Retirement Benefits |
(14) Retirement Benefits
PSE has a defined benefit pension plan covering substantially all PSE employees. Pension benefits earned are a function of age, salary and years of service. PSE also maintains a non-qualified Supplemental Executive Retirement Plan (SERP) for its key senior management employees. In addition to providing pension benefits, PSE provides certain health care and life insurance benefits for employees. These benefits are provided principally through an insurance company. The insurance premiums are based on the benefits provided during the year, and are paid primarily by retirees. The February 6, 2009 merger of Puget Energy with Puget Holdings triggered a new basis of accounting for PSE's retirement benefit plans in the Puget Energy consolidated financial statements. Such purchase accounting adjustments associated with the remeasurement of retirement plans are recorded at Puget Energy. The following tables summarize Puget Energy's change in benefit obligation, change in plan assets, net periodic benefit cost and other changes in OCI for the years ended December 31, 2011 and 2010:
Puget Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Change in benefit obligation: | | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of period | | $ | 532,615 | | | $ | 504,786 | | | $ | 44,322 | | | $ | 39,152 | | | $ | 16,579 | | | $ | 15,953 | | Service cost | | | 15,822 | | | | 16,089 | | | | 1,241 | | | | 1,024 | | | | 113 | | | | 106 | | Interest cost | | | 26,263 | | | | 27,975 | | | | 2,192 | | | | 2,165 | | | | 807 | | | | 880 | | Amendment | | | -- | | | | (21,866 | ) | | | -- | | | | -- | | | | -- | | | | -- | | Actuarial loss | | | 18,485 | | | | 32,163 | | | | 4,467 | | | | 3,663 | | | | 384 | | | | 867 | | Benefits paid | | | (27,188 | ) | | | (26,532 | ) | | | (2,687 | ) | | | (1,682 | ) | | | (1,855 | ) | | | (2,030 | ) | Medicare part D subsidy received | | | -- | | | | -- | | | | -- | | | | -- | | | | 408 | | | | 803 | | Curtailment loss/(gain) | | | -- | | | | -- | | | | (1,165 | )1 | | | -- | | | | -- | | | | -- | | Benefit obligation at end of period | | $ | 565,997 | | | $ | 532,615 | | | $ | 48,370 | | | $ | 44,322 | | | $ | 16,436 | | | $ | 16,579 | |
_________________ 1 | A curtailment gain was recognized in OCI due to the plan amendment that ceased SERP benefits for non-officers still in the plan as of December 31, 2011. |
Puget Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Change in plan assets: | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of period | | $ | 526,469 | | | $ | 485,689 | | | $ | -- | | | $ | -- | | | $ | 8,288 | | | $ | 8,790 | | Actual return on plan assets | | | (24,495 | ) | | | 55,312 | | | | -- | | | | -- | | | | (170 | ) | | | 1,140 | | Employer contribution | | | 5,000 | | | | 12,000 | | | | 2,687 | | | | 1,682 | | | | 943 | | | | 388 | | Benefits paid | | | (27,188 | ) | | | (26,532 | ) | | | (2,687 | ) | | | (1,682 | ) | | | (1,855 | ) | | | (2,030 | ) | Fair value of plan assets at end of period | | $ | 479,786 | | | $ | 526,469 | | | $ | -- | | | $ | -- | | | $ | 7,206 | | | $ | 8,288 | | Funded status at end of period | | $ | (86,211 | ) | | $ | (6,146 | ) | | $ | (48,370 | ) | | $ | (44,322 | ) | | $ | (9,230 | ) | | $ | (8,291 | ) |
Puget Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Amounts recognized in Statement of Financial Position consist of: | | | | | | | | | | | | | | | | | | | Current liabilities | | $ | -- | | | $ | -- | | | $ | (6,137 | ) | | $ | (3,506 | ) | | $ | (468 | ) | | $ | (44 | ) | Noncurrent liabilities | | | (86,211 | ) | | | (6,146 | ) | | | (42,233 | ) | | | (40,816 | ) | | | (8,762 | ) | | | (8,247 | ) | Total | | $ | (86,211 | ) | | $ | (6,146 | ) | | $ | (48,370 | ) | | $ | (44,322 | ) | | $ | (9,230 | ) | | $ | (8,291 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts recognized in Accumulated Other Comprehensive Income consist of: | | | | | | | | | | | | | | | | | | | | | | | | | Net loss/(gain) | | $ | 34,781 | | | $ | (43,544 | ) | | $ | 8,038 | | | $ | 5,095 | | | $ | 282 | | | $ | (820 | ) | Prior service cost | | | (19,721 | ) | | | (21,701 | ) | | | -- | | | | -- | | | | -- | | | | -- | | Total | | $ | 15,060 | | | $ | (65,245 | ) | | $ | 8,038 | | | $ | 5,095 | | | $ | 282 | | | $ | (820 | ) |
