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Benefits
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements [Abstract]  
Benefits
9. Benefits

 

Pension and Other Postretirement Benefit Plans

 

The Company has funded non-contributory defined benefit pension plans (pension plans) that cover substantially all Distribution segment employees. Normal retirement age is 65, but certain plan provisions allow for earlier retirement. Pension benefits are calculated under formulas principally based on average earnings and length of service for salaried and non-union employees and average earnings and length of service or negotiated non-wage based formulas for union employees.

 

The Company has postretirement health care and life insurance plans (other postretirement plans) that cover substantially all Distribution and Transportation and Storage segment employees and all Corporate employees. The health care plans generally provide for cost sharing between the Company and its retirees in the form of retiree contributions, deductibles, coinsurance, and a fixed cost cap on the amount the Company pays annually to provide future retiree health care coverage under certain of these plans.

Obligations and Funded Status

 

Pension and other postretirement benefit liabilities are accrued on an actuarial basis during the years an employee provides services. The following tables contain information at the dates indicated about the obligations and funded status of the Company's pension and other postretirement plans on a combined basis.

 

   Pension Benefits  Other Postretirement Benefits
   December 31, December 31,
   2011 2010 2011 2010
              
    (In thousands)
              
Change in benefit obligation:            
 Benefit obligation at beginning of period $ 193,686 $ 177,235 $ 109,768 $ 98,055
 Service cost   3,657   3,251   3,480   3,064
 Interest cost   10,140   10,172   6,050   5,612
 Benefits paid, net   (10,511)   (10,546)   (2,585)   (3,224)
 Medicare Part D subsidy receipts   -   -   318   305
 Actuarial loss and other   28,105   13,574   18,094   5,956
 Benefit obligation at end of period  $ 225,077 $ 193,686 $ 135,125 $ 109,768
              
Change in plan assets:            
 Fair value of plan assets at beginning of period$ 127,000 $ 115,863 $ 102,146 $ 68,903
 Return on plan assets and other   (651)   15,195   298   8,808
 Employer contributions    16,957   6,488   10,363   27,659
 Benefits paid, net   (10,511)   (10,546)   (2,585)   (3,224)
 Fair value of plan assets at end of period $ 132,795 $ 127,000 $ 110,222 $ 102,146
              
Amount underfunded at end of period  $ (92,282) $ (66,686) $ (24,903) $ (7,622)
              
Amounts recognized in the Consolidated             
 Balance Sheet consist of:            
 Noncurrent assets $ - $ - $ 3,560 $ 6,279
 Current liabilities   (13)   (13)   (239)   (170)
 Noncurrent liabilities   (92,269)   (66,673)   (28,224)   (13,731)
   $ (92,282) $ (66,686) $ (24,903) $ (7,622)
              
Amounts recognized in Accumulated other             
 comprehensive loss (pre-tax basis) consist of:           
 Net actuarial loss (gain) $ 82,790 $ 51,365 $ 24,723 $ (246)
 Prior service cost    1,964   2,551   2,885   1,074
   $ 84,754 $ 53,916 $ 27,608 $ 828

The following table summarizes information at the dates indicated for plans with an accumulated benefit obligation in excess of plan assets.

 

  Pension Benefits Other Postretirement Benefits
  December 31, December 31,
  2011 2010 2011 2010
             
  (In thousands)
             
Projected benefit obligation $ 225,077 $ 193,686  N/A  N/A
Accumulated benefit obligation   212,056   183,529 $ 104,083 $ 82,287
Fair value of plan assets   132,795   127,000   75,620   68,385

Net Periodic Benefit Cost

 

Net periodic benefit cost for the periods presented includes the components noted in the table below.

 

   Pension Benefits Other Postretirement Benefits
   Years Ended December 31, Years Ended December 31,
   2011 2010 2009 2011 2010 2009
                    
    (In thousands)
Net Periodic Benefit Cost:                 
 Service cost$ 3,657 $ 3,251 $ 2,778 $ 3,480 $ 3,064 $ 2,970
 Interest cost  10,140   10,172   9,955   6,050   5,612   5,481
 Expected return on plan assets  (10,653)   (9,348)   (8,577)   (5,820)   (4,918)   (3,123)
 Prior service cost (credit)                  
  amortization  587   552   552   (1,811)   (1,647)   (1,260)
 Actuarial loss (gain)                  
  amortization  7,985   8,048   8,405   (1,353)   (1,862)   (847)
     11,716   12,675   13,113   546   249   3,221
 Regulatory adjustment (1)  868   (4)   54   2,665   2,665   2,665
 Net periodic benefit cost$ 12,584 $ 12,671 $ 13,167 $ 3,211 $ 2,914 $ 5,886

________________________________

  • In the Distribution segment, the Company recovers certain qualified pension benefit plan and other postretirement benefit plan costs through rates charged to utility customers. Certain utility commissions require that the recovery of these costs be based on the Employee Retirement Income Security Act of 1974, as amended, or other utility commission specific guidelines. The difference between these regulatory-based amounts and the periodic benefit cost calculated pursuant to GAAP is deferred as a regulatory asset or liability and amortized to expense over periods in which this difference will be recovered in rates, as promulgated by the applicable utility commission.

