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Pension, Savings, and Other Employee Benefits | 12 Months Ended
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Dec. 31, 2019
Retirement Benefits [Abstract] |
Pension, Savings, and Other Employee Benefits | Pension, Savings, and Other Employee Benefits Pension plan. FHN sponsors a noncontributory, qualified defined benefit pension plan to employees hired or re-hired on or before September 1, 2007. Pension benefits are based on years of service, average compensation near retirement or other termination, and estimated social security benefits at age 65. Benefits under the plan are “frozen” so that years of service and compensation changes after 2012 do not affect the benefit owed. Minimum contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation. Decisions to contribute to the plan are based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and trends in the regulatory environment. FHN made no contributions to the qualified pension plan in 2019 and 2017, and made an insignificant contribution to the qualified pension plan in 2018. Management does not currently anticipate that FHN will make a contribution to the qualified pension plan in 2020. FHN assumed two additional qualified pension plans in conjunction with the CBF acquisition. Both legacy CBF plans were frozen at the time of acquisition. As of December 31, 2018, the aggregate benefit obligation for the plans was $17.1 million and aggregate plan assets were $16.5 million. Benefit payments, expense and actuarial gains/losses related to these plans were insignificant for the first half of 2019 and 2018. In third quarter 2019, FHN settled these plans through the purchase of annuity contracts, making related contributions of $.5 million. Due to the insignificant financial statement impact, these two plans are not included in the disclosures that follow. FHN also maintains non-qualified plans including a supplemental retirement plan that covers certain employees whose benefits under the qualified pension plan have been limited by tax rules. These other non-qualified plans are unfunded, and contributions to these plans cover all benefits paid under the non-qualified plans. Payments made under the non-qualified plans were $5.2 million for 2019. FHN anticipates making benefit payments under the non-qualified plans of $5.2 million in 2020. Savings plan. FHN provides all qualifying full-time employees with the opportunity to participate in FHN's tax qualifi ed 401(k) savings plan. The qualified plan allows employees to defer receipt of earned salary, up to tax law limits, on a tax-advantaged basis. Accounts, which are held in trust, may be invested in a wide range of mutual funds and in FHN common stock. Up to tax law limits, FHN provides a 100 percent match for the first 6 percent of salary deferred, with company matching contributions invested according to a participant’s current investment election. Through a non-qualified savings restoration plan, FHN provides a restorative benefit to certain highly-compensated employees who participate in the savings plan and whose contribution elections are capped by tax limitations. FHN also provides “flexible dollars” to assist employees with the cost of annual benefits and/or allow the employee to contribute to his or her qualified savings plan account. These “flexible dollars” are pre-tax contributions and are based upon the employees’ years of service and qualified compensation. Contributions made by FHN through the flexible benefits plan and the company matches were $27.7 million for 2019, $29.3 million for 2018, and $23.0 million for 2017. Other employee benefits. FHN provides postretirement life insurance benefits to certain employees and also provides postretirement medical insurance benefits to retirement-eligible employees. The postretirement medical plan is contributory with FHN contributing a fixed amount for certain participants. FHN’s postretirement benefits include certain prescription drug