| | Qualified Pension Benefits | | Puget Energy | | Successor | | | Predecessor | | (Dollars in Thousands) | | Year Ended December 31, 2011 | | | Year Ended December 31, 2010 | | | February 6, 2009 - December 31, 2009 | | | January 1, 2009 - February 5, 2009 | | Components of net periodic benefit cost: | | | | | | | | | | | | | Service cost | | $ | 15,822 | | | $ | 16,089 | | | $ | 12,469 | | | $ | 1,090 | | Interest cost | | | 26,263 | | | | 27,975 | | | | 25,912 | | | | 2,302 | | Expected return on plan assets | | | (35,344 | ) | | | (32,941 | ) | | | (27,583 | ) | | | (3,585 | ) | Amortization of prior service cost/(credit) | | | (1,980 | ) | | | (165 | ) | | | -- | | | | 95 | | Amortization of net loss | | | -- | | | | 70 | | | | -- | | | | 269 | | Net periodic benefit cost | | $ | 4,761 | | | $ | 11,028 | | | $ | 10,798 | | | $ | 171 | |
| | SERP Pension Benefits | | Puget Energy | | Successor | | | Predecessor | | (Dollars in Thousands) | | Year Ended December 31, 2011 | | | Year Ended December 31, 2010 | | | February 6, 2009 - December 31, 2009 | | | January 1, 2009 - February 5, 2009 | | Components of net periodic benefit cost: | | | | | | | | | | | | | Service cost | | $ | 1,241 | | | $ | 1,024 | | | $ | 951 | | | $ | 89 | | Interest cost | | | 2,192 | | | | 2,165 | | | | 2,178 | | | | 193 | | Amortization of prior service cost | | | -- | | | | -- | | | | -- | | | | 51 | | Amortization of net loss/(gain) | | | 360 | | | | -- | | | | -- | | | | 74 | | Net periodic benefit cost | | $ | 3,793 | | | $ | 3,189 | | | $ | 3,129 | | | $ | 407 | |
| | Other Benefits | | Puget Energy | | Successor | | | Predecessor | | (Dollars in Thousands) | | Year Ended December 31, 2011 | | | Year Ended December 31, 2010 | | | February 6, 2009 - December 31, 2009 | | | January 1, 2009 - February 5, 2009 | | Components of net periodic benefit cost: | | | | | | | | | | | | | Service cost | | $ | 113 | | | $ | 106 | | | $ | 114 | | | $ | 11 | | Interest cost | | | 806 | | | | 880 | | | | 894 | | | | 89 | | Expected return on plan assets | | | (502 | ) | | | (510 | ) | | | (379 | ) | | | (37 | ) | Amortization of prior service cost | | | -- | | | | -- | | | | -- | | | | 7 | | Amortization of net loss/(gain) | | | (46 | ) | | | (67 | ) | | | -- | | | | (15 | ) | Amortization of transition obligation | | | -- | | | | -- | | | | -- | | | | 4 | | Net periodic benefit cost | | $ | 371 | | | $ | 409 | | | $ | 629 | | | $ | 59 | |
Puget Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Other changes (pre-tax) in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | | | | | | | | | | | | | Net loss/(gain) | | $ | 78,324 | | | $ | 9,791 | | | $ | 3,302 | | | $ | 3,663 | | | $ | 1,056 | | | $ | 236 | | Amortization of net loss/(gain) | | | -- | | | | (70 | ) | | | (360 | ) | | | -- | | | | 46 | | | | 67 | | Prior service credit | | | -- | | | | (21,866 | ) | | | -- | | | | -- | | | | -- | | | | -- | | Amortization of prior service credit | | | 1,980 | | | | 165 | | | | -- | | | | -- | | | | -- | | | | -- | | Total change in other comprehensive income for year | | $ | 80,304 | | | $ | (11,980 | ) | | $ | 2,942 | | | $ | 3,663 | | | $ | 1,102 | | | $ | 303 | |
The estimated net/(loss) gain and prior service/(cost) credit for the pension plans that will be amortized from accumulated OCI into net periodic benefit cost in 2012 are $(0.6) million and $2.0 million, respectively. The estimated net (loss)/gain and prior service (cost)/credit for the SERP that will be amortized from accumulated OCI into net periodic benefit cost in 2012 are $(0.7) million and zero, respectively. The estimated net (loss)/gain, prior service cost/(credit) and transition/(obligation) asset for the other postretirement plans that will be amortized from accumulated OCI into net periodic benefit cost in 2012 are immaterial. The following tables summarize PSE's change in benefit obligation, change in plan assets, net periodic benefit cost and other changes in OCI for the years ended December 31, 2011 and 2010:
