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PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
 12 Months Ended
Dec. 31, 2013
Notes To Consolidated Financial Statements [Abstract]  
Pension and Other Postretirement Benefits Disclosure [Text Block]

10.       EMPLOYEE BENEFITS

 

A.       Pension Benefits and Postretirement Benefits Other Than Pensions

NUSCO sponsors a defined benefit retirement plan that covers most employees, including CL&P, PSNH, and WMECO employees, hired before 2006 (or as negotiated, for bargaining unit employees), referred to as the NUSCO Pension Plan. NSTAR Electric acts as plan sponsor for a defined benefit retirement plan that covers most employees of NSTAR Electric and certain affiliates, hired before October 1, 2012, or as negotiated by bargaining unit employees, referred to as the NSTAR Pension Plan. Both plans are subject to the provisions of ERISA, as amended by the PPA of 2006. NUSCO also maintains non-qualified defined benefit retirement plans (herein collectively referred to as the SERP Plans), which provide benefits in excess of Internal Revenue Code limitations to eligible current and retired participants.

 

NUSCO also sponsors defined benefit postretirement plans that provide certain retiree health care benefits, primarily medical and dental, and life insurance benefits to retiring employees that meet certain age and service eligibility requirements (NUSCO PBOP Plans and NSTAR PBOP Plan). Under certain circumstances, eligible retirees are required to contribute to the costs of postretirement benefits. The benefits provided under the NUSCO and NSTAR PBOP Plans are not vested and the Company has the right to modify any benefit provision subject to applicable laws at that time.

 

The funded status of the Pension, SERP and PBOP Plans is calculated based on the difference between the benefit obligation and the fair value of plan assets and is recorded on the balance sheets as an asset or a liability. Because the Regulated companies recover the retiree benefit costs from customers through rates, regulatory assets are recorded in lieu of an adjustment to Accumulated Other Comprehensive Income/(Loss). Regulatory accounting was also applied to the portions of the NUSCO costs that support the Regulated companies, as these costs are also recovered from customers. Adjustments to the Pension and PBOP funded status for the unregulated companies are recorded on an after-tax basis to Accumulated Other Comprehensive Income/(Loss). For further information, see Note 3, "Regulatory Accounting," and Note 15, "Accumulated Other Comprehensive Income/(Loss)," to the financial statements. The SERP Plans do not have plan assets.

 

For the NUSCO Pension and PBOP Plans, the expected return on plan assets is calculated by applying the assumed rate of return to a four-year rolling average of plan asset fair values, which reduces year-to-year volatility. This calculation recognizes investment gains or losses over a four-year period from the years in which they occur. Investment gains or losses for this purpose are the difference between the calculated expected return and the actual return. As investment gains and losses are reflected in the average plan asset fair values, they are subject to amortization with other unrecognized actuarial gains or losses. For the NSTAR Pension and PBOP Plans, the entire difference between the actual return and calculated expected return on plan assets is reflected as a component of unrecognized actuarial gain or loss. Unrecognized actuarial gains or losses are amortized as a component of Pension and PBOP expense over the estimated average future employee service period.

 

Pension and SERP Plans: The funded status of each of the plans is recorded on the respective acting sponsor's balance sheet: NUSCO (NUSCO Pension, NUSCO SERP and NSTAR SERP) and NSTAR Electric (NSTAR Pension). The NUSCO plans are accounted for under the multiple-employer approach while the NSTAR plans are accounted for under the multi-employer approach. Accordingly, the balance sheet of NSTAR Electric reflects the full funded status of the NSTAR Pension Plan.

 

The following tables provide information on the Pension and SERP Plan benefit obligations, fair values of Pension Plan assets, and funded status:

  Pension and SERP
NUAs of December 31,
(Millions of Dollars)2013 2012 (1)
Change in Benefit Obligation     
Benefit Obligation as of Beginning of Year$ (5,022.8) $ (3,098.9)
Liabilities Assumed from Merger with NSTAR  -   (1,409.7)
Service Cost  (102.3)   (84.3)
Interest Cost  (206.7)   (198.3)
Actuarial Gain/(Loss)  433.6   (429.7)
Benefits Paid - Pension  216.6   187.7
Benefits Paid - SERP  5.1   4.2
SERP Curtailment  -   6.2
Benefit Obligation as of End of Year$ (4,676.5) $ (5,022.8)
Change in Pension Plan Assets     
Fair Value of Plan Assets as of Beginning of Year$ 3,411.3 $ 2,005.9
Assets Assumed from Merger with NSTAR  -   984.7
Employer Contributions  284.7   222.4
Actual Return on Plan Assets  506.5   386.0
Benefits Paid   (216.6)   (187.7)
Fair Value of Plan Assets as of End of Year$ 3,985.9 $ 3,411.3
Funded Status as of December 31st$ (690.6) $ (1,611.5)