benefits. Actuarial assumptions. FHN’s process for developing the long-term expected rate of return of pension plan assets is based on capital market exposure as the source of investment portfolio returns. Capital market exposure refers to the plan’s allocation of its assets to asset classes, which primarily represent fixed income investments. FHN also considers expectations for inflation, real interest rates, and various risk premiums based primarily on the historical risk premium for each asset class. The expected return is based upon a time horizon of thirty years. Given its funded status, the asset allocation strategy for the qualified pension plan utilizes fixed income instruments that closely match the estimated duration of payment obligations. Consequently, FHN selected a 4.80 percent assumption for 2019 for the qualified defined benefit pension plan and a .05 percent assumption for postretirement medical plan assets dedicated to employees who retired prior to January 1, 1993. FHN selected a 6.85 percent assumption for 2019 for postretirement medical plan assets dedicated to employees who retired after January 1, 1993. The discount rates for the three years ended 2019 for pension and other benefits were determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty years. The discount rates are selected based upon data specific to FHN’s plans and employee population. The bonds used to create the hypothetical yield curve were subjected to several requirements to ensure that the resulting rates were representative of the bonds that would be selected by management to fulfill the company’s funding obligations. In addition to the AA rating, only non-callable bonds were included. Each bond issue was required to have at least $300 million par outstanding so that each issue was sufficiently marketable. Finally, bonds more than two standard deviations from the average yield were removed. When selecting the discount rate, FHN matches the duration of high quality bonds with the duration of the obligations of the plan as of the measurement date. For all years presented, the measurement date of the benefit obligations and net periodic benefit costs was December 31. The actuarial assumptions used in the defined benefit pension plans and other employee benefit plans were as follows:
|  | Benefit Obligations |  | Net Periodic Benefit Cost
2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017
Discount rate |  |  |  |  |  |  |  |  |  |  |  |
Qualified pension |  | 3.31% |  | 4.43% |  | 3.76% |  | 4.43% |  | 3.75% |  | 4.37%
Nonqualified pension |  | 3.08% |  | 4.26% |  | 3.59% |  | 4.26% |  | 3.59% |  | 4.07%
Other nonqualified pension |  | 2.57% |  | 3.83% |  | 3.19% |  | 3.83% |  | 3.19% |  | 3.39%
Postretirement benefits |  | 2.85% - 3.44% |  | 4.03% - 4.56% |  | 3.37% - 3.87% |  | 4.04% - 4.56% |  | 3.35% - 3.87% |  | 3.68% - 4.57%
Expected long-term rate of return |  |  |  |  |  |  |  |  |  |  |  |
Qualified pension/ postretirement benefits |  | N/A |  | N/A |  | N/A |  | 4.80% |  | 4.20% |  | 4.50%
Postretirement benefit (retirees post January 1, 1993) |  | N/A |  | N/A |  | N/A |  | 6.85% |  | 5.95% |  | 6.00%
Postretirement benefit (retirees prior to January 1, 1993) |  | N/A |  | N/A |  | N/A |  | 0.05% |  | 2.15% |  | 2.15%
The rate of compensation increase previously had a significant effect on the actuarial assumptions used for the defined benefit pension plan. However, since the benefits in the pension plan are frozen, the rate of compensation increase has no effect upon qualified pension benefits. FHN has one pension plan where participants' benefits are affected by interest crediting rates. The plan's projected benefit obligation as of December 31, 2019, 2018 and 2017 and interest crediting rates for the respective years are:
(Dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Projected benefit obligation |  | $ | 16,213 |  |  | $ | 16,947 |  |  | $ | 19,115 |
Interest crediting rate |  | 9.66 | % |  | 10.12 | % |  | 9.28 | %