Puget Sound Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Change in benefit obligation: | | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of period | | $ | 532,615 | | | $ | 504,786 | | | $ | 44,322 | | | $ | 39,152 | | | $ | 16,579 | | | $ | 15,953 | | Service cost | | | 15,822 | | | | 16,089 | | | | 1,241 | | | | 1,024 | | | | 113 | | | | 106 | | Interest cost | | | 26,263 | | | | 27,975 | | | | 2,192 | | | | 2,165 | | | | 807 | | | | 880 | | Amendment | | | -- | | | | (21,866 | ) | | | -- | | | | -- | | | | -- | | | | -- | | Actuarial loss/(gain) | | | 18,485 | | | | 32,163 | | | | 4,467 | | | | 3,663 | | | | 384 | | | | 867 | | Benefits paid | | | (27,188 | ) | | | (26,532 | ) | | | (2,687 | ) | | | (1,682 | ) | | | (1,855 | ) | | | (2,030 | ) | Medicare part D subsidiary received | | | -- | | | | -- | | | | -- | | | | -- | | | | 408 | | | | 803 | | Curtailment loss/(gain) | | | -- | | | | -- | | | | (1,165 | )1 | | | -- | | | | -- | | | | -- | | Benefit obligation at end of period | | $ | 565,997 | | | $ | 532,615 | | | $ | 48,370 | | | $ | 44,322 | | | $ | 16,436 | | | $ | 16,579 | |
_________________ 1 | A curtailment gain was recognized in OCI due to the plan amendment that ceased SERP benefits for non-officers still in the plan as of December 31, 2011. |
Puget Sound Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Change in plan assets: | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of period | | $ | 526,469 | | | $ | 485,689 | | | $ | -- | | | $ | -- | | | $ | 8,288 | | | $ | 8,790 | | Actual return on plan assets | | | (24,495 | ) | | | 55,312 | | | | -- | | | | -- | | | | (170 | ) | | | 1,140 | | Employer contribution | | | 5,000 | | | | 12,000 | | | | 2,687 | | | | 1,682 | | | | 943 | | | | 388 | | Benefits paid | | | (27,188 | ) | | | (26,532 | ) | | | (2,687 | ) | | | (1,682 | ) | | | (1,855 | ) | | | (2,030 | ) | Fair value of plan assets at end of period | | $ | 479,786 | | | $ | 526,469 | | | $ | -- | | | $ | -- | | | $ | 7,206 | | | $ | 8,288 | | Funded status at end of period | | $ | (86,211 | ) | | $ | (6,146 | ) | | $ | (48,370 | ) | | $ | (44,322 | ) | | $ | (9,230 | ) | | $ | (8,291 | ) |
Puget Sound Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Amounts recognized in Statement of Financial Position consist of: | | | | | | | | | | | | | | | | | | | Current liabilities | | $ | -- | | | $ | -- | | | $ | (6,137 | ) | | $ | (3,506 | ) | | $ | (468 | ) | | $ | (44 | ) | Noncurrent liabilities | | | (86,211 | ) | | | (6,146 | ) | | | (42,233 | ) | | | (40,816 | ) | | | (8,762 | ) | | | (8,247 | ) | Total | | $ | (86,211 | ) | | $ | (6,146 | ) | | $ | (48,370 | ) | | $ | (44,322 | ) | | $ | (9,230 | ) | | $ | (8,291 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts recognized in Accumulated Other Comprehensive Income consist of: | | | | | | | | | | | | | | | | | | | | | | | | | Net loss/(gain) | | $ | 264,098 | | | $ | 187,240 | | | $ | 13,878 | | | $ | 11,770 | | | $ | (2,955 | ) | | $ | (4,492 | ) | Prior service cost/(credit) | | | (15,671 | ) | | | (17,245 | ) | | | 305 | | | | 867 | | | | 72 | | | | 134 | | Transition obligations | | | -- | | | | -- | | | | -- | | | | -- | | | | 50 | | | | 100 | | Total | | $ | 248,427 | | | $ | 169,995 | | | $ | 14,183 | | | $ | 12,637 | | | $ | (2,833 | ) | | $ | (4,258 | ) |
