NOTE 15 - EMPLOYEE BENEFIT PLANS

The Company sponsors various LTI and short-term incentive plans for eligible employees and may deliver LTIs through various incentive programs, including stock options, RSUs, restricted stock, and LTI cash. Awards under the LTI cash plan generally cliff vest over a period of three years from the date of the award and are paid in cash. AIP is the Company's short-term cash incentive plan for key employees that provides for potential annual cash awards based on the Company's performance and/or the achievement of business unit and individual performance objectives. For the year ended December 31, 2012, the Company's AIP plan included a higher number of eligible participants, of which some participants previously received compensation under other incentive plans. All incentive awards are subject to clawback provisions. Compensation expense for the LTI and AIP cash plans was $155 million, $116 million, and $77 million for the years ended December 31, 2012, 2011, and 2010, respectively.

Previously, TARP prohibited the payment of any bonus, incentive compensation, or stock option award to the Company's five NEOs and certain other highly-compensated executives. As a result, beginning in January 2010, the Company paid additional base salary amounts in the form of stock (salary shares) to the NEOs and some of the other employees who were among the next 20 most highly-compensated executives. The Company did this each pay period in the form of stock units under the SunTrust Banks, Inc. 2009 Stock Plan (the "2009 Stock Plan") until the Company repaid the U.S. government's TARP investment. The Company settled the stock units in cash; for the 2010 salary shares, one half was settled on March 31, 2011, and one half was settled on March 31, 2012. The 2011 salary shares were settled on March 30, 2011, the date the Company repaid the U.S. government's TARP investment. The amount paid upon settlement of the stock units was equal to the value of a share of SunTrust common stock on the settlement date. The value of salary shares paid was $4 million and $7 million in 2012 and 2011, respectively.

Stock-Based Compensation

The Company provides stock-based awards through the 2009 Stock Plan (as amended and restated effective January 1, 2011) under which the Compensation Committee of the Board of Directors has the authority to grant stock options, restricted stock, and RSUs to key employees of the Company. Some awards may have performance or other conditions such as vesting tied to the Company's total shareholder return relative to a peer group or vesting tied to the achievement of an absolute performance target such as ROA or Tier 1 Capital ratio. Under the 2009 Stock Plan, approximately 21 million shares of common stock are authorized and reserved for issuance, of which no more than 17 million shares may be issued as restricted stock or stock units. As of December 31, 2012, 17,941,440 shares were available for granting, including 10,754,365 shares available to be issued as restricted stock. Stock options are granted at an exercise price which is no less than the fair market value of a share of SunTrust common stock on the grant date and may be either tax-qualified incentive stock options or non-qualified stock options. Stock options typically vest pro-rata over three years and generally have a maximum contractual life of ten years and, upon option exercise, shares are issued to employees from treasury stock.

Shares or units of restricted stock may be granted to employees and directors and typically cliff vest after three years. Restricted stock grants may be subject to one or more criteria, including employment, performance, or other conditions as established by the Compensation Committee at the time of grant. Any shares of restricted stock that are forfeited will again become available for issuance under the Stock Plan. An employee or director has the right to vote the shares of restricted stock after grant unless and until they are forfeited. Compensation cost for restricted stock is equal to the fair market value of the shares on the grant date of the award and is amortized to compensation expense over the vesting period. Dividends are paid on awarded but unvested restricted stock. We do not pay dividends on unvested RSU awards but instead accrue and reinvest them in equivalent shares of SunTrust common stock and pay them only if the underlying RSU award vests. Generally, restricted stock unit awards are classified as equity. However, during 2012, 574,257 restricted stock units were granted with a fair value on the grant date of $21.67 per unit that are classified as a liability because the grant date has not yet been achieved as defined under U.S. GAAP. The balance of those restricted stock units classified as a liability at December 31, 2012 was $12 million.

