Pension Plan and Other Postretirement Benefits | 12 Months Ended |
Dec. 31, 2014 |
Compensation and Retirement Disclosure [Abstract] | |
Pension Plan and Other Postretirement Benefits | 11. Pension Plan and Other Postretirement Benefits |
|
For valuation of the Company’s pension and other postretirement benefit plans’ projected benefit obligations as of December 31, 2014, the Company adopted updated and modified mortality tables and an updated and modified mortality improvement scale that reflect longer life expectancies for plan participants. The adoption of the updated and modified mortality tables and mortality improvement scale in 2014 increased the Company’s pension and other postretirement benefit obligations from projected benefit obligations that would have been rendered using the mortality tables the Company had been using since 2005. Although the adoption of the updated and modified tables and improvement scale will have the effect of increasing the estimated and recognized cost of future benefit payments in the near term, the ultimate cost recognized will be determined by the actual level and duration of future benefit payments. |
|
Pension Plan |
The Company’s noncontributory funded pension plan covers substantially all corporate employees and OTP nonunion employees hired prior to January 1, 2006, and all union employees of OTP hired prior to November 1, 2013, excluding Coyote Station employees. Coyote Station employees hired before January 1, 2009 are covered under the plan. The plan provides 100% vesting after five vesting years of service and for retirement compensation at age 65, with reduced compensation in cases of retirement prior to age 62. The Company reserves the right to discontinue the plan but no change or discontinuance may affect the pensions theretofore vested. |
|
The pension plan has a trustee who is responsible for pension payments to retirees and a separate pension fund manager responsible for managing the plan’s assets. An independent actuary assists the Company in performing the necessary actuarial valuations for the plan. |
|
The plan assets consist of common stock and bonds of public companies, U.S. government securities, cash and cash equivalents and alternative investments. None of the plan assets are invested in common stock or debt securities of the Company. |
|
Components of net periodic pension benefit cost: |
|
(in thousands) | | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
Service Cost–Benefit Earned During the Period | | $ | 4,666 | | | $ | 5,594 | | | $ | 5,084 | | | | | | | | | | | | | |
Interest Cost on Projected Benefit Obligation | | | 13,111 | | | | 12,123 | | | | 12,465 | | | | | | | | | | | | | |
Expected Return on Assets | | | (16,743 | ) | | | (14,521 | ) | | | (14,430 | ) | | | | | | | | | | | | |
Amortization of Prior Service Cost: | | | | | | | | | | | | | | | | | | | | | | | | |
From Regulatory Asset | | | 257 | | | | 333 | | | | 398 | | | | | | | | | | | | | |
From Other Comprehensive Income1 | | | 7 | | | | 9 | | | | 11 | | | | | | | | | | | | | |
Amortization of Net Actuarial Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
From Regulatory Asset | | | 3,400 | | | | 6,600 | | | | 4,910 | | | | | | | | | | | | | |
From Other Comprehensive Income1 | | | 83 | | | | 176 | | | | 131 | | | | | | | | | | | | | |
Net Periodic Pension Cost | | $ | 4,781 | | | $ | 10,314 | | | $ | 8,569 | | | | | | | | | | | | | |
1Corporate cost included in Other Nonelectric Expenses. | | | | | | | | | | | | | |
|
Weighted average assumptions used to determine net periodic pension cost for the year ended December 31: |
|
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
Discount Rate | | | 5.3 | % | | | 4.5 | % | | | 5.15 | % | | | | | | | | | | | | |
Long-Term Rate of Return on Plan Assets | | | 7.75 | % | | | 7.75 | % | | | 8 | % | | | | | | | | | | | | |
Rate of Increase in Future Compensation Level | | | 3.13 | % | | | 3.13 | % | | | 3.38 | % | | | | | | | | | | | | |
|
The following table presents amounts recognized in the consolidated balance sheets as of December 31: |
|
(in thousands) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Regulatory Assets: | | | | | | | | | | | | | | | | | | | | | | |
Unrecognized Prior Service Cost | | $ | 518 | | | $ | 776 | | | | | | | | | | | | | | | | | |