The components of net periodic benefit cost for the plan years 2019, 2018 and 2017 are as follows:
(Dollars in thousands) |  | Total Pension Benefits |  | Other Benefits
2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017
Components of net periodic benefit cost |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 30 |  |  | $ | 41 |  |  | $ | 37 |  |  | $ | 94 |  |  | $ | 133 |  |  | $ | 107 |
Interest cost |  | 30,207 |  |  | 27,877 |  |  | 29,380 |  |  | 1,413 |  |  | 1,309 |  |  | 1,305 |
Expected return on plan assets |  | (36,908 | ) |  | (32,897 | ) |  | (36,015 | ) |  | (1,136 | ) |  | (1,074 | ) |  | (947 | )
Amortization of unrecognized: |  |  |  |  |  |  |  |  |  |  |  |
Prior service cost/(credit) |  | — |  |  | — |  |  | 52 |  |  | 32 |  |  | — |  |  | 95 |
Actuarial (gain)/loss |  | 9,888 |  |  | 12,102 |  |  | 9,521 |  |  | (493 | ) |  | (387 | ) |  | (567 | )
Net periodic benefit cost |  | 3,217 |  |  | 7,123 |  |  | 2,975 |  |  | (90 | ) |  | (19 | ) |  | (7 | )
ASC 715 settlement expense |  | — |  |  | — |  |  | 43 |  |  | 194 |  |  | 99 |  |  | — |
Total periodic benefit costs |  | $ | 3,217 |  |  | $ | 7,123 |  |  | $ | 3,018 |  |  | $ | 104 |  |  | $ | 80 |  |  | $ | (7 | )
The long-term expected rate of return is applied to the market-related value of plan assets in determining the expected return on plan assets. FHN determines the market-related value of plan assets using a calculated value that recognizes changes in the fair value of plan assets over five years, as permitted by GAAP. FHN utilizes a spot rate approach which applies duration-specific rates from the full yield curve to estimated future benefit payments for the determination of interest cost. The following tables set forth the plans’ benefit obligations and plan assets for 2019 and 2018:
(Dollars in thousands) |  | Total Pension Benefits |  | Other Benefits
2019 |  | 2018 |  | 2019 |  | 2018
Change in benefit obligation |  |  |  |  |  |  |  |
Benefit obligation, beginning of year |  | $ | 765,309 |  |  | $ | 840,884 |  |  | $ | 35,174 |  |  | $ | 39,562 |
Service cost |  | 30 |  |  | 41 |  |  | 94 |  |  | 133 |
Interest cost |  | 30,207 |  |  | 27,877 |  |  | 1,413 |  |  | 1,309 |
Plan Amendments |  | — |  |  | — |  |  | 408 |  |  | — |
Actuarial (gain)/loss (a) |  | 102,775 |  |  | (68,724 | ) |  | 6,848 |  |  | (3,648 | )
Actual benefits paid |  | (38,450 | ) |  | (34,769 | ) |  | (1,641 | ) |  | (2,182 | )
Premium paid for annuity purchase (b) |  | (23,997 | ) |  | — |  |  | — |  |  | — |
Benefit obligation, end of year |  | $ | 835,874 |  |  | $ | 765,309 |  |  | $ | 42,296 |  |  | $ | 35,174 |
Change in plan assets |  |  |  |  |  |  |  |
Fair value of plan assets, beginning of year |  | $ | 730,953 |  |  | $ | 811,244 |  |  | $ | 17,432 |  |  | $ | 18,753 |
Actual return on plan assets |  | 154,054 |  |  | (49,470 | ) |  | 3,355 |  |  | (928 | )
Employer contributions |  | 3,510 |  |  | 3,948 |  |  | 1,259 |  |  | 1,789 |
Actual benefits paid – settlement payments |  | — |  |  | — |  |  | (1,641 | ) |  | (2,182 | )
Actual benefits paid – other payments |  | (38,450 | ) |  | (34,769 | ) |  | — |  |  | — |
Premium paid for annuity purchase (b) |  | (23,997 | ) |  | — |  |  | — |  |  | — |
Fair value of plan assets, end of year |  | $ | 826,070 |  |  | $ | 730,953 |  |  | $ | 20,405 |  |  | $ | 17,432 |
Funded (unfunded) status of the plans |  | $ | (9,804 | ) |  | $ | (34,356 | ) |  | $ | (21,891 | ) |  | $ | (17,742 | )
Amounts recognized in the Statements of Condition |  |  |  |  |  |  |  |
Other assets |  | $ | 27,433 |  |  | $ | 1,911 |  |  | $ | 17,240 |  |  | $ | 14,356 |
Other liabilities |  | (37,237 | ) |  | (36,267 | ) |  | (39,131 | ) |  | (32,098 | )
Net asset/(liability) at end of year |  | $ | (9,804 | ) |  | $ | (34,356 | ) |  | $ | (21,891 | ) |  | $ | (17,742 | )
(a) | Variances in the actuarial (gain)/loss are due to normal activity such as changes in discount rates, updates to participant demographic information and revisions to life expectancy assumptions.
