Bank of America 2012 Annual Report Download - page 244

242 Bank of America 2012
the benefits become vested upon completion of three years of
service. It is the policy of the Corporation to fund no less than the
minimum funding amount required by ERISA.
The Pension Plan has a balance guarantee feature for account
balances with participant-selected earnings, applied at the time a
benefit payment is made from the plan that effectively provides
principal protection for participant balances transferred and
certain compensation credits. The Corporation is responsible for
funding any shortfall on the guarantee feature.
As a result of acquisitions, the Corporation assumed the
obligations related to the pension plans of certain legacy
companies. These acquired pension plans have been merged into
a separate defined benefit pension plan which, together with the
Pension Plan, are referred to as the Qualified Pension Plans. The
benefit structures under these acquired plans have not changed
and remain intact in the merged plan. Certain benefit structures
are substantially similar to the Pension Plan discussed above;
however, certain of these structures do not allow participants to
select various earnings measures; rather the earnings rate is
based on a benchmark rate. In addition, these benefit structures
include participants with benefits determined under formulas
based on average or career compensation and years of service
rather than by reference to a pension account. Certain of the other
benefit structures provide a participant’s retirement benefits
based on the number of years of benefit service and a percentage
of the participant’s average annual compensation during the five
highest paid consecutive years of the last ten years of employment.
In connection with a redesign of the Corporation’s retirement
plans, on January 24, 2012, the Compensation and Benefits
Committee of the Board approved amendments to freeze benefits
earned in the Qualified Pension Plans effective June 30, 2012. As
a result of freezing the Qualified Pension Plans, a curtailment was
triggered and a remeasurement of the qualified pension
obligations and plan assets occurred as of January 24, 2012. As
of the remeasurement date, the plan assets had increased in value
from the prior measurement date resulting in an increase in the
funded status of the plan of $431 million. Additionally, the
curtailment impact reduced the projected benefit obligation by
$889 million. The combined impact resulted in a $1.3 billion
increase to the net pension assets recognized in other assets and
a corresponding decrease in unrecognized losses in accumulated
OCI of $1.3 billion ($832 million after-tax). The impact of the
immediate recognition of the prior service cost of $58 million was
recorded in personnel expense as a curtailment loss in 2012. All
economic assumptions were consistent with the prior year end
including the weighted-average discount rate of 4.95 percent used
for remeasurement of the qualified pension plans.
As a result of freezing the Qualified Pension Plans, the
amortization period for actuarial gains and losses was changed
from the average working life to the estimated average lifetime of
benefits being paid. In addition, in 2013, the long-term expected
return on asset assumption for the Qualified Pension Plans was
reduced to 6.5 percent from 8.0 percent to reflect current market
conditions and long-term financial goals. The reduction in net
pension costs in 2013 due to these assumption changes is not
expected to be significant.
The Corporation assumed the obligations related to the plans
of Merrill Lynch. These plans include a terminated U.S. pension
plan (the Other Pension Plan), non-U.S. pension plans, nonqualified
pension plans and postretirement plans. The non-U.S. pension
plans vary based on the country and local practices.
The Corporation has an annuity contract, previously purchased
by Merrill Lynch, that guarantees the payment of benefits vested
under the Other Pension Plan. The Corporation, under a
supplemental agreement, may be responsible for, or benefit from
actual experience and investment performance of the annuity
assets. The Corporation made no contribution under this
agreement in 2012 or 2011. Contributions may be required in the
future under this agreement.
The Corporation sponsors a number of noncontributory,
nonqualified pension plans (the Nonqualified Pension Plans). As
a result of acquisitions, the Corporation assumed the obligations
related to the noncontributory, nonqualified pension plans of
certain legacy companies including Merrill Lynch. These plans,
which are unfunded, provide defined pension benefits to certain
employees.
In addition to retirement pension benefits, full-time, salaried
employees and certain part-time employees may become eligible
to continue participation as retirees in health care and/or life
insurance plans sponsored by the Corporation. Based on the other
provisions of the individual plans, certain retirees may also have
the cost of these benefits partially paid by the Corporation. The
obligations assumed as a result of acquisitions are substantially
similar to the Corporation’s postretirement health and life plans,
except for Countrywide which did not have a postretirement health
and life plan. Collectively, these plans are referred to as the
Postretirement Health and Life Plans.
The Pension and Postretirement Plans table summarizes the
changes in the fair value of plan assets, changes in the projected
benefit obligation (PBO), the funded status of both the
accumulated benefit obligation (ABO) and the PBO, and the
weighted-average assumptions used to determine benefit
obligations for the pension plans and postretirement plans at
December 31, 2012 and 2011. Amounts recognized at December
31, 2012 and 2011 are reflected in other assets, and accrued
expenses and other liabilities on the Corporation’s Consolidated
Balance Sheet. The discount rate assumption is based on a cash
flow matching technique and is subject to change each year. This
technique utilizes yield curves that are based on Aa-rated corporate
bonds with cash flows that match estimated benefit payments of
each of the plans to produce the discount rate assumptions. The
asset valuation method for the Qualified Pension Plans recognizes
60 percent of the prior year’s market gains or losses at the next
measurement date with the remaining 40 percent spread equally
over the subsequent four years.
The Corporation’s best estimate of its contributions to be made
to the Non-U.S. Pension Plans, Nonqualified and Other Pension
Plans, and Postretirement Health and Life Plans in 2013 is $109
million, $103 million and $107 million, respectively. The
Corporation does not expect to make a contribution to the Qualified
Pension Plans in 2013.