  Pension and SERP
  As of December 31, 2013 As of December 31, 2012
     NSTAR          NSTAR      
(Millions of Dollars)CL&P Electric (2) PSNH WMECO CL&P Electric (2) PSNH WMECO
Change in Benefit Obligation                       
Benefit Obligation as of Beginning of Year$ (1,178.0) $ (1,430.0) $ (576.0) $ (243.1) $ (1,043.8) $ (1,346.2) $ (497.9) $ (215.8)
Service Cost  (24.9)   (33.1)   (13.1)   (4.7)   (21.8)   (30.3)   (11.8)   (4.1)
Interest Cost  (48.3)   (58.0)   (23.6)   (10.0)   (51.2)   (58.9)   (24.4)   (10.5)
Actuarial Gain/(Loss)  110.7   96.6   62.4   22.4   (117.4)   (63.6)   (61.3)   (24.0)
Benefits Paid - Pension  56.6   71.2   21.1   11.5   55.9   69.0   19.7   11.3
Benefits Paid - SERP  0.5   -   0.2   -   0.3   -   -   -
SERP Curtailment   -   -   -   -   -   -   (0.3)   -
Benefit Obligation as of End of Year$ (1,083.4) $ (1,353.3) $ (529.0) $ (223.9) $ (1,178.0) $ (1,430.0) $ (576.0) $ (243.1)
Change in Pension Plan Assets                       
Fair Value of Plan Assets as of Beginning of Year$ 937.6 $ 1,069.1 $ 386.6 $ 218.5 $ 869.6 $ 988.5 $ 279.7 $ 202.0
Employer Contributions  -   82.0   108.3   -   -   25.0   87.7   -
Actual Return on Plan Assets  135.3   155.4   54.8   33.4   123.9   124.6   38.9   27.8
Benefits Paid   (56.6)   (71.2)   (21.1)   (11.5)   (55.9)   (69.0)   (19.7)   (11.3)
Fair Value of Plan Assets as of End of Year$ 1,016.3 $ 1,235.3 $ 528.6 $ 240.4 $ 937.6 $ 1,069.1 $ 386.6 $ 218.5
Funded Status as of December 31st$ (67.1) $ (118.0) $ (0.4) $ 16.5 $ (240.4) $ (360.9) $ (189.4) $ (24.6)
                         
(1) NSTAR amounts were included in NU beginning April 10, 2012. 
                         
(2) NSTAR Electric amounts do not include benefit obligations of the NSTAR SERP Plan. 
  
As of December 31, 2013, prepaid pension assets of $3 million and $17 million for PSNH and WMECO, respectively, were included in Other Long-term Assets on their accompanying balance sheets. Pension and SERP benefits funded status includes the current portion of the SERP liability, which is included in Other Current Liabilities on the accompanying balance sheets.
                         
Although NU maintains marketable securities in a supplemental benefit trust, the plan itself does not contain any assets. See Note 6, "Marketable Securities," to the financial statements.

The accumulated benefit obligation for the Pension and SERP Plans is as follows:
        
  Pension and SERP 
  As of December 31,  
(Millions of Dollars)2013 2012 
NU$ 4,538.8 $ 4,622.1 
CL&P  1,058.0   1,061.8 
NSTAR Electric (1)  1,280.6   1,353.1 
PSNH  520.1   515.9 
WMECO  220.6   221.3 
        
(1)NSTAR Electric amounts do not include the accumulated benefit obligation for the SERP Plan.
        
The following actuarial assumptions were used in calculating the Pension and SERP Plans' year end funded status:

  Pension and SERP 
  As of December 31, 
 2013 2012 
NUSCO Pension and SERP Plans       
Discount Rate 5.03%  4.24% 
Compensation/Progression Rate 3.50%  3.50% 
        
NSTAR Pension and SERP Plans      
Discount Rate 4.85%  4.13% 
Compensation/Progression Rate 4.00%  4.00% 

Pension and SERP Expense: For the NUSCO Plans, NU allocates net periodic pension expense to its subsidiaries based on the actual participant demographic data for each subsidiary's participants. Benefit payments to participants and contributions are also tracked for each subsidiary. The actual investment return in the trust each year is allocated to each of the subsidiaries annually in proportion to the investment return expected to be earned during the year. For the NSTAR Pension Plan, the net periodic pension expense recorded at NSTAR Electric represents the full cost of the plan and then a portion of the costs are allocated to affiliated companies based on participant demographic data. The components of net periodic benefit expense, for which the total expense less capitalized amounts is included in Operations and Maintenance on the statements of income, the portion of pension amounts capitalized related to employees working on capital projects, which is included in Property, Plant and Equipment, Net on the balance sheets, and intercompany allocations not included in the net periodic benefit expense amounts for the Pension and SERP Plans are as follows:

 Pension and SERP 
  For the Year Ended December 31, 2013 
        NSTAR       
(Millions of Dollars)NU  CL&P Electric (2) PSNH WMECO 
Service Cost$ 102.3 $ 24.9 $ 33.1 $ 13.1 $ 4.7 
Interest Cost  206.7   48.3   58.0   23.6   10.0 
Expected Return on Plan Assets  (278.1)   (73.8)   (84.4)   (35.4)   (17.4) 
Actuarial Loss  210.5   55.9   58.1   21.6   11.8 
Prior Service Cost/(Credit)  4.0   1.8   (0.3)   0.7   0.4 
Total Net Periodic Benefit Expense$ 245.4 $ 57.1 $ 64.5 $ 23.6 $ 9.5 
Related Intercompany Allocations N/A $ 44.9 $ (8.4) $ 10.5 $ 8.0 
Capitalized Pension Expense$ 73.2 $ 28.0 $ 28.9 $ 7.3 $ 5.2 
                 
