Note 15
Employee Benefit Plans
Pension and Postretirement Plans
The Corporation sponsors noncontributory trusteed qualified pension plans that cover substantially all officers and employees. The plans provide defined benefits based on an employee’s compensation, age and years of service. The Bank of America Pension Plan (the Pension Plan) provides participants with compensation credits, based on age and years of service. The Pension Plan allows participants to select from various earnings measures, which are based on the returns of certain funds or common stock of the Corporation. The participant-selected earnings measures determine the earnings rate on the individual participant account balances in the Pension Plan. Participants may elect to modify earnings measure allocations on a periodic basis subject to the provisions of the Pension Plan. The benefits become vested upon completion of five years of service. It is the policy of the Corporation to fund not less than the minimum funding amount required by ERISA.
The Pension Plan has a balance guarantee feature, applied at the time a benefit payment is made from the plan, that protects participant balances transferred and certain compensation credits from future market downturns. The Corporation is responsible for funding any shortfall on the guarantee feature.
The Corporation sponsors a number of noncontributory, nonqualified pension plans. 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.
As a result of the Merger, the Corporation assumed the obligations related to the plans of former FleetBoston. These plans are substantially similar to the legacy Bank of America plans discussed above, however, the FleetBoston Financial Pension Plan does not allow participants to select various earnings measures, rather the earnings rate is based on a benchmark rate. The tables within this Note include the information related to these plans beginning on April 1, 2004.
Reflected in these results are key changes to the Postretirement Health and Life Plans and the Nonqualified Pension Plans. On December 8, 2003, the President signed the Medicare Act into law. The Medicare Act introduces a voluntary prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care plans that provide at least an actuarially equivalent benefit. In the third quarter of 2004, the Corporation adopted FSP No. 106-2, which resulted in a reduction of $53 million in the Corporation’s accumulated postretirement benefit obligation. In addition, the Corporation’s net periodic benefit cost for other postretirement benefits has decreased by $15 million for 2004 as a result of the remeasurement. Additionally, in 2002, a one-time curtailment charge resulted from freezing benefits for supplemental executive retirement agreements.
The following 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, 2004 and 2003. Prepaid and accrued benefit costs are reflected in Other Assets, and Accrued Expenses and Other Liabilities, respectively, on the Consolidated Balance Sheet. The discount rate assumption is based on the internal rate of return for a portfolio of high quality bonds (Moody’s Aa Corporate bonds) with maturities that are consistent with projected future cash flows. For the Pension Plan and the FleetBoston Pension Plan (the Qualified Pension Plans), as well as the Postretirement Health and Life Plans, the discount rate at December 31, 2004, was 5.75 percent.
For both the Qualified Pension Plans and the Postretirement Health and Life Plans, the expected long-term return on plan assets will be 8.50 percent for 2005. The expected return on plan assets is determined using the calculated market-related value for the Qualified Pension Plans and the fair value for the Postretirement Health and Life Plans. The asset valuation method for the Qualified Pension Plans recognizes 60 percent of the market gains or losses in the first year, with the remaining 40 percent spread equally over the next four years.
| |
Qualified Pension Plans: 2004(1) |
Qualified Pension Plans: 2003(1) |
Nonqualified Pension Plans: 2004(1) |
Nonqualified Pension Plans: 2003(1) |
Postretirement Health and Life Plans: 2004(1) |
Postretirement Health and Life Plans: 2003(1) |
| |
Qualified Pension Plans (1) |
Nonqualified Pension Plans (1) |
Postretirement Health and Life Plans (1) |
|  |
(Dollars in millions) |
2004 |
2003 |
2004 |
2003 |
2004 |
2003 |
| |