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option pricing model. The expected volatility represents the implied volatility of SunTrust stock. The expected term represents the period of time that the stock options granted are expected to be outstanding and is derived from historical data that is used to evaluate patterns such as stock option exercise and employee termination. Through the repurchase of preferred stock issued to the U.S. Treasury in the first quarter of 2011, the expected dividend yield was based on the current rate in effect at the grant date. Beginning in second quarter 2011, the Company began using the projected dividend to be paid as the dividend yield assumption. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant based on the expected life of the option.

The weighted average fair values of options granted during 2012, 2011, and 2010 were $7.83, $10.51 and $12.78 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model based on the following assumptions:



	Year Ended December 31
	2012		2011		2010
Dividend yield	0.91	%	0.75	%	0.17	%
Expected stock price volatility	39.88		34.87		56.09
Risk-free interest rate (weighted average)	1.07		2.48		2.80
Expected life of options	6 years		6 years		6 years

The following table presents a summary of stock option and restricted stock activity:



	Stock Options					Restricted Stock							Restricted Stock Units
(Dollars in millions, except per share data)	Shares		Price Range	Weighted Average Exercise Price		Shares		Deferred Compensation			Weighted Average Grant Price		Shares		Weighted Average Grant Price
Balance, January 1, 2010	17,661,216		$9.06 - 150.45		$53.17	4,770,172			$59			$37.02	66,420			$26.96
Granted	1,192,974		22.69 - 27.79	23.64		1,355,075		33			24.01		—		—
Exercised/vested	—		—	—		(1,266,267	)	—			67.27		—		—
Cancelled/expired/forfeited	(1,711,690	)	9.06 - 140.14	52.62		(238,171	)	(7		)	29.22		(1,230	)	26.96
Amortization of restricted stock compensation	—		—	—		—		(42		)	—		—		—
Balance, December 31, 2010	17,142,500		9.06 - 150.45	51.17		4,620,809		43			25.32		65,190		26.96
Granted	813,265		19.98 - 32.27	29.70		1,400,305		44			31.27		344,590		37.57
Exercised/vested	(20,000	)	9.06	9.06		(1,085,252	)	—			50.37		—		—
Cancelled/expired/forfeited	(2,066,348	)	9.06 - 140.40	63.40		(313,695	)	(7		)	22.07		(4,305	)	26.96
Amortization of restricted stock compensation	—		—	—		—		(32		)	—		—		—
Balance, December 31, 2011	15,869,417		9.06 - 150.45	48.53		4,622,167		48			21.46		405,475		35.98
Granted	859,390		21.67 - 23.68	21.92		1,737,202		38			21.97		1,717,148		22.65
Exercised/vested	(973,048	)	9.06 - 22.69	9.90		(2,148,764	)	—			14.62		(109,149	)	27.73
Cancelled/expired/forfeited	(2,444,107	)	9.06 - 85.06	45.73		(524,284	)	(8		)	19.91		(82,828	)	22.79
Amortization of restricted stock compensation	—		—	—		—		(30		)	—		—		—
Balance, December 31, 2012	13,311,652		$9.06 - 150.45		$50.15	3,686,321			$48			$25.56	1,930,646			$25.16
Exercisable, December 31, 2012	11,017,763				$55.45

The following table presents information on stock options by range of exercise prices at December 31, 2012:



(Dollars in millions, except per share data)
	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding as of December 31, 2012	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Total Aggregate Intrinsic Value		Number Exercisable as of December 31, 2012	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Total Aggregate Intrinsic Value
$9.06 to 49.46	5,065,080		$20.30	6.39		$49	2,771,191		$16.66	5.05		$39
$49.47 to 64.57	1,893,710	54.67		0.38	—		1,893,710	54.67		0.38	—
$64.58 to 150.45	6,352,862	72.60		2.28	—		6,352,862	72.60		2.28	—
	13,311,652		$50.15	3.57		$49	11,017,763		$55.45	2.65		$39

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of 2012 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised for the year ended December 31, 2012 was $15 million and less than $1 million for the years ended December 31, 2011 and 2010. Total fair value, measured as of the grant date, of restricted shares vested was $31 million, $55 million, and $85 million, for the years ended December 31, 2012, 2011, and 2010, respectively.

