Annual report pursuant to Section 13 and 15(d)

Benefit Plans

v2.4.0.6
Benefit Plans
12 Months Ended
Dec. 31, 2012
Benefit Plans [Abstract]  
BENEFIT PLANS

18. 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 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. Although not required, Huntington made a $75 million contribution to the Plan in the third quarter of 2012.

 

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 will 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.

 

The following table shows the weighted-average assumptions used to determine the benefit obligation at December 31, 2012 and 2011, and the net periodic benefit cost for the years then ended:

      Pension   Post-Retirement
      Benefits   Benefits
      2012     2011     2012     2011  
Weighted-average assumptions used to determine benefit obligations                      
  Discount rate 3.83 %   4.57 %   3.28 %   4.34 %
  Rate of compensation increase 4.50     4.50     N/A     N/A  
Weighted-average assumptions used to determine net periodic benefit cost                      
  Discount rate 4.57     5.35     4.34     5.00  
  Expected return on plan assets 8.00     8.00     N/A     N/A  
  Rate of compensation increase 4.50     4.50     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     Post-Retirement
      Benefits     Benefits
(dollar amounts in thousands)   2012     2011     2012     2011
Projected benefit obligation at beginning of measurement year $ 656,339   $ 577,770   $ 32,851   $ 34,241
Changes due to:                      
  Service cost   24,869     21,650     ---     ---
  Interest cost   29,215     30,073     1,350     1,618
  Benefits paid   (13,719)     (12,285)     (3,850)     (4,895)
  Settlements   (10,444)     (10,408)     ---     ---
  Medicare subsidies   ---     ---     740     670
  Actuarial assumptions and gains and losses   97,518     49,539     (3,304)     1,217
Total changes   127,439     78,569     (5,064)     (1,390)
Projected benefit obligation at end of measurement year $ 783,778   $ 656,339   $ 27,787   $ 32,851

Benefits paid are net of retiree contributions collected by Huntington. The actual contributions received in 2012 by Huntington for the retiree medical program were $2.8 million.

 

The following table reconciles the beginning and ending balances of the fair value of Plan assets at the December 31, 2012 and 2011 measurement dates

      Pension
      Benefits
(dollar amounts in thousands)   2012     2011
Fair value of plan assets at beginning of measurement year $ 538,970   $ 478,479
             
Changes due to:          
  Actual return on plan assets   43,810     (6,593)
  Employer contributions   75,000     90,000
  Settlements   (10,444)     (10,631)
  Benefits paid   (13,719)     (12,285)
Total changes   94,647     60,491
Fair value of plan assets at end of measurement year $ 633,617   $ 538,970

Huntington's accumulated benefit obligation under the Plan was $775.2 million and $651.3 million at December 31, 2012 and 2011. As of December 31, 2012, the accumulated benefit obligation exceeded the fair value of Huntington's plan assets by $141.6 million and the projected benefit obligation exceeded the fair value of Huntington's plan assets by $150.2 million.

 

The following table shows the components of net periodic benefit costs recognized in the three years ended December 31, 2012:

    Pension Benefits     Post-Retirement Benefits
(dollar amounts in thousands)   2012     2011     2010     2012     2011     2010
                                   
Service cost $ 24,869   $ 21,650   $ 20,205   $ ---   $ ---   $ ---
Interest cost   29,215     30,073     28,869     1,350     1,618     1,731
Expected return on plan assets   (45,730)     (43,290)     (42,113)     ---     ---     ---
Amortization of transition asset   (4)     (5)     5     ---     ---     ---
Amortization of prior service cost   (5,767)     (5,767)     (5,766)     (1,353)     (1,354)     (1,353)
Amortization of loss   26,956     23,494     14,989     (332)     (423)     (699)
Settlements   5,405     5,483     9,694     ---     ---     ---
Benefit costs $ 34,944   $ 31,638   $ 25,883   $ (335)   $ (159)   $ (321)

Included in benefit costs are $1.1 million, $0.8 million, and $1.0 million of plan expenses that were recognized in the three years ended December 31, 2012, 2011, and 2010. It is Huntington's policy to recognize settlement gains and losses as incurred. Assuming no cash contributions are made to the Plan during 2013, Management expects net periodic pension cost, excluding any expense of settlements, to approximate $42.7 million for 2013. The postretirement medical and life subsidy was eliminated for anyone that 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, $7.1 million, and $38.5 million, respectively.

