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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2017
Defined Contribution Plan Disclosure [Line Items]  
Employee Benefit Plans
NOTE 15 - EMPLOYEE BENEFIT PLANS
The Company sponsors various compensation and benefit programs to attract and retain talent. Aligned with a pay for performance culture, the Company's plans and programs include short-term incentives, AIP, and various LTI plans. All incentive awards are subject to clawback provisions. Compensation expense for AIP and LTI plans with cash payouts was $319 million, $291 million, and $245 million for the years ended December 31, 2017, 2016, and 2015, respectively. Compensation expense for short-term incentive plans with cash payouts was $476 million, $469 million, and $448 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Stock-Based Compensation
The Company provides stock-based awards through the 2009 Stock Plan and various other deferred compensation plans under which the Compensation Committee of the Board of Directors has the authority to grant stock options, stock appreciation rights, restricted stock, phantom stock units, and RSUs to key employees of the Company. Award vesting may be conditional based upon individual, business unit, Company, and/or performance relative to peer group metrics.
Effective January 1, 2014, following approval by the Compensation Committee of the Board, shareholders approved an amendment to the 2009 Stock Plan to remove the sub-limit on shares available for grant that may be issued as restricted stock or RSUs. Accordingly, all 17 million remaining authorized shares previously under the Stock Plan became available for grant as stock options, stock appreciation rights, restricted stock, or RSUs. Prior to the amendment, only a portion of such shares were available to be granted as either restricted stock or RSUs. At December 31, 2017, approximately 16 million shares were available for grant. All stock option grants are exercisable for 10 years after the grant date.
Shares or units of restricted stock may be granted to employees and directors. Generally, grants to employees either cliff vest after three years or vest pro-rata annually over three years. Restricted stock and RSU 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 until they are forfeited. Compensation cost for restricted stock and RSUs is generally equal to the fair market value of the shares on the grant date of the award and is amortized over the vesting period. Dividends are paid on awarded, unvested restricted stock. The Company accrues and reinvests dividends in equivalent shares of SunTrust common stock for unvested RSU awards, which are paid out when the underlying RSU award vests. RSU awards are generally classified as equity.
Consistent with the Company's 2014 decision to discontinue the issuance of stock options, no stock options were granted during the years ended December 31, 2017, 2016, and 2015.


The following table presents a summary of stock options, restricted stock, and RSU activity for the year ended December 31, 2017:
 
Stock Options
 
Restricted Stock
 
RSUs
(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, 2017
3,253,793

 
$9.06 - 85.34

 

$42.54

 
11,312

 

$—

 

$42.44

 
4,175,809

 

$36.27

Granted
—

 
—

 
—

 
8,744

 
1

 
57.19

 
1,901,144

 
59.95

Exercised/distributed
(830,383
)
 
9.06 - 64.58

 
25.38

 
(11,312
)
 
—

 
42.44

 
(1,703,795
)
 
36.62

Cancelled/expired/forfeited
(764,105
)
 
56.34 - 85.34

 
81.77

 
—

 
—

 
—

 
(219,439
)
 
44.32

Balance, December 31, 2017
1,659,305

 
$9.06 - 64.58

 

$35.33

 
8,744

 

$1

 

$57.19

 
4,153,719

 

$44.68

Exercisable, December 31, 2017
1,659,305

 
 
 

$35.33

 
 
 
 
 
 
 
 
 
 



The following table presents stock option information at December 31, 2017:
 
Options Outstanding
 
Options Exercisable
(Dollars in millions, except per share data)
Number
Outstanding
at
December 31, 2017
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Total
Aggregate
Intrinsic
Value
 
Number
Exercisable
at
December 31, 2017
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Total
Aggregate
Intrinsic
Value
Range of Exercise Prices:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$9.06 to 49.46
1,170,605

 

$23.12

 
3.42
 

$48,545

 
1,170,605

 

$23.12

 
3.42
 

$48,545

$64.58
488,700

 
64.58

 
0.12
 
5

 
488,700

 
64.58

 
0.12
 
5

$9.06 to 64.58
1,659,305

 