As of December 31, 2012 and 2011, there was $67 million and $63 million, respectively, of unrecognized stock-based compensation expense related to nonvested stock options, restricted stock, and RSUs. The unrecognized stock compensation expense as of December 31, 2012 is expected to be recognized over a weighted average period of 2.17 years.

Stock-based compensation expense recognized in noninterest expense for the year ended December 31, was as follows:



(Dollars in millions)	2012		2011		2010
Stock-based compensation expense:
Stock options		$11		$15		$14
Restricted stock	30		32		42
RSUs	27		10		—
Total stock-based compensation expense		$68		$57		$56

The recognized stock-based compensation tax benefit was $26 million, $22 million, and $21 million for the years ended December 31, 2012, 2011, and 2010, respectively.

In addition to the SunTrust stock-based compensation awards, the Company has two subsidiaries which sponsor separate equity plans where subsidiary restricted stock or restricted membership interests are granted to key employees of the subsidiaries. These awards may be subject to one or more vesting criteria, including employment, performance or other conditions as established by the board of directors or executive of the subsidiary at the time of grant. Compensation cost for these restricted awards is equal to the fair market value of the shares on the grant date of the award and is amortized to compensation expense over the vesting period considering an estimation of forfeitures. As the equity of these subsidiaries is not traded in public markets, fair market value of the shares on the grant date is determined based on an external valuation. Depending on the specific terms of the awards, unvested awards may or may not be entitled to receive dividends or distributions during the vesting period. The restricted stock awards and restricted membership interest awards are subject to certain fair value put and call provisions subsequent to vesting. Stock-based compensation expense recognized in noninterest expense for the subsidiary equity plans for the years ended December 31, 2012, 2011, and 2010 totaled $8 million, $8 million and $13 million, respectively. During 2010, the vesting of some of these awards caused the Company to record a noncontrolling interest. During 2011, one of the subsidiaries converted all unvested membership interest awards into LTI cash awards for a fixed dollar amount equal to the fair value of the membership interest at the date of modification. The modified awards will continue to vest based on their original vesting schedule, and compensation expense will be recognized based on the higher of the original grant date value or the modified value.

Retirement Plans

Defined Contribution Plan

SunTrust's employee benefit program includes a qualified defined contribution plan. For 2012, the plan provided a dollar for dollar match on the first 6% of eligible pay that a participant, including executive participants, elected to defer to the 401(k) plan. Compensation expense related to this plan for the year ended December 31, 2012 was $96 million. SunTrust also maintains the SunTrust Banks, Inc. Deferred Compensation Plan in which key executives of the Company are eligible. In accordance with the terms of the plan, the matching contribution to the Deferred Compensation Plan is the same percentage of match as provided in the 401(k) Plan subject to such limitations as may be imposed by the plans' provisions and applicable laws and regulations. Effective January 1, 2012, the Company's 401(k) plan and the Deferred Compensation Plan were amended to permit an additional discretionary Company contribution equal to a fixed percentage of eligible pay, as defined in the respective plan. For the 2012 performance year, the Company will make a discretionary contribution on March 15, 2013, in the amount of 2% of 2012 eligible pay to the 401(k) Plan and the Deferred Compensation Plan, which is an estimated $38 million.

During 2011 and 2010 the Company's 401(k) plan and the Deferred Compensation Plan provided a dollar for dollar match on the first 5% of eligible pay that a participant elected to defer to the 401(k) plan. Compensation expense related to the 401(k) plan for the years ended December 31, 2011 and 2010 totaled $81 million and $74 million, respectively, excluding the special contribution during 2011 described below. Effective January 1, 2011, employees hired on or after January 1, 2011 will vest in all Company 401(k) matching contributions and matching contributions under the Deferred Compensation Plan upon completion of two years of vesting service. During 2011, the Company's 401(k) plan and the Deferred Compensation Plan were amended to provide for a special one-time contribution equal to 5% of eligible 2011 earnings, which was $28 million, for employees who have: (1) at least 20 years of service as of December 31, 2011, or (2) 10 years of service and the sum of age and service equaled or exceeded 60 as of December 31, 2011. This contribution was made subsequent to the retirement pension benefit curtailment described below.

