Annual report pursuant to Section 13 and 15(d)

BENEFIT PLANS

v3.8.0.1
BENEFIT PLANS
 12 Months Ended
Dec. 31, 2017
Retirement Benefits [Abstract]  
BENEFIT PLANS
BENEFIT PLANS
Huntington sponsors the Plan, a non-contributory defined benefit pension plan covering substantially all employees hired or rehired prior to January 1, 2010. The Plan, which was modified in 2013 and no longer accrues service benefits to participants, provides benefits based upon length of service and compensation levels. The funding policy of Huntington is to contribute an annual amount that is at least equal to the minimum funding requirements but not more than the amount deductible under the Internal Revenue Code. There were no required minimum contributions during 2017. At December 31, 2017 Huntington and FirstMerit pension plans merged into a single legal entity, combining the respective plans' obligations and assets. As such, a single set of assumptions were selected for the merged entity, reflecting timing of cash flows, funded status, investment allocation, and any other relevant considerations, on a combined basis.
In addition, Huntington has an unfunded defined benefit post-retirement plan that provides certain healthcare and life insurance benefits to retired employees who have attained the age of 55 and have at least 10 years of vesting service under this plan. For any employee retiring on or after January 1, 1993, post-retirement healthcare benefits are based upon the employee’s number of months of service and are limited to the actual cost of coverage. Life insurance benefits are a percentage of the employee’s base salary at the time of retirement, with a maximum of $50,000 of coverage. The employer paid portion of the post-retirement health and life insurance plan was eliminated for employees retiring on and after March 1, 2010. Eligible employees retiring on and after March 1, 2010, who elect retiree medical coverage, will pay the full cost of this coverage. Huntington does not provide any employer paid life insurance to employees retiring on and after March 1, 2010. Eligible employees will be able to convert or port their existing life insurance at their own expense under the same terms that are available to all terminated employees.
On January 1, 2015, Huntington terminated the company sponsored retiree health care plan for Medicare eligible retirees and their dependents. Instead, Huntington will partner with a third-party to assist the retirees and their dependents in selecting individual policies from a variety of carriers on a private exchange. This plan amendment resulted in a measurement of the liability at the approval date. The result of the measurement was a $5 million reduction of the liability and increase in AOCI. It will also result in a reduction of expense over the estimated life of plan participants.
Huntington executed a life insurance buyout for the remaining life insurance benefits of FirstMerit retired participants. The buyout was executed in December 2017 for $4 million and is being reflected as a settlement in the projected benefit obligation at the end of the year.

The following table shows the weighted-average assumptions used to determine the benefit obligation at December 31, 2017 and 2016, and the net periodic benefit cost for the years then ended:
 
Pension Benefits
 
Post-Retirement Benefits
 
2017
 
2016
 
2017
 
2016
Weighted-average assumptions used to determine benefit obligations
 
 
 
 
 
 
 
Discount rate
3.73
%
 
4.38
%
 
3.34
%
 
3.64
%
Rate of compensation increase
N/A

 
N/A

 
N/A

 
N/A

Weighted-average assumptions used to determine net periodic benefit cost
 
 
 
 
 
 
 
Discount rate
4.38

 
4.54

 
3.64

 
3.81

Expected return on plan assets
6.50

 
6.75

 
N/A

 
N/A

Rate of compensation increase
N/A

 
N/A

 
N/A

 
N/A

N/A—Not Applicable
 
 
 
 
 
 
 

The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return is established at the beginning of the plan year based upon historical returns and projected returns on the underlying mix of invested assets.
The following table reconciles the beginning and ending balances of the benefit obligation of the Plan and the post-retirement benefit plan with the amounts recognized in the consolidated balance sheets at December 31:
 
Pension Benefits
 
Post-Retirement Benefits
(dollar amounts in millions)
2017
 
2016
 
2017
 
2016
Projected benefit obligation at beginning of measurement year
$
851

 
$
1,084

 
$
14

 
$
15

Changes due to:
 
 
 
 
 
 
 
Service cost
3

 
5

 
—

 
—

Interest cost
30

 
30

 
—

 
—

Benefits paid
(27
)
 
(20
)
 
(2
)
 
(1
)
Settlements
(31
)
 
(203
)
 
(4
)
 
—

Plan amendments
—

 
—

 
(2
)
 
—

Actuarial assumptions and gains and losses
74

 
(45
)
 
1

 
—

Total changes
49

 
(233
)
 
(7
)
 
(1
)
Projected benefit obligation at end of measurement year
$
900

 
$
851

 
$
7

 
$
14


The following table reconciles the beginning and ending balances of the fair value of Plan assets at the December 31, 2017 and 2016 measurement dates:
 
Pension Benefits
(dollar amounts in millions)
2017
 
2016
Fair value of plan assets at beginning of measurement year
$
841

 
$
874

Changes due to:
 
 
 
Actual return on plan assets
118

 
37

Employer Contributions
—

 
150

Settlements
(29
)
 
(199
)
Benefits paid
(27
)
 