$35.33

 
2.45
 

$48,550

 
1,659,305

 

$35.33

 
2.45
 

$48,550



The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of 2017 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, 2017. Additional option and stock-based compensation information at December 31 is presented in the following table:
(Dollars in millions)
2017
 
2016
 
2015
Intrinsic value of options exercised 1

$28

 

$43

 

$15

Fair value of vested restricted shares 1
—

 
41

 
35

Fair value of vested RSUs 1
62

 
74

 
23

1 Measured as of the grant date.
At December 31, 2017 and 2016, there was $75 million and $65 million, respectively, of unrecognized stock-based compensation expense related to stock options, restricted stock, and RSUs. The unrecognized stock compensation expense for December 31, 2017 is expected to be recognized over a weighted average period of 2.0 years.
Additionally, the Company allows for the granting of phantom stock units, whereby certain employees are granted the contractual right to receive an amount in cash equal to the fair market value of a share of common stock on the vesting date. These shares vest pro-rata annually over three years on the anniversary of the grant date and are subject to variable accounting. The employees are entitled to dividend-equivalent rights on the granted shares. The Company granted less than 1 million, 2 million, and 1 million phantom stock units during the years ended December 31, 2017, 2016, and 2015, respectively. The unrecognized compensation expense related to these phantom stock units as of December 31, 2017 was $56 million based on the Company's stock price as of that date.
Stock-based compensation expense recognized in Employee compensation in the Consolidated Statements of Income consisted of the following:
 
Years Ended December 31
(Dollars in millions)
2017
 
2016
 
2015
RSUs

$83

 

$56

 

$46

Phantom stock units 1
77

 
67

 
32

Restricted stock
—

 
2

 
16

Stock options
—

 
—

 
1

Total stock-based compensation expense

$160

 

$125

 

$95

 
 
 
 
 
 
Stock-based compensation tax
benefit 2

$61

 

$48

 

$36

1 Phantom stock units are settled in cash. The Company paid $80 million, $28 million, and $16 million during the years ended December 31, 2017, 2016, and 2015, respectively, related to these share-based liabilities.
2 Does not include excess tax benefits or deficiencies recognized in the Provision for income taxes in the Consolidated Statements of Income.

Retirement Plans
Noncontributory Pension Plans
The Company maintains various frozen, funded, noncontributory qualified retirement plans ("Retirement Plans") covering employees meeting certain service requirements. The Retirement Plans provide benefits based on salary and years of service. The SunTrust Retirement Plan includes a cash balance formula where the PPAs continue to be credited with interest each year. The interest crediting rate applied to each PPA was 3.11% for 2017. The Company monitors the funded status of the Retirement Plans closely and, due to the current funded status, the Company did not make a contribution to them for the 2017 plan year.
The Company also maintains various frozen, 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"). These plans provide defined benefits based on years of service and salary.

Other Postretirement Benefits
The Company provides certain health care and life insurance benefits (“Other Postretirement Benefits”) to retired employees. 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. Effective April 1, 2014, the Company amended the plan, which now requires retirees age 65 and older to enroll in individual Medicare supplemental plans. In addition, the Company will fund a tax-advantaged HRA to assist some retirees with medical expenses.

Changes in Benefit Obligations and Plan Assets
The following table presents the change in benefit obligations, change in fair value of plan assets, funded status, accumulated benefit obligation, and the weighted average discount rate related to the Company's pension and other postretirement benefits plans for the years ended December 31:
 
Pension Benefits 1
 
Other Postretirement Benefits
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Benefit obligation, beginning of year

$2,747

 

$2,716

 

$58

 

$65

Service cost
5

 
5

 
—

 
—

Interest cost
95

 
97

 
1

 
2

Plan participants’ contributions
—

 
—

 
4

 
4

Actuarial loss/(gain)
225

 
76

 
(1
)
 
(4
)
Benefits paid
(156
)
 
(142
)
 
(8
)
 
(9
)
Administrative expenses paid from pension trust
(6
)
 
(5
)
 