Noncontributory Pension Plans

SunTrust maintains a funded, noncontributory qualified retirement plan (the "Retirement Plan") covering employees meeting certain service requirements. The plan provides benefits based on salary and years of service and, effective January 1, 2008, either a traditional pension benefit formula, a cash balance formula (the Personal Pension Account) or a combination of both. Participants are 100% vested after 3 years of service. The interest crediting rate applied to each Personal Pension Account was 3% for 2012. SunTrust monitors the funded status of the plan closely and due to the current funded status, SunTrust did not make a contribution for the 2012 plan year.

SunTrust also maintains unfunded, noncontributory nonqualified supplemental defined benefit pension plans that cover key executives of the Company (the "SERP", the "ERISA Excess Plan", and the "Restoration Plan"). The plans provide defined benefits based on years of service and salary. SunTrust's obligations for these nonqualified supplemental defined benefit pension plans are included within the qualified Pension Plans in the tables presented in this section under “Pension Benefits”.

On December 31, 2010, the Company adopted the SunTrust Banks, Inc. Restoration Plan (the “Restoration Plan”) effective January 1, 2011. The Restoration Plan is a nonqualified defined benefit cash balance plan designed to restore benefits to certain employees that are limited under provisions of the Internal Revenue Code and are not otherwise provided for under the ERISA Excess Plan. The benefit formula under the Restoration Plan is the same as the Personal Pension Account under the Retirement Plan.

On October 1, 2004, SunTrust acquired NCF. Prior to the acquisition, NCF sponsored a funded qualified retirement plan, an unfunded nonqualified retirement plan for some of its participants, and certain other postretirement health benefits for its employees. Similar to the SunTrust Retirement Plan, due to the current funded status of the NCF qualified Retirement Plan, SunTrust did not make a contribution for the 2012 plan year.

Effective January 1, 2011, a separate retirement plan was created exclusively for inactive and retired employees (“SunTrust Banks, Inc. Retirement Plan for Inactive Participants”). Obligations and related plan assets were transferred from the SunTrust Banks, Inc. Retirement Plan to the new separate retirement plan. As described in the following paragraph, effective January 1, 2012, the plans were combined into one Retirement Plan.

The Retirement Plan, the SERP, the ERISA Excess Plan, and the Restoration Plan were each amended on November 14, 2011 to cease all future benefit accruals. As a result, the traditional pension benefit formulas (final average pay formulas) will not reflect future salary increases and benefit service after December 31, 2011, and compensation credits under the Personal Pension Accounts (cash balance formula) will cease. However, interest credits under the Personal Pension Accounts will continue to accrue until benefits are distributed and service will continue to be recognized for vesting and eligibility requirements for early retirement. Additionally, the NCF Retirement Plan, which had been previously curtailed with respect to future benefit accruals, was amended to cease any adjustments for pay increases after December 31, 2011. As a result of the curtailment, the SunTrust Retirement Plan for Inactive Participants was merged into the Retirement Plan effective January 1, 2012. The Company recorded a curtailment gain of $88 million during 2011, which is reflected in employee benefits expense in the Consolidated Statements of Income, and a reduction to the pension benefit obligation of $96 million, which is reflected in the Consolidated Balance Sheets. The curtailment gain was partially offset by the $28 million special 401(k) contribution discussed above.

Other Postretirement Benefits

Although not under contractual obligation, SunTrust provides certain health care and life insurance benefits to retired employees (“Other Postretirement Benefits” in the tables below). At the option of SunTrust, retirees may continue certain health and life insurance benefits if they meet specific age and service requirements at the time of retirement. The health care plans are contributory with participant contributions adjusted annually, and the life insurance plans are noncontributory. Certain retiree health benefits are funded in a Retiree Health Trust. Additionally, certain retiree life insurance benefits are funded in a VEBA. SunTrust reserves the right to amend or terminate any of the benefits at any time.

