NOTE 15 - EMPLOYEE BENEFIT PLANS

The Company sponsors various short-term incentive plans and LTIs for eligible employees, which may be delivered through various incentive programs, including stock options, RSUs, restricted stock, and LTI 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. 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. All incentive awards are subject to clawback provisions. Compensation expense for the AIP and LTI cash plans was $150 million, $155 million, and $116 million for the years ended December 31, 2013, 2012, and 2011, 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 during 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 financial performance target. 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. At December 31, 2013, 17,274,016 shares were available for grant, including 8,971,619 shares available to be issued as restricted 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, RSU awards are classified as equity. During 2012, however, there were 574,257 RSUs granted that were classified as a liability because the grant date had not been achieved as defined under U.S. GAAP. They were granted with a fair value of $21.67 per unit on the grant date. The balance of these RSUs classified as a liability at December 31, 2013 and 2012 was $17 million and $12 million, respectively.

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. Stock options are granted at an exercise price that 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. Upon exercise, shares are generally issued from treasury stock. The weighted average fair value of options granted during 2013, 2012, and 2011 were $7.37, $7.83, and $10.51 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
	2013		2012		2011
Dividend yield	1.28	%	0.91	%	0.75	%
Expected stock price volatility	30.98		39.88		34.87
Risk-free interest rate (weighted average)	1.02		1.07		2.48
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, 2011	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
Granted	552,998		27.41	27.41		1,314,277		39			29.58		593,093		24.65
Exercised/vested	(712,981	)	9.06 - 27.79	16.94		(821,636	)	—			25.95		(41,790	)	28.73
Cancelled/expired/forfeited	(2,222,298	)	21.67 - 118.18	56.55		(195,424	)	(5		)	27.41		14,229		20.54
Amortization of restricted stock compensation	—		—	—		—		(32		)	—		—		—
Balance, December 31, 2013	10,929,371		$9.06 - 150.45		$49.86	3,983,538			$50			$27.04	2,496,178			$26.69
Exercisable, December 31, 2013	9,351,182				$53.89

The following table presents information on stock options by range of exercise prices at December 31, 2013:



(Dollars in millions, except per share data)
	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2013	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Total Aggregate Intrinsic Value		Number Exercisable at December 31, 2013	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Total Aggregate Intrinsic Value
$9.06 to 49.46	4,548,172		$19.57	6.22		$78	2,969,983		$16.14	5.22		$61
$49.47 to 64.57	424,131	56.16		0.07	—		424,131	56.16		0.07	—
$64.58 to 150.45	5,957,068	72.54		1.37	—		5,957,068	72.54		1.37	—
	10,929,371		$49.86	3.34		$78	9,351,182		$53.89	2.54		$61

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 2013 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, 2013. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised for the years ended December 31, 2013 and 2012 was $11 million and $15 million, respectively, and less than $1 million for the year ended 2011. Total fair value, measured as of the grant date, of vested restricted shares was $21 million, $31 million, and $55 million, for the years ended December 31, 2013, 2012, and 2011, respectively. Total fair value, measured as of the grant date, of vested RSUs was $1 million and $3 million for the years ended December 31, 2013 and 2012, respectively, and none for the year ended December 31, 2011.

At December 31, 2013 and 2012, there was $66 million and $67 million, respectively, of unrecognized stock-based compensation expense related to unvested stock options, restricted stock, and RSUs. The unrecognized stock compensation expense at December 31, 2013 is expected to be recognized over a weighted average period of 1.85 years.

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



(Dollars in millions)	2013		2012		2011
Stock-based compensation expense:
Stock options		$6		$11		$15
Restricted stock	32		30		32
RSUs	18		27		10
Total stock-based compensation expense		$56		$68		$57

The recognized stock-based compensation tax benefit was $21 million, $26 million, and $22 million for the years ended December 31, 2013, 2012, and 2011, 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 totaled $6 million for the year ended December 31, 2013 and totaled $8 million for both years ended December 31, 2012 and 2011. 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 2013 and 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 each year ended December 31, 2013 and 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 made 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 was $38 million. For the 2013 performance year, the Company anticipates making a discretionary contribution on March 15, 2014, in the amount of 1% of 2013 eligible pay to the 401(k) Plan and the Deferred Compensation Plan of $19 million.

