Employee Retirement Benefits

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

Employee Retirement Benefits

Employee Retirement Benefits

We sponsor both defined benefit plans and defined contribution plans for our employees, as well as a healthcare plan that provides certain health benefits for retired employees and their dependents. Net periodic benefit costs for defined benefit and healthcare plans, which are determined on an actuarial basis, and expenses for our defined contribution plans, are included in “Salaries and employee benefits expense” in our consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2012, 2011 and 2010, we recognized net periodic benefit costs for our defined benefit and healthcare plans and expenses for our defined contribution plans of $133 million, $118 million and $112 million, respectively.

Defined Benefit Pension Plans and Postretirement Health Care Plan

Our defined benefit pension plans include qualified and nonqualified noncontributory plans. Pension plan benefits are based on years of credited service and a percentage of eligible compensation. In 2007, the defined benefit pension plans were amended to cease benefits accruals for employees that did not meet certain criteria to be grandfathered under the plan and to vest those employees in their frozen accruals.

We fund our qualified pension plan through employer contributions to a qualified irrevocable trust that is maintained for the sole benefit of plan participants and their beneficiaries. Contributions to our qualified pension plan are subject to a minimum funding requirement and maximum funding limit under the Employee Retirement Income Security Act of 1974 (“ERISA”) and IRS regulations.

Our nonqualified defined benefit pension plans consist of an Executive Pension Plan, Supplemental Pension Plan and the Supplemental Pension Plan of 2003. These plans cover certain employees and supplement the benefits payable under the qualified pension plan. The Executive Pension Plan was frozen in 2009. Benefits under the Executive Pension Plan are paid through a rabbi trust.

The Supplemental Pension Plan provides retirement benefits to employees who participate in our qualified pension plan and do not receive a benefit from the Executive Pension Plan, and whose salary exceeds the statutory compensation cap applicable to the qualified plan or whose benefit is limited by the statutory benefit cap. The Supplemental Pension Plan of 2003 provides additional benefits to our officers based on eligible incentive compensation, if any, received by an officer, but the amount of incentive compensation considered is limited to 50% of the officer’s base salary. We pay benefits under our unfunded defined benefit Supplemental Pension Plans from our cash and cash equivalents.

We also sponsor a postretirement Health Care Plan that covers substantially all regular full-time employees who meet the applicable age and service requirements. We subsidize premium costs for medical coverage for some employees who meet the age and service requirements. Employees hired after 2007 receive access to our retiree medical plan, when eligible, but they do not qualify for the subsidy. We accrue and pay the benefits for our unfunded postretirement Health Care Plan from our cash and cash equivalents.

The following table displays components of our net periodic benefit cost for our qualified and nonqualified pension plans and other postretirement plan for the years ended December 31, 2012, 2011 and 2010. The net periodic benefit cost for each period is calculated based on assumptions at the end of the prior year.

	For the Year Ended December 31,
	2012								2011								2010
					Other Post-								Other Post-								Other Post-
	Pension				Retirement				Pension				Retirement				Pension				Retirement
	Plans				Plan				Plans				Plan				Plans				Plan
	(Dollars in millions)
Service cost		$	37			$	6			$	39			$	6			$	37			$	6
Interest cost		72				9				72				9				66				9
Expected return on plan assets		(73		)		—				(69		)		—				(60		)		—
Other		30				(3		)		12				(7		)		9				(2		)
Net periodic benefit cost		$	66			$	12			$	54			$	8			$	52			$	13

Prior service costs, which are changes in benefit obligations due to plan amendments, are amortized over the average remaining service period for active employees for our pension plans and prior to the full eligibility date for the other postretirement Health Care Plan.

The following table displays the changes in the pre-tax and after-tax amounts recognized in AOCI that have not been recognized as a component of net periodic benefit cost for the years ended December 31, 2012 and 2011.