| Change in fair value of plan assets |
|
|
|
|
|
|
| (Primarily listed stocks, fixed income and real estate) |
|
|
|
|
|
|
| Fair value, January 1 |
$ 8,975 |
$7,518 |
$ - |
$ - |
$ 156 |
$ 181 |
| FleetBoston balance, April 1, 2004 |
2,277 |
- |
1 |
- |
45 |
- |
| Actual return on plan assets |
1,447 |
1,671 |
- |
- |
25 |
25 |
| Company contributions(2) |
200 |
400 |
63 |
47 |
40 |
13 |
| Plan participant contributions |
- |
- |
- |
- |
82 |
62 |
| Benefits paid |
(746) |
(614) |
(63) |
(47) |
(182) |
(125) |
|
| Fair value, December 31 |
$12,153 |
$8,975 |
$ 1 |
$ - |
$ 166 |
$ 156 |
|
|
| Change in projected benefit obligation |
|
|
|
|
|
|
| Projected benefit obligation, January 1 |
$ 8,428 |
$7,627 |
$ 712 |
$ 652 |
$ 1,127 |
$1,058 |
| FleetBoston balance, April 1, 2004 |
2,045 |
- |
377 |
- |
196 |
- |
| Service cost |
257 |
187 |
27 |
25 |
9 |
9 |
| Interest cost |
623 |
514 |
62 |
45 |
76 |
68 |
| Plan participant contributions |
- |
- |
- |
- |
82 |
62 |
| Plan amendments |
19 |
- |
(74) |
- |
(12) |
(36) |
| Actuarial loss |
835 |
714 |
53 |
37 |
56 |
91 |
| Benefits paid |
(746) |
(614) |
(63) |
(47) |
(182) |
(125) |
|
| Projected benefit obligation, December 31 |
$11,461 |
$8,428 |
$ 1,094 |
$ 712 |
$ 1,352 |
$1,127 |
|
|
| Funded status, December 31 |
|
|
|
|
|
|
| Accumulated benefit obligation (ABO) |
$11,025 |
$8,028 |
$ 1,080 |
$ 628 |
n/a |
n/a |
| Overfunded (unfunded) status of ABO |
1,128 |
947 |
(1,079) |
(628) |
n/a |
n/a |
| Provision for future salaries |
436 |
400 |
14 |
84 |
n/a |
n/a |
| Projected benefit obligation (PBO) |
11,461 |
8,428 |
1,094 |
712 |
$ 1,352 |
$1,127 |
|
| Overfunded (unfunded) status of PBO |
$ 692 |
$ 547 |
$(1,093) |
$(712) |
$(1,186) |
$ (971) |
| Unrecognized net actuarial loss |
2,364 |
2,153 |
234 |
195 |
112 |
139 |
| Unrecognized transition obligation |
- |
- |
- |
- |
252 |
291 |
| Unrecognized prior service cost |
328 |
364 |
(59) |
18 |
- |
6 |
|
| Prepaid (accrued) benefit cost |
$ 3,384 |
$3,064 |
$ (918) |
$(499) |
$ (822) |
$ (535) |
|
|
| Weighted average assumptions, December 31 |
|
|
|
|
|
|
| Discount rate (3) |
5.75 % |
6.25 % |
5.75 % |
6.25 % |
5.75 % |
6.25 % |
| Expected return on plan assets |
8.50 |
8.50 |
n/a |
n/a |
8.50 |
8.50 |
| Rate of compensation increase |
4.00 |
4.00 |
4.00 |
4.00 |
n/a |
n/a |
|
|
Amounts recognized in the Consolidated Financial Statements at December 31, 2004 and 2003 are as follows:
| |
Qualified Pension Plans: 2004 |
Qualified Pension Plans: 2003 |
Nonqualified Pension Plans: 2004 |
Nonqualified Pension Plans: 2003 |
Postretirement Health and Life Plans: 2004 |
Postretirement Health and Life Plans: 2003 |
| |
Qualified
Pension Plans |
Nonqualified
Pension Plans |
Postretirement
Health and Life Plans |
| |
(Dollars in millions) |
2004 |
2003 |
2004 |
2003 |
2004 |
2003 |
| |
| Prepaid benefit cost |
$3,384 |
$3,064 |
$ - |
$ - |
$ - |
$ - |
| Accrued benefit cost |
- |
- |
(918) |
(499) |
(822) |
(535) |
| Additional minimum liability |
- |
- |
(161) |
(129) |
- |
- |
| Intangible asset |
- |
- |
1 |
18 |
- |
- |
| Accumulated other comprehensive income |
- |
- |
160 |
111 |
- |
- |
|
| Net amount recognized December 31 |
$3,384 |
$3,064 |
$(918) |
$(499) |
$(822) |
$(535) |
|
Net periodic pension benefit cost for 2004, 2003 and 2002 included in the following components:
| |
Qualified Pension Plans: 2004 |
Qualified Pension Plans: 2003 |
Qualified Pension Plans: 2002 |
Nonqualified Pension Plans: 2004 |
Nonqualified Pension Plans: 2003 |
Nonqualified Pension Plans: 2002 |
| |
Qualified Pension Plans |
Nonqualified Pension Plans |
| |
(Dollars in millions) |
2004 |
2003 |
2002 |
2004 |
2003 |
2002 |
| |
| Components of net periodic pension benefit cost |
|
|
|
|
|
|
| Service cost |
$257 |
$187 |
$199 |
$ 27 |
$25 |
$ 27 |
| Interest cost |
623 |
514 |
540 |
62 |
45 |
44 |
| Expected return on plan assets |
(915) |
(735) |
(746) |
- |
- |
- |
| Amortization of transition asset |
- |
- |
- |
- |
- |
- |
| Amortization of prior service cost |
55 |
55 |
55 |
3 |
3 |
10 |
| Recognized net actuarial loss |
92 |
47 |
- |
14 |
11 |
11 |
| Recognized loss due to settlements and curtailments |
- |
- |
- |
- |
- |
26 |
|
| Net periodic pension benefit cost |
$112 |
$ 68 |
$ 48 |
$106 |
$84 |
$118 |
|
Weighted average assumptions used to determine net cost
for years ended December 31 |
|
|
|
|
|
|
| Discount rate (1) |