Unrecognized Actuarial Loss | | | 97,722 | | | | 56,051 | | | | | | | | | | | | | | | | | |
Total Regulatory Assets | | $ | 98,240 | | | $ | 56,827 | | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Unrecognized Prior Service Cost | | $ | 21 | | | $ | 28 | | | | | | | | | | | | | | | | | |
Unrecognized Actuarial Loss | | | 899 | | | | 448 | | | | | | | | | | | | | | | | | |
Total Accumulated Other Comprehensive Loss | | $ | 920 | | | $ | 476 | | | | | | | | | | | | | | | | | |
Noncurrent Liability | | $ | 67,061 | | | $ | 40,422 | | | | | | | | | | | | | | | | | |
|
Funded status as of December 31: |
|
(in thousands) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Accumulated Benefit Obligation | | $ | (273,903 | ) | | $ | (224,365 | ) | | | | | | | | | | | | | | | | |
Projected Benefit Obligation | | $ | (311,650 | ) | | $ | (254,039 | ) | | | | | | | | | | | | | | | | |
Fair Value of Plan Assets | | | 244,589 | | | | 213,617 | | | | | | | | | | | | | | | | | |
Funded Status | | $ | (67,061 | ) | | $ | (40,422 | ) | | | | | | | | | | | | | | | | |
|
The following tables provide a reconciliation of the changes in the fair value of plan assets and the plan’s benefit obligations over the two-year period ended December 31, 2014: |
|
(in thousands) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Reconciliation of Fair Value of Plan Assets: | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Plan Assets at January 1 | | $ | 213,617 | | | $ | 191,018 | | | | | | | | | | | | | | | | | |
Actual Return on Plan Assets | | | 21,874 | | | | 23,044 | | | | | | | | | | | | | | | | | |
Discretionary Company Contributions | | | 20,000 | | | | 10,000 | | | | | | | | | | | | | | | | | |
Benefit Payments | | | (10,902 | ) | | | (10,445 | ) | | | | | | | | | | | | | | | | |
Fair Value of Plan Assets at December 31 | | $ | 244,589 | | | $ | 213,617 | | | | | | | | | | | | | | | | | |
Estimated Asset Return | | | 9.6 | % | | | 11.8 | % | | | | | | | | | | | | | | | | |
Reconciliation of Projected Benefit Obligation: | | | | | | | | | | | | | | | | | | | | | | | | |
Projected Benefit Obligation at January 1 | | $ | 254,039 | | | $ | 275,634 | | | | | | | | | | | | | | | | | |
Service Cost | | | 4,666 | | | | 5,594 | | | | | | | | | | | | | | | | | |
Interest Cost | | | 13,111 | | | | 12,123 | | | | | | | | | | | | | | | | | |
Benefit Payments | | | (10,902 | ) | | | (10,445 | ) | | | | | | | | | | | | | | | | |
Actuarial Loss (Gain) | | | 50,736 | | | | (28,867 | ) | | | | | | | | | | | | | | | | |
Projected Benefit Obligation at December 31 | | $ | 311,650 | | | $ | 254,039 | | | | | | | | | | | | | | | | | |
|
Weighted average assumptions used to determine benefit obligations at December 31: |
|
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Discount Rate | | | 4.35 | % | | | 5.3 | % | | | | | | | | | | | | | | | | |
Rate of Increase in Future Compensation Level | | | 3.13 | % | | | 3.13 | % | | | | | | | | | | | | | | | | |
|
The assumed rate of return on pension fund assets used for the determination of 2015 net periodic pension cost is 7.75%. The assumed long-term rate of return on plan assets is based primarily on asset category studies using historical market return and volatility data with forward looking estimates based on existing financial market conditions and forecasts of capital markets. Modest excess return expectations versus some market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically. The Company reviews its rate of return on plan asset assumptions annually. The assumptions are largely based on the asset category rate-of-return assumptions developed annually with the Company’s pension plan investment advisors, as well as input from actuaries who work with the pension plan. |
|
Market-related value of plan assets—The Company’s expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market-related value of plan assets. |
|
The Company bases actuarial determination of pension plan expense or income on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation calculation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the fair value of assets. Since the market-related valuation calculation recognizes gains or losses over a five-year period, the future value of the market-related assets will be impacted as previously deferred gains or losses are recognized. |
|