 Pension and SERP 
  For the Year Ended December 31, 2012 (1) 
        NSTAR       
(Millions of Dollars)NU CL&P Electric (2) PSNH WMECO 
Service Cost$ 84.3 $ 21.8 $ 30.3 $ 11.8 $ 4.1 
Interest Cost  198.3   51.2   58.9   24.4   10.5 
Expected Return on Plan Assets  (220.9)   (70.6)   (65.6)   (28.2)   (16.4) 
Actuarial Loss  172.4   49.6   63.1   16.2   10.7 
Prior Service Cost/(Credit)  7.9   3.6   (0.6)   1.5   0.8 
Total Net Periodic Benefit Expense$ 242.0 $ 55.6 $ 86.1 $ 25.7 $ 9.7 
Curtailments and Settlements$ 2.2 $ - $ - $ - $ - 
Related Intercompany Allocations N/A $ 42.8 $ (12.3) $ 10.1 $ 8.1 
Capitalized Pension Expense$ 70.6 $ 26.8 $ 30.7 $ 7.9 $ 5.1 
                 
  Pension and SERP 
  For the Year Ended December 31, 2011 
        NSTAR       
(Millions of Dollars)NU CL&P Electric (2) PSNH WMECO 
Service Cost$ 55.4 $ 19.5 $ 26.0 $ 10.6 $ 3.9 
Interest Cost  153.3   51.9   61.0   24.4   10.7 
Expected Return on Plan Assets  (170.8)   (76.6)   (71.4)   (19.8)   (17.7) 
Actuarial Loss  84.2   33.4   48.6   10.7   7.1 
Prior Service Cost/(Credit)  9.7   4.2   (0.7)   1.8   0.9 
Total Net Periodic Benefit Expense$ 131.8 $ 32.4 $ 63.5 $ 27.7 $ 4.9 
Related Intercompany Allocations N/A $ 34.1 $ (10.2) $ 7.6 $ 6.2 
Capitalized Pension Expense$ 29.7 $ 16.6 $ 19.8 $ 7.6 $ 2.7 
                 
(1)NSTAR Electric amounts were included in NU beginning April 10, 2012.
(2)NSTAR Electric's allocated expense associated with the NSTAR SERP was $3.2 million, $3.6 million and $4.4 million for the years ended December 31, 2013, 2012 and 2011, respectively, and are not included in the NSTAR Electric amounts in the tables above.

The following actuarial assumptions were used to calculate Pension and SERP expense amounts:
  Pension and SERP    
  For the Years Ended December 31,   
NUSCO Pension and SERP Plans2013  2012  2011    
Discount Rate 4.24%  5.03%  5.57%   
Expected Long-Term Rate of Return 8.25%  8.25%  8.25%   
Compensation/Progression Rate 3.50%  3.50%  3.50%   
             
NSTAR Pension and SERP Plans           
Discount Rate 4.13%  4.52%  5.30%   
Expected Long-Term Rate of Return 8.25%  7.30%  8.00%   
Compensation/Progression Rate 4.00%  4.00%  4.00%   
             

The following is a summary of the changes in plan assets and benefit obligations recognized in Regulatory Assets and Other Comprehensive Income (OCI) as well as amounts in Regulatory Assets and OCI reclassified as net periodic benefit expense during the years presented:
                   
 Amounts Reclassified To/From      
 Regulatory Assets OCI      
(Millions of Dollars)For the Years Ended December 31,      
NU Pension and SERP Plans (1)2013 2012 2013 2012      
Actuarial (Gains)/Losses Arising During the Year$ (635.2) $ 245.7 $ (28.9) $ 19.1      
Actuarial Losses Reclassified as Net Periodic Benefit Expense  (201.2)   (164.6)   (9.4)   (7.8)      
Prior Service Cost Reclassified as Net Periodic Benefit Expense (3.8)   (7.7)   (0.2)   (0.2)      
                   
(1) The NU amounts include the NSTAR Pension and SERP Plans beginning April 10, 2012.
                   
The following is a summary of the remaining Regulatory Assets and Accumulated Other Comprehensive Loss amounts that have not been recognized as components of net periodic benefit expense as of December 31, 2013 and 2012, and the amounts that are expected to be recognized as components in 2014:
                   
  Regulatory Assets as of  Expected  AOCI as of Expected
(Millions of Dollars)December 31,   2014 December 31,  2014
NU Pension and SERP Plans2013 2012 Expense 2013 2012 Expense
Actuarial Loss$ 1,137.4 $ 1,973.8 $ 126.2 $ 43.2 $ 81.5 $ 5.6
Prior Service Cost  17.4   21.2   4.2   1.0   1.2   0.2

As of December 31, 2013 and 2012, NSTAR Electric had $497.9 million and $724 million, respectively, of unrecognized actuarial losses included in Regulatory Assets that have not been recognized as components of net periodic benefit expense. For the years ended December 31, 2013 and 2012, NSTAR Electric reclassified $58.1 million and $62.8 million, respectively, of actuarial losses and $0.3 million and $0.6 million, respectively, of prior service credit as net periodic benefit expense. Actuarial gains of $168 million and actuarial losses of $4.6 million, respectively, arose during 2013 and 2012, respectively.

