Employee Benefit Plans

12 Months Ended

Dec. 31, 2019

PENSION AND OTHER POSTRETIREMENT BENEFITS

Regions' defined benefit pension plans cover only certain employees as the pension plans are closed to new entrants. Benefits under the pension plans are based on years of service and the employee’s highest five consecutive years of compensation during the last ten years of employment. Regions’ funding policy is to contribute annually at least the amount required by IRS minimum funding standards. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

The Company also sponsors a SERP, which is a non-qualified pension plan that provides certain senior executive officers defined benefits in relation to their compensation. Actuarially determined pension expense is charged to current operations using the projected unit credit method. All defined benefit plans are referred to as “the plans” throughout the remainder of this footnote.

The following table sets forth the plans’ change in benefit obligation, plan assets and funded status, using a December 31 measurement date, and amounts recognized in the consolidated balance sheets at December 31:



	Qualified Plans						Non-qualified Plans						Total
	2019			2018			2019			2018			2019			2018
	(In millions)
Change in benefit obligation
Projected benefit obligation, beginning of year	$	1,865		$	2,134		$	145		$	151		$	2,010		$	2,285
Service cost	28			35			3			3			31			38
Interest cost	75			70			5			5			80			75
Actuarial (gains) losses	349			(211		)	33			(3		)	382			(214		)
Benefit payments	(122		)	(159		)	(7		)	(11		)	(129		)	(170		)
Administrative expenses	(3		)	(4		)	—			—			(3		)	(4		)
Plan settlements	—			—			(7		)	—			(7		)	—
Projected benefit obligation, end of year	$	2,192		$	1,865		$	172		$	145		$	2,364		$	2,010
Change in plan assets
Fair value of plan assets, beginning of year	$	2,105		$	2,218		$	—		$	—		$	2,105		$	2,218
Actual return on plan assets	319			(50		)	—			—			319			(50		)
Company contributions	—			100			14			11			14			111
Benefit payments	(122		)	(159		)	(7		)	(11		)	(129		)	(170		)
Administrative expenses	(3		)	(4		)	—			—			(3		)	(4		)
Plan settlements	—			—			(7		)	—			(7		)	—
Fair value of plan assets, end of year	$	2,299		$	2,105		$	—		$	—		$	2,299		$	2,105
Funded status and accrued benefit (cost) at measurement date	$	107		$	240		$	(172	)	$	(145	)	$	(65	)	$	95
Amount recognized in the Consolidated Balance Sheets:
Other assets	$	107		$	240		$	—		$	—		$	107		$	240
Other liabilities	—			—			(172		)	(145		)	(172		)	(145		)
	$	107		$	240		$	(172	)	$	(145	)	$	(65	)	$	95
Pre-tax amounts recognized in Accumulated Other Comprehensive (Income) Loss:
Net actuarial loss	$	736		$	604		$	66		$	39		$	802		$	643
Prior service cost (credit)	—			—			—			1			—			1
	$	736		$	604		$	66		$	40		$	802		$	644

The accumulated benefit obligation for the qualified plans was $2.1 billion and $1.8 billion as of December 31, 2019 and 2018, respectively. Total plan assets exceeded the corresponding accumulated benefit obligation for the qualified plans as of both December 31, 2019 and 2018. The accumulated benefit obligation for the non-qualified plans was $171 million and $141 million as of December 31, 2019 and 2018, respectively, which exceeded all corresponding plan assets for each period. As of December 31, 2019 and 2018, the actuarial (gains) losses related to the change in the benefit obligation were primarily driven by changes in the discount rate.

Net periodic pension cost (benefit) included the following components for the years ended December 31:



	Qualified Plans									Non-qualified Plans						Total
	2019			2018			2017			2019		2018		2017		2019			2018			2017
	(In millions)
Service cost	$	28		$	35		$	34		$	3	$	3	$	4	$	31		$	38		$	38
Interest cost	75			70			72			5		5		5		80			75			77
Expected return on plan assets	(137		)	(153		)	(143		)	—		—		—		(137		)	(153		)	(143		)
Amortization of actuarial loss	36			31			32			5		5		4		41			36			36
Settlement charge	—			—			—			2		—		12		2			—			12
Net periodic pension (benefit) cost	$	2		$	(17	)	$	(5	)	$	15	$	13	$	25	$	17		$	(4	)	$	20

The service cost component of net periodic pension (benefit) cost is recorded in salaries and employee benefits on the consolidated statements of income. Components other than service cost are recorded in other non-interest expense on the consolidated statements of income.