During 2011 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 year ended December 31, 2011 totaled $81 million, 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 at December 31, 2011, or (2) 10 years of service and the sum of age and service equaled or exceeded 60 at December 31, 2011. This contribution was made subsequent to the retirement pension benefit curtailment described below.

Noncontributory Pension Plans

The Company 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 2013. The Company monitors the funded status of the plan closely and due to the current funded status, the Company did not contribute to either of its noncontributory qualified retirement plans ("Retirement Benefit Plans") for the 2013 plan year.

The Company 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. The Company'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.”

The SunTrust Banks, Inc. Restoration Plan (the “Restoration Plan”), effective January 1, 2011, 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, the Company 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 Company's Retirement Plan, due to the current funded status of the NCF qualified Retirement Plan, the Company did not make a contribution for the 2013 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) do not reflect future salary increases and benefit service after December 31, 2011, and compensation credits under the Personal Pension Accounts (cash balance formula) ceased. However, interest credits under the Personal Pension Accounts continue to accrue until benefits are distributed and service continues 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 Banks, Inc. 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.

The Company contributed less than $1 million to the Postretirement Welfare Plan during the year ended December 31, 2013. Additionally, the Company expects to receive a Medicare Part D Subsidy reimbursement for 2014 of less than $1 million. The expected pre-tax long-term rate of return on plan assets for the Postretirement Welfare Plan is 5.25% for 2014.

Other Postretirement Benefits

Although not under contractual obligation, the Company provides certain health care and life insurance benefits to retired employees (“Other Postretirement Benefits” in the tables below). At the option of the Company, 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. The Company reserves the right to amend or terminate any of the benefits at any time. During the fourth quarter of 2013, the Company communicated a change in its retiree medical plan effective April 1, 2014. Retirees age 65 and older will enroll in individual Medicare supplemental plans and will no longer participate in a Company-sponsored group health plan. In addition, the Company will fund a tax-advantaged Health Reimbursement Arrangement (HRA) to assist some retirees with medical expenses. The plan amendment was measured as of December 31, 2013 and resulted in a decrease of $76 million in liability and AOCI for the postretirement benefits plan.

Assumptions

Each year, the SunTrust Benefits Finance Committee, which includes several members of senior management, 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 gains on obligations generated within the Pension Plans during 2013 resulted primarily from higher interest rates and better than expected asset returns. The actuarial losses during 2012 resulted primarily from lower interest rates.

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



	Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2013			2012			2013			2012
Benefit obligation, beginning of year		$2,838			$2,661			$167			$173
Interest cost	113			119			6			7
Plan participants’ contributions	—			—			21			22
Actuarial loss/(gain)	(195		)	242			1			(2		)
Benefits paid	(181		)	(184		)	(41		)	(36		)
Less federal Medicare drug subsidy	—			—			3			3
Plan amendments	—			—			(76		)	—
Benefit obligation, end of year		$2,575			$2,838			$81			$167

The accumulated benefit obligation for the Pension Benefits at December 31, 2013 and 2012 was $2.6 billion and $2.8 billion, respectively.

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



(Dollars in millions)	2013		2012
Projected benefit obligation		$80		$2,701
Accumulated benefit obligation	79		2,701



	Pension Benefits				Other Postretirement Benefits
(Weighted average assumptions used to determine benefit obligations, end of year)	2013		2012		2013		2012
Discount rate	4.98	%	4.08	%	4.15	%	3.45	%

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



	Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2013			2012			2013			2012
Fair value of plan assets, beginning of year		$2,742			$2,550			$164			$161
Actual return on plan assets	304			350			14			17
Employer contributions	8			26			—			—
Plan participants’ contributions	—			—			21			22
Benefits paid	(181		)	(184		)	(41		)	(36		)
Fair value of plan assets, end of year		$2,873			$2,742			$158			$164

