriate level of risk.

Under the dynamic asset allocation strategy, scenarios are outlined in which the Committee has the ability to make short to intermediate term asset allocation shifts based on factors such as the Plan's funded status, the Committee's view of return on equities relative to long term expectations, the Committee's view on the direction of interest rates and credit spreads, and other relevant financial or economic factors which would be expected to impact the ability of the Trust to meet its obligation to beneficiaries. Accordingly, the allowable asset allocation ranges have been updated to incorporate the flexibility required by the dynamic allocation policy.

The Plan's specific investment objective is to meet or exceed the investment policy benchmark over the long term. The investment policy benchmark compares actual performance to a weighted market index, and measures the contribution of active investment management and policy implementation. This investment objective is expected to be achieved over the long term (one or more market cycles) and is measured over rolling five-year periods. Total return calculations are time-weighted and are net of investment-related fees and expenses.

The asset strategy allocations for the Trust at the end of 2011 and 2010, and the target allocation range at the end of 2011, by asset category, are as follows:

 

The asset category represents the allocation of Plan assets in accordance with the investment objective of each of the Plan's investment managers. Certain domestic equity investment managers utilize derivatives and fixed income securities as described in their Investment Management Agreements to achieve their investment objective under the Investment Policy Statement. Other investment managers may invest in eligible securities outside of their assigned asset category to meet their investment objectives. The actual percentage of the fair value of total plan assets held as of December 31, 2011 for equity securities, fixed income securities, real estate and all other assets are 61%, 31%, 3%, and 5%, respectively.

We believe that, over the long term, asset allocation is the single greatest determinant of risk. Asset allocation will deviate from the target percentages due to market movement, cash flows, investment manager performance and implementation of shifts under the dynamic allocation policy. Material deviations from the asset allocation targets can alter the expected return and risk of the Trust. On the other hand, frequent rebalancing to the asset allocation targets may result in significant transaction costs, which can impair the Trust's ability to meet its investment objective. Accordingly, the Trust portfolio is periodically rebalanced to maintain asset allocation within the target ranges described above.

In addition to being diversified across asset classes, the Trust is diversified within each asset class. Secondary diversification provides a reasonable basis for the expectation that no single security or class of securities will have a disproportionate impact on the total risk and return of the Trust.

The Committee selects investment managers for the Trust based on the contributions that their respective investment styles and processes are expected to make to the investment performance of the overall portfolio. The managers' Investment Objectives and Guidelines, which are a part of each manager's Investment Management Agreement, document performance expectations and each manager's role in the portfolio. The Committee uses the Investment Objectives and Guidelines to establish, guide, control and measure the strategy and performance for each manager.

The purpose of investment manager guidelines is to:

•       Establish the investment objective and performance standards for each manager,

•       Provide the manager with the capability to evaluate the risks of all financial instruments or other assets in which the manager's account is invested, and

•       Prevent the manager from exposing its account to excessive levels of risk, undesired or inappropriate risk, or disproportionate concentration of risk.

The guidelines also indicate which investments and strategies the manager is permitted to use to achieve its performance objectives, and which investments and strategies it is prohibited from using.

Where public market investment strategies may include the use of derivatives and/or currency management, language is incorporated in the managers' guidelines to define allowable and prohibited transactions and/or strategies. Derivatives are typically employed by investment managers to modify risk/return characteristics of their portfolio(s), implement asset allocation changes in a cost-effective manner, or reduce transaction costs. Under the managers' investment guidelines, derivatives may not be used solely for speculation or leverage. Derivatives are used only in circumstances where they offer the most efficient economic means of improving the risk/reward profile of the portfolio.

BlackRock receives compensation for providing investment management services. The Asset Management Group business segment also receives compensation for payor-related services, and received compensation for providing trustee/custodian services prior to July 1, 2011. Compensation for such services is paid by PNC and was not significant for 2011, 2010 or 2009. Non-affiliate service providers for the Trust are compensated from plan assets.

FAIR VALUE MEASUREMENTS

As further described in Note 8 Fair Value, GAAP establishes the framework for measuring fair value, including a hierarchy used to classify the inputs used in measuring fair value.

 

A description of the valuation methodologies used for assets measured at fair value follows. There have been no changes in the methodologies used at December 31, 2011 compared with those in place at December 31, 2010:

•       Money market and mutual funds are valued at the net asset value of the shares held by the pension plan at year-end.