Puget Sound Energy | | Qualified Pension Benefits | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | | Components of net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Service cost | | $ | 15,822 | | | $ | 16,089 | | | $ | 14,141 | | | $ | 1,241 | | | $ | 1,024 | | | $ | 1,068 | | | $ | 113 | | | $ | 106 | | | $ | 125 | | Interest cost | | | 26,263 | | | | 27,975 | | | | 27,734 | | | | 2,192 | | | | 2,165 | | | | 2,315 | | | | 806 | | | | 880 | | | | 960 | | Expected return on plan assets | | | (44,128 | ) | | | (43,892 | ) | | | (43,453 | ) | | | -- | | | | -- | | | | -- | | | | (502 | ) | | | (509 | ) | | | (455 | ) | Amortization of prior service cost/(credit) | | | (1,573 | ) | | | 548 | | | | 1,134 | | | | 563 | | | | 562 | | | | 616 | | | | 63 | | | | 132 | | | | 83 | | Amortization of net loss/(gain) | | | 10,250 | | | | 7,325 | | | | 3,702 | | | | 1,194 | | | | 769 | | | | 886 | | | | (481 | ) | | | (553 | ) | | | (460 | ) | Amortization of transition obligation | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | 50 | | | | 50 | | | | 50 | | Net periodic benefit cost | | $ | 6,634 | | | $ | 8,045 | | | $ | 3,258 | | | $ | 5,190 | | | $ | 4,520 | | | $ | 4,885 | | | $ | 49 | | | $ | 106 | | | $ | 303 | |
Puget Sound Energy | | Qualified Pension Benefit | | | SERP Pension Benefits | | | Other Benefits | | (Dollars in Thousands) | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | Other changes (pre-tax) in plan assets and benefit obligations recognized in other comprehensive income: | | | | | | | | | | | | | | | | | | | Net loss/(gain) | | $ | 87,108 | | | $ | 20,743 | | | $ | 3,302 | | | $ | 3,663 | | | $ | 1,056 | | | $ | 236 | | Amortization of net (loss)/gain | | | (10,250 | ) | | | (7,325 | ) | | | (1,194 | ) | | | (769 | ) | | | 481 | | | | 553 | | Prior service cost/(credit) | | | -- | | | | (21,867 | ) | | | -- | | | | -- | | | | -- | | | | -- | | Amortization of prior service cost/(credit) | | | 1,573 | | | | (546 | ) | | | (562 | ) | | | (562 | ) | | | (62 | ) | | | (132 | ) | Amortization of transition obligation | | | -- | | | | -- | | | | -- | | | | -- | | | | (50 | ) | | | (50 | ) | Total change in other comprehensive income for year | | $ | 78,431 | | | $ | (8,995 | ) | | $ | 1,546 | | | $ | 2,332 | | | $ | 1,425 | | | $ | 607 | |
The estimated net (loss)/gain and prior service (cost)/credit for the pension plans that will be amortized from accumulated OCI into net periodic benefit cost in 2012 are $(14.9) million and $1.6 million, respectively. The estimated net loss/(gain) and prior service (cost)/credit for the SERP that will be amortized from accumulated OCI into net periodic benefit cost in 2012 are $(1.4) million and $(0.3) million, respectively. The estimated net (loss)/gain for the other postretirement plan that will be amortized from accumulated OCI into net periodic benefit cost in 2012 is $0.2 million and prior service (cost)/credit and transition (obligation)/asset for the other postretirement plans are immaterial. The aggregate expected contributions by the Company to fund the retirement plan, SERP and the other postretirement plans for the year ending December 31, 2012 are expected to be at least $22.8 million, $6.1 million and $0.9 million, respectively. As a result of the Patient Protection and Affordable Care Act of 2010, PSE recorded a one-time tax expense of $0.8 million during the three months ended March 31, 2010, related to a Medicare D subsidy that PSE receives. These subsidies have been non-taxable in the past and will be subject to federal income taxes after 2012 as a result of the legislation. As part of PSE's contract with the International Brotherhood of Electrical Workers (IBEW) Local 77 union, which took effect September 1, 2010, the benefit calculation formula changed for Company employees covered by the contract. IBEW represented employees hired after August 31, 2010 and employees not vested in a plan benefit as of July 31, 2010 participate in the cash balance formula of the retirement program, with any accrued benefit converted to a beginning cash balance account. Employees who were vested in a plan benefit as of July 31, 2010 had a choice to convert to the cash balance formula or remain on a final average earnings formula based on qualified pay and years of service. All employees accruing benefits under the cash balance formula receive the same investment plan match and Company contribution. Effective December 1, 2010, the IBEW represented