(b) | 2019 amounts represent settlements of certain retired participants in the qualified pension plan that occurred during the year.
The projected benefit obligation for unfunded plans are as follows:
|  | Total Pension Benefits |  | Other Benefits
(Dollars in thousands |  | 2019 |  | 2018 |  | 2019 |  | 2018
Projected benefit obligation |  | $ | 37,237 |  |  | $ | 36,267 |  |  | $ | 39,131 |  |  | $ | 32,098 |
The qualified pension plan was overfunded as of December 31, 2019 by $27.4 million. Because of the pension freeze as of the end of 2012, the pension benefit obligation and the accumulated benefit obligation are the same as of December 31, 2019 and 2018. The qualified pension plan was overfunded as of December 31, 2018 by $1.9 million. FHN's funded post retirement plan was also in an overfunded status as of December 31, 2019 and 2018. Unrecognized actuarial gains and losses and unrecognized prior service costs and credits are recognized as a component of accumulated other comprehensive income. Balances reflected in accumulated other comprehensive income on a pre-tax basis for the years ended December 31, 2019 and 2018 consist of:
(Dollars in thousands) |  | Total Pension Benefits |  | Other Benefits
2019 |  | 2018 |  | 2019 |  | 2018
Amounts recognized in accumulated other comprehensive income |  |  |  |  |  |  |  |
Prior service cost/(credit) |  | $ | — |  |  | $ | — |  |  | $ | 408 |  |  | $ | — |
Net actuarial (gain)/loss |  | 362,799 |  |  | 387,058 |  |  | (1,555 | ) |  | (6,451 | )
Total |  | $ | 362,799 |  |  | $ | 387,058 |  |  | $ | (1,147 | ) |  | $ | (6,451 | )
The pre-tax amounts recognized in other comprehensive income during 2019 and 2018 were as follows:
(Dollars in thousands) |  | Total Pension Benefits |  | Other Benefits
2019 |  | 2018 |  | 2019 |  | 2018
Changes in plan assets and benefit obligation recognized in other comprehensive income |  |  |  |  |  |  |  |
Net actuarial (gain)/loss arising during measurement period |  | $ | (14,371 | ) |  | $ | 13,643 |  |  | $ | 4,629 |  |  | $ | (1,646 | )
Prior service cost/(credit) arising during measurement period |  | — |  |  | — |  |  | 408 |  |  | — |
Items amortized during the measurement period: |  |  |  |  |  |  |  |
Prior service credit/(cost) |  | — |  |  | — |  |  | (32 | ) |  | — |
Net actuarial gain/(loss) |  | (9,888 | ) |  | (12,102 | ) |  | 299 |  |  | 288 |
Total recognized in other comprehensive income |  | $ | (24,259 | ) |  | $ | 1,541 |  |  | $ | 5,304 |  |  | $ | (1,358 | )
FHN utilizes the minimum amortization method in determining the amount of actuarial gains or losses to include in plan expense. Under this approach, the net deferred actuarial gain or loss that exceeds a threshold is amortized over the average remaining service period of active plan participants. The threshold is measured as the greater of: 10 percent of a plan’s projected benefit obligation as of the beginning of the year or 10 percent of the market related value of plan assets as of the beginning of the year. FHN amortizes actuarial gains and losses using the estimated average remaining life expectancy of the remaining participants since all participants are considered inactive due to the freeze. The following table provides detail on expected benefit payments, which reflect expected future service, as appropriate:
(Dollars in thousands) |  | Pension Benefits |  | Other Benefits
2020 |  | $ | 38,304 |  |  | $ | 1,675 |
2021 |  | 40,215 |  |  | 1,744 |
2022 |  | 41,152 |  |  | 1,818 |
2023 |  | 42,631 |  |  | 1,897 |
2024 |  | 43,752 |  |  | 1,977 |
2025-2029 |  | 231,267 |  |  | 11,127 |