•       US government securities, corporate debt, common stock and preferred stock are valued at the closing price reported on the active market on which the individual securities are traded. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Such securities are generally classified within level 2 of the valuation hierarchy but may be a level 3 depending on the level of liquidity and activity in the market for the security.

•       The collective trust fund investments are valued based upon the units of such collective trust fund held by the plan at year end multiplied by the respective unit value. The unit value of the collective trust fund is based upon significant observable inputs, although it is not based upon quoted marked prices in an active market. The underlying investments of the collective trust funds consist primarily of equity securities, debt obligations, short-term investments, and other marketable securities. Due to the nature of these securities, there are no unfunded commitments or redemption restrictions.

•       Limited partnerships are valued by investment managers based on recent financial information used to estimate fair value. Other investments held by the pension plan include derivative financial instruments and real estate, which are recorded at estimated fair value as determined by third-party appraisals and pricing models, and group annuity contracts which are measured at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer.

These methods may result in fair value calculations that may not be indicative of net realizable values or future fair values. Furthermore, while the pension plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

 

The following table sets forth by level, within the fair value hierarchy, the Plan's assets at fair value as of December 31, 2011 and 2010:

Pension Plan Assets – Fair Value Hierarchy            
             
 Fair Value Measurements Using: 
    Quoted Prices in Significant    
    Active Markets Other Significant 
 December 31 For Identical Observable Unobservable 
 2011 Assets Inputs Inputs 
In millionsFair Value (Level 1) (Level 2) (Level 3) 
Cash$ 2 $ 2       
Money market funds  137   135 $ 2    
US government and agency securities  395   114   281    
Corporate debt (a)  799      722 $ 77 
Common stock  933   933       
Preferred stock  13   9   2   2 
Mutual funds  37      37    
Interest in Collective Funds (b)  1,314      937   377 
Limited partnerships  130         130 
Other  45   2   16   27 
Total$ 3,805 $ 1,195 $ 1,997 $ 613 

              
  Fair Value Measurements Using: 
     Quoted Prices in Significant    
     Active Markets Other Significant 
  December 31 For Identical Observable Unobservable 
  2010 Assets Inputs Inputs 
In millionsFair Value (Level 1) (Level 2) (Level 3) 
Cash$ 5 $ 5       
Money market funds  108    $ 108    
US government and agency securities  518   267   251    
Corporate debt (a)  916   8   555 $ 353 
Common stock  1,153   652   501    
Preferred Stock  42      42    
Mutual funds  36      36    
Interest in Collective Funds (b)  1,016      646   370 
Limited partnerships  75         75 
Other  122   14   77   31 
Total$ 3,991 $ 946 $ 2,216 $ 829 
(a)Corporate debt includes $106 million and $175 million of non-agency mortgage-backed securities as of December 31, 2011 and 2010, respectively. 
(b)The benefit plans own commingled funds that invest in equity and fixed income securities. The commingled funds that invest in equity securities seek  
 to mirror the performance of the S&P 500 Index, Russell 3000 Index, Morgan Stanley Capital International ACWI X US Index, and the Dow Jones  
 U.S. Select Real Estate Securities Index. The commingled fund that holds fixed income securities invests in domestic investment grade securities  
 and seeks to mimic the performance of the Barclays Aggregate Bond Index. 

The following summarizes changes in the fair value of the pension plan's Level 3 assets during 2011 and 2010:

Rollforward of Pension Plan Level 3 Assets               
               
  Interest in Common Collective Funds Corporate Debt  Limited Partnership  Other  Preferred Stock
In millions         
January 1, 2011$ 370 $ 353 $ 75 $ 31   
Net realized gain on sale of investments  (1)   (9)   (6)   3   
Net unrealized gain/(loss) on assets held at end of year  (19)   (12)   55   (4) $ (1)
Purchases  27   29   16   4   3
Sales     (184)   (10)   (7)   
Transfers into Level 3     30         
Transfers (from) Level 3     (130)         
December 31, 2011$ 377 $ 77 $ 130 $ 27 $ 2