employees who accrue benefits under the cash balance formula receive a higher matching contribution and an additional Company contribution as compared to IBEW represented employees who are covered by the final average earnings formula. These are the same formulas applied to non-union represented employees. IBEW represented employees who were rehired after August 31, 2010, will accrue future benefits under the cash balance formula and will be able to elect to convert their prior benefits to the cash balance formula. As a result of these changes to the IBEW contract, approximately 88.0% of the employees are in the cash balance formula and approximately 12.0% of the employees are in the final average earnings formula.
Assumptions In accounting for pension and other benefit obligations and costs under the plans, the following weighted-average actuarial assumptions were used by the Company:
| Qualified Pension Benefits | | SERP Pension Benefits | | Other Benefits | Benefit Obligation Assumptions | 2011 | 2010 | 2009 | | 2011 | 2010 | 2009 | | 2011 | 2010 | 2009 | Discount rate 1 | 4.75% | 5.15% | 5.75% | | 4.75% | 5.15% | 5.75% | | 4.75% | 5.15% | 5.75% | Rate of compensation increase | 4.50% | 4.50% | 4.50% | | 4.50% | 4.50% | 4.50% | | 4.50% | 4.50% | 4.50% | Medical trend rate | -- | -- | -- | | -- | -- | -- | | 7.50% | 8.00% | 7.50% | | | | | | | Benefit Cost Assumptions | | | | | | | | | | | | Discount rate | 5.15% | 5.75% | 6.50% 2 | | 5.15% | 5.75% | 6.50% 2 | | 5.15% | 5.75% | 6.50% 2 | Rate of plan assets | 7.75% | 8.00% | 8.25% | | -- | -- | -- | | 7.80% | 7.80% | 7.60% | Rate of compensation increase | 4.50% | 4.50% | 4.50% | | 4.50% | 4.50% | 4.50% | | 4.50% | 4.50% | 4.50% | Medical trend rate | -- | -- | -- | | -- | -- | -- | | 8.00% | 8.50% | 9.00% |
_______________ 1 | The Company calculates the present value of the pension liability using a discount rate of 4.75% which represents the single-rate equivalent of the AA rated corporate bond yield curve. | 2 | 6.50% is the benefit cost discount rate used by Puget Energy. 6.20% is the benefit cost discount rate use by PSE. The discount rates for the net periodic costs for Puget Energy and PSE were different because of the discount rates in effect as of February 5, 2009, the date of the merger of Puget Energy with Puget Holdings. |
The assumed medical inflation rate used to determine benefit obligations is 7.5% in 2012 grading down to 4.90% in 2013. A 1.0% change in the assumed medical inflation rate would have the following effects:
| 2011 | | 2010 | (Dollars in Thousands) | 1% Increase | 1% Decrease | | 1% Increase | 1% Decrease | Effect on post-retirement benefit obligation | $ 97 | $ 85 | | $ 97 | $ 85 | Effect on service and interest cost components | 5 | 4 | | 6 | 5 |
The Company has selected the expected return on plan assets based on a historical analysis of rates of return and the Company's investment mix, market conditions, inflation and other factors. The expected rate of return is reviewed annually based on these factors. The Company's accounting policy for calculating the market-related value of assets for the Company's retirement plan is as follows. PSE market-related value of assets is based on a five-year smoothing of asset gains/losses measured from the expected return on market-related assets. This is a calculated value that recognizes changes in fair value in a systematic and rational manner over five years. The same manner of calculating market-related value is used for all classes of assets, and is applied consistently from year to year. Puget Energy's pension and other postretirement benefits income or costs depend on several factors and assumptions, including plan design, timing and amount of cash contributions to the plan, earnings on plan assets, discount rate, expected long-term rate of return, mortality and health care costs trends. Changes in any of these factors or assumptions will affect the amount of income or expense that Puget Energy records in its financial statements in future