 

PBOP Plans: The NUSCO Plans are accounted for under the multiple-employer approach while the NSTAR Plan is accounted for under the multi-employer approach. Accordingly, the funded status of the NUSCO PBOP Plans is allocated to its subsidiaries, including CL&P, PSNH and WMECO, while the NSTAR PBOP Plan is not reflected on the SEC registrant NSTAR Electric's balance sheet.

 

NU annually funds postretirement costs through tax deductible contributions to external trusts.

 

The following tables provide information on PBOP Plan benefit obligations, fair values of plan assets, and funded status:

  PBOP
  As of December 31,
  2013 2012
(Millions of Dollars)NU CL&P PSNH WMECO NU (1) CL&P PSNH WMECO
Change in Benefit Obligation                       
Benefit Obligation as of Beginning of Year$ (1,233.3) $ (196.8) $ (100.2) $ (42.5) $ (520.9) $ (198.9) $ (99.2) $ (42.9)
Liabilities Assumed from Merger with NSTAR  -   -   -   -   (770.6)   -   -   -
Service Cost  (16.9)   (3.4)   (2.3)   (0.7)   (15.7)   (3.0)   (2.0)   (0.6)
Interest Cost  (47.2)   (7.9)   (4.0)   (1.7)   (49.0)   (9.2)   (4.6)   (2.0)
Actuarial Gain  200.9   13.3   7.2   3.3   70.9   1.2   0.3   0.1
Federal Subsidy on Benefits Paid  -   -   -   -   (6.2)   (1.7)   (0.6)   (0.3)
Benefits Paid  58.5   14.4   5.8   2.9   58.2   14.8   5.9   3.2
Benefit Obligation as of End of Year$ (1,038.0) $ (180.4) $ (93.5) $ (38.7) $ (1,233.3) $ (196.8) $ (100.2) $ (42.5)
Change in Plan Assets                       
Fair Value of Plan Assets as of Beginning of Year$ 709.1 $ 132.2 $ 69.5 $ 31.0 $ 285.4 $ 112.2 $ 58.7 $ 27.1
Assets Assumed from Merger with NSTAR  -   -   -   -   330.4   -   -   -
Actual Return on Plan Assets  118.3   24.8   13.4   6.0   78.8   15.0   7.5   3.5
Employer Contributions  57.6   8.7   4.7   1.2   72.7   19.8   9.2   3.6
Benefits Paid  (58.5)   (14.4)   (5.8)   (2.9)   (58.2)   (14.8)   (5.9)   (3.2)
Fair Value of Plan Assets as of End of Year$ 826.5 $ 151.3 $ 81.8 $ 35.3 $ 709.1 $ 132.2 $ 69.5 $ 31.0
Funded Status as of December 31st$ (211.5) $ (29.1) $ (11.7) $ (3.4) $ (524.2) $ (64.6) $ (30.7) $ (11.5)
                         
(1)NU results include NSTAR PBOP Plan activity beginning April 10, 2012.

The following actuarial assumptions were used in calculating the PBOP Plans' year end funded status:
           
   PBOP   
   As of December 31,    
  2013 2012   
NUSCO PBOP Plans         
Discount Rate  4.78%  4.04%   
Health Care Cost Trend Rate  7.00%  7.00%   
           
NSTAR PBOP Plan         
Discount Rate  5.10%  4.35%   
Health Care Cost Trend Rate  7.00%  7.10%   

PBOP Expense: For the NUSCO Plans, NU allocates net periodic postretirement benefits expense to certain subsidiaries based on the actual participant demographic data for each subsidiary's participants. Benefit payments to participants and contributions are also tracked for each subsidiary. The actual investment return in the trust is allocated to each of the subsidiaries annually in proportion to the investment return expected to be earned during the year. For the NSTAR Plan, NU allocates the net periodic postretirement expenses to certain subsidiaries based on actual participant demographic data for each of its subsidiaries. The net periodic postretirement expense allocated to NSTAR Electric was $4.6 million, $34.1 million, and $26 million for the years ended December 31, 2013, 2012 and 2011, respectively.