The settlement charges relate to the settlement of liabilities under the SERP for certain plan participants.

The assumptions used to determine benefit obligations at December 31 are as follows:



	Qualified Plans				Non-qualified Plans
	2019		2018		2019		2018
Discount rate	3.35	%	4.38	%	3.05	%	4.18	%
Rate of annual compensation increase	4.00	%	3.75	%	3.00	%	3.75	%

The weighted-average assumptions used to determine net periodic pension (benefit) cost for the years ended December 31 are as follows:



	Qualified Plans						Non-qualified Plans
	2019		2018		2017		2019		2018		2017
Discount rate	4.39	%	3.70	%	4.34	%	4.18	%	3.49	%	3.93	%
Expected long-term rate of return on plan assets	6.84	%	6.84	%	7.25	%	N/A		N/A		N/A
Rate of annual compensation increase	3.75	%	3.75	%	3.75	%	3.75	%	3.75	%	3.75	%

Regions utilizes a disaggregated approach in the estimation of the service and interest components of net periodic pension costs by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. This provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates.

The expected long-term rate of return on the qualified plans' assets is based on an estimated reasonable range of probable returns. The assumption is established by considering historical and anticipated return of the asset classes invested in by the qualified plans and the allocation strategy currently in place among those classes. Management chose a point within the range based on the probability of achievement combined with incremental returns attributable to active management. For 2020, the expected long-term rate of return on plan assets is 6.74 percent.

The qualified plans' investment strategy is continuing to shift from focusing on maximizing asset returns to minimizing funding ratio volatility, with a planned increase in the allocation to fixed income securities. The combined target asset allocation is 51 percent equities, 37 percent fixed income securities and 12 percent in all other types of investments. Equity securities include investments in large and small/mid cap companies primarily located in the U.S., international equities, and private equities. Fixed income securities include investments in corporate and government bonds, asset-backed securities and any other fixed income investments as allowed by respective prospectuses and other offering documents. Other types of investments may include hedge funds and real estate funds that follow several different strategies. The plans' assets are highly diversified with respect to asset class, security and manager. Investment risk is controlled with the plans' assets rebalancing to target allocations on a periodic basis and continual monitoring of investment managers’ performance relative to the investment guidelines established with each investment manager.

Regions’ qualified plans have a portion of their investments in Regions' common stock. At December 31, 2019, the plans held 2,855,618 shares, which represents a total market value of approximately $49.0 million, or approximately 2.2 percent of the plans' assets.

The following table presents the fair value of Regions’ qualified pension plans’ financial assets as of December 31:



	2019								2018
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
	(In millions)
Cash and cash equivalents	$	25	$	—	$	—	$	25	$	158	$	—	$	—	$	158
Fixed income securities:
U.S. Treasury securities	$	400	$	—	$	—	$	400	$	127	$	—	$	—	$	127
Federal agency securities	—		24		—		24		—		21		—		21
Corporate bonds	—		—		—		—		—		216		—		216
Total fixed income securities	$	400	$	24	$	—	$	424	$	127	$	237	$	—	$	364
Equity securities:
Domestic	$	346	$	—	$	—	$	346	$	287	$	—	$	—	$	287
International	176		—		—		176		186		—		—		186
Total equity securities	$	522	$	—	$	—	$	522	$	473	$	—	$	—	$	473
International mutual funds	$	181	$	—	$	—	$	181	$	159	$	—	$	—	$	159
Total assets in the fair value hierarchy	$	1,128	$	24	$	—	$	1,152	$	917	$	237	$	—	$	1,154
Collective trust funds:
Fixed income fund⁽¹⁾							$	681							$	405
Common stock fund⁽¹⁾							178								246
International fund⁽¹⁾							—								—
Total collective trust funds							$	859							$	651
Hedge funds measured at NAV⁽¹⁾							$	—							$	1
Real estate funds measured at NAV⁽¹⁾							$	187							$	200
Private equity funds measured at NAV⁽¹⁾							$	101							$	99
							$	2,299							$	2,105

__________

(1) In accordance with accounting guidance, investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not required to be classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of amounts reported in the fair value hierarchy to amounts reported on the balance sheet.