years and its projected benefit obligation. Puget Energy has selected an expected return on plan assets based on a historical analysis of rates of return and Puget Energy's investment mix, market conditions, inflation and other factors. As required by merger accounting rules, market-related value was reset to market value effective with the merger. The discount rates were determined by using market interest rate data and the weighted-average discount rate from Citigroup Pension Liability Index Curve. The Company also takes into account in determining the discount rate the expected changes in market interest rates and anticipated changes in the duration of the plan liabilities. The aggregate expected contributions and payments by the Company to fund the retirement plan, SERP and the other postretirement plans for the year ending December 31, 2012 are expected to be at least $22.8 million, $6.1 million and $0.9 million, respectively.
Plan Benefits The expected total benefits to be paid under the qualified pension plans for the next five years and the aggregate total to be paid for the five years thereafter are as follows:
(Dollars in Thousands) | 2012 | 2013 | 2014 | 2015 | 2016 | 2017-2021 | Total benefits | $ 47,100 | $ 37,300 | $ 37,000 | $ 38,000 | $ 38,400 | $ 208,800 |
The expected total benefits to be paid under the SERP for the next five years and the aggregate total to be paid for the five years thereafter are as follows:
(Dollars in Thousands) | 2012 | 2013 | 2014 | 2015 | 2016 | 2017-2021 | Total benefits | $ 6,137 | $ 1,889 | $ 3,492 | $ 3,284 | $ 3,328 | $ 18,652 |
The expected total benefits to be paid under the other benefits for the next five years and the aggregate total to be paid for the five years thereafter are as follows:
(Dollars in Thousands) | 2012 | 2013 | 2014 | 2015 | 2016 | 2017-2021 | Total benefits | $ 1,354 | $ 1,315 | $ 1,259 | $ 1,198 | $ 1,231 | $ 6,453 | Total benefits without Medicare Part D subsidy | $ 1,778 | $ 1,770 | $ 1,739 | $ 1,700 | $ 1,652 | $ 7,476 |
Plan Assets Plan contributions and the actuarial present value of accumulated plan benefits are prepared based on certain assumptions pertaining to interest rates, inflation rates and employee demographics, all of which are subject to change. Due to uncertainties inherent in the estimations and assumptions process, changes in these estimates and assumptions in the near term may be material to the financial statements. The Company has a Retirement Plan Committee that establishes investment policies, objectives and strategies designed to balance expected return with a prudent level of risk. All changes to the investment policies are reviewed and approved by the Retirement Plan Committee prior to being implemented. The Retirement Plan Committee invests trust assets with investment managers who have historically achieved above-median long-term investment performance within the risk and asset allocation limits that have been established. Interim evaluations are routinely performed with the assistance of an outside investment consultant. To obtain the desired return needed to fund the pension benefit plans, the Retirement Plan Committee has established investment allocation percentages by asset classes as follows: | Allocation | Asset Class | Minimum | Target | Maximum | Domestic large cap equity | 25% | 32% | 40% | Domestic small cap equity | 0% | 10% | 15% | Non-U.S. equity | 10% | 20% | 30% | Tactical asset allocation | 0% | 5% | 10% | Fixed income | 15% | 23% | 30% | Real estate | 0% | 0% | 10% | Absolute return | 5% | 10% | 15% | Cash | 0% | 0% | 5% |