 

The components of net periodic benefit expense, for which the total expense less capitalized amounts is included in Operations and Maintenance on the statements of income, the portion of PBOP amounts capitalized related to employees working on capital projects, which is included in Property, Plant and Equipment, Net on the balance sheets, and intercompany allocations not included in the net periodic benefit expense amounts for the PBOP Plans are as follows

  PBOP
  For the Years Ended December 31,
  2013 2012 2011
(Millions of Dollars)NU CL&P PSNH WMECO NU (1) CL&P PSNH WMECO NU CL&P PSNH WMECO
Service Cost$ 16.9 $ 3.4 $ 2.3 $ 0.7 $ 15.7 $ 3.0 $ 2.0 $ 0.6 $ 9.2 $ 2.9 $ 1.9 $ 0.6
Interest Cost  47.2   7.9   4.0   1.7   49.0   9.2   4.6   2.0   25.7   10.0   4.8   2.2
Expected Return                                    
 on Plan Assets  (55.4)   (10.1)   (5.2)   (2.3)   (39.2)   (9.1)   (4.6)   (2.1)   (21.6)   (8.7)   (4.3)   (2.0)
Actuarial Loss  26.0   7.4   3.6   1.1   36.0   7.5   3.6   1.2   19.0   7.2   3.2   1.1
Prior Service                                    
 Cost/(Credit)  (2.1)   -   -   -   (1.4)   -   -   -   (0.3)   -   -   -
Net Transition                                    
 Obligation Cost (2)  -   -   -   -   12.2   6.1   2.5   1.3   11.6   6.2   2.5   1.3
Total Net Periodic Benefit Expense$ 32.6 $ 8.6 $ 4.7 $ 1.2 $ 72.3 $ 16.7 $ 8.1 $ 3.0 $ 43.6 $ 17.6 $ 8.1 $ 3.2
Related Intercompany Allocations  N/A $ 7.1 $ 1.6 $ 1.3  N/A $ 7.9 $ 2.0 $ 1.5  N/A $ 8.2 $ 2.0 $ 1.5
Capitalized PBOP Expense$ 8.8 $ 3.9 $ 1.3 $ 0.6 $ 26.6 $ 8.2 $ 2.3 $ 1.6 $ 12.7 $ 8.7 $ 2.2 $ 1.5
                                     
(1) NU results include NSTAR PBOP Plan activity beginning April 10, 2012.
(2)The PBOP Plans' transition obligation costs were fully amortized in 2013.

The following actuarial assumptions were used to calculate PBOP expense amounts:
            
   PBOP  
   For the Years Ended December 31,  
  2013  2012  2011  
NUSCO PBOP Plans          
Discount Rate  4.04%  4.84%  5.28% 
Expected Long-Term Rate of Return  8.25%  8.25%  8.25% 
            
NSTAR PBOP Plan          
Discount Rate  4.35%  4.58% N/A  
Expected Long-Term Rate of Return  8.25%  7.30% N/A  

The following is a summary of the changes in plan assets and benefit obligations recognized in Regulatory Assets and OCI as well as amounts in Regulatory Assets and OCI reclassified as net periodic benefit (expense)/income during the years presented:
                  
  Amounts Reclassified To/From      
 Regulatory Assets OCI      
(Millions of Dollars)For the Years Ended December 31,      
NU PBOP Plans (1)2013 2012 2013 2012      
Actuarial Gains Arising During the Year$(262.0) $(108.6) $ (1.9) $ (1.8)      
Actuarial Losses Reclassified as Net Periodic Benefit Expense  (24.9)  (34.9)   (1.1)   (1.1)      
Prior Service Credit Reclassified as Net Periodic Benefit Income  2.1  1.4   -   -      
Transition Obligation Reclassified as Net Periodic Benefit Expense  -  (11.9)   -  (0.2)      
                  
(1) The NU amounts include the NSTAR PBOP Plan beginning April 10, 2012.
                  
The following is a summary of the remaining Regulatory Assets and Accumulated Other Comprehensive Loss amounts that have not been recognized as components of net periodic benefit expense as of December 31, 2013 and 2012, and the amounts that are expected to be recognized as components in 2014:
                  
  Regulatory Assets as of Expected  AOCI as of Expected
(Millions of Dollars)December 31,  2014  December 31,  2014
NU PBOP Plans 2013 2012 Expense 2013 2012 Expense
Actuarial Loss$ 89.2 $ 376.1 $11.4 $ 6.2 $ 9.2 $ 0.7
Prior Service Credit  (4.6)   (6.7)   (2.8)   -   -   -

 

The health care cost trend rate assumption used to calculate the 2013 PBOP expense amounts was 7 percent for the NUSCO PBOP Plan, subsequently decreasing by 50 basis points per year to an ultimate rate of 5 percent in 2017, and 7.10 percent for the NSTAR PBOP Plan, subsequently decreasing to an ultimate rate of 4.5 percent in 2024. As of December 31, 2013, the health care cost trend rate assumption used to determine the NUSCO and NSTAR PBOP Plans' year end funded status is 7 percent, subsequently decreasing to an ultimate rate of 4.5 percent in 2024.