(21
)
Total changes
62

 
(33
)
Fair value of plan assets at end of measurement year
$
903

 
$
841


Huntington’s accumulated benefit obligation under the Plan was $900 million and $851 million at December 31, 2017 and 2016. As of December 31, 2017, the difference between the accumulated benefit obligation and the fair value of Huntington's plan assets was $3 million and is recorded in noncurrent liabilities.
The following table shows the components of net periodic benefit costs recognized in the three years ended December 31, 2017:
 
Pension Benefits
 
Post-Retirement Benefits
(dollar amounts in millions)
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Service cost
$
3

 
$
5

 
$
2

 
$
—

 
$
—

 
$
—

Interest cost
30

 
30

 
32

 
—

 
—

 
—

Expected return on plan assets
(55
)
 
(45
)
 
(44
)
 
—

 
—

 
—

Amortization of prior service credit
—

 
—

 
—

 
(2
)
 
(2
)
 
(2
)
Amortization of (gain) / loss
7

 
7

 
8

 
—

 
—

 
—

Settlements
11

 
(8
)
 
12

 
—

 
—

 
(3
)
Benefit costs
$
(4
)
 
$
(11
)
 
$
10

 
$
(2
)
 
$
(2
)
 
$
(5
)

Included in benefit costs are $2 million, $2 million, and $4 million of plan expenses that were recognized in the three years ended December 31, 2017, 2016, and 2015. It is Huntington’s policy to recognize settlement gains and losses as incurred. Assuming no cash contributions are made to the Plan during 2018, Huntington expects net periodic pension benefit, excluding any expense of settlements, to approximate $9 million for 2018. The post-retirement medical and life subsidy was eliminated for anyone who retires on or after March 1, 2010. As such, there were no incremental net periodic post-retirement benefits costs associated with this plan.
The estimated transition obligation, prior service credit, and net actuarial loss for the plans that will be amortized from OCI into net periodic benefit cost over the next fiscal year is zero, $2 million, and a $8 million benefit, respectively.
At December 31, 2017 and 2016, The Huntington National Bank, as trustee, held all Plan assets. The Plan assets consisted of investments in a variety of corporate and government fixed income investments, money market funds, and mutual funds as follows:
 
Fair Value
(dollar amounts in millions)
2017
 
2016
Cash equivalents:
 
 
 
 
 
 
 
Mutual Funds-money market
$
14

 
2
%
 
$
21

 
3
%
U.S. Treasury bills
5

 
1

 
—

 
—

Fixed income:
 
 
 
 
 
 


Corporate obligations
293

 
32

 
218

 
26

U.S. Government obligations
216

 
24

 
165

 
19

Mutual funds-fixed income
—

 
—

 
51

 
6

U.S. Government Agencies
23

 
3

 
10

 
1

Equities:
 
 


 
 
 


Mutual funds-equities
118

 
13

 
150

 
18

Common stock
158

 
17

 
182

 
22

Preferred stock
5

 
1

 
5

 
1

Exchange Traded Funds
58

 
6

 
28

 
3

Limited Partnerships
13

 
1

 
11

 
1

Fair value of plan assets
$
903

 
100
%
 
$
841

 
100
%

Investments of the Plan are accounted for at cost on the trade date and are reported at fair value. The valuation methodologies used to measure the fair value of pension plan assets vary depending on the type of asset. For an explanation of the fair value hierarchy, refer to Note 1 “Significant Accounting Policies” under the heading “Fair Value Measurements”. At December 31, 2017, cash equivalent money market funds and U.S. Treasury bills are valued at the closing price reported from an actively traded exchange and are classified as Level 1. Mutual funds are valued at quoted market prices that represent the net asset value of shares held by the Plan at year-end. The mutual funds held by the Plan are actively traded and are classified as Level 1. Corporate obligations, U.S. government obligations, and U.S. government securities are valued using unadjusted quoted prices from active markets for similar assets are classified as Level 2. Common and preferred stock are valued using the year-end closing price as determined by a national securities exchange and are classified as Level 1. The investment in the limited partnerships is reported at net asset value per share as determined by the general partners of each limited partnership, based on their proportionate share of the partnership’s fair value as recorded in the partnership’s audited financial statements.
In general, investments of the Plan are exposed to various risks such as interest rate risk, credit risk, and overall market volatility. Due to the level of risk associated with certain investments, it is reasonably possible changes in the values of investments will occur in the near term and such changes could materially affect the amounts reported in the Plan assets.
The investment objective of the Plan is to maximize the return on Plan assets over a long-time period, while meeting the Plan obligations. At December 31, 2017, Plan assets were invested 3% in cash and cash equivalents, 38% in equity investments, and 59% in bonds, with an average duration of 13.7 years on bond investments. The estimated life of benefit obligations was 13.5 years. Although it may fluctuate with market conditions, Huntington has targeted a long-term allocation of Plan assets of 20% to 50% in equity investments and 80% to 50% in bond investments. The allocation of Plan assets between equity investments and fixed income investments will change from time to time with the allocation to fixed income investments increasing as the funding level increases.
At December 31, 2017, the following table shows when benefit payments were expected to be paid:
(dollar amounts in millions)
Pension Benefits
 