Measurement Dates: | 2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | |
Net Periodic Pension Cost | 1-Jan-14 | 1-Jan-13 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
End of Year Benefit Obligations | January 1, 2014 projected to December 31, 2014 | January 1, 2013 projected to December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Market Value of Assets | 31-Dec-14 | 31-Dec-13 | | | | | | | | | | | | | | | | | | | | | | |
|
The estimated amounts of unrecognized net actuarial losses and prior service costs to be amortized from regulatory assets and accumulated other comprehensive loss into the net periodic pension cost in 2015 are: |
|
(in thousands) | | 2015 | | | | | | | | | | | | | | | | | | | | | |
Decrease in Regulatory Assets: | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Prior Service Cost | | $ | 189 | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Actuarial Loss | | | 6,529 | | | | | | | | | | | | | | | | | | | | | |
Decrease in Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Prior Service Cost | | | 5 | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Actuarial Loss | | | 161 | | | | | | | | | | | | | | | | | | | | | |
Total Estimated Amortization | | $ | 6,884 | | | | | | | | | | | | | | | | | | | | | |
|
Cash flows—The Company had no minimum funding requirement as of December 31, 2014, but made a discretionary plan contribution of $10,000,000 in January 2015. |
|
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid out from plan assets: |
|
(in thousands) | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | Years | |
2020-2024 |
| | $ | 11,858 | | | $ | 12,462 | | | $ | 13,116 | | | $ | 13,941 | | | $ | 14,665 | | | $ | 85,322 | |
|
The following objectives guide the investment strategy of the Company’s pension plan (the Plan): |
|
| ● | The assets of the Plan will be invested in accordance with all applicable laws in a manner consistent with fiduciary standards including Employee Retirement Income Security Act standards (if applicable). Specifically: | | | | | | | | | | | | | | | | | | | | | | |
| o | The safeguards and diversity that a prudent investor would adhere to must be present in the investment program. | | | | | | | | | | | | | | | | | | | | | | |
| o | All transactions undertaken on behalf of the Plan must be in the best interest of plan participants and their beneficiaries. | | | | | | | | | | | | | | | | | | | | | | |
| ● | The primary objective of the Plan is to provide a source of retirement income for its participants and beneficiaries. | | | | | | | | | | | | | | | | | | | | | | |
| ● | The near-term primary financial objective of the Plan is to improve the funded status of the Plan. | | | | | | | | | | | | | | | | | | | | | | |
| ● | A secondary financial objective is to minimize pension funding and expense volatility where possible. | | | | | | | | | | | | | | | | | | | | | | |
|
The asset allocation strategy developed by the Company’s Retirement Plans Administration Committee (the Committee) is based on the current needs of the Plan and the objectives listed above. An asset/liability review is conducted annually or as often as necessary to assess the impact of various asset allocations on funded status and other financial variables. The current needs of the Plan, the overall investment objectives above, the investment preferences and risk tolerance of the Committee and the desired degree of diversification suggest the need for an investment allocation including multiple asset classes. |
|
The asset allocation in the table below contains guideline percentages, at market value, of the total Plan invested in various asset classes. The Permitted Range is a guide and will at times not reflect the actual asset allocation as this will be dictated by market conditions, the independent actions of the Committee and/or Investment Managers and required cash flows to and from the Plan. The Permitted Range anticipates this fluctuation and provides flexibility for the Investment Managers’ portfolios to vary around the target without the need for immediate rebalancing. The Investment Manager will proactively monitor the asset allocation and will direct the purchases and sales to remain within the stated ranges. |
|
The policy of the Plan is to invest assets in accordance with the allocations shown below: |
|