6.25 % |
6.75 % |
7.25 % |
6.25 % |
6.75 % |
7.25 % |
| Expected return on plan assets |
8.50 |
8.50 |
8.50 |
n/a |
n/a |
n/a |
| Rate of compensation increase |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
4.00 |
|
|
|
| n/a = not applicable |
|
For 2004, 2003 and 2002, net periodic postretirement benefit cost included the following components:
(Dollars in millions) |
|
2003 |
2002 |
| |
| Components of net periodic postretirement benefit cost |
|
|
|
| Service cost |
$ 9 |
$ 9 |
$ 11 |
| Interest cost |
76 |
68 |
67 |
| Expected return on plan assets |
(16) |
(15) |
(17) |
| Amortization of transition obligation |
32 |
32 |
32 |
| Amortization of prior service cost |
1 |
4 |
6 |
| Recognized net actuarial loss |
74 |
89 |
40 |
|
| Net periodic postretirement benefit cost |
$176 |
$187 |
$139 |
|
Weighted average assumptions used to determine net cost
for years ended December 31 |
|
|
|
| Discount rate (2) |
6.25 % |
6.75 % |
7.25 % |
| Expected return on plan assets |
8.50 |
8.50 |
8.50 |
|
|
Net periodic postretirement health and life expense was determined using the “projected unit credit” actuarial method. Gains and losses for all benefits except postretirement health care are recognized in accordance with the standard amortization provisions of the applicable accounting standards. For the Postretirement Health Care Plans, 50 percent of the unrecognized gain or loss at the beginning of the fiscal year (or at subsequent remeasurement) is recognized on a level basis during the year.
Assumed health care cost trend rates affect the postretirement benefit obligation and benefit cost reported for the Postretirement Health Care Plans. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the Postretirement Health Care Plans was 10 percent for 2005, reducing in steps to 5 percent in 2008 and later years. A one-percentage-point increase in assumed health care cost trend rates would have increased the service and interest costs and the benefit obligation by $4 million and $56 million, respectively, in 2004, $4 million and $52 million, respectively, in 2003, and $5 million and $61 million, respectively, in 2002. A one-percentage-point decrease in assumed health care cost trend rates would have lowered the service and interest costs and the benefit obligation by $3 million and $48 million, respectively, in 2004, $3 million and $48 million, respectively, in 2003, and $4 million and $52 million, respectively, in 2002.
Plan Assets
The Qualified Pension Plans have been established as retirement vehicles for participants, and trusts have been established to secure benefits promised under the Qualified Pension Plans. The Corporation’s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the long-term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Corporation while complying with ERISA and any subsequent applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/reward profile of the assets. Asset allocation ranges are established, periodically reviewed, and adjusted as funding levels and liability characteristics change. Active and passive investment managers are employed to help enhance the risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset allocation plan) includes matching the equity exposure of participant-selected earnings measures. For example, the common stock of the Corporation held in the trust is maintained as an offset to the exposure related to participants who selected to receive an earnings measure based on the return performance of common stock of the Corporation.
The Expected Return on Asset Assumption (EROA assumption) was developed through analysis of historical market returns, historical asset class volatility and correlations, current market conditions, anticipated future asset allocations, the funds’ past experience, and expectations on potential future market returns. The EROA assumption represents a long-term average view of the performance of the Qualified Pension Plans and Postretirement Health and Life Plan assets, a return that may or may not be achieved during any one calendar year. In a simplistic analysis of the EROA assumption, the building blocks used to arrive at the long-term return assumption would include an implied return from equity securities of 9 percent, debt securities of 6 percent, and real estate of 9 percent for all pension plans and postretirement health and life plans.