For all investments, the plans attempt to use quoted market prices of identical assets on active exchanges, or Level 1 measurements. Where such quoted market prices are not available, the plans typically employ quoted market prices of similar instruments (including matrix pricing) and/or discounted cash flows to estimate a value of these securities, or Level 2 measurements. Level 2 discounted cash flow analyses are typically based on market interest rates, prepayment speeds and/or option adjusted spreads.

Investments held in the plans consist of cash and cash equivalents, fixed income securities , equity securities, collective trust funds, hedge funds, real estate funds, private equity and other assets and are recorded at fair value on a recurring basis. See Note 1 for a description of valuation methodologies related to U.S. Treasuries, federal agency securities, and equity securities. The methodology described in Note 1 for other debt securities is applicable to corporate bonds.

Mutual funds are valued based on quoted market prices of identical assets on active exchanges; these valuations are Level 1 measurements. Collective trust funds, hedge funds, real estate funds, private equity funds and other assets are valued based on net asset value or the valuation of the limited partner’s portion of the equity of the fund. Third party fund managers provide these valuations based primarily on estimated valuations of underlying investments.

Information about the expected cash flows for the qualified and non-qualified plans is as follows:



	Qualified Plans		Non-qualified Plans
	(In millions)
Expected Employer Contributions:
2020	$	—	$	11
Expected Benefit Payments:
2020	$	126	$	11
2021	135		30
2022	135		29
2023	134		14
2024	135		10
Next five years	667		59

OTHER PLANS

Regions has a defined-contribution 401(k) plan that includes a Company match of eligible employee contributions. Eligible employees include those who have been employed for one year and have worked a minimum of 1,000 hours. The Company match is invested based on the employees' allocation elections. In 2019, 2018 and 2017, Regions provided an automatic 2 percent cash 401(k) contribution to eligible employees regardless of whether or not they were contributing to the 401(k) plan. To receive this contribution, employees must be employed at the end of the year and not actively accruing a benefit in the Regions’ pension plans. Regions’ cash contribution was approximately $17 million for 2019 and $18 million for both 2018 and 2017. For 2019, eligible employees who were already contributing to the 401(k) plan received up to a 5 percent Company match plus the automatic 2 percent cash contribution. In 2018 and 2017, eligible employees who were already contributing to the 401(k) plan received up to a 4 percent Company match plus the automatic 2 percent cash contribution. Regions’ match to the 401(k) plan on behalf of employees totaled $58 million in 2019 and $48 million in both 2018 and 2017. Regions’ 401(k) plan held 21 million shares and 23 million shares of Regions' common stock at December 31, 2019 and 2018, respectively. The 401(k) plan received approximately $13 million, $10 million and $8 million in dividends on Regions' common stock for the years ended December 31, 2019, 2018 and 2017, respectively.

Regions also sponsors defined benefit postretirement health care plans that cover certain retired employees. For these certain employees retiring before normal retirement age, the Company currently pays a portion of the costs of certain health care benefits until the retired employee becomes eligible for Medicare. Certain retirees, participating in plans of acquired entities, are offered a Medicare supplemental benefit. The plan is contributory and contains other cost-sharing features such as deductibles and co-payments. Retiree health care benefits, as well as similar benefits for active employees, are provided through a self-insured program in which Company and retiree costs are based on the amount of benefits paid. The Company’s policy is to fund the Company’s share of the cost of health care benefits in amounts determined at the discretion of management. Postretirement life insurance is also provided to a grandfathered group of employees and retirees.