 

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of changing the assumed health care cost trend rate by one percentage point for the year ended December 31, 2013 would have the following effects:

(Millions of Dollars)One Percentage One Percentage
NU PBOP PlansPoint Increase Point Decrease
Effect on Postretirement Benefit Obligation$ 85.8 $ (70.4)
Effect on Total Service and Interest Cost Components  7.1   (5.5)

Estimated Future Benefit Payments: The following benefit payments, which reflect expected future service, are expected to be paid by the Pension, SERP and PBOP Plans:
         
(Millions of Dollars)Pension      
NU and SERP PBOP   
2014$ 263.3 $ 61.6   
2015  273.3   63.3   
2016  282.9   64.5   
2017  287.4   65.6   
2018  299.4   66.6   
2019-2023  1,617.0   344.4   
         
NSTAR Pension Plan        
2014$ 88.0  N/A   
2015  90.6  N/A   
2016  88.4  N/A   
2017  88.5  N/A   
2018  90.0  N/A   
2019-2023  449.2  N/A   

Contributions: NU's policy is to annually fund the NUSCO and NSTAR Pension Plans in an amount at least equal to an amount that will satisfy federal requirements. NU contributed $202.7 million to the NUSCO Pension Plan in 2013, of which $108.3 million was contributed by PSNH. NSTAR Electric contributed $82 million to the NSTAR Pension Plan in 2013. Based on the current status of the NUSCO Pension Plan, NU expects to make a contribution of $68.6 million in 2014. NSTAR Electric expects to make a contribution of $3 million in 2014 to the NSTAR Pension Plan.

For the PBOP Plans, it is NU's policy to annually fund the NUSCO PBOP Plans in an amount equal to the PBOP Plans' postretirement benefit cost, excluding curtailment and termination benefits, and the NSTAR PBOP Plan in an amount that approximates annual benefit payments. NU contributed $57.6 million to the PBOP Plans in 2013 and expects to make $39.7 million in contributions in 2014.

 

Fair Value of Pension and PBOP Plan Assets: Pension and PBOP funds are held in external trusts. Trust assets, including accumulated earnings, must be used exclusively for Pension and PBOP payments. NU's investment strategy for its Pension and PBOP Plans is to maximize the long-term rates of return on these plans' assets within an acceptable level of risk. The investment strategy for each asset category includes a diversification of asset types, fund strategies and fund managers and establishes target asset allocations that are routinely reviewed and periodically rebalanced. In 2013 and 2012, PBOP assets were comprised of specific assets within the defined benefit pension plan trust (401(h) assets) as well as assets held in the PBOP Plans. The investment policy and strategy of the 401(h) assets is consistent with those of the defined benefit pension plans, which are detailed below. NU's expected long-term rates of return on Pension and PBOP Plan assets are based on these target asset allocation assumptions and related expected long-term rates of return. In developing its expected long-term rate of return assumptions for the Pension and PBOP Plans, NU evaluated input from consultants, as well as long-term inflation assumptions and historical returns. For the year ended December 31, 2013, management has assumed long-term rates of return of 8.25 percent for the Pension and PBOP Plan assets. These long-term rates of return are based on the assumed rates of return for the target asset allocations as follows:

  As of December 31,
  2013 2012
  NUSCO and NSTAR Pension  NUSCO Pension         
  and Tax-Exempt PBOP Plans(1) and PBOP Plans NSTAR Pension Plan NSTAR PBOP Plan
  Target Assumed Target Assumed Target Assumed Target Assumed
  Asset Rate Asset Rate Asset Rate Asset Rate
  Allocation of Return Allocation of Return Allocation of Return Allocation of Return
Equity Securities:               
 United States24% 9% 24% 9% 25% 8.3% 25% 8.3%
 International10% 9% 13% 9% 13% 8.6% 20% 8.6%
 Emerging Markets6% 10% 3% 10% 5% 8.8% 5% 8.8%
 Private Equity10% 13% 12% 13% - - - -
Debt Securities:               
 Fixed Income15% 5% 20% 5% 21% 4.6% 30% 4.6%
 High Yield Fixed Income9% 7.5% 3.5% 7.5% 9% 6.5% - -
 Emerging Markets Debt6% 7.5% 3.5% 7.5% 4% 6.4% - -
Real Estate and Other Assets9% 7.5% 8% 7.5% 10% 7.9% 10% 7.9%
Hedge Funds11% 7% 13% 7% 13% 8.4% 10% 8.4%
                 

  • The Taxable PBOP Plans have a target asset allocation of 70 percent equity securities and 30 percent fixed income securities.

 

The following table presents, by asset category, the Pension and PBOP Plan assets recorded at fair value on a recurring basis by the level in which they are classified within the fair value hierarchy:

   NU Pension Plans
   Fair Value Measurements as of December 31,
 (Millions of Dollars)2013 2012
 Asset Category:Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
 Equity Securities:                       
  United States (1)$ 294.6 $ 597.7 $ 194.0 $ 1,086.3 $ 336.5 $ 302.8 $ 270.6 $ 909.9
  International (1)  32.2   362.6   61.5   456.3   42.0   362.6   52.1   456.7
  Emerging Markets (1)  -   211.8   -   211.8   -   135.3   -   135.3
  Private Equity   96.4   -   300.3   396.7   26.7   -   267.9   294.6
 Fixed Income(2)  11.6   605.1   589.5   1,206.2   54.9   629.2   315.1   999.2
 Real Estate and Other Assets  -   88.2   288.5   376.7   -   78.9   235.4   314.3
 Hedge Funds  -   -   416.9   416.9   -   -   418.9   418.9
 Total Master Trust Assets$ 434.8 $ 1,865.4 $ 1,850.7 $ 4,150.9 $ 460.1 $ 1,508.8 $ 1,560.0 $ 3,528.9
  Less: 401(h) PBOP Assets(3)           (165.0)            (117.6)
 Total Pension Assets         $ 3,985.9          $ 3,411.3
                          