	For the Year Ended
	2012								2011
					Other Post-								Other Post-
	Pension				Retirement				Pension				Retirement
	Plans				Plan				Plans				Plan
	(Dollars in millions)
Actuarial Loss:
Beginning balance, January 1		$	393			$	36			$	218			$	42
Current year actuarial loss (gain)		135				8				184				(5		)
Amortization		(29		)		(1		)		(9		)		(1		)
Ending balance, December 31		499				43				393				36
Prior Service Cost (Credit):
Beginning balance, January 1		$	4			$	(46	)		$	6			$	(56	)
Prior service credit due to curtailments		—				—				—				5
Amortization		(1		)		6				(2		)		5
Ending balance, December 31		3				(40		)		4				(46		)
Transition Obligation:
Beginning balance, January 1		$	—			$	2			$	—			$	4
Amortization		—				(2		)		—				(2		)
Ending balance, December 31		—				—				—				2
Pre-tax and after-tax amount recorded in AOCI		$	502			$	3			$	397			$	(8	)

As of December 31, 2012 we expect to recognize pre-tax amounts in AOCI of $42 million in net periodic benefit costs associated with our pension plans and $3 million in net periodic benefit credits associated with our other postretirement plan in 2013.

The following table displays the status of our pension and other postretirement plans as of December 31, 2012 and 2011.

	As of December 31,
	2012								2011
					Other Post-								Other Post-
	Pension				Retirement				Pension				Retirement
	Plans				Plan				Plans				Plan
	(Dollars in millions)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year		$	1,452			$	183			$	1,257			$	180
Service cost		37				6				39				6
Interest cost		72				9				72				9
Plan participants’ contributions		—				2				—				2
Net actuarial loss (gain)		198				9				131				(1		)
Curtailment gain		—				—				(14		)		(5		)
Benefits paid		(35		)		(8		)		(33		)		(8		)
Projected benefit obligation at end of year		1,724				201				1,452				183
Change in Plan Assets:
Fair value of plan assets at beginning of year		1,042				—				942				—
Actual return on plan assets		136				—				2				—
Employer contributions		84				6				131				6
Plan participants’ contributions		—				2				—				2
Benefits paid		(35		)		(8		)		(33		)		(8		)
Fair value of plan assets at end of year		1,227				—				1,042				—
Funded status at end of year(1)		$	(497	)		$	(201	)		$	(410	)		$	(183	)

__________

⁽¹⁾  Included in other liabilities of our consolidated balance sheets as of December 31, 2012 and 2011.

Actuarial gains or losses reflect annual changes in the amount of either the benefit obligation or the fair value of plan assets that result from the difference between actual experience and projected amounts or from changes in assumptions.

The accumulated benefit obligation for our pension plans was $1.6 billion and $1.3 billion as of December 31, 2012 and 2011, respectively.

Contributions to the qualified pension plan increase the plan assets while contributions to the unfunded plans are made to fund current period benefit payments or to fulfill annual funding requirements. We were not required to make minimum contributions to our qualified pension plan for each of the years in the three-year period ended December 31, 2012 since we met the minimum funding requirements as prescribed by ERISA. However, we did make a discretionary contribution to our qualified pension plan of $76 million, $124 million and $42 million during 2012, 2011 and 2010, respectively.

During 2012, we contributed $76 million to our qualified pension plan, $8 million to our nonqualified pension plans and $6 million to our other postretirement benefit plan. During 2013, we anticipate contributing $48 million to our benefit plans, consisting of $31 million to our qualified pension plan, $9 million to our nonqualified pension plans and $8 million to our other postretirement plan.

The fair value of plan assets of our funded qualified pension plan was less than our accumulated benefit obligation by $140 million and $100 million as of December 31, 2012 and 2011, respectively. There were no plan assets returned to us as of April 2, 2013 and we do not expect any plan assets to be returned to us during the remainder of 2013.