—

 
—

Plan amendments
—

 
—

 
(5
)
 
—

Special termination benefits
—

 
—

 
9

 
—

Benefit obligation, end of year 2

$2,910

 

$2,747

 

$58

 

$58

 
 
 
 
 
 
 
 
Change in plan assets:
 
 
 
 
 
 
 
Fair value of plan assets, beginning of year

$3,016

 

$2,879

 

$157

 

$156

Actual return on plan assets
425

 
279

 
11

 
5

Employer contributions 3
9

 
5

 
—

 
—

Plan participants’ contributions
—

 
—

 
4

 
5

Benefits paid
(156
)
 
(142
)
 
(8
)
 
(9
)
Administrative expenses paid from pension trust
(6
)
 
(5
)
 
—

 
—

Fair value of plan assets, end of year 4

$3,288

 

$3,016

 

$164

 

$157

 
 
 
 
 
 
 
 
Funded status at end of year 5, 6

$378

 

$269

 

$106

 

$99

Funded status at end of year (%)
113
%
 
110
%
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated benefit obligation

$2,910

 

$2,747

 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.62
%
 
4.18
%
 
3.29
%
 
3.70
%
1 Employer contributions represent the benefits that were paid to nonqualified plan participants. Unfunded nonqualified supplemental pension plans are not funded through plan assets.
2 Includes $78 million and $80 million of benefit obligations for the unfunded nonqualified supplemental pension plans at December 31, 2017 and 2016, respectively.
3 The Company contributed less than $1 million to the other postretirement benefits plans during both 2017 and 2016.
4 Includes $1 million and $2 million of the Company's common stock acquired by the asset manager and held as part of the equity portfolio for pension benefits at December 31, 2017 and 2016, respectively. During both 2017 and 2016, there was no SunTrust common stock held in the other postretirement benefit plans.
5 Pension benefits recorded in the Consolidated Balance Sheets included other assets of $456 million and $349 million, and other liabilities of $78 million and $80 million, at December 31, 2017 and 2016, respectively.
6 Other postretirement benefits recorded in the Consolidated Balance Sheets included other assets of $106 million and $99 million at December 31, 2017 and 2016, respectively.

Net Periodic Benefit
Components of net periodic benefit related to the Company's pension and other postretirement benefits plans for the years ended December 31 are presented in the following table and are recognized in Employee benefits in the Consolidated Statements of Income:
 
Pension Benefits 1
 
Other Postretirement Benefits
(Dollars in millions)
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Service cost

$5

 

$5

 

$5

 

$—

 

$—

 

$—

Interest cost
95

 
97

 
116

 
1

 
2

 
2

Expected return on plan assets
(195
)
 
(186
)
 
(206
)
 
(5
)
 
(5
)
 
(5
)
Amortization of prior service credit
—

 
—

 
—

 
(6
)
 
(6
)
 
(6
)
Amortization of actuarial loss
25

 
25

 
21

 
—

 
—

 
—

Other
—

 
—

 
—

 
9

 
—

 
—

Net periodic benefit

($70
)
 

($59
)
 

($64
)
 

($1
)
 

($9
)
 

($9
)
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average assumptions used to determine net periodic benefit:
 
 
 
 
 
 
 
 
 
 
Discount rate
4.18
%
 
4.44
%
 
4.09
%
 
3.70
%
 
3.95
%
 
3.60
%
Expected return on plan assets
6.66

 
6.68

 
6.91

 
3.12

 
3.13

 
3.50

1 Administrative fees are recognized in service cost for each of the periods presented.

In the second quarter of 2017, the Company amended its NCF Retirement Plan in accordance with its decision to terminate the pension plan effective as of July 31, 2017. The NCF pension plan termination is expected to be completed by the end of 2018 and the Company is in process of evaluating the impact of the termination and expected future settlement accounting on its Consolidated Financial Statements and related disclosures.