 

At December 31, 2012 and 2011, 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, Huntington mutual funds and Huntington common stock as follows:

 

    Fair Value
(dollar amounts in thousands)   2012         2011 (1)    
Cash $ 22 --- %   $ 25 --- %
Cash equivalents:                  
  Huntington funds - money market   6,012 1       39,943 7  
Fixed income:                  
  Huntington funds - fixed income funds   84,688 13       174,615 32  
  Corporate obligations   149,241 24       --- ---  
  U.S. Government Obligations   36,595 6       --- ---  
  U.S. Government Agencies   7,511 1       --- ---  
Equities:                  
  Huntington funds   312,479 49       283,963 53  
  Huntington common stock   37,069 6       40,424 8  
  Other common stock   --- ---       --- ---  
Fair value of plan assets $ 633,617 100 %   $ 538,970 100 %
                     
(1)A $40 million contribution to the Plan on December 28, 2011, had not yet been invested and was in Huntington Funds-money market as of December 31, 2011.

Investments of the Plan are accounted for at cost on the trade date and are reported at fair value. All of the Plan's investments at December 31, 2012 are classified as Level 1 within the fair value hierarchy, except for corporate obligations, U.S. government obligations, and U.S. government agencies, which are classified as Level 2. 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 that changes in the values of investments will occur in the near term and that 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, 2012, Plan assets were invested less than 1% in cash and cash equivalents, 55% in equity investments, and 44% in bonds, with an average duration of 12.0 years on bond investments. The estimated life of benefit obligations was 14 years. Although it may fluctuate with market conditions, Management 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.

 

The following table shows the number of shares and dividends received on shares of Huntington stock held by the Plan:

 

  December 31,    
(dollar amounts in thousands, except share amounts) 2012     2011    
Shares in Huntington common stock(1)   5,764,986     7,309,986    
Dividends received on shares of Huntington stock $ 1,085   $ 409    
               
(1)The Plan has acquired and held Huntington common stock in compliance at all times with Section 407 of the Employee Retirement Income Security Act of 1978.    
               
               

At December 31, 2012, the following table shows when benefit payments, which include expected future service, as appropriate, were expected to be paid:

            Post-
      Pension     Retirement
(dollar amounts in thousands)   Benefits     Benefits
  2013 $ 42,743   $ 3,837
  2014   42,537     3,585
  2015   42,960     3,369
  2016   43,329     3,156
  2017   43,903     2,994
  2018 through 2022   240,842     12,380

Although not required, Huntington may choose to make a cash contribution to the Plan up to the maximum deductible limit in the 2013 plan year. Anticipated contributions for 2013 to the post-retirement benefit plan are $3.1 million.

 

The assumed healthcare cost trend rate has an effect on the amounts reported. A one percentage point increase would decrease service and interest costs and the post-retirement benefit obligation by less than $0.01million and $0.01 million, respectively. A one percentage point decrease would increase service and interest costs and the post-retirement benefit obligation by less than $0.01 million and $0.02 million, respectively.

 

The 2013 and 2012 healthcare cost trend rate was projected to be 7.7% for pre-65 aged participants and 8.2% for post-65 aged participants. These rates are assumed to decrease gradually until they reach 4.5% for both pre-65 aged participants and post-65 aged participants 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 retirement plans, the most significant being the Supplemental Executive Retirement Plan and the Supplemental Retirement Income Plan. These plans are nonqualified plans that provide 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, 2012 and 2011, Huntington has an accrued pension liability of $35.4 million and $26.9 million, respectively, associated with these plans. Pension expense for the plans was $2.5 million, $1.8 million, and $1.8 million in 2012, 2011, and 2010, respectively.