Assumptions

Pension and other postretirement benefit amounts recognized in our consolidated financial statements are determined on an actuarial basis using several different assumptions that are measured as of December 31, 2012, 2011 and 2010. The following table displays the actuarial assumptions for our plans used in determining the net periodic benefit costs and the projected and accumulated benefit obligations as of December 31, 2012, 2011 and 2010.

	As of December 31,
	Pension Benefits						Postretirement Benefits
	2012		2011		2010		2012		2011		2010
Weighted-average assumptions used to determine net periodic benefit costs:
Discount rate	4.95	%	5.65	%	6.10	%	4.75	%	5.40	%	5.75	%
Average rate of increase in future compensation	4.00		4.00		4.00
Expected long-term weighted-average rate of return on plan assets	7.00		7.25		7.50
Weighted-average assumptions used to determine benefit obligation at year-end:
Discount rate	4.15	%	4.95	%	5.65	%	4.05	%	4.75	%	5.40	%
Average rate of increase in future compensation	4.00		4.00		4.00
Health care cost trend rate assumed for next year:
Pre-65							7.50	%	8.00	%	8.00	%
Post-65							7.50		8.00		8.00
Rate that cost trend rate gradually declines to and remains at:							5.00		5.00		5.00
Year that rate reaches the ultimate trend rate							2018		2018		2018

As of December 31, 2012, the effect of a 1% increase in the assumed health care cost trend rate would change the accumulated postretirement benefit obligation by $8 million. The effect of a 1% decrease in the assumed health care cost trend rate would change the accumulated postretirement benefit obligation by $11 million.

We review our pension and other postretirement benefit plan assumptions on an annual basis. We calculate the net periodic benefit cost each year based on assumptions established at the end of the previous calendar year, unless we remeasure as a result of a curtailment. In determining our net periodic benefit costs, we assess the discount rate to be used in the annual actuarial valuation of our pension and other postretirement benefit obligations at year-end. We consider the current yields on high-quality, corporate fixed-income debt instruments with maturities corresponding to the expected duration of our benefit obligations and supported by cash flow matching analysis based on expected cash flows specific to the characteristics of our plan participants, such as age and gender. As of December 31, 2012, the discount rate used to determine our obligation decreased by 80 basis points for pension and 70 basis points for postretirement, reflecting a corresponding rate decrease in corporate-fixed income debt instruments during 2012. We also assess the long-term rate of return on plan assets for our qualified pension plan. The return on asset assumption reflects our expectations for plan-level returns over a term of approximately seven to ten years. Given the longer-term nature of the assumption and a stable investment policy, it may or may not change from year to year. However, if longer-term market cycles or other economic developments impact the global investment environment, or asset allocation changes are made, we may adjust our assumption accordingly. Changes in assumptions used in determining pension and other postretirement benefits resulted in an increase in benefit cost of $22 million, $17 million, and $4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Qualified Pension Plan Assets

The following table displays our qualified pension plan assets by asset category at their fair value as of December 31, 2012 and 2011. The fair value of assets in Level 1 have been determined based on quoted prices of identical assets in active markets as of year end, while the fair value of assets in Level 2 have been determined based on the net asset value per share of the investments as of year end. None of the fair values for plan assets were determined by using significant unobservable inputs, or Level 3.

	Fair Value Measurement as of December 31,
	2012								2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Total
	(Dollars in millions)
Cash equivalents		$	—		$	16	$	16		$	—		$	22	$	22
Equity securities:
U.S. large-cap(1)		405			—		405			353			—		353
U.S. mid/small cap(2)		105			—		105			91			—		91
International(3)		—			215		215			—			167		167
Fixed income securities:
Investment grade credit(4)		—			486		486			—			409		409
Total plan assets at fair value		$	510		$	717	$	1,227		$	444		$	598	$	1,042

__________

⁽¹⁾  Consists of a publicly traded equity index fund that tracks the S&P 500.