Amounts Recognized in AOCI
Components of the benefit obligations AOCI balance at December 31 were as follows:
 
Pension Benefits
 
Other 
Postretirement
Benefits    
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Prior service credit

$—

 

$—

 

($58
)
 

($59
)
Net actuarial loss/(gain)
1,001

 
1,031

 
(22
)
 
(15
)
Total AOCI, pre-tax

$1,001

 

$1,031

 

($80
)
 

($74
)

Other changes in plan assets and benefit obligations recognized in AOCI during 2017 were as follows:
(Dollars in millions)
Pension Benefits
 
Other Postretirement Benefits
Current year prior service credit

$—

 

($5
)
Current year actuarial gain
(5
)
 
(7
)
Amortization of prior service credit
—

 
6

Amortization of actuarial loss
(25
)
 
—

Total recognized in AOCI, pre-tax

($30
)
 

($6
)
Total recognized in net periodic benefit and AOCI, pre-tax

($100
)
 

($7
)

For pension plans, the estimated actuarial loss that will be amortized from AOCI into net periodic benefit in 2018 is $23 million. For other postretirement benefit plans, the estimated prior service credit and actuarial gain to be amortized from AOCI into net periodic benefit in 2018 is $7 million. The amortization for net gains and losses reflects a corridor based on 10% of the greater of the projected benefit obligation or the market-related value of assets. The amount of net gains and losses that exceeds the corridor is amortized over a fixed period based on the average remaining lifetime.

Plan Assumptions
Each year, the SBFC, 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 date 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.
The Company utilizes a full yield curve approach to estimate the service and interest cost components of net periodic benefit expense for pension and other postretirement benefit plans by applying specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.
Actuarial gains and losses are created when actual experience deviates from assumptions. The actuarial gains during 2017 and 2016 for the pension plans resulted primarily from asset experience, partially offset by losses due to the decrease in discount rates.
The SBFC 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 a commensurate amount of long-term growth of principal and income in order to satisfy the pension plan obligations without undue exposure to risk in any single asset class or investment category. The objectives are accomplished through investments in equities, fixed income, and cash equivalents using 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.
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, and expenses. Capital market simulations, survey data, economic forecasts, and actuarial judgment are all used in this process. The expected long-term rate of return for pension obligations is 5.90% for 2018.
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 a commensurate amount of long-term principal and income growth in order to satisfy the other postretirement benefit plan's obligations. Assets are diversified among equity funds and fixed income investments according to the mix approved by the SBFC. Due to other postretirement benefits having a shorter time horizon, a lower equity profile is appropriate. The expected long-term rate of return for other postretirement benefits is 3.10% for 2018.


Plan Assets Measured at Fair Value
The following tables present combined pension and other postretirement benefit plan assets measured at fair value. See Note 18, "Fair Value Election and Measurement" for level definitions within the fair value hierarchy.
 
 
 
Fair Value Measurements at December 31, 2017 1
(Dollars in millions)
Total
Level 1
 
Level 2
 
Level 3
Money market funds 2

$138

 

$138

 

$—

 

$—

Equity securities
936

 
936

 
—

 
—

Mutual funds 3:
 
 
 
 
 
 
 
Equity index fund
56

 
56

 
—

 
—

Tax exempt municipal bond funds
85

 
85

 
—

 
—

Taxable fixed income index funds
12

 
12

 
—

 
—

Futures contracts
(5
)
 
(5
)
 
—

 
—

Fixed income securities
2,201

 
512

 
1,689

 
—

Other assets
9

 
9

 
—

 
—

Total plan assets

$3,432

 

$1,743

 

$1,689

 

$—

1 Fair value measurements do not include pension benefits accrued income amounting to less than 0.7% of total plan assets.
2 Includes $11 million for other postretirement benefit plans.
3 Relates exclusively to other postretirement benefit plans.