| | Permitted Range | | | | | | | | | |
Asset Class / PBO Funded Status | | < 100% PBO | | | 100% PBO | | | 105% PBO | | | >0% PBO | | | | | | | | | |
Equity | | | 30% - 65 | % | | | 25% - 60 | % | | | 20% - 55 | % | | | 15% - 50 | % | | | | | | | | |
Investment Grade Fixed Income | | | 35% - 75 | % | | | 40% - 80 | % | | | 45% - 85 | % | | | 50% - 90 | % | | | | | | | | |
Below Investment Grade Fixed Income* | | | 0% - 15 | % | | | 0% - 15 | % | | | 0% - 15 | % | | | 0% - 15 | % | | | | | | | | |
Other** | | | 0% - 20 | % | | | 0% - 20 | % | | | 0% - 20 | % | | | 0% - 20 | % | | | | | | | | |
* Includes (but not limited to) High Yield Bond Fund and Emerging Markets Debt funds. | | | | | | | | | |
** Other category may include cash, alternatives, and/or other investment strategies that may be classified other than equity or fixed income, such as the Dynamic Asset Allocation fund. | | | | | | | | |
|
The Company’s pension plan asset allocations at December 31, 2014 and 2013, by asset category are as follows: |
|
Asset Allocation | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Large Capitalization Equity Securities | | | 21 | % | | | 21 | % | | | | | | | | | | | | | | | | |
International Equity Securities | | | 18.9 | % | | | 21.7 | % | | | | | | | | | | | | | | | | |
Small and Mid-Capitalization Equity Securities | | | 7.9 | % | | | 8.5 | % | | | | | | | | | | | | | | | | |
SEI Dynamic Asset Allocation Fund | | | 5.5 | % | | | 5.2 | % | | | | | | | | | | | | | | | | |
Equity Securities | | | 53.3 | % | | | 56.4 | % | | | | | | | | | | | | | | | | |
Fixed-Income Securities and Cash | | | 42.7 | % | | | 39.3 | % | | | | | | | | | | | | | | | | |
Other - SEI Special Situation Collective Investment Trust | | | 4 | % | | | 4.3 | % | | | | | | | | | | | | | | | | |
| | | 100 | % | | | 100 | % | | | | | | | | | | | | | | | | |
|
Fair Value Measurements of Pension Fund Assets |
ASC 715, Compensation – Retirement Benefits, requires disclosures about pension plan assets identified by the three levels of the fair value hierarchy established by ASC 820-10-35. The three levels defined by the hierarchy and examples of each level are as follows: |
|
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed by the New York Stock Exchange and commodity derivative contracts listed on the New York Mercantile Exchange. |
|
Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities. |
|
Level 3 – Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation and may include complex and subjective models and forecasts. |
|
|
|
|
The following table presents, for each of these hierarchy levels, the Company’s pension fund assets measured at fair value as of December 31, 2014 and 2013: |
|
2014 (in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | |
Large Capitalization Equity Securities Mutual Fund | | $ | 51,404 | | | | | | | | | | | | | | | | | | | |
International Equity Securities Mutual Funds | | | 46,287 | | | | | | | | | | | | | | | | | | | |
Small and Mid-Capitalization Equity Securities Mutual Fund | | | 19,189 | | | | | | | | | | | | | | | | | | | | |
SEI Dynamic Asset Allocation Mutual Fund | | | 13,543 | | | | | | | | | | | | | | | | | | | | |
Fixed Income Securities Mutual Funds | | | 104,360 | | | | | | | | | | | | | | | | | | | | |
Cash Management – Money Market Fund | | | 5 | | | | | | | | | | | | | | | | | | | | |
SEI Special Situation Collective Investment Trust Fund | | | | | | $ | 9,801 | | | | | | | | | | | | | | | | | |
Total Assets | | $ | 234,788 | | | $ | 9,801 | | | $ | -- | | | | | | | | | | | | | |
|
2013 (in thousands) | | | | | | | | | | | | | | | | | | | | | |
Large Capitalization Equity Securities Mutual Fund | | $ | 44,882 | | | | | | | | | | | | | | | | | | | |
International Equity Securities Mutual Funds | | | 46,412 | | | | | | | | | | | | | | | | | | | |
Small and Mid-Capitalization Equity Securities Mutual Fund | | | 18,151 | | | | | | | | | | | | | | | | | | | |
SEI Dynamic Asset Allocation Mutual Fund | | | 11,159 | | | | | | | | | | | | | | | | | | | | |
Fixed Income Securities Mutual Funds | | | 83,843 | | | | | | | | | | | | | | | | | | | | |
Cash Management – Money Market Fund | | | -- | | | | | | | | | | | | | | | | | | | | |
SEI Special Situation Collective Investment Trust Fund | | | | | | $ | 9,170 | | | | | | | | | | | | | | | | | |
