Pension and Postretirement Benefits

12 Months Ended

Dec. 31, 2013

Note 9 – Pension and Postretirement Benefits

DP&L sponsors a traditional defined benefit pension plan for most of the employees of DPL and its subsidiaries. For collective bargaining employees, the defined benefits are based on a specific dollar amount per year of service. For all other employees (management employees), the traditional defined benefit pension plan is based primarily on compensation and years of service. As of December 31, 2010, this traditional pension plan was closed to new management employees. A participant is 100% vested in all amounts credited to his or her account upon the completion of five vesting years, as defined in The Dayton Power and Light Company Retirement Income Plan, or the participant’s death or disability. If a participant’s employment is terminated, other than by death or disability, prior to such participant becoming 100% vested in his or her account, the account shall be forfeited as of the date of termination. Effective December 22, 2013, certain employees of DP&L became employees of the Service Company of the US SBU. Employees that transferred from DP&L to the Service Company maintain their previous eligibility to participate in the DP&L pension plan.

Almost all management employees beginning employment on or after January 1, 2011 participate in a cash balance pension plan. Similar to the traditional pension plan for management employees, the cash balance benefits are based on compensation and years of service. A participant shall become 100% vested in all amounts credited to his or her account upon the completion of three vesting years, as defined in The Dayton Power and Light Company Retirement Income Plan, or the participant’s death or disability. If a participant’s employment is terminated, other than by death or disability, prior to such participant becoming 100% vested in his or her account, the account shall be forfeited as of the date of termination. Vested benefits in the cash balance plan are fully portable upon termination of employment.

In addition, we have a Supplemental Executive Retirement Plan (SERP) for certain retired key executives. The SERP was replaced by the DPL Inc. Supplemental Executive Defined Contribution Retirement Plan (SEDCRP) effective January 1, 2006, which is for certain active and former key executives. Pursuant to the SEDCRP, we provided a supplemental retirement benefit to participants by crediting an account established for each participant in accordance with the Plan requirements. We designated as hypothetical investment funds under the SEDCRP one or more of the investment funds provided under The Dayton Power and Light Company Employee Savings Plan. Each participant could change his or her hypothetical investment fund selection at specified times. If a participant did not elect a hypothetical investment fund(s), then we selected the hypothetical investment fund(s) for such participant. Per the SEDCRP plan document, the balances in the SEDCRP, including earnings on contributions, were paid out to participants in December 2011, following the merger with AES on November 28, 2011. However, the SEDCRP continued and 2012 and 2011 contributions were calculated and paid in March 2013 and 2012, respectively. The SEDCRP was terminated by the Board of Directors as of December 31, 2012. We also have an immaterial unfunded liability related to agreements for retirement benefits of certain terminated and retired key executives.

We generally fund pension plan benefits as accrued in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and, in addition, make voluntary contributions from time to time. There were no contributions during the years ended December 31, 2013 and 2012 during the period November 28, 2011 through December 31, 2011. DP&L made a discretionary contribution of $40.0 million to the defined benefit plan during the period January 1, 2011 through November 27, 2011.

Qualified employees who retired prior to 1987 and their dependents are eligible for health care and life insurance benefits until their death, while qualified employees who retired after 1987 are eligible for life insurance benefits and partially subsidized health care. The partially subsidized health care is at the election of the employee, who pays the majority of the cost, and is available only from their retirement until they are covered by Medicare. We have funded a portion of the union-eligible benefits using a Voluntary Employee Beneficiary Association Trust.

We recognize an asset for a plan’s overfunded status and a liability for a plan’s underfunded status and recognize, as a component of OCI, the changes in the funded status of the plan that arise during the year that are not recognized as a component of net periodic benefit cost. For the transmission and distribution areas of our electric business, these amounts are recorded as regulatory assets and liabilities which represent the regulated portion that would otherwise be charged or credited to AOCI. We have historically recorded these costs on the accrual basis and this is how these costs have been historically recovered through customer rates. This factor, combined with the historical precedents from the PUCO and FERC, make these costs probable of future rate recovery.