Assumptions

Each year, the SunTrust Benefits Finance Committee reviews and approves the assumptions used in the year-end measurement calculations for each plan. The discount rate for each plan, used to determine the present value of future benefit obligations, is determined by matching the expected cash flows of each plan to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. A series of benefit payments projected to be paid by the plan is developed based on the most recent census data, plan provisions, and assumptions. The benefit payments at each future maturity are discounted by the year-appropriate spot interest rates. The model then solves for the discount rate that produces the same present value of the projected benefit payments as generated by discounting each year’s payments by the spot interest rate. Prior to curtailment, a rate of compensation growth was used to determine future obligations for those plans whose benefits vary by pay.

Actuarial gains and losses are created when actual experience deviates from assumptions. The actuarial losses on obligations generated within the Pension Plans during 2012 and 2011 resulted primarily from lower interest rates during these years.

The change in benefit obligations during the year ended December 31, were as follows:



	Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2012			2011			2012			2011
Benefit obligation, beginning of year		$2,661			$2,261			$173			$189
Service cost	—			62			—			—
Interest cost	119			128			7			9
Plan participants’ contributions	—			—			22			22
Actuarial loss/(gain)	242			415			(2		)	(17		)
Benefits paid	(184		)	(109		)	(36		)	(33		)
Less federal Medicare drug subsidy	—			—			3			3
Curtailments	—			(96		)	—			—
Benefit obligation, end of year		$2,838			$2,661			$167			$173

The accumulated benefit obligation for the Pension Benefits at December 31, 2012 and 2011 was $2.8 billion and $2.7 billion, respectively.

Pension benefits with a projected benefit obligation, in excess of plan assets as of December 31, were as follows:



(Dollars in millions)	2012		2011
Projected benefit obligation		$2,701		$2,530
Accumulated benefit obligation	2,701		2,530



	Pension Benefits				Other Postretirement Benefits
(Weighted average assumptions used to determine benefit obligations, end of year)	2012		2011		2012		2011
Discount rate	4.08	%	4.63	%	3.45	%	4.10	%

The changes in plan assets during the year ended December 31,were as follows:



	Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2012			2011			2012			2011
Fair value of plan assets, beginning of year		$2,550			$2,522			$161			$165
Actual return on plan assets	350			129			17			7
Employer contributions	26			8			—			—
Plan participants’ contributions	—			—			22			22
Benefits paid	(184		)	(109		)	(36		)	(33		)
Fair value of plan assets, end of year		$2,742			$2,550			$164			$161

Employer contributions indicated under pension benefits represent the benefits that were paid to nonqualified plan participants. SERPs are not funded through plan assets.

The fair value of plan assets is measured based on the fair value hierarchy which is discussed in Note 18, “Fair Value Election and Measurement.” The valuations are based on third party data received as of the balance sheet date. Level 1 assets such as equity securities, mutual funds, and REITs are instruments that are traded in active markets and are valued based on identical instruments. Fixed income securities and common and collective trust funds are classified as level 2 assets because there is not an identical asset in the market upon which to base the valuation; however, there are no significant unobservable assumptions used to value level 2 instruments. The common and collective funds are valued each business day at its reported net asset value, as determined by the issuer, based on the underlying assets of the fund. Corporate, foreign bonds, and preferred securities are valued based on quoted market prices obtained from external pricing sources where trading in an active market exists for level 2 assets. Level 3 assets primarily consist of private placement and noninvestment grade bonds. Limited visible market activity exists for these instruments or similar instruments, and therefore, significant unobservable assumptions are used to value the securities.

The following tables sets forth by level, within the fair value hierarchy, plan assets at fair value related to Pension Benefits as of December 31, 2012 and 2011:



			Fair Value Measurements as of December 31, 2012 using ¹
(Dollars in millions)	Assets Measured at Fair Value as of December 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds		$48		$48		$—		$—
Mutual funds:
International diversified funds	401		401		—		—
Equity securities:
Consumer	218		218		—		—
Energy and utilities	127		127		—		—
Financials	136		136		—		—
Healthcare	111		111		—		—
Industrials	197		197		—		—
Information technology	199		199		—		—
Materials	45		45		—		—
Telecommunications Services	17		17		—		—
Exchange traded funds	172		172		—		—
Fixed income securities:
U.S. Treasuries	534		534		—		—
Corporate - investment grade	412		—		412		—
Foreign bonds	77		—		77		—
Preferred Securities - Domestic	33		—		33		—
Preferred Securities - Foreign	2		—		2		—
Total plan assets		$2,729		$2,205		$524		$—

¹Schedule does not include accrued income amounting to less than 0.5% of total plan assets.