Total Assets | | $ | 204,447 | | | $ | 9,170 | | | $ | -- | | | | | | | | | | | | | |
|
The investments held by the SEI Special Situation Collective Investment Trust on December 31, 2014 and 2013 consisted of investments primarily in hedge funds that pursue alternative strategies, private equity funds and hybrid funds, as well as investments directly in other securities and financial instruments, with the objective of achieving high returns balanced against an appropriate level of volatility and market exposure over a full market cycle. The net asset value of the SEI Special Situations Collective Investment Trust is determined by using the fair value of the portfolio as of the close of business at the end of the year. The fair value of the fund is calculated independently by the fund’s administrator and is reviewed by the Company. |
|
Executive Survivor and Supplemental Retirement Plan (ESSRP) |
The ESSRP is an unfunded, nonqualified benefit plan for executive officers and certain key management employees. The ESSRP provides defined benefit payments to these employees on their retirements for life or to their beneficiaries on their deaths for a 15-year postretirement period. Life insurance carried on certain plan participants is payable to the Company on the employee’s death. There are no plan assets in this nonqualified benefit plan due to the nature of the plan. |
|
Components of net periodic pension benefit cost: |
|
(in thousands) | | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
Service Cost–Benefit Earned During the Period | | $ | 51 | | | $ | 51 | | | $ | 45 | | | | | | | | | | | | | |
Interest Cost on Projected Benefit Obligation | | | 1,520 | | | | 1,408 | | | | 1,479 | | | | | | | | | | | | | |
Amortization of Prior Service Cost: | | | | | | | | | | | | | | | | | | | | | | | | |
From Regulatory Asset | | | 22 | | | | 22 | | | | 22 | | | | | | | | | | | | | |
From Other Comprehensive Income1 | | | 51 | | | | 51 | | | | 51 | | | | | | | | | | | | | |
Amortization of Net Actuarial Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
From Regulatory Asset | | | 142 | | | | 208 | | | | 175 | | | | | | | | | | | | | |
From Other Comprehensive Income2 | | | 46 | | | | 313 | | | | 152 | | | | | | | | | | | | | |
Net Periodic Pension Cost | | $ | 1,832 | | | $ | 2,053 | | | $ | 1,924 | | | | | | | | | | | | | |
1Amortization of Prior Service Costs from Other Comprehensive Income Charged to: | | | | | | | | | | | | | | | | | | | | | | | | |
Electric Operation and Maintenance Expenses | | $ | 20 | | | $ | 20 | | | $ | 20 | | | | | | | | | | | | | |
Other Nonelectric Expenses | | | 31 | | | | 31 | | | | 31 | | | | | | | | | | | | | |
2Amortization of Net Actuarial Loss from Other Comprehensive Income Charged to: | | | | | | | | | | | | | | | | | | | | | | | | |
Electric Operation and Maintenance Expenses | | $ | 132 | | | $ | 193 | | | $ | 162 | | | | | | | | | | | | | |
Other Nonelectric Expenses | | | (86 | ) | | | 120 | | | | (10 | ) | | | | | | | | | | | | |
|
|
|
|
Weighted average assumptions used to determine net periodic pension cost for the year ended December 31: |
|
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
Discount Rate | | | 5.3 | % | | | 4.5 | % | | | 5.15 | % | | | | | | | | | | | | |
Rate of Increase in Future Compensation Level | | | 3.18 | % | | | 3.19 | % | | | 4.59 | % | | | | | | | | | | | | |
|
The following table presents amounts recognized in the consolidated balance sheets as of December 31: |
|
(in thousands) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Regulatory Assets: | | | | | | | | | | | | | | | | | | | | | | |
Unrecognized Prior Service Cost | | $ | 91 | | | $ | 113 | | | | | | | | | | | | | | | | | |
Unrecognized Actuarial Loss | | | 3,238 | | | | 1,971 | | | | | | | | | | | | | | | | | |
Total Regulatory Assets | | $ | 3,329 | | | $ | 2,084 | | | | | | | | | | | | | | | | | |
Projected Benefit Obligation Liability – Net Amount Recognized | | $ | (35,650 | ) | | $ | (29,321 | ) | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Unrecognized Prior Service Cost | | $ | 210 | | | $ | 261 | | | | | | | | | | | | | | | | | |
Unrecognized Actuarial Loss | | | 6,881 | | | | 2,465 | | | | | | | | | | | | | | | | | |
Total Accumulated Other Comprehensive Loss | | $ | 7,091 | | | $ | 2,726 | | | | | | | | | | | | | | | | | |
|