The following tables set forth the changes in our pension and postemployment benefit plans’ obligations and assets recorded on the balance sheets as of December 31, 2013 and 2012. The amounts presented in the following tables for pension include the collective bargaining plan formula, traditional management plan formula and cash balance plan formula and the SERP in the aggregate. The amounts presented for postemployment include both health and life insurance benefits.



$ in millions	Pension
	Year ended December 31, 2013		Year ended December 31, 2012
Change in benefit obligation
Benefit obligation at beginning of period	$	395.6	$	365.2
Service cost		7.2		6.2
Interest cost		15.6		17.3
Plan amendments		-		-
Actuarial (gain) / loss		(26.5)		29.1
Benefits paid		(21.4)		(22.2)
Benefit obligation at end of period		370.5		395.6

Change in plan assets
Fair value of plan assets at beginning of period		361.4		335.9
Actual return on plan assets		8.7		46.2
Contributions to plan assets		0.4		1.5
Benefits paid		(21.4)		(22.2)
Fair value of plan assets at end of period		349.1		361.4

Funded status of plan	$	(21.4)	$	(34.2)



$ in millions	Postretirement
	Year ended December 31, 2013		Year ended December 31, 2012
Change in benefit obligation
Benefit obligation at beginning of period	$	22.4	$	21.7
Service cost		0.2		0.1
Interest cost		0.8		0.9
Actuarial (gain) / loss		(2.2)		1.2
Benefits paid		(1.5)		(1.7)
Medicare Part D reimbursement		-		0.2
Benefit obligation at end of period		19.7		22.4

Change in plan assets
Fair value of plan assets at beginning of period		4.2		4.5
Actual return on plan assets		-		0.2
Contributions to plan assets		1.0		1.2
Benefits paid		(1.5)		(1.7)
Fair value of plan assets at end of period		3.7		4.2

Funded status of plan	$	(16.0)	$	(18.2)



$ in millions	Pension				Postretirement
	December 31,				December 31,
	2013		2012		2013		2012
Amounts recognized in the Balance sheets
Current liabilities	$	(0.4)	$	(0.4)	$	(0.5)	$	(0.6)
Non-current liabilities		(21.0)		(33.8)		(15.5)		(17.6)
Net liability at Year ended December 31,	$	(21.4)	$	(34.2)	$	(16.0)	$	(18.2)

Amounts recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities, pre-tax
Components:
Prior service cost	$	8.8	$	10.3	$	0.5	$	0.5
Net actuarial loss / (gain)		63.0		79.9		(6.0)		(4.5)
Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities, pre-tax	$	71.8	$	90.2	$	(5.5)	$	(4.0)

Recorded as:
Regulatory asset	$	76.3	$	88.0	$	-	$	0.5
Regulatory liability		-		-		(5.2)		(5.0)
Accumulated other comprehensive income		(4.5)		2.2		(0.3)		0.5
Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities, pre-tax	$	71.8	$	90.2	$	(5.5)	$	(4.0)

The accumulated benefit obligation for our defined benefit pension plans was $359.8 million and $382.5 million at December 31, 2013 and 2012, respectively.

The net periodic benefit cost (income) of the pension and postemployment benefit plans were:



Net Periodic Benefit Cost - Pension	Successor						Predecessor
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		November 28, 2011 through December 31, 2011		January 1, 2011 through November 27, 2011
Service cost	$	7.2	$	6.2	$	0.5	$	4.5
Interest cost		15.6		17.3		1.5		15.5
Expected return on assets (a)		(23.3)		(22.7)		(2.0)		(22.5)
Amortization of unrecognized:
Actuarial gain		4.9		5.0		0.4		7.6
Prior service cost		1.5		1.5		0.1		2.0
Net periodic benefit cost before adjustments	$	5.9	$	7.3	$	0.5	$	7.1