			Fair Value Measurements as of December 31, 2011 using ¹
(Dollars in millions)	Assets Measured at Fair Value as of December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds		$45		$45		$—		$—
Mutual funds:
International diversified funds	351		351		—		—
Large cap funds	426		426		—		—
Small and mid cap funds	214		214		—		—
Equity securities:
Consumer	107		107		—		—
Energy and utilities	48		48		—		—
Financials	21		21		—		—
Healthcare	58		58		—		—
Industrials	62		62		—		—
Information technology	136		136		—		—
Materials	17		17		—		—
Exchange traded funds	116		116		—		—
Fixed income securities:
U.S. Treasuries	435		435		—		—
Corporate - investment grade	398		—		398		—
Foreign bonds	103		—		103		—
Total plan assets		$2,537		$2,036		$501		$—

¹Schedule does not include accrued income amounting to less than 0.5% of total plan assets.

The following tables set forth by level, within the fair value hierarchy, plan assets at fair value related to Other Postretirement Benefits as of December 31, 2012 and 2011:



(Dollars in millions)			Fair Value Measurements as of December 31, 2012 ¹
(Dollars in millions)	Assets Measured at Fair Value as of December 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual funds:
Equity index fund		$49		$49		$—		$—
Tax exempt municipal bond funds	86		86		—		—
Taxable fixed income index funds	14		14		—		—
Money market funds	15		15		—		—
Total plan assets		$164		$164		$—		$—

¹Schedule does not include accrued income.



			Fair Value Measurements as of December 31, 2011 ¹
(Dollars in millions)	Assets Measured at Fair Value as of December 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual funds:
Large cap fund		$37		$37		$—		$—
Investment grade tax-exempt bond	25		25		—		—
International fund	6		6		—		—
Common and collective funds:
SunTrust Reserve Fund	1		—		1		—
SunTrust Equity Fund	37		—		37		—
SunTrust Georgia Tax-Free Fund	26		—		26		—
SunTrust National Tax-Free Fund	17		—		17		—
SunTrust Aggregate Fixed Income Fund	7		—		7		—
SunTrust Short-Term Bond Fund	5		—		5		—
Total plan assets		$161		$68		$93		$—

¹Schedule does not include accrued income.

The SunTrust Benefits Finance Committee, which includes several members of senior management, establishes investment policies and strategies and formally monitors the performance of the investments on a quarterly basis. The Company’s investment strategy with respect to pension assets is to invest the assets in accordance with ERISA and related fiduciary standards. The long-term primary investment objectives for the Pension Plans are to provide for a reasonable amount of long-term growth of capital (both principal and income) without undue exposure to risk in any single asset class or investment category and to enable the Pension Plan to provide specific benefits to participants thereof. The objectives are accomplished by utilizing equities, fixed income, and cash equivalents in a mix that is conducive to participation in a rising market while allowing for protection in a declining market. The portfolio is viewed as long-term in its entirety, avoiding decisions regarding short-term concerns and any single investment. The objective in the allocation of assets is to diversify investments among asset classes that are not similarly affected by economic, political, or social developments. The diversification does not necessarily depend upon the number of industries or companies in a portfolio or their particular location, but rather upon the broad nature of such investments and of the factors that may influence them. To ensure broad diversification in the long-term investment portfolios among the major categories of investments, asset allocation, as a percent of the total market value of the total long-term portfolio, is set with the target percentages and ranges presented in the investment policy statement. Rebalancing occurs on a periodic basis to maintain the target allocation, but normal market activity may result in deviations. During 2012 and 2011, there was no SunTrust common stock held in the Pension Plans.