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 money market funds, equity securities, and mutual funds are instruments that are traded in active markets and are valued based on identical instruments. Fixed income securities are primarily 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. 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 are assets where 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 set forth by level, within the fair value hierarchy, plan assets at fair value related to Pension Benefits at December 31, 2013 and 2012:



			Fair Value Measurements at December 31, 2013 using ¹
(Dollars in millions)	Assets Measured at Fair Value at December 31, 2013		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds		$83		$83		$—		$—
Equity securities:
Consumer	297		297		—		—
Energy and utilities	163		163		—		—
Financials	268		268		—		—
Healthcare	166		166		—		—
Industrials	157		157		—		—
Information technology	244		244		—		—
Materials	51		51		—		—
Telecommunications services	28		28		—		—
Futures contracts	8		—		8		—
Fixed income securities:
U.S. Treasuries	157		157		—		—
Corporate - investment grade	932		—		932		—
Foreign bonds	183		—		183		—
Government agencies	2		—		2		—
Foreign governments	4		—		4		—
Municipal taxable	53		—		53		—
Corporate obligations CMO and REMIC	56		—		56		—
Other assets
Other assets	2		2		—		—
Total plan assets		$2,854		$1,616		$1,238		$—

¹Schedule does not include accrued income amounting to less than 0.7% of total plan assets.



			Fair Value Measurements at December 31, 2012 using ¹
(Dollars in millions)	Assets Measured at Fair Value at 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.

The following tables set forth by level, within the fair value hierarchy, plan assets at fair value related to Other Postretirement Benefits at December 31, 2013 and 2012:



(Dollars in millions)			Fair Value Measurements at December 31, 2013 ¹
(Dollars in millions)	Assets Measured at Fair Value at December 31, 2013		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		$52		$52		$—		$—
Tax exempt municipal bond funds	85		85		—		—
Taxable fixed income index funds	14		14		—		—
Money market funds	7		7		—		—
Total plan assets		$158		$158		$—		$—

¹Schedule does not include accrued income.



(Dollars in millions)			Fair Value Measurements at December 31, 2012 ¹
(Dollars in millions)	Assets Measured at Fair Value at 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.

The SunTrust Benefits Finance Committee establishes investment policies and strategies and formally monitors the performance of the investments throughout the year. 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 benefits to participants thereof. The objectives are accomplished through investments in 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. Asset allocation, as a percent of the total market value of the total 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 2013 and 2012, 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 2013 and 2012. The expected long-term rate of return is 7.00% for the SunTrust Retirement Plan and 6.5% for the NCF Retirement Plan for 2014. The asset allocation for the Pension Plans combined and the target allocation for each, by asset category, are as follows:



	Target Allocation		Percentage of Plan Assets at December 31
Asset Category	2014		2013		2012
Equity securities	0-60	%	48	%	59	%
Debt securities	40-100		49		39
Cash equivalents	0-10		3		2
Total			100	%	100	%

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 a reasonable amount of long term growth of capital (both principal and income) to enable the Plans to provide benefits to participants thereof. During 2012, the assets were diversified among 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 5% for 2013 and 6.25% for 2012. The 2014 pre-tax expected long-term rate of return on retiree life plan assets is 5.25%. The after-tax expected long-term rate of return on retiree health plan assets was 3.25% for 2013 and 4.06% for 2012. The 2014 after-tax expected long-term rate of return on retiree health plan assets is 3.41%. During 2013 and 2012, 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 at December 31
Asset Category	2014		2013		2012
Equity securities	20-40	%	33	%	30	%
Debt securities	50-70		62		61
Cash equivalents	5-15		5		9
Total			100	%	100	%

Funded Status

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



	Pension Benefits						Other Postretirement Benefits ²
(Dollars in millions)	2013			2012			2013			2012
Fair value of plan assets		$2,873			$2,742			$158			$164
Benefit obligations ¹	(2,575		)	(2,838		)	(81		)	(167		)
Funded status		$298			($96	)		$77			($3	)

¹Includes $80 million and $91 million of benefit obligations for the unfunded nonqualified supplemental pension plans at December 31, 2013 and 2012, respectively.

²Plan remeasured at December 31, 2013 due to plan amendment.