The following tables provide a reconciliation of the changes in the fair value of plan assets and the plan’s projected benefit obligations over the two-year period ended December 31, 2014 and a statement of the funded status as of December 31 of both years: |
|
(in thousands) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Reconciliation of Fair Value of Plan Assets: | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Plan Assets at January 1 | | $ | -- | | | $ | -- | | | | | | | | | | | | | | | | | |
Actual Return on Plan Assets | | | -- | | | | -- | | | | | | | | | | | | | | | | | |
Employer Contributions | | | 1,113 | | | | 1,137 | | | | | | | | | | | | | | | | | |
Benefit Payments | | | (1,113 | ) | | | (1,137 | ) | | | | | | | | | | | | | | | | |
Fair Value of Plan Assets at December 31 | | $ | -- | | | $ | -- | | | | | | | | | | | | | | | | | |
Reconciliation of Projected Benefit Obligation: | | | | | | | | | | | | | | | | | | | | | | | | |
Projected Benefit Obligation at January 1 | | $ | 29,321 | | | $ | 31,925 | | | | | | | | | | | | | | | | | |
Service Cost | | | 51 | | | | 51 | | | | | | | | | | | | | | | | | |
Interest Cost | | | 1,520 | | | | 1,408 | | | | | | | | | | | | | | | | | |
Benefit Payments | | | (1,113 | ) | | | (1,137 | ) | | | | | | | | | | | | | | | | |
Plan Amendments | | | -- | | | | -- | | | | | | | | | | | | | | | | | |
Actuarial Loss (Gain) | | | 5,871 | | | | (2,926 | ) | | | | | | | | | | | | | | | | |
Projected Benefit Obligation at December 31 | | $ | 35,650 | | | $ | 29,321 | | | | | | | | | | | | | | | | | |
Reconciliation of Funded Status: | | | | | | | | | | | | | | | | | | | | | | | | |
Funded Status at December 31 | | $ | (35,650 | ) | | $ | (29,321 | ) | | | | | | | | | | | | | | | | |
Unrecognized Net Actuarial Loss | | | 10,119 | | | | 4,436 | | | | | | | | | | | | | | | | | |
Unrecognized Prior Service Cost | | | 301 | | | | 374 | | | | | | | | | | | | | | | | | |
Cumulative Employer Contributions in Excess of Net Periodic Benefit Cost | | $ | (25,230 | ) | | $ | (24,511 | ) | | | | | | | | | | | | | | | | |
|
Weighted average assumptions used to determine benefit obligations at December 31: |
|
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Discount Rate | | | 4.35 | % | | | 5.3 | % | | | | | | | | | | | | | | | | |
Rate of Increase in Future Compensation Level | | | 3.15 | % | | | 3.18 | % | | | | | | | | | | | | | | | | |
|
The estimated amounts of unrecognized net actuarial losses and prior service costs to be amortized from regulatory assets and accumulated other comprehensive loss into the net periodic pension cost for the ESSRP in 2015 are: |
|
(in thousands) | | 2015 | | | | | | | | | | | | | | | | | | | | | |
Decrease in Regulatory Assets: | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Prior Service Cost | | $ | 16 | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Actuarial Loss | | | 334 | | | | | | | | | | | | | | | | | | | | | |
Decrease in Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Prior Service Cost | | | 38 | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Actuarial Loss | | | 602 | | | | | | | | | | | | | | | | | | | | | |
Total Estimated Amortization | | $ | 990 | | | | | | | | | | | | | | | | | | | | | |
|
Cash flows—The ESSRP is unfunded and has no assets; contributions are equal to the benefits paid to plan participants. The following benefit payments, which reflect future service, as appropriate, are expected to be paid: |
|
| | | Years | |
(in thousands) | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020-2024 | |
| | $ | 1,178 | | | $ | 1,399 | | | $ | 1,376 | | | $ | 1,423 | | | $ | 1,516 | | | $ | 10,904 | |
|
Other Postretirement Benefits |
The Company provides a portion of health insurance and life insurance benefits for retired OTP and corporate employees. Substantially all of the Company’s electric utility and corporate employees may become eligible for health insurance benefits if they reach age 55 and have 10 years of service. On adoption of Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, in January 1993, the Company elected to recognize its transition obligation related to postretirement benefits earned of approximately $14,964,000 over a period of 20 years. The transition obligation was fully recognized by December 31, 2012. There are no plan assets. |