Plan assets. FHN’s overall investment goal is to create, over the life of the pension plan and retiree medical plan, an adequate pool of sufficiently liquid assets to support the qualified pension benefit obligations to participants, retirees, and beneficiaries, as well as to partially support the medical obligations to retirees and beneficiaries. Thus, the qualified pension plan and retiree medical plan seek to achieve a level of investment return consistent with changes in projected benefit obligations. Qualified pension plan assets primarily consist of fixed income securities which include U.S. treasuries, corporate bonds of companies from diversified industries, municipal bonds, and foreign bonds. Fixed income investments generally have long durations consistent with the estimated pension liabilities of FHN. This duration-matching strategy is intended to hedge substantially all of the plan’s risk associated with future benefit payments. Retiree medical funds are kept in short-term investments, primarily money market funds and mutual funds. On December 31, 2019 and 2018, FHN did not have any significant concentrations of risk within the plan assets related to the pension plan or the retiree medical plan. The fair value of FHN’s pension plan assets at December 31, 2019 and 2018, by asset category classified using the Fair Value measurement hierarchy is shown in the table below. See Note 24 – Fair Value of Assets and Liabilities for more details about Fair Value measurements.
(Dollars in thousands) |  | December 31, 2019
Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash equivalents and money market funds |  | $ | 9,300 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,300 |
Fixed income securities: |  |  |  |  |  |  |  |
U.S. treasuries |  | — |  |  | 5,377 |  |  | — |  |  | 5,377 |
Corporate, municipal and foreign bonds |  | — |  |  | 514,965 |  |  | — |  |  | 514,965 |
Common and collective funds: |  |  |  |  |  |  |  |
Fixed income |  | — |  |  | 296,428 |  |  | — |  |  | 296,428 |
Total |  | $ | 9,300 |  |  | $ | 816,770 |  |  | $ | — |  |  | $ | 826,070 |
(Dollars in thousands) |  | December 31, 2018
Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash equivalents and money market funds |  | $ | 13,855 |  |  | $ | — |  |  | $ | — |  |  | $ | 13,855 |
Fixed income securities: |  |  |  |  |  |  |  |
U.S. treasuries |  | — |  |  | 28,626 |  |  | — |  |  | 28,626 |
Corporate, municipal and foreign bonds |  | — |  |  | 688,472 |  |  | — |  |  | 688,472 |
Total |  | $ | 13,855 |  |  | $ | 717,098 |  |  | $ | — |  |  | $ | 730,953 |
The Pension and Savings Investment Committees, comprised of senior managers within the organization, meet regularly to review asset performance and potential portfolio revisions. Adjustments to the qualified pension plan asset allocation primarily reflect changes in anticipated liquidity needs for plan benefits. The fair value of FHN’s retiree medical plan assets at December 31, 2019 and 2018 by asset category are as follows:
(Dollars in thousands) |  | December 31, 2019
Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash equivalents and money market funds |  | $ | 130 |  |  | $ | — |  |  | $ | — |  |  | $ | 130 |
Mutual funds: |  |  |  |  |  |  |  |
Equity mutual funds |  | 13,163 |  |  | — |  |  | — |  |  | 13,163 |
Fixed income mutual funds |  | 7,112 |  |  | — |  |  | — |  |  | 7,112 |
Total |  | $ | 20,405 |  |  | $ | — |  |  | $ | — |  |  | $ | 20,405 |
(Dollars in thousands) |  | December 31, 2018
Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash equivalents and money market funds |  | $ | 207 |  |  | $ | — |  |  | $ | — |  |  | $ | 207 |
Mutual funds: |  |  |  |  |  |  |  |
Equity mutual funds |  | 10,387 |  |  | — |  |  | — |  |  | 10,387 |
Fixed income mutual funds |  | 6,838 |  |  | — |  |  | — |  |  | 6,838 |
Total |  | $ | 17,432 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,432 |

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