   NSTAR Pension Plan
   Fair Value Measurements as of December 31,
 (Millions of Dollars)2013 2012
 Asset Category:Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
 Equity Securities:                       
  United States (1)$ 87.7 $ 177.9 $ 57.8 $ 323.4 $ 96.7 $ 246.4 $ - $ 343.1
  International(1)  9.6   108.0   18.3   135.9   -   98.3   52.1   150.4
  Emerging Markets(1)  -   63.1   -   63.1   -   55.9   -   55.9
  Private Equity  28.7   -   89.4   118.1            
 Fixed Income(2)  3.4   180.0   175.4   358.8   54.9   292.5   -   347.4
 Real Estate and Other Assets  -   26.3   85.6   111.9   -   -   127.2   127.2
 Hedge Funds  -   -   124.1   124.1   -   -   122.7   122.7
 Total Master Trust Assets$ 129.4 $ 555.3 $ 550.6 $ 1,235.3 $ 151.6 $ 693.1 $ 302.0 $ 1,146.7
  Less: 401(h) PBOP Assets(3)                       (77.6)
 Total Pension Assets                     $ 1,069.1
                          
   NU PBOP Plans
   Fair Value Measurements as of December 31,
 (Millions of Dollars)2013 2012
 Asset Category:Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
 Cash and Cash Equivalents$ 11.1 $ - $ - $ 11.1 $ 9.7 $ - $ - $ 9.7
 Equity Securities:                       
  United States(1)  67.0   120.6   69.1   256.7   116.3   57.7   36.3   210.3
  International(1)  28.1   42.8   -   70.9   68.0   29.7   -   97.7
  Emerging Markets(1)  15.2   13.4   -   28.6   7.7   14.0   -   21.7
  Private Equity  -   -   17.9   17.9   -   -   11.3   11.3
 Fixed Income (2)  -   119.7   51.5   171.2   -   137.7   32.1   169.8
 Real Estate and Other Assets  -   14.2   33.9   48.1   -   4.7   26.7   31.4
 Hedge Funds  -   -   57.0   57.0   -   -   39.6   39.6
 Total$ 121.4 $ 310.7 $ 229.4 $ 661.5 $ 201.7 $ 243.8 $ 146.0 $ 591.5
  Add: 401(h) PBOP Assets(3)           165.0            117.6
 Total PBOP Assets         $ 826.5          $ 709.1

  • United States, International and Emerging Markets equity securities classified as Level 2 include investments in commingled funds. Level 3 investments include hedge funds that are overlayed with equity index swaps and futures contracts and funds invested in equities that have redemption restrictions.
  • Fixed Income investments classified as Level 3 investments include fixed income funds that invest in a variety of opportunistic fixed income strategies, and hedge funds that are overlayed with fixed income futures.
  • The assets of the Pension Plans include a 401(h) account that has been allocated to provide health and welfare postretirement benefits under the PBOP Plans.

 

Effective January 1, 2013, the NSTAR Pension Plan assets were transferred into the NUSCO Pension Plan master trust. The, NUSCO Pension Plan is entitled to approximately 66 percent of each asset category in the master trust, the NSTAR Pension Plan is entitled to approximately 30 percent of each asset category in the master trust and the 401(h) plans are entitled to approximately four percent of each asset category in the master trust.

 

CL&P, PSNH and WMECO participate in the NUSCO Pension and PBOP Plans. Each company participating in the plans is allocated a portion of the total plan assets. As of December 31, 2013 and 2012, the NUSCO Pension Plan had total assets of $2,750.4 million and $2,342.6 million, respectively. CL&P's, PSNH's and WMECO's portion of these total Pension Plan assets was 37 percent, 19 percent and 9 percent, respectively, as of December 31, 2013, and 40 percent, 17 percent and 9 percent, respectively, as of December 31, 2012. The NUSCO PBOP Plans had total assets of $391 million and $334.9 million as of December 31, 2013 and 2012, respectively. CL&P's, PSNH's and WMECO's portion of these total PBOP Plan assets was 39 percent, 21 percent and 9 percent, respectively, as of December 31, 2013 and 2012.

 

The Company values assets based on observable inputs when available. Equity securities, exchange traded funds and futures contracts classified as Level 1 in the fair value hierarchy are priced based on the closing price on the primary exchange as of the balance sheet date. Commingled funds included in Level 2 equity securities are recorded at the net asset value provided by the asset manager, which is based on the market prices of the underlying equity securities. Swaps are valued using pricing models that incorporate interest rates and equity and fixed income index closing prices to determine a net present value of the cash flows. Fixed income securities, such as government issued securities, corporate bonds and high yield bond funds, are included in Level 2 and are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The pricing models utilize observable inputs such as recent trades for the same or similar instruments, yield curves, discount margins and bond structures. Hedge funds and investments in opportunistic fixed income funds are recorded at net asset value based on the values of the underlying assets. The assets in the hedge funds and opportunistic fixed income funds are valued using observable inputs and are classified as Level 3 within the fair value hierarchy due to redemption restrictions. Private Equity investments and Real Estate and Other Assets are valued using the net asset value provided by the partnerships, which are based on discounted cash flows of the underlying investments, real estate appraisals or public market comparables of the underlying investments. These investments are classified as Level 3 due to redemption restrictions.