Plan Fair Value Measurements Effective December 31, 2009, ASC 715, "Compensation - Retirement Benefits" (ASC 715) directs companies to provide additional disclosures about plan assets of a defined benefit pension or other postretirement plan. The objectives of the disclosures are to disclose the following: (1) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (2) major categories of plan assets; (3) inputs and valuation techniques used to measure the fair value of plan assets; (4) effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) significant concentrations of risk within plan assets. In September 2009, the FASB issued ASU 2009-12, "Fair Value Measurements and Disclosures: Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)." The standard allows the reporting entity, as a practical expedient, to measure the fair value of investments that do not have readily determinable fair values on the basis of the net asset value per share of the investment if the net asset value of the investment is calculated in a matter consistent with ASC 946, "Financial Services - Investment Companies." The standard requires disclosures about the nature and risk of the investments and whether the investments are probable of being sold at amounts different from the net asset value per share. The following table sets forth by level, within the fair value hierarchy, the qualified pension plan assets that were accounted for at fair value on a recurring basis as of December 31, 2011 and 2010:
| | Recurring Fair Value Measures As of December 31, 2011 | | | Recurring Fair Value Measures As of December 31, 2010 | | (Dollars in Thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Equities: | | | | | | | | | | | | | | | | | | | | | | | | | Non-US equity 1 | | $ | 48,382 | | | $ | 42,132 | | | $ | -- | | | $ | 90,514 | | | $ | 54,298 | | | $ | 52,418 | | | $ | -- | | | $ | 106,716 | | Domestic large cap equity 2 | | | 124,303 | | | | 29,547 | | | | -- | | | | 153,850 | | | | 144,431 | | | | 28,376 | | | | -- | | | | 172,807 | | Domestic small cap equity 3 | | | 45,650 | | | | -- | | | | -- | | | | 45,650 | | | | 55,750 | | | | -- | | | | -- | | | | 55,750 | | Total equities | | | 218,335 | | | | 71,679 | | | | -- | | | | 290,014 | | | | 254,479 | | | | 80,794 | | | | -- | | | | 335,273 | | Tactical asset allocation 4 | | | -- | | | | 26,922 | | | | -- | | | | 26,922 | | | | -- | | | | 29,566 | | | | -- | | | | 29,566 | | Fixed income securities 5 | | | 106,573 | | | | 580 | | | | -- | | | | 107,153 | | | | 102,314 | | | | 1,982 | | | | -- | | | | 104,296 | | Absolute return 6 | | | -- | | | | -- | | | | 45,319 | | | | 45,319 | | | | -- | | | | -- | | | | 48,100 | | | | 48,100 | | Cash and cash equivalents 7 | | | -- | | | | 9,015 | | | | -- | | | | 9,015 | | | | -- | | | | 6,737 | | | | -- | | | | 6,737 | | Subtotal | | $ | 324,908 | | | $ | 108,196 | | | $ | 45,319 | | | $ | 478,423 | | | $ | 356,793 | | | $ | 119,079 | | | $ | 48,100 | | | $ | 523,972 | | Net receivables | | | | | | | | | | | | | | | 1,088 | | | | | | | | | | | | | | | | 2,272 | | Accrued income | | | | | | | | | | | | | | | 275 | | | | | | | | | | | | | | | | 225 | | Total assets | | | | | | | | | | | | | | $ | 479,786 | | | | | | | | | | | | | | | $ | 526,469 | |
_________________ 1 | Non - US Equity investments are comprised of a (1) mutual fund; and a (2) commingled fund. The investment in the mutual fund is valued using quoted market prices multiplied by the number of shares owned as of December 31, 2011. The investment in the commingled fund is valued at the net asset value per share multiplied by the number of shares held as of December 31, 2011. | 2 | Domestic large cap equity investments are comprised of (1) common stock, and a (2) commingled fund. Investments in common stock are valued using quoted market prices multiplied by the number of shares owned as of December 31, 2011. The investment in the commingled fund is valued at the net asset value per share multiplied by the number of shares held as of December 31, 2011. | 3 | Domestic small cap equity investments are comprised of common stock and are valued using quoted market prices multiplied by the number of shares owned as of December 31, 2011. | 4 | The tactical asset allocation investment is compromised of a commingled fund, which is valued at the net asset value per share multiplied by the number of shares held as of the measurement date. | 5 | Fixed income securities consist