At December 31, the AOCI balance includes net actuarial losses and prior service costs and credits. The amounts recognized in AOCI were as follows:



	Pension Benefits				Other Postretirement Benefits
(Dollars in millions)	2013		2012		2013			2012
Net actuarial loss/(gain)		$807		$1,145		($1	)		$5
Prior service credit	—		—		(76		)	—
Total AOCI, pre-tax		$807		$1,145		($77	)		$5

The key sources of the cumulative net losses to be recognized in future years for all pension benefits are attributable to lower discount rates for the past several years and lower return on assets, predominantly during 2008. As discussed previously, the Company 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
2014 (expected) to plan trusts		$—		$—		$—
2014 (expected) to plan participants	7		—		(1		)
Expected Benefit Payments
2014	171		12		(1		)
2015	153		9		—
2016	153		8		—
2017	155		8		—
2018	155		7		—
2019-2023	817		25		—

¹At this time, the Company anticipates contributions to the Retirement Plan will be permitted (but not required) during 2014 based on the funded status and contribution limitations under the ERISA.

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

³Expected benefit payments under Other Postretirement Benefits Plans are shown net of participant contributions.

Net Periodic (Benefit)/Cost

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



	Pension Benefits											Other Postretirement Benefits
(Dollars in millions)	2013			2012				2011				2013				2012				2011
Service cost	$	—		$	—			$	62			$	—			$	—			$	—
Interest cost	113			119				128				6				7				9
Expected return on plan assets	(187		)	(173		)		(188		)		(6		)		(7		)		(7		)
Amortization of prior service credit	—			—				(16		)		—				—				—
Recognized net actuarial loss	26			25				39				—				—				1
Curtailment gain	—			—				(88		)		—				—				—
Settlement loss	—			2				—				—				—				—
Net periodic (benefit)/cost		($48	)		($27	)			($63	)			$—				$—				$3
Weighted average assumptions used to determine net (benefit)/cost:
Discount rate	4.08		%	4.63		%	¹	5.59		%	²	3.45		%		4.10		%		5.10		%
Expected return on plan assets	7.00			7.00				7.72			³	3.25			⁴	4.06			⁴	4.39			⁴
Rate of compensation increase ⁵	N/A			N/A				4.00				N/A				N/A				N/A

¹ Interim remeasurement was required on September 15, 2012, for the SunTrust SERP to reflect settlement accounting.

² Interim 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.

³As 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.

⁴The weighted average shown for the Other Postretirement Benefit plan is determined on an after-tax basis.

⁵ "N/A" - Not applicable

Other changes in plan assets and benefit obligations recognized in OCI during 2013 were as follows:



(Dollars in millions)	Pension Benefits			Other Postretirement Benefits
Current year actuarial gain		($312	)		($6	)
Recognition of actuarial loss	(26		)	—
Amortization of prior service credit	—			(76		)
Total recognized in OCI, pre-tax		($338	)		($82	)
Total recognized in net periodic (benefit)/cost and OCI, pre-tax		($386	)		($82	)

For the Pension Plans, the estimated actuarial loss that will be amortized from AOCI into net periodic (benefit)/cost in 2014 is $16 million. For the Other Postretirement Plans, the estimated prior service credit to be amortized from AOCI into net periodic (benefit)/cost in 2014 is $6 million.

Additionally, the Company 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 increase/decrease in the expected long-term return on plan assets would decrease/increase the net periodic (benefit)/cost by $7 million for all Pension and Other Postretirement Plans. A 25 basis point increase/decrease in the discount rate would change the net periodic (benefit)/cost by less than $1 million for all Pension and Other Postretirement Plans.

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the Other Postretirement Benefit plans. At December 31, 2013, the Company assumed that pre-65 retiree health care costs will increase at an initial rate of 7.75% per year. The Company assumed a healthcare cost trend that recognizes expected inflation, technology advancements, rising cost of prescription drugs, regulatory requirements, and Medicare cost shifting. The Company expects this annual cost increase to decrease over a 7-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. The effects of a 1% increase or 1% decrease on Other Postretirement Benefit obligation and total service and interest cost are less than $1 million, respectively.