|
Components of net periodic postretirement benefit cost: |
|
(in thousands) | | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
Service Cost–Benefit Earned During the Period | | $ | 1,055 | | | $ | 1,421 | | | $ | 1,544 | | | | | | | | | | | | | |
Interest Cost on Projected Benefit Obligation | | | 2,200 | | | | 2,050 | | | | 2,574 | | | | | | | | | | | | | |
Amortization of Transition Obligation | | | | | | | | | | | | | | | | | | | | | | | | |
From Regulatory Asset | | | -- | | | | -- | | | | 729 | | | | | | | | | | | | | |
From Other Comprehensive Income1 | | | -- | | | | -- | | | | 19 | | | | | | | | | | | | | |
Amortization of Prior Service Cost | | | | | | | | | | | | | | | | | | | | | | | | |
From Regulatory Asset | | | 205 | | | | 205 | | | | 206 | | | | | | | | | | | | | |
From Other Comprehensive Income1 | | | 5 | | | | 5 | | | | 5 | | | | | | | | | | | | | |
Amortization of Net Actuarial Loss | | | | | | | | | | | | | | | | | | | | | | | | |
From Regulatory Asset | | | -- | | | | 24 | | | | 642 | | | | | | | | | | | | | |
From Other Comprehensive Income1 | | | -- | | | | 1 | | | | 17 | | | | | | | | | | | | | |
Net Periodic Postretirement Benefit Cost | | $ | 3,465 | | | $ | 3,706 | | | $ | 5,736 | | | | | | | | | | | | | |
Effect of Medicare Part D Subsidy | | $ | (948 | ) | | $ | (1,806 | ) | | $ | (2,039 | ) | | | | | | | | | | | | |
1Corporate cost included in Other Nonelectric Expenses. | | | | | | | | | | | | | |
|
Weighted average assumptions used to determine net periodic postretirement benefit cost for the year ended December 31: |
|
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
Discount Rate | | | 5.1 | % | | | 4.25 | % | | | 5.05 | % | | | | | | | | | | | | |
|
The following table presents amounts recognized in the consolidated balance sheets as of December 31: |
|
(in thousands) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Regulatory Asset: | | | | | | | | | | | | | | | | | | | | | | |
Unrecognized Prior Service Cost | | $ | 335 | | | $ | 540 | | | | | | | | | | | | | | | | | |
Unrecognized Net Actuarial Loss (Gain) | | | 7,086 | | | | (344 | ) | | | | | | | | | | | | | | | | |
Net Regulatory Asset | | $ | 7,421 | | | $ | 196 | | | | | | | | | | | | | | | | | |
Projected Benefit Obligation Liability – Net Amount Recognized | | $ | (53,638 | ) | | $ | (45,221 | ) | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Unrecognized Prior Service Cost | | $ | 13 | | | $ | 18 | | | | | | | | | | | | | | | | | |
Unrecognized Net Actuarial Gain | | | (209 | ) | | | (261 | ) | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Gain | | $ | (196 | ) | | $ | (243 | ) | | | | | | | | | | | | | | | | |
|
|
|
|
The following tables provide a reconciliation of the changes in the fair value of plan assets and the plan’s projected benefit obligations and accrued postretirement benefit cost over the two-year period ended December 31, 2014: |
|
(in thousands) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Reconciliation of Fair Value of Plan Assets: | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Plan Assets at January 1 | | $ | -- | | | $ | -- | | | | | | | | | | | | | | | | | |
Actual Return on Plan Assets | | | -- | | | | -- | | | | | | | | | | | | | | | | | |
Company Contributions | | | 2,320 | | | | 2,012 | | | | | | | | | | | | | | | | | |
Benefit Payments (Net of Medicare Part D Subsidy) | | | (5,017 | ) | | | (4,626 | ) | | | | | | | | | | | | | | | | |
Participant Premium Payments | | | 2,697 | | | | 2,614 | | | | | | | | | | | | | | | | | |
Fair Value of Plan Assets at December 31 | | $ | -- | | | $ | -- | | | | | | | | | | | | | | | | | |
Reconciliation of Projected Benefit Obligation: | | | | | | | | | | | | | | | | | | | | | | | | |
Projected Benefit Obligation at January 1 | | $ | 45,221 | | | $ | 58,883 | | | | | | | | | | | | | | | | | |
Service Cost (Net of Medicare Part D Subsidy) | | | 1,055 | | | | 1,421 | | | | | | | | | | | | | | | | | |
Interest Cost (Net of Medicare Part D Subsidy) | | | 2,200 | | | | 2,050 | | | | | | | | | | | | | | | | | |
Benefit Payments (Net of Medicare Part D Subsidy) | | | (5,017 | ) | | | (4,626 | ) | | | | | | | | | | | | | | | | |
Participant Premium Payments | | | 2,697 | | | | 2,614 | | | | | | | | | | | | | | | | | |
Actuarial Loss (Gain) | | | 7,482 | | | | (15,121 | ) | | | | | | | | | | | | | | | | |