The basis for determining the overall expected long-term rate of return on plan assets considers past experience, current market conditions, and expectations on future trends. A building block approach is used that considers long-term inflation, real returns, equity risk premiums, target asset allocations, market corrections (for example, narrowing of fixed income spreads between corporate bonds and U.S. Treasuries), and expenses. Capital market simulations from internal and external sources, survey data, economic forecasts, and actuarial judgment are all used in this process.

The expected long-term rate of return on plan assets for the SunTrust Retirement Plan and the NCF Retirement Plan was 7.00% for 2012 and for 2011 was 7.75% through November 14 and 7.25% for the remainder of the year. The expected long-term rate of return is 7.00% for all qualified plans for 2013. The asset allocation for the Pension Plans and the target allocation by asset category are as follows:



	Target Allocation¹		Percentage of Plan Assets as of December 31²
Asset Category	2013		2012		2011
Equity securities	50-75	%	59	%	61	%
Debt securities	25-50		39		37
Cash equivalents	0-5		2		2
Total			100	%	100	%

¹SunTrust Pension Plan only.

²SunTrust and NCF Pension Plans.

The investment strategy for the Other Postretirement Benefit Plans is maintained separately from the strategy for the Pension Plans. The Company’s investment strategy is to create a series of investment returns sufficient to provide for current and future liabilities at a reasonable level of risk and cash flow requirements. During 2012, the assets were diversified among index equity funds and fixed income investments according to the asset mix approved by the SunTrust Benefits Finance Committee, which is presented in the target allocation table below. With the Other Post Retirement Benefits having a shorter time horizon, a lower equity profile is appropriate. The pre-tax expected long-term rate of return on retiree life plan assets was 6.25% for 2012 and 6.75% for 2011. The after-tax expected long-term rate of return on retiree health plan assets was 4.06% for 2012 and 4.39% for 2011. The 2013 after-tax expected long-term rate of return on retiree health plan assets is 3.25%. The 2013 pre-tax expected long-term rate of return on retiree life plan assets is 5.00%. During 2012 and 2011, there was no SunTrust common stock held in the Other Postretirement Benefit Plans.

The asset allocation for Other Postretirement Benefit Plans and the target allocation, by asset category, are as follows:



	Target Allocation		Percentage of Plan Assets as of December 31
Asset Category	2013		2012		2011
Equity securities	20-40	%	30	%	50	%
Debt securities	50-70		61		50
Cash equivalents	5-15		9		—
Total			100	%	100	%

Funded Status

The funded status of the plans, as of December 31, was as follows:



	Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2012			2011			2012			2011
Fair value of plan assets		$2,742			$2,550			$164			$161
Benefit obligations ¹	(2,838		)	(2,661		)	(167		)	(173		)
Funded status		($96	)		($111	)		($3	)		($12	)

¹Includes $91 million and $107 million of benefit obligations for the unfunded nonqualified supplemental pension plans as of December 31, 2012 and 2011, respectively.

As of December 31, the AOCI balance includes only net actuarial losses and is as follows:



	Pension Benefits				Other Postretirement Benefits
(Dollars in millions)	2012		2011		2012		2011
Total AOCI, pre-tax		$1,145		$1,108		$5		$17

The key sources of the cumulative net losses to be recognized in future years for all pension and postretirement benefits are attributable to lower discount rates for the past several years and lower return on assets, predominantly during 2008. As discussed previously, SunTrust reviews its assumptions annually to ensure they represent the best estimates for the future and will, therefore, minimize future gains and losses.

Expected Cash Flows

Information about the expected cash flows for the Pension Benefit and Other Postretirement Benefit plans is as follows:



(Dollars in millions)	Pension Benefits^1,2		Other Postretirement Benefits (excluding Medicare Subsidy) ³		Value to Company of Expected Medicare Subsidy
Employer Contributions
2013 (expected) to plan trusts		$—		$—		$—
2013 (expected) to plan participants	8		1		(3		)
Expected Benefit Payments
2013	164		15		(3		)
2014	162		15		(1		)
2015	159		14		(1		)
2016	157		14		(1		)
2017	158		13		(1		)
2018-2022	793		54		(6		)

¹At this time, SunTrust anticipates contributions to the Retirement Plan will be permitted (but not required) during 2013 based on the funded status and contribution limitations under the ERISA.