of a mutual fund and corporate bonds. The investment in the mutual fund is valued using quoted market prices multiplied by the number of shares owned as of December 31, 2011. The corporate bonds are valued using various valuation techniques such as matrix pricing. | 6 | As of December 31, 2011 absolute return investments consist of two partnerships. The partnerships are valued using the financial reports as of December 31, 2011. These investments are a Level 3 under ASC 820 because the significant valuation inputs are primarily internal to the partnerships with little third party involvement. | 7 | The investment consists of a money market fund, which is valued at the net asset value per share of $1.00 per unit as of December 31, 2011. The money market fund invests primarily in commercial paper, notes, repurchase agreements, and other evidences of indebtedness which are payable on demand or which have a maturity date not exceeding thirteen months from the date of purchase. |
Level 3 Roll-Forward The following table sets forth a reconciliation of changes in the fair value of the plan's Level 3 assets for the years ended December, 31, 2011 and 2010: | | As of December 31, 2011 | | | As of December 31, 2010 | | (Dollars in Thousands) | | Partnership | | | Mutual Funds | | | total | | | Partnership | | | Mutual Funds | | | Total | | Balance at beginning of year | | $ | 35,481 | | | $ | 12,619 | | | $ | 48,100 | | | $ | 23,214 | | | $ | 23,012 | | | $ | 46,226 | | Additional investments | | | 11,635 | | | | -- | | | | 11,635 | | | | 10,473 | | | | -- | | | | 10,473 | | Distributions | | | -- | | | | (11,635 | ) | | | (11,635 | ) | | | -- | | | | (11,716 | ) | | | (11,716 | ) | Realized losses on distributions | | | -- | | | | (290 | ) | | | (290 | ) | | | -- | | | | (1,370 | ) | | | (1,370 | ) | Unrealized gains relating to instruments still held at the reporting date | | | (1,797 | ) | | | 599 | | | | (1,198 | ) | | | 1,794 | | | | 2,693 | | | | 4,487 | | Transferred out of level 3 1 | | | -- | | | | (1,293 | ) | | | (1,293 | ) | | | -- | | | | -- | | | | -- | | Balance at end of year | | $ | 45,319 | | | $ | -- | | | $ | 45,319 | | | $ | 35,481 | | | $ | 12,619 | | | $ | 48,100 | |
_________________ 1 | The plan had no transfers between level 2 and level 1 during the years ended December 31, 2011 or 2010. |
The following table sets forth by level, within the fair value hierarchy, the Other Benefits plan assets which consist of insurance benefits for retired employees, at fair value as of December 31, 2011 and 2010:
| | Recurring Fair Value Measures as of December 31, 2011 | | | Recurring Fair Value Measures as of December 31, 2010 | | (Dollars in Thousands) | | Level 1 | | | Level 2 | | | Total | | | Level 1 | | | Level 2 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | Mutual fund 1 | | $ | 7,137 | | | $ | -- | | | $ | 7,137 | | | $ | 8,115 | | | $ | -- | | | $ | 8,115 | | Cash equivalents 2 | | | -- | | | | 130 | | | | 130 | | | | -- | | | | 173 | | | | 173 | | Total assets | | $ | 7,137 | | | $ | 130 | | | $ | 7,267 | | | $ | 8,115 | | | $ | 173 | | | $ | 8,288 | |
1 | This is a publicly traded balanced mutual fund. The fund seeks regular income, conservation of principal, and an opportunity for long-term growth of principal and income. The fair value is determined by taking the number of shares owned by the plan, and multiplying by the market price as of December 31, 2011. | 2 | This consists of a deposit fund and a money market fund. The fair value of the deposit fund is calculated by using the financial reports available as of December 31, 2011. The money market fund investments are valued at the net asset value per share of $1.00 per unit as of December 31, 2011. The money market fund invests primarily in commercial paper, notes, repurchase agreements, and other evidences of indebtedness which are payable on demand or which have a maturity date not exceeding thirteen months from the date or purchase. |
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