The Qualified Pension Plans’ asset allocation at December 31, 2004 and 2003 and target allocation for 2005 by asset category are as follows:
| Asset Category |
2005 Target Allocation |
Percentage of Plan Assets at December 31, 2004 |
Percentage of Plan Assets at December 31, 2003 |
Asset Category |
2005 Target
Allocation |
Percentage of Plan Assets
at December 31 |
|
2004 |
2003 |
|
| Equity securities |
65 - 80% |
75% |
71% |
| Debt securities |
20 - 35% |
23 |
28 |
| Real estate |
0 - 3% |
2 |
1 |
|
| Total |
|
100% |
100% |
|
Equity securities include common stock of the Corporation in the amounts of $871 million (7.17 percent of total plan assets) and $809 million (9.02 percent of total plan assets) at December 31, 2004 and 2003, respectively.
The Postretirement Health and Life Plans’ asset allocation at December 31, 2004 and 2003 and target allocation for 2005 by asset category are as follows:
| Asset Category |
2005 Target Allocation |
Percentage of Plan Assets at December 31, 2004 |
Percentage of Plan Assets at December 31, 2003 |
Asset Category |
2005 Target
Allocation |
Percentage of Plan Assets
at December 31 |
|
2004 |
2003 |
|
| Equity securities |
60 - 75% |
75% |
69% |
| Debt securities |
22 - 40% |
24 |
31 |
| Real estate |
0 - 3% |
1 |
- |
|
| Total |
|
100% |
100% |
|
The Bank of America Postretirement Health and Life Plans had no investment in the common stock of the Corporation at December 31, 2004 or 2003.The FleetBoston Postretirement Health and Life Plans included common stock of the Corporation in the amount of $0.3 million (0.20 percent of total plan assets) at December 31, 2004.
Projected Benefit Payments
Benefit payments projected to be made from the Qualified Pension Plans, the Nonqualified Pension Plans and the Postretirement Health and Life Plans are as follows:
| |
Qualified Pension Plans(1) |
Nonqualified Pension Plans(2) |
Postretirement Health and Life Plans: Net Payments(3) |
Postretirement Health and Life Plans: Medicare Subsidy |
(Dollars in millions) |
Qualified Pension Plans (1) |
Nonqualified Pension Plans (2) |
Postretirement Health and Life Plans |
|
|
Medicare Subsidy |
| |
| 2005 |
$ 806 |
$114 |
$109 |
$ - |
| 2006 |
831 |
89 |
109 |
(6) |
| 2007 |
856 |
81 |
107 |
(6) |
| 2008 |
881 |
93 |
104 |
(6) |
| 2009 |
908 |
92 |
101 |
(6) |
| 2010 - 2014 |
4,803 |
519 |
457 |
(26) |
|
|
Defined Contribution Plans
The Corporation maintains qualified defined contribution retirement plans and nonqualified defined contribution retirement plans. As a result of the Merger, beginning on April 1, 2004, the Corporation maintains the defined contribution plans of former FleetBoston.
There are two components of the qualified defined contribution plans, the Bank of America 401(k) Plan and the FleetBoston Financial Savings Plan (the 401(k) Plans), and an employee stock ownership plan (ESOP) and a profit-sharing plan. See Note 13 of the Consolidated Financial Statements for additional information on the ESOP provisions.
The Corporation contributed approximately $267 million, $204 million and $200 million for 2004, 2003 and 2002, respectively, in cash and stock. Contributions in 2003 and 2002 were utilized primarily to purchase the Corporation's common stock under the terms of the Bank of America 401(k)
Plan. At December 31, 2004 and 2003, an aggregate of 113 million shares and 45 million shares, respectively, of the Corporation’s common stock were held by the 401(k) Plans. During 2004, the Corporation converted the ESOP Preferred Stock held by the Bank of America 401(k) Plan to common stock so that there were no outstanding shares at December 31, 2004 in the 401(k) Plans. At December 31, 2003, one million shares of ESOP Preferred Stock were held by the Bank of America 401(k)
Plan.
Under the terms of the ESOP Preferred Stock provision, payments to the plan for dividends on the ESOP Preferred Stock were $4 million for 2004, $4 million for 2003 and $5 million for 2002. Payments to the plan for dividends on the ESOP Common Stock were $181 million, $128 million and $106 million during the same periods.
In addition, certain non-U.S. employees within the Corporation are covered under defined contribution pension plans that are separately administered in accordance with local laws.
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