   Interest in Common Collective Funds  Corporate Debt  Limited Partnerships  Other
In millions        
January 1, 2010 $ 57 $ 117 $ 62 $ 44
Net realized gain on sale of investments      37   6   4
Net unrealized gain/(loss) on assets held at end of year   99   (48)   3   (15)
Purchases, sales, issuances, and settlements (net)   214   214   4   1
Transfers into (from) Level 3      33      (3)
December 31, 2010 $ 370 $ 353 $ 75 $ 31

The following table provides information regarding our estimated future cash flows related to our various plans:

Estimated Cash Flows           
             
         Postretirement Benefits   
            Reduction in PNC
            Benefit Payments
  Qualified Nonqualified Gross PNC  Due to Medicare
In millionsPension Pension Benefit Payments  Part D Subsidy
Estimated 2012 employer contributions   $ 30 $ 36 $ 2
Estimated future benefit payments           
 2012$ 251 $ 30 $ 36 $ 2
 2013  263   30   33   2
 2014  274   29   34   2
 2015  282   27   34   2
 2016  288   26   33   2
 2017-2021  1,578   108   156   8

The qualified pension plan contributions are deposited into the Trust, and the qualified pension plan benefit payments are paid from the Trust. Although the plan is underfunded as of December 31, 2011, PNC's required qualified pension contribution for 2012 is expected to be zero based on the funding calculations under the Pension Protection Act of 2006. For the other plans, total contributions and the benefit payments are the same and represent expected benefit amounts, which are paid from general assets. Postretirement benefits are net of participant contributions.

The components of net periodic benefit cost/(income) and other amounts recognized in other comprehensive income were as follows.

Components of Net Periodic Benefit Cost                          
                              
   Qualified Pension Plan Nonqualified Pension Plan Postretirement Benefits 
Year ended December 31 – in millions 2011  2010  2009  2011  2010  2009  2011  2010  2009 
Net periodic cost consists of:                           
Service cost$ 94 $ 102 $ 90 $ 4 $ 3 $ 2 $ 7 $ 5 $ 4 
Interest cost  196   203   206   13   14   15   19   20   21 
Expected return on plan assets  (298)   (285)   (260)                   
Amortization of prior service cost  (8)   (8)   (2)            (3)   (3)   (5) 
Amortization of actuarial losses  19   34   83   5   3   1          
Net periodic cost  3   46   117   22   20   18   23   22   20 
Other changes in plan assets and benefit                            
 obligations recognized in other                            
 comprehensive income:                           
Current year prior service cost/(credit)        (43)         2          
Amortization of prior service credit  8   8   2            3   3   5 
Current year actuarial loss/(gain)  579   (99)   (263)   15   11   24   (1)   21   21 
Amortization of actuarial (loss)  (19)   (34)   (83)   (5)   (3)   (1)   (1)       
 Total recognized in OCI  568   (125)   (387)   10   8   25   1   24   26 
 Total recognized in net periodic cost                            
  and OCI$ 571 $ (79) $ (270) $ 32 $ 28 $ 43 $ 24 $ 46 $ 46 

The weighted-average assumptions used (as of the beginning of each year) to determine net periodic costs shown above were as follows:

 

Net Periodic Costs – Assumptions        
         
  Net Periodic Cost Determination 
Year ended December 312011 2010 2009  
Discount rate       
 Qualified pension 5.20% 5.75% 6.05% 
 Nonqualified pension 4.80  5.15  5.90  
 Postretirement benefits 5.00  5.40  5.95  
Rate of compensation increase (average) 4.00  4.00  4.00  
Assumed health care cost trend rate       
 Initial trend 8.00  8.50  9.00  
 Ultimate trend 5.00  5.00  5.00  
 Year ultimate reached2019 2014 2014  
Expected long-term return on plan assets 7.75  8.00  8.25  

The weighted-average assumptions used (as of the end of each year) to determine year-end obligations for pension and postretirement benefits were as follows:

Other Pension Assumptions     
       
  At December 31 
Year ended December 312011 2010  
Discount rate     
 Qualified pension 4.60% 5.20% 
 Nonqualified pension 4.20  4.80  
 Postretirement benefits 4.40  5.00  
Rate of compensation increase (average) 4.00  4.00  
Assumed health care cost trend rate     
 Initial trend 8.00  8.00  
 Ultimate trend 5.00  5.00  
 Year ultimate reached2019 2019  

The discount rates are determined independently for each plan by comparing the expected future benefits that will be paid under each plan with yields available on high quality corporate bonds of similar duration. For this analysis, 10% of bonds with the highest yields and 40% with the lowest yields were removed from the bond universe.