²The expected benefit payments for the SERP will be paid directly from SunTrust corporate assets.

³The 2013 expected contribution for the Other Postretirement Benefits Plans represents the Medicare Part D subsidy only. Note that expected benefits under Other Postretirement Benefits Plans are shown net of participant contributions.

Net Periodic Cost

Components of net periodic benefit cost for the year ended December 31, were as follows:



	Pension Benefits										Other Postretirement Benefits
(Dollars in millions)	2012			2011				2010			2012				2011				2010
Service cost		$—			$62				$69			$—				$—				$—
Interest cost	119			128				129			7				9				10
Expected return on plan assets	(173		)	(188		)		(183		)	(7		)		(7		)		(7		)
Amortization of prior service credit	—			(16		)		(11		)	—				—				(1		)
Recognized net actuarial loss	25			39				62			—				1				1
Curtailment gain	—			(88		)		—			—				—				—
Settlement loss	2			—				—			—				—				—
Net periodic (benefit)/cost		($27	)		($63	)			$66			$—				$3				$3
Weighted average assumptions used to determine net cost:
Discount rate	4.63		%	5.59		%	¹	6.32		%	4.10		%		5.10		%		5.70		%
Expected return on plan assets	7.00			7.72			²	8.00			4.06			³	4.39			³	4.39			³
Rate of compensation increase	N/A			4.00				4.00			N/A				N/A				N/A

¹Interim remeasurement was required on November 14, 2011 due to plan amendments adopted at that time. The discount rate as of the remeasurement date was selected based on economic conditions on that date.

²As part of the interim remeasurement on November 14, 2011, the expected return on plan assets was reduced from 7.75% to 7.25% for the SunTrust Pension Plan and the NCF Retirement Plan.

³The weighted average shown for the Other Postretirement Benefit plan is determined on an after-tax basis.

Other changes in plan assets and benefit obligations recognized in OCI during 2012 were as follows:



(Dollars in millions)	Pension Benefits			Other Postretirement Benefits
Current year actuarial loss/(gain)		$64			($12	)
Recognition of actuarial loss	(25		)	—
Settlements	(2		)	—
Total recognized in OCI, pre-tax		$37			($12	)
Total recognized in net periodic benefit cost and OCI, pre-tax		$11			($12	)

The estimated actuarial loss that will be amortized from AOCI into net periodic benefit cost in 2013 is $26 million.

Additionally, SunTrust sets pension asset values equal to their market value, in contrast to the use of a smoothed asset value that incorporates gains and losses over a period of years. Utilization of market value of assets provides a more realistic economic measure of the plan’s funded status and cost. Assumed discount rates and expected returns on plan assets affect the amounts of net periodic benefit cost. A 25 basis point decrease in the discount rate or expected long-term return on plan assets would increase all Pension and Other Postretirement Plans’ net periodic benefit cost approximately less than $1 million and $7 million , respectively.

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the Other Postretirement Benefit plans. As of December 31, 2012, SunTrust assumed that pre-65 retiree health care costs will increase at an initial rate of 8.00% per year. SunTrust assumed a healthcare cost trend that recognizes expected inflation, technology advancements, rising cost of prescription drugs, regulatory requirements and Medicare cost shifting. SunTrust expects this annual cost increase to decrease over a 6-year period to 5.00% per year. As of December 31, 2012, SunTrust assumed that post-65 retiree health costs will increase at an initial rate of 7.50% per year. SunTrust expects this annual cost increase to decrease over a 5-year period to 5.00% per year.

Due to changing medical inflation, it is important to understand the effect of a one percentage point change in assumed healthcare cost trend rates. These amounts are shown below:



(Dollars in millions)	1% Increase		1% Decrease
Effect on Other Postretirement Benefit obligation		$11		($9	)
Effect on total service and interest cost¹	—		—

¹ Impact is less than $1 million.