Projected Benefit Obligation at December 31 | | $ | 53,638 | | | $ | 45,221 | | | | | | | | | | | | | | | | | |
Reconciliation of Accrued Postretirement Cost: | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued Postretirement Cost at January 1 | | $ | (45,268 | ) | | $ | (43,574 | ) | | | | | | | | | | | | | | | | |
Expense | | | (3,465 | ) | | | (3,706 | ) | | | | | | | | | | | | | | | | |
Net Company Contribution | | | 2,320 | | | | 2,012 | | | | | | | | | | | | | | | | | |
Accrued Postretirement Cost at December 31 | | $ | (46,413 | ) | | $ | (45,268 | ) | | | | | | | | | | | | | | | | |
|
Weighted average assumptions used to determine benefit obligations at December 31: |
|
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Discount Rate | | | 4.2 | % | | | 5.1 | % | | | | | | | | | | | | | | | | |
|
Assumed healthcare cost-trend rates as of December 31: |
|
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
Healthcare Cost-Trend Rate Assumed for Next Year Pre-65 | | | 6.32 | % | | | 6.47 | % | | | | | | | | | | | | | | | | |
Healthcare Cost-Trend Rate Assumed for Next Year Post-65 | | | 6.63 | % | | | 6.82 | % | | | | | | | | | | | | | | | | |
Rate at Which the Cost-Trend Rate is Assumed to Decline | | | 5 | % | | | 5 | % | | | | | | | | | | | | | | | | |
Year the Rate Reaches the Ultimate Trend Rate | | | 2025 | | | | 2025 | | | | | | | | | | | | | | | | | |
|
Assumed healthcare cost-trend rates have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in assumed healthcare cost-trend rates for 2014 would have the following effects: |
|
(in thousands) | | 1 Point | | | 1 Point | | | | | | | | | | | | | | | | | |
Increase | Decrease | | | | | | | | | | | | | | | | |
Effect on the Postretirement Benefit Obligation | | $ | 7,442 | | | $ | (6,088 | ) | | | | | | | | | | | | | | | | |
Effect on Total of Service and Interest Cost | | $ | 516 | | | $ | (414 | ) | | | | | | | | | | | | | | | | |
Effect on Expense | | $ | 516 | | | $ | (606 | ) | | | | | | | | | | | | | | | | |
|
Measurement Dates: | 2014 | 2013 | | | | | | | | | | | | | | | | | | | | | | |
Net Periodic Postretirement Benefit Cost | 1-Jan-14 | 1-Jan-13 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
End of Year Benefit Obligations | January 1, 2014 projected to December 31, 2014 | January 1, 2013 projected to December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | |
|
The estimated net amounts of unrecognized prior service cost to be amortized from regulatory assets and accumulated other comprehensive loss into the net periodic postretirement benefit cost in 2015 are: |
|
(in thousands) | | 2015 | | | | | | | | | | | | | | | | | | | | | |
Decrease in Regulatory Assets: | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Prior Service Cost | | $ | 205 | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Actuarial Loss | | | 191 | | | | | | | | | | | | | | | | | | | | | |
Decrease in Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Prior Service Cost | | | 5 | | | | | | | | | | | | | | | | | | | | | |
Amortization of Unrecognized Actuarial Loss | | | 5 | | | | | | | | | | | | | | | | | | | | | |
Total Estimated Amortization | | $ | 406 | | | | | | | | | | | | | | | | | | | | | |
|
Cash flows—The Company expects to contribute $2.6 million net of expected employee contributions for the payment of retiree medical benefits and Medicare Part D subsidy receipts in 2015. The Company expects to receive a Medicare Part D subsidy from the Federal government of approximately $456,000 in 2015. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: |
|
| | | Years | |
(in thousands) | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020-2024 | |
| | $ | 2,638 | | | $ | 2,762 | | | $ | 2,925 | | | $ | 3,086 | | | $ | 3,247 | | | $ | 17,281 | |
|
401K Plan |
The Company sponsors a 401K plan for the benefit of all corporate and subsidiary company employees. Contributions made to these plans by the Company and its subsidiary companies included in continuing operations totaled $3,171,000 for 2014, $2,748,000 for 2013 and $2,283,000 for 2012. |
|
Employee Stock Ownership Plan |
The Company has a stock ownership plan for the benefit of all its electric utility employees. Contributions made by the Company were $696,000 for 2014, $705,000 for 2013 and $735,000 for 2012. |