EMPLOYEE BENEFIT PLANS
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Dec. 31, 2013
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EMPLOYEE BENEFIT PLANS | 11 EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) qualified, defined contribution savings plan that allows participants to contribute up to 20% of pre-tax compensation. Effective January 1, 2010, the Company matches seventy-five cents for each dollar contributed by the employee up to a maximum Company match of 6.0% of base salary. In the prior year, the Company matched fifty cents for each dollar contributed up to a maximum Company match of 4.0% of base salary. Company contributions were $4,338, $4,029, and $3,499, for the years 2013, 2012, and 2011, respectively.
The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The accumulated benefit obligations of the pension plan are $287,894 and $307,197 as of December 31, 2013 and 2012, respectively. The fair value of pension plan assets was $266,178 and $202,947 as of December 31, 2013 and 2012, respectively. Prior to 2010, pension payment obligations were generally funded by the purchase of an annuity from a life insurance company. In 2010, the pension plan trust paid monthly benefits to retirees, rather than the purchase of an annuity. Payments are expected to be made in each year from 2014 to 2018 are $7,611, $8,703, $10,066, 11,539, and $13,064, respectively. The aggregate benefits expected to be paid in the five years 2019 through 2023 are $91,303. The expected benefit payments are based upon the same assumptions used to measure the Company's benefit obligation at December 31, 2013, and include estimated future employee service. The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The unfunded supplemental executive retirement plan accumulated benefit obligations were $31,360 and $31,696 as of December 31, 2013 and 2012, respectively. Benefit payments under the supplemental executive retirement plan are paid currently and are included in the preceding paragraph. The costs of the pension and retirement plans are charged to expense and utility plant. The Company makes annual contributions to fund the amounts accrued for pension cost.
The Company provides substantially all active, permanent employees with medical, dental, and vision benefits through a self-insured plan. Employees retiring at or after age 58, along with their spouses and dependents, continue participation in the plan by payment of a premium. Plan assets are invested in mutual funds, short-term money market instruments and commercial paper based upon the same asset mix as the pension plan. Retired employees are also provided with a five thousand dollar life insurance benefit. The Company records the costs of postretirement benefits other than pension (PBOP) during the employees' years of active service. Postretirement benefit expense recorded in 2013, 2012, and 2011, was $8,977, $8,131, and $6,291, respectively. The remaining net periodic benefit cost was $9,790 at December 31, 2006, and is being recovered through future customer rates and is recorded as a regulatory asset. The expected benefit payments, net of retiree premiums and Medicare part D subsidies, for the years from 2014 to 2018 are $1,612, $1,827, $1,998, $2,189, and $2,444, respectively. The Medicare Part D subsidies for the years from 2014 to 2018 are $267, $307, $345, $387, and $432.
The Company actively manages pensions and PBOP trust (Plan) assets. The Company's investment objectives are:
The Company applies a risk management framework for managing the risks associated with employee benefit plan trust assets. The guiding principles of this risk management framework are the clear articulation of roles and responsibilities, appropriate delegation of authority, and proper accountability and documentation. Trust investment policies and investment manager guidelines include provisions to ensure prudent diversification, manage risk through appropriate use of physical direct asset holdings and derivative securities, and identify permitted and prohibited investments. The Company's target asset allocation percentages for major categories of the pension plan are reflected in the table below:
The fixed income category includes money market funds, short-term bond funds, and cash. The majority of fixed income investments range in maturities from less than one to five years. The Company's target allocation percentages for the PBOP trust is similar to the pension plan except for a larger allocation in fixed income investments and a lower allocation in equity investments. We use the following criteria to select investment funds:
The fair value measurements standard establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the standard are described below:
All Plan investments are level 1 investments in mutual funds and are valued at the net asset value (NAV) of the shares held by the Plan at December 31, 2013 and 2012:
The pension benefits fixed income category includes $1,287 and $26,069 of money market fund investments as of December 31, 2013 and 2012, respectively. The other benefits fixed income category includes $19,214 and $14,159 of money market fund investments as of December 31, 2013 and 2012. The following table reconciles the funded status of the plans with the accrued pension liability and the net postretirement benefit liability as of December 31, 2013 and 2012:
Amounts recognized on the balance sheet consist of:
Below are the actuarial assumptions used in determining the benefit obligation for the benefit plans:
The discount rate was derived from the Citigroup Pension Discount Curve using the expected payouts for the plan. The long-term rate of return assumption is the expected rate of return on a balanced portfolio invested roughly 60% in equities and 40% in fixed income securities. Returns on equity investments were estimated based on estimates of dividend yield and real earnings added to a 3% long-term inflation rate. For the pension and other benefit plans, the assumed returns were 8.93% for domestic equities and 9.07% for foreign equities. Returns on fixed-income investments were projected based on investment maturities and credit spreads added to a 3% long-term inflation rate. For the pension and other benefit plans, the assumed returns were 5.20% for fixed income investments and 3.52% for short-term cash investments. The average return for the pension and other benefit plans for the last five and ten years was 11.4% and 6.9%, respectively. The company is using a long-term rate of return of 6.75% for the pension plan and 6.00% for the other benefit plan, which is between the 25th and 75th percentile of expected results. Changes to the pension benefits actuarial assumptions can significantly affect pension costs, regulatory assets, and liabilities. The following table reflects the sensitivity of pension amounts reported for the year ended December 31, 2013, to changes in actuarial assumptions:
Net periodic benefit costs for the pension and other postretirement plans for the years ended December 31, 2013, 2012, and 2011 included the following components:
Below are the actuarial assumptions used in determining the net periodic benefit costs for the benefit plans, which uses the end of the prior year as the measurement date:
The health care cost trend rate assumption has a significant effect on the amounts reported. For 2013 measurement purposes, the Company assumed an 9.2% annual rate of increase in the per capita cost of covered benefits with the rate decreasing to 6.1% by 2018, then gradually grading down to 5.0% over the next 50 years. A one-percentage point change in assumed health care cost trends is estimated to have the following effect:
The Company intends to make annual contributions to the plans up to the amount deductible for tax purposes. The Company estimates in 2014 that the annual contribution to the pension plans will be $28,286 and the annual contribution to the other postretirement plan will be $9,568. |