Post-Retirement Benefits
2018
$
50

 
$
1

2019
49

 
1

2020
48

 
1

2021
47

 
1

2022
47

 
1

2023 through 2027
233

 
2


Although not required, a cash contribution can be made to the Plan up to the maximum deductible limit in the plan year. Anticipated contributions for 2018 to the post-retirement benefit plan are zero.
The 2018 healthcare cost trend rate is projected to be 6.6% for participants. This rate is assumed to decrease gradually until it reaches 4.5% in the year 2028 and remain at that level thereafter. Huntington updated the immediate healthcare cost trend rate assumption based on current market data and Huntington’s claims experience. This trend rate is expected to decline over time to a trend level consistent with medical inflation and long-term economic assumptions.
Huntington also sponsors other nonqualified retirement plans, the most significant being the SERP and the SRIP. The SERP provides certain former officers and directors, and the SRIP provides certain current and former officers and directors of Huntington and its subsidiaries with defined pension benefits in excess of limits imposed by federal tax law. At December 31, 2017 and 2016, Huntington has an accrued pension liability of $35 million and $33 million, respectively, associated with these plans. Pension expense for the plans was $1 million, $1 million, and $1 million in 2017, 2016, and 2015, respectively.
The following table presents the amounts recognized in the Consolidated Balance Sheets at December 31, 2017 and 2016, for all defined benefit plans:
(dollar amounts in millions)
2017
 
2016
Noncurrent liabilities
$
78

 
$
189


The following tables present the amounts recognized in OCI as of December 31, 2017, 2016, and 2015, and the changes in accumulated OCI for the years ended December 31, 2017, 2016, and 2015: 
(dollar amounts in millions)
2017
 
2016
 
2015
Net actuarial loss
$
(264
)
 
$
(217
)
 
$
(244
)
Prior service cost
14

 
12

 
14

Defined benefit pension plans
$
(250
)
 
$
(205
)
 
$
(230
)
 
2017
(dollar amounts in millions)
Pretax
 
Tax (expense) Benefit
 
After-tax
Balance, beginning of year
$
(316
)
 
$
111

 
$
(205
)
Net actuarial (loss) gain:
 
 
 
 
 
Amounts arising during the year
(16
)
 
6

 
(10
)
Amortization included in net periodic benefit costs
18

 
(7
)
 
11

TCJA, Reclassification from accumulated OCI to retained earnings
 
 
 
 
(47
)
Prior service cost:
 
 
 
 
 
Amounts arising during the year
—

 
—

 
—

Amortization included in net periodic benefit costs
(2
)
 
1

 
(1
)
TCJA, Reclassification from accumulated OCI to retained earnings
 
 
 
 
2

Balance, end of year
$
(316
)
 
$
111

 
$
(250
)
 
2016
(dollar amounts in millions)
Pretax
 
Tax (expense) Benefit
 
After-tax
Balance, beginning of year
$
(354
)
 
$
124

 
$
(230
)
Net actuarial (loss) gain:
 
 
 
 
 
Amounts arising during the year
38

 
(13
)
 
25

Amortization included in net periodic benefit costs
2

 
(1
)
 
1

Prior service cost:
 
 
 
 
 
Amounts arising during the year
—

 
—

 
—

Amortization included in net periodic benefit costs
(2
)
 
1

 
(1
)
Balance, end of year
$
(316
)
 
$
111

 
$
(205
)
 
2015
(dollar amounts in millions)
Pretax
 
Tax (expense) Benefit
 
After-tax
Balance, beginning of year
$
(347
)
 
$
121

 
$
(226
)
Net actuarial (loss) gain:
 
 
 
 
 
Amounts arising during the year
(25
)
 
9

 
(16
)
Amortization included in net periodic benefit costs
20

 
(7
)
 
13

Prior service cost:
 
 
 
 
 
Amounts arising during the year
—

 
—

 
—

Amortization included in net periodic benefit costs
(2
)
 
1

 
(1
)
Balance, end of year
$
(354
)
 
$
124

 
$
(230
)

Huntington has a defined contribution plan that is available to eligible employees. Huntington matches participant contributions, up to the first 4% of base pay contributed to the Plan. For 2016, a discretionary profit-sharing contribution equal to 1% of eligible participants’ annual base pay was awarded. For 2017, the discretionary profit-sharing targets were not met.
The following table shows the costs of providing the defined contribution plan:
 
Year Ended December 31,
(dollar amounts in millions)
2017
 
2016
 
2015
Defined contribution plan
$
35

 
$
36

 
$
32


The following table shows the number of shares, market value, and dividends received on shares of Huntington stock held by the defined contribution plan:
 
December 31,
(dollar amounts in millions, except share amounts)
2017
 
2016
Shares in Huntington common stock (000)
13,566

 
11,748

Market value of Huntington common stock
$
198

 
$
162

Dividends received on shares of Huntington stock
4

 
4