The expected return on plan assets is a long-term assumption established by considering historical and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes. We review this assumption at each measurement date and adjust it if warranted. This assumption remains at 7.75% for determining 2012 net periodic cost.

The health care cost trend rate assumptions shown in the preceding tables relate only to the postretirement benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

Effect of One Percent Change in Assumed Health Care Cost      
      
Year ended December 31, 2011     
In millions Increase  Decrease
Effect on total service and interest cost$ 1 $ (1)
Effect on year-end benefit obligation$ 13 $ (13)

Unamortized actuarial gains and losses and prior service costs and credits are recognized in AOCI each December 31, with amortization of these amounts through net periodic benefit cost. The estimated amounts that will be amortized in 2012 are as follows:

Estimated Amortization of Unamortized Actuarial Gains and Losses—2012         
 2012 Estimate 
Year ended December 31 Qualified  Nonqualified Postretirement 
In millions Pension  Pension Benefits 
Prior service (credit)$ (8)    $ (3) 
Net actuarial loss  88 $ 6   2 
Total$ 80 $ 6 $ (1) 

DEFINED CONTRIBUTION PLANS

We have a qualified defined contribution plan that covers all eligible PNC employees. Effective January 1, 2010, the employer matching contribution under the PNC Incentive Savings Plan was reduced from a maximum of 6% to 4% of a participant's eligible compensation. Certain changes to the plan's eligibility and vesting requirements also became effective January 1, 2010. Employees hired prior to January 1, 2010 became 100% vested immediately, while employees hired on or after January 1, 2010 become vested 100% after three years of service. Employee benefits expense related to defined contribution plans was $105 million in 2011, $90 million in 2010 and $136 million in 2009. We measure employee benefits expense as the fair value of the shares and cash contributed to the plan by PNC.

Under the PNC Incentive Savings Plan, employee contributions up to 4% of eligible compensation as defined by the plan are matched 100%, subject to Code limitations. PNC will contribute a minimum matching contribution of $2,000 to employees who contribute at least 4% of eligible compensation every pay period during the year . This amount is prorated for certain employees, including part-time employees and those who are eligible for the company match for less than a full year. Additionally, for participants who meet the annual deferral limit or the annual compensation limit before the end of a calendar year, PNC makes a true-up matching contribution to ensure that such participants receive the full company match available. The plan is a 401(k) Plan and includes a stock ownership (ESOP) feature. Employee contributions are invested in a number of mutual fund investment options available under the plan at the direction of the employee. Although employees were also historically permitted to direct the investment of their contributions into the PNC common stock fund, this fund was frozen to future investments of such contributions effective January 1, 2010. All shares of PNC common stock held by the plan are part of the ESOP. Employee contributions to the plan for 2010 and 2009 were matched primarily by shares of PNC common stock held in treasury or reserve, except in the case of those participants who have exercised their diversification election rights to have their matching portion in other investments available within the plan. Effective January 1, 2011, employer matching contributions are now made in cash.

Prior to July 1, 2010, PNC sponsored a separate qualified defined contribution plan that covered substantially all US-based GIS employees not covered by our plan. The plan was a 401(k) plan and included an ESOP feature. Under this plan, employee contributions of up to 6% of eligible compensation as defined by the plan were eligible to be matched annually based on GIS performance levels. Employee benefits expense for this plan was $6 million in 2010, and $8 million in 2009. We measured employee benefits expense as the fair value of the shares and cash contributed to the plan. As described in Note 2 Divestiture, on July 1, 2010 we sold GIS. Plan assets of $239 million were transferred to The Bank of New York Mellon Corporation 401(k) Savings Plan on that date. Prior to July 1, 2010, the Plan continued to operate under the provisions of the original plan document, as amended.

We also maintain a nonqualified supplemental savings plan for certain employees, known as The PNC Supplemental Incentive Savings Plan. Effective January 1, 2010, the employer match was discontinued in that plan. Effective January 1, 2012, the Supplemental Incentive Savings Plan was frozen to new participants and for any deferrals of amounts earned on or after such date. It was replaced by a new plan called the Deferred Compensation and Incentive Plan.