STI 2018 Annual Report

Notes to Consolidated Financial Statements, continued 136 undue exposure to risk in any single asset class or investment category. The objectives are accomplished through investments in equities, fixed income, and cash equivalents using a mix that is conducive to participation in a rising market while allowing for protection in a declining market. The portfolio is viewed as long-term in its entirety, avoiding decisions regarding short-term concerns and any single investment.Asset allocation, as a percent of the total market value of the total portfolio, is set with the target percentages and ranges presented in the investment policy statement. Rebalancing occurs on a periodic basis to maintain the target allocation, but normal market activity may result in deviations. The basis for determining the overall expected long-term rate of return on plan assets considers past experience, current market conditions, and expectations on future trends. Abuilding block approach is used that considers long-term inflation, real returns, equity risk premiums, target asset allocations, market corrections, and expenses. Capital market simulations, survey data, economic forecasts, and actuarial judgment are all used in this process. The expected long-term rate of return for pension benefits is 5.25% for 2019, compared to 5.90% for 2018. The investment strategy for the other postretirement benefit plans is maintained separately from the strategy for the pension plans. The Company’s investment strategy is to create a series of investment returns sufficient to provide a commensurate amount of long-term principal and income growth in order to satisfy the other postretirement benefit plan's obligations. Assets are diversified among equity funds and fixed income investments according to the mix approved by the SBFC. Due to other postretirement benefits having a shorter time horizon, a lower equity profile is appropriate. The expected long-term rate of return for other postretirement benefits is 3.27% for 2019, compared to 3.10% for 2018. Plan Assets Measured at Fair Value The following tables present combined pension and other postretirement benefit plan assets measured at fair value. See Note 20, "Fair Value Election and Measurement," for level definitions within the fair value hierarchy. Fair Value Measurements at December 31, 2018 1 (Dollars in millions) Total Level 1 Level 2 Level 3 Money market funds 2 $112 $112 $— $— Equity securities 382 382 — — Mutual funds 3 : Equity index fund 46 46 — — Tax exempt municipal bond funds 86 86 — — Taxable fixed income index funds 12 12 — — Derivatives, net of collateral 2 — 2 — Fixed income securities 2,377 333 2,044 — Total plan assets $3,017 $971 $2,046 $— 1 Fair value measurements do not include pension benefits accrued income amounting to less than 0.9% of total plan assets. 2 Includes $11 million for other postretirement benefit plans. 3 Relates exclusively to other postretirement benefit plans. Fair Value Measurements at December 31, 2017 1 (Dollars in millions) Total Level 1 Level 2 Level 3 Money market funds 2 $138 $138 $— $— Equity securities 936 936 — — Mutual funds 3 : Equity index fund 56 56 — — Tax exempt municipal bond funds 85 85 — — Taxable fixed income index funds 12 12 — — Derivatives, net of collateral (5) (5) — — Fixed income securities 2,201 512 1,689 — Other assets 9 9 — — Total plan assets $3,432 $1,743 $1,689 $— 1 Fair value measurements do not include pension benefits accrued income amounting to less than 0.7% of total plan assets. 2 Includes $11 million for other postretirement benefit plans. 3 Relates exclusively to other postretirement benefit plans.