 

The estimated net actuarial loss (gain) and prior service cost (credit) for pension plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost during 2012 are $10.3 million and $580,000, respectively. The estimated net actuarial loss (gain) and prior service cost (credit) for other postretirement plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost during 2012 are $1.3 million and $(1.1) million, respectively.

 

Assumptions

 

The weighted-average assumptions used in determining benefit obligations at the dates indicated are shown in the table below.

 

  Pension Benefits   Other Postretirement Benefits
  December 31,   December 31,
  2011 2010   2011 2010
           
Discount rate 4.14% 5.35%   4.14% 5.36%
Rate of compensation increase 3.02% 3.02%   N/A N/A

The weighted-average assumptions used in determining net periodic benefit cost for the periods presented are shown in the table below.

 

   Pension Benefits Other Postretirement Benefits
   Years Ended December 31, Years Ended December 31,
   2011 2010 2009 2011 2010 2009
              
Discount rate 5.35% 5.82% 6.05% 5.36% 5.85% 6.05%
Expected return on assets:            
 Tax exempt accounts 8.25% 8.25% 8.50% 7.00% 7.00% 7.00%
 Taxable accounts N/A N/A N/A 4.50% 5.00% 5.00%
Rate of compensation increase 3.02% 3.24% 3.24% N/A N/A N/A

The Company employs a building block approach in determining the expected long-term rate of return on the plans' assets, with proper consideration of diversification and rebalancing. Historical markets are studied and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term market assumptions are determined. Peer data and historical returns are reviewed to ensure reasonableness and appropriateness.

 

The assumed health care cost trend rates used to measure the expected cost of benefits covered by the Company's other postretirement benefit plans are shown in the table below.

 

  December 31,
  2011 2010
     
Health care cost trend rate assumed for next year 8.50% 9.00%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)4.75% 4.75%
Year that the rate reaches the ultimate trend rate 2019 2019

Assumed health care cost trend rates have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

 

  One Percentage One Percentage 
  Point Increase  Point Decrease 
        
  (In thousands) 
        
Effect on total of service and interest cost $ 878 $ (847) 
Effect on accumulated postretirement benefit obligation   11,809   (10,806) 

Plan Assets

 

The Company's overall investment strategy is to maintain an appropriate balance of actively managed investments with the objective of optimizing longer-term returns while maintaining a high standard of portfolio quality and achieving proper diversification. To achieve diversity within its pension plan asset portfolio, the Company has targeted the following asset allocations: equity of 25 percent to 70 percent, fixed income of 15 percent to 35 percent, alternative assets of 10 percent to 35 percent and cash of 0 percent to 10 percent. To achieve diversity within its other postretirement plan asset portfolio, the Company has targeted the following asset allocations: equity of 25 percent to 35 percent, fixed income of 65 percent to 75 percent and cash and cash equivalents of 0 percent to 10 percent. These target allocations are monitored by the Investment Committee of the Board in conjunction with an external investment advisor. On occasion, the asset allocations may fluctuate as compared to these guidelines as a result of Investment Committee actions.

 

The fair value of the Company's pension plan assets by asset category at the dates indicated is as follows:

 

 

   Fair Value Fair Value Measurements at December 31, 2011
   as ofUsing Fair Value Hierarchy
   December 31, 2011Level 1 Level 2 Level 3
             
    (In thousands)
Asset Category:          
 Cash and cash          
  equivalents$ 11,791$ 11,791 $ - $ -
 Mutual fund  110,632 (1)  -   110,632   -
 Multi-strategy          
  hedge funds  10,372 (2)  -   10,372   -
 Total$ 132,795$ 11,791 $ 121,004 $ -
             
             
   Fair Value Fair Value Measurements at December 31, 2010
   as ofUsing Fair Value Hierarchy
   December 31, 2010Level 1 Level 2 Level 3
             
    (In thousands)
Asset Category:          
 Cash and cash          
  equivalents$ 4,901$ 4,901 $ - $ -
 Mutual fund  111,829 (1)  -   111,829   -
 Multi-strategy          
  hedge funds  10,270 (2)  -   10,270   -
 Total$ 127,000$ 4,901 $ 122,099 $ -