 
 
 
Fair Value Measurements at December 31, 2016 1
(Dollars in millions)
Total
Level 1
 
Level 2
 
Level 3
Money market funds 2

$112

 

$112

 

$—

 

$—

Equity securities
1,415

 
1,415

 
—

 
—

Mutual funds 3:
 
 
 
 
 
 
 
Equity index fund
47

 
47

 
—

 
—

Tax exempt municipal bond funds
82

 
82

 
—

 
—

Taxable fixed income index funds
13

 
13

 
—

 
—

Futures contracts
(5
)
 
—

 
(5
)
 
—

Fixed income securities
1,486

 
—

 
1,486

 
—

Other assets
6

 
6

 
—

 
—

Total plan assets

$3,156

 

$1,675

 

$1,481

 

$—

1 Fair value measurements do not include pension benefits accrued income amounting to less than 0.6% of total plan assets.
2 Includes $16 million for other postretirement benefit plans.
3 Relates exclusively to other postretirement benefit plans.
Target allocations for pension and other postretirement benefits at December 31, by asset category, are presented below:
 
Pension Benefits
 
Other Postretirement Benefits
 
2017 Target Allocation
 
% of plan assets
 
2017 Target Allocation
 
% of plan assets
 
 
2017
 
2016
 
 
2017
 
2016
Cash equivalents
0-10
%
 
4
%
 
3
%
 
5-15
%
 
7
%
 
10
%
Equity securities
0-40
 
 
29

 
47

 
20-40
 
 
34

 
30

Debt securities
40-100
 
 
67

 
50

 
50-70
 
 
59

 
60

Total
 
 
 
100
%
 
100
%
 
 
 
 
100
%
 
100
%


The Company sets pension asset values equal to their market value, reflecting gains and losses immediately rather than deferring over a period of years, which provides a more realistic economic measure of the plan’s funded status and cost. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the other postretirement benefit plans. At December 31, 2017, the Company assumed that pre-65 retiree healthcare costs will increase at an initial rate of 8.25% per year. The Company expects this annual cost increase to decrease over an 8-year period to 4.50% per year. The effect of a 1% increase/decrease in the healthcare cost trend rate for other postretirement benefit obligations, service cost, and interest cost are less than $1 million, respectively. Assumed discount rates and expected returns on plan assets affect the amounts of net periodic benefit. A 25 basis point increase/decrease in the expected long-term return on plan assets would increase/decrease the net periodic benefit by $8 million for pension and other postretirement benefits plans. A 25 basis point increase/decrease in the discount rate would change the net periodic benefit by $1 million for pension and other postretirement benefits plans.
Expected Cash Flows
Expected cash flows for the pension and other postretirement benefit plans are presented in the following table:
(Dollars in millions)
Pension Benefits 1
 
Other Postretirement Benefits (excluding Medicare Subsidy) 2
Employer Contributions:
 
 
 
2018 (expected) to plan trusts

$—

 

$—

2018 (expected) to plan participants 3
9

 
—

 
 
 
 
Expected Benefit Payments:
 
 
 
2018
210

 
7

2019
172

 
6

2020
172

 
6

2021
170

 
6

2022
167

 
5

2023 - 2027
824

 
18

1 Based on the funding status and ERISA limitations, the Company anticipates contributions to the Retirement Plan will not be required during 2018.
2 Expected payments under other postretirement benefit plans are shown net of participant contributions.
3 The expected benefit payments for the SERP will be paid directly from the Company's corporate assets.

Defined Contribution Plans
SunTrust's employee benefit program includes a qualified defined contribution plan. For years ended December 31, 2017, 2016, and 2015, the 401(k) plan provided a dollar-for-dollar match on the first 6% of eligible pay that a participant, including executive participants, elected to defer.
SunTrust also maintains the SunTrust Banks, Inc. Deferred Compensation Plan in which key executives of the Company are eligible. Matching contributions for the deferred compensation plan are the same percentage as provided in the 401(k) plan, subject to limitations imposed by the plans' provisions and applicable laws and regulations. Matching contributions for both the Company's 401(k) plan and the deferred compensation plan fully vest upon two years of completed service. Furthermore, both plans permit an additional discretionary Company contribution equal to a fixed percentage of eligible pay.
The Company's 401(k) expense, including any discretionary contributions, was $130 million, $105 million, and $121 million for the years ended December 31, 2017, 2016, and 2015, respectively.