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3): The following tables present changes in the Level 3 category of Pension and PBOP Plan assets for the years ended December 31, 2013 and 2012. The NSTAR Pension Plan table reflects the change in asset categories on January 1, 2013 as a result of the transfer of assets into the NUSCO Pension Plan master trust.

  NU Pension Plans   
  United       Real Estate    
  States   Private Fixed and Other Hedge  
(Millions of Dollars)Equity International Equity Income Assets Funds Total
Balance as of January 1, 2012$ 259.4 $ - $ 255.1 $ 276.2 $ 71.8 $ 240.0 $ 1,102.5
Assets Assumed from Merger with NSTAR  -  41.4   -   -   111.0   126.6   279.0
Actual Return/(Loss) on Plan Assets:                    
 Relating to Assets Still Held as of Year End  11.2  10.7   17.0   42.1   5.7   21.8   108.5
 Relating to Assets Distributed During the Year  -   -   15.0   0.7   7.6   (0.3)   23.0
Purchases, Sales and Settlements  -   -   (19.2)   (3.9)   39.3   30.8   47.0
Balance as of December 31, 2012$ 270.6 $ 52.1 $ 267.9 $ 315.1 $ 235.4 $ 418.90$ 1,560.0
Transfer Between Categories  -   -   -   32.5   -   (32.5)   -
Actual Return/(Loss) on Plan Assets:                    
 Relating to Assets Still Held as of Year End  11.2   9.4   15.4   55.3   12.9   33.4   137.6
 Relating to Assets Distributed During the Year  12.2   -   13.7   (1.0)   6.2   -   31.1
Purchases, Sales and Settlements  (100.0)   -   3.3   187.6   34.0   (2.9)   122.0
Balance as of December 31, 2013$ 194.0 $ 61.5 $ 300.3 $ 589.5 $ 288.5 $ 416.9 $ 1,850.7
                      
  NU PBOP Plans   
  United       Real Estate         
  States Private Fixed and Other  Hedge      
(Millions of Dollars)Equity Equity Income Assets  Funds  Total   
Balance as of January 1, 2012$ 10.7 $ 5.1 $ 26.0 $ 2.5 $ 16.1 $ 60.4   
Assets Assumed from Merger with NSTAR  19.7   -   -   18.4   21.4   59.5   
Actual Return on Plan Assets:                    
 Relating to Assets Still Held as of Year End  5.9   1.6   4.0   3.0   2.1   16.6   
Purchases, Sales and Settlements  -   4.6   2.1   2.8   -   9.5   
Balance as of December 31, 2012$ 36.3 $ 11.3 $ 32.1 $ 26.7 $ 39.6 $ 146.0   
Actual Return/(Loss) on Plan Assets:           -         
 Relating to Assets Still Held as of Year End  20.8   1.5   4.1   3.9   5.4   35.7   
 Relating to Assets Distributed During the Year  -   0.2   -   (0.1)   -   0.1   
Purchases, Sales and Settlements  12.0   4.9   15.3   3.4   12.0   47.6   
Balance as of December 31, 2013$ 69.1 $ 17.9 $ 51.5 $ 33.9 $ 57.0 $ 229.4   
                      
  NSTAR Pension Plan
  United          Real Estate      
  States    Private Fixed and Other  Hedge   
(Millions of Dollars)Equity International  Equity Income Assets  Funds  Total
Balance as of January 1, 2012$ - $ 41.4 $ - $ - $ 111.0 $ 126.6 $ 279.0
Actual Return/(Loss) on Plan Assets:                    
 Relating to Assets Still Held as of Year End  -   10.7   -   -   9.9   5.6   26.2
 Relating to Assets Distributed During the Year  -   -   -   -   -   (0.3)   (0.3)
Purchases, Sales and Settlements  -   -   -   -   6.3   (9.2)   (2.9)
Balance as of December 31, 2012$ - $ 52.1 $ - $ - $ 127.2 $ 122.7 $ 302.0
Transfer of Assets into NUSCO Pension Plan Trust  80.5   (36.6) $ 79.7   93.8   (57.1)   2.0   162.3
Transfer Between Categories  -   -   -   9.7   -   (9.7)   -
Actual Return/(Loss) on Plan Assets:                    
 Relating to Assets Still Held as of Year End 3.5   2.8   4.6   16.4  3.5  9.9   40.7
 Relating to Assets Distributed During the Year 3.6   -   4.2   (0.3)  1.8   -   9.3
Purchases, Sales and Settlements  (29.8)   -   0.9   55.8  10.2   (0.8)   36.3
Balance as of December 31, 2013$ 57.8 $ 18.3 $ 89.4 $ 175.4 $ 85.6 $ 124.1 $ 550.6