___________________

  • This comingled fund invests primarily in a diversified portfolio of equity and fixed income funds. As of December 31, 2011, the fund was primarily comprised of approximately 36 percent large-cap U.S. equities, 6 percent small-cap U.S. equities, 20 percent international equities, 30 percent fixed income securities, and 8 percent in other investments. As of December 31, 2010, the fund was primarily comprised of approximately 38 percent large-cap U.S. equities, 8 percent small-cap U.S. equities, 20 percent international equities, 29 percent fixed income securities, and 5 percent in other investments. These investments are generally redeemable on a daily basis at the net asset value per share of the investment.
  • Primarily includes hedge funds that invest in multiple strategies, including relative value, opportunistic/macro, long/short equities, merger arbitrage/event driven, credit, and short selling strategies, to generate long-term capital appreciation through a portfolio having a diversified risk profile with relatively low volatility and a low correlation with traditional equity and fixed-income markets. These investments can generally be redeemed effective as of the last day of a calendar quarter at the net asset value per share of the investment with approximately 65 days prior written notice.

 

The fair value of the Company's other postretirement plan assets by asset category at the dates indicated is as follows:

 

    Fair Value Fair Value Measurements at December 31, 2011
    as ofUsing Fair Value Hierarchy
   December 31, 2011Level 1 Level 2 Level 3
             
    (In thousands)
Asset Category:          
 Cash and Cash          
  Equivalents$ 2,476$ 2,476 $ - $ -
 Mutual fund  107,746 (1)  107,746   -   -
 Total$ 110,222$ 110,222 $ - $ -
             
             
    Fair Value Fair Value Measurements at December 31, 2010
    as ofUsing Fair Value Hierarchy
   December 31, 2010Level 1 Level 2 Level 3
             
    (In thousands)
Asset Category:          
 Cash and Cash          
  Equivalents$ 2,303$ 2,303 $ - $ -
 Mutual fund  99,843 (1)  99,843   -   -
 Total$ 102,146$ 102,146 $ - $ -

___________________

  • This fund of funds primarily invests in a combination of equity, fixed income and short-term mutual funds. As of December 31, 2011, the fund was primarily comprised of approximately 19 percent large-cap U.S. equities, 2 percent small-cap U.S. equities, 10 percent international equities, 55 percent fixed income securities, 8 percent cash, and 6 percent in other investments. As of December 31, 2010, the fund was primarily comprised of approximately 17 percent large-cap U.S. equities, 4 percent small-cap U.S. equities, 10 percent international equities, 57 percent fixed income securities, 10 percent cash, and 2 percent in other investments.

 

The Level 1 plan assets are valued based on active market quotes. The Level 2 plan assets are valued based on the net asset value per share (or its equivalent) of the investments, which was not determinable through publicly published sources but was determined by the Company to be calculated consistent with authoritative accounting guidelines. See Note 2 – Summary of Significant Accounting Policies and Other Matters – Fair Value Measurements for information related to the framework used by the Company to measure the fair value of its pension and other postretirement plan assets.

 

Contributions

 

The Company expects to contribute approximately $16.8 million to its pension plans and approximately $10.9 million to its other postretirement plans in 2012. The Company funds the cost of the plans in accordance with federal regulations, not to exceed the amounts deductible for income tax purposes.

 

Benefit Payments

 

The Company's estimate of expected benefit payments, which reflect expected future service, as appropriate, in each of the next five years and in the aggregate for the five years thereafter are shown in the table below.

 

       Other Other 
       Postretirement Postretirement 
       Benefits Benefits 
    Pension (Gross, Before (Medicare Part D 
Years Benefits Medicare Part D) Subsidy Receipts) 
             
     (In thousands) 
2012 $ 11,703 $ 4,798 $ 584 
2013   11,860   5,553   606 
2014   12,328   6,422   712 
2015   12,031   7,219   819 
2016   12,075   7,960   958 
2017-2021   64,869   48,348   6,532 

The Medicare Prescription Drug Act provides for a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D.

 

Defined Contribution Plan

 

The Company sponsors a defined contribution savings plan (Savings Plan) that is available to all employees. The Company provided maximum matching contributions based upon certain Savings Plan provisions during 2009 through 2011 ranging from 2 percent to 6.25 percent of the participant's compensation paid into the Savings Plan. Company contributions are 100 percent vested after five years of continuous service for all plans other than plans for Missouri Gas Energy union employees and employees of the Fall River operation, as to which contributions are 100 percent vested after six years of continuous service. Company contributions to the Savings Plan during the years ended December 31, 2011, 2010 and 2009 were $7.6 million, $7.4 million and $7 million, respectively.

 

In addition, the Company makes employer contributions to separate accounts, referred to as Retirement Power Accounts, within the defined contribution plan. The contribution amounts are determined as a percentage of compensation and range from 3.5 percent to 12 percent. Company contributions are generally 100 percent vested after five years of continuous service. Company contributions to Retirement Power Accounts during the years ended December 31, 2011, 2010 and 2009 were $8.1 million, $7.9 million and $7.9 million, respectively.