 

The following table presents the amounts recognized in the Consolidated Balance Sheets at December 31, 2012 and 2011 for all of Huntington defined benefit plans:

(dollar amounts in thousands)   2012     2011
Accrued expenses and other liabilities $ 213,335   $ 177,092

The following tables present the amounts recognized in OCI as of December 31, 2012, 2011, and 2010, and the changes in accumulated OCI for the years ended December 31, 2012, 2011, and 2010:

 

(dollar amounts in thousands)   2012     2011     2010
Net actuarial loss $ (262,187)   $ (215,628)   $ (166,183)
Prior service cost   25,788     30,261     34,688
Transition liability   ---     3     6
Defined benefit pension plans $ (236,399)   $ (185,364)   $ (131,489)

      2012
        Tax (expense)  
(dollar amounts in thousands)   Pretax     Benefit     After-tax
Balance, beginning of year $ (285,177)   $ 99,813   $ (185,364)
Net actuarial (loss) gain:                
  Amounts arising during the year   (105,527)     36,934     (68,593)
  Amortization included in net periodic benefit costs   33,880     (11,858)     22,022
Prior service cost:                
  Amounts arising during the year   ---     ---     ---
  Amortization included in net periodic benefit costs   (6,865)     2,403     (4,462)
Transition obligation:                
  Amortization included in net periodic benefit costs   (2)     ---     (2)
Balance, end of year $ (363,691)   $ 127,292   $ (236,399)
                   
      2011
        Tax (expense)  
(dollar amounts in thousands)   Pretax     Benefit     After-tax
Balance, beginning of year $ (202,292)   $ 70,803   $ (131,489)
Net actuarial (loss) gain:                
  Amounts arising during the year   (104,146)     36,451     (67,695)
  Amortization included in net periodic benefit costs   28,077     (9,827)     18,250
Prior service cost:                
  Amounts arising during the year   ---     ---     ---
  Amortization included in net periodic benefit costs   (6,811)     2,384     (4,427)
Transition obligation:                
  Amortization included in net periodic benefit costs   (5)     2     (3)
Balance, end of year $ (285,177)   $ 99,813   $ (185,364)
                   
      2010
        Tax (expense)  
(dollar amounts in thousands)   Pretax     Benefit     After-tax
Balance, beginning of year $ (173,029)   $ 60,561   $ (112,468)
Net actuarial (loss) gain:                
  Amounts arising during the year   (45,804)     16,031     (29,773)
  Amortization included in net periodic benefit costs   23,313     (8,159)     15,154
Prior service cost:                
  Amortization included in net periodic benefit costs   (6,777)     2,372     (4,405)
Transition obligation:                
  Amortization included in net periodic benefit costs   5     (2)     3
Balance, end of year $ (202,292)   $ 70,803   $ (131,489)
                 
                   

Huntington has a defined contribution plan that is available to eligible employees. Huntington matched participant contributions, up to the first 3% of base pay contributed to the Plan. Half of the employee contribution was matched on the 4th and 5th percent of base pay contributed to the Plan. Starting January 1, 2013, Huntington matches participant contributions dollar-for-dollar, up to 4% of base pay contributed to the Plan.

 

The following table shows the costs of providing the defined contribution plan as of December 31:

  December 31,  
(dollar amounts in thousands) 2012     2011   2010  
Defined contribution plan $ 16,926   $ 14,980   $ 8,787  
                   
                   

The following table shows the number of shares, market value, and dividends received on shares of Huntington stock held by the defined contribution plan as of December 31:

  December 31,    
(dollar amounts in thousands, except share amounts) 2012     2011    
Shares in Huntington common stock   14,892,094     15,051,291    
Market value of Huntington common stock $ 95,160   $ 82,632    
Dividends received on shares of Huntington stock   2,414     1,055