⁽²⁾  Consists of a publicly traded equity index fund that tracks all regularly traded U.S. stocks except those in the S&P 500.

⁽³⁾  Consists of an international equity fund that tracks an index of approximately 6,100 and 6,400 securities for 2012 and 2011, respectively, across over 40 countries. United Kingdom has the largest share with 15% and 16% in 2012 and 2011, respectively.

⁽⁴⁾  Consists of a bond fund that tracks a broadly diversified investment grade index that consists of approximately 3,600 and 3,000 issuances of investment grade bonds for 2012 and 2011, respectively, from diverse industries. International markets represent 19% and 20% of the fund in 2012 and 2011, respectively.

Our investment strategy is to diversify our plan assets in order to reduce our concentration risk, reflect the plan’s profile over time, and maintain an asset allocation that allows us to meet current and future benefit obligations. The assets of the qualified pension plan consist of exchange-listed stocks, held in broadly diversified index funds. We also invest in a broadly diversified indexed fixed income account. In addition, the plan holds liquid short-term investments that provide for monthly pension payments, plan expenses and, from time to time, may represent uninvested contributions or reallocation of plan assets. The target allocations for plan assets are from 55% to 65% for equity securities, 35% to 45% for fixed income securities and up to 2% for all other types of investments. The plan fiduciary periodically assesses our asset allocation to ensure it is consistent with our plan objective.

Expected Benefit Payments

The following table displays the benefits we expect to pay in each of the next five years and in the aggregate for the subsequent five years for our pension plans and other postretirement plan and are based on the same assumptions used to measure our benefit obligation as of December 31, 2012.

	Expected Retirement Plan Benefit Payments
				Other Postretirement Benefits
	Pension Benefits			Before Medicare Part D Subsidy			Medicare Part D Subsidy
	(Dollars in millions)
2013		$	40		$	8		$	1
2014		44			8			1
2015		49			9			1
2016		54			9			1
2017		59			10			1
2018 — 2022		405			64			6

Defined Contribution Plans

Retirement Savings Plan

The Retirement Savings Plan is a defined contribution plan that includes a 401(k) before-tax feature, a regular after-tax feature and a Roth after-tax feature. Under the plan, eligible employees may allocate investment balances to a variety of investment options.

We match employee contributions in cash up to 6% of eligible compensation (base salary, overtime pay and eligible incentive compensation) for employees who are not active in our defined benefit pension plan and up to 3% of eligible compensation (base salary only) for employees who are active in our defined benefit pension plan. Matching contributions for employees who are not active in our defined benefit pension plan are 100% vested and matching contributions for employees who are active in our defined benefit pension plan are fully vested after 5 years of service.

All employees, with the exception of those who participated in the Executive Pension Plan, receive a 2% contribution regardless of employee contributions to this plan. Participants are fully vested in this 2% contribution after three years of service.

The maximum employee contribution as established by the IRS was $17,000 for the year ended December 31, 2012 and $16,500 for the years ended December 31, 2011 and 2010, with additional “catch-up” contributions permitted for participants aged 50 and older of $5,500.

There was no option to invest directly in our common stock for the years ended December 31, 2012, 2011 and 2010. We recorded expense for this plan of $53 million, $55 million and $47 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Supplemental Retirement Savings Plan

The Supplemental Retirement Savings Plan is an unfunded, nonqualified defined contribution plan. This plan supplements our Retirement Savings Plan to provide benefits to employees who are not grandfathered under our defined benefit pension plan and whose annual eligible earnings exceed the IRS annual limit on eligible compensation for 401(k) plans.

We credit to the plan 8% of a participant’s eligible compensation that exceeds the IRS annual limit of $250,000 in 2012. Eligible compensation consists of base salary plus eligible incentive compensation earned, if any, up to a combined maximum of two times base salary. The 8% credit consists of (1) a 6% credit that vests immediately, and (2) a 2% credit that vests after three years of service.