Net Periodic Benefit Cost / (Income) - Postretirement	Successor						Predecessor
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		November 28, 2011 through December 31, 2011		January 1, 2011 through November 27, 2011
Service cost	$	0.2	$	0.1	$	-	$	0.1
Interest cost		0.8		0.9		0.1		0.9
Expected return on assets (a)		(0.1)		(0.3)		-		(0.3)
Amortization of unrecognized:
Actuarial loss		(0.5)		(0.6)		-		(1.0)
Prior service cost		-		-		(0.1)		0.1
Net periodic benefit cost / (income) before adjustments	$	0.4	$	0.1	$	-	$	(0.2)

(a)For purposes of calculating the expected return on pension plan assets under GAAP, the market-related value of assets (MRVA) is used. GAAP requires that the difference between actual plan asset returns and estimated plan asset returns be amortized into the MRVA equally over a period not to exceed five years. We use a methodology under which we include the difference between actual and estimated asset returns in the MRVA equally over a three year period. The MRVA used in the calculation of expected return on pension plan assets was approximately $359.8 million in 2013, $346.0 million in 2012, and $335.0 million in 2011.

Other Changes in Plan Assets and Benefit Obligation Recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities



Pension	Successor						Predecessor
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		November 28, 2011 through December 31, 2011		January 1, 2011 through November 27, 2011
Net actuarial loss / (gain)	$	(12.0)	$	5.5	$	-	$	(38.7)
Prior service credit		-		-		-		(2.2)
Reversal of amortization item:
Net actuarial loss		(4.9)		(5.0)		(0.4)		(7.6)
Prior service cost		(1.5)		(1.5)		(0.1)		(2.0)
Total recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(18.4)	$	(1.0)	$	(0.5)	$	(50.5)

Total recognized in net periodic benefit cost Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(12.5)	$	6.3	$	(0.5)	$	(43.4)

Other Changes in Plan Assets and Benefit Obligation Recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities (cont.)



Postretirement	Successor						Predecessor
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		November 28, 2011 through December 31, 2011		January 1, 2011 through November 27, 2011
Net actuarial loss / (gain)	$	(2.0)	$	1.0	$	-	$	0.2
Prior service cost / (credit)		-		-		0.1		(0.1)
Reversal of amortization item:
Net actuarial gain		0.5		0.7		-		1.0
Prior service cost		-		-		-		(0.1)
Transition asset		-		-		(0.1)		-
Total recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(1.5)	$	1.7	$	-	$	1.0

Total recognized in net periodic benefit cost and Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(1.1)	$	1.8	$	-	$	0.8

Estimated amounts that will be amortized from AOCI, Regulatory assets and Regulatory liabilities into net periodic benefit costs during 2014 are:



$ in millions	Pension		Postretirement
Net actuarial gain / (loss)	$	3.4	$	(0.5)
Prior service cost	$	1.5	$	-

Our expected return on plan asset assumptions, used to determine benefit obligations, are based on historical long-term rates of return on investments, which use 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, as well as asset diversification and portfolio rebalancing, are evaluated when long-term capital market assumptions are determined. Peer data and historical returns are reviewed to verify reasonableness and appropriateness.

For 2014, we have decreased our expected long-term rate of return assumption from 7.00% to 6.75% for pension plan assets and we have maintained our expected long-term rate of return on assets assumption of 6.00% for postemployment benefit plan assets. These rates of return represent our long-term assumptions based on our current portfolio mixes. Also, for 2014, we have increased our assumed discount rate to 4.86% from 4.04% for pension and to 4.58% from 3.75% for postemployment benefits expense to reflect current duration-based yield curve discount rates. A one percent change in the rate of return assumption for pension would result in an increase or decrease to the 2014 pension expense of approximately $3.4 million. A 25 basis point change in the discount rate for pension would result in an increase or decrease of approximately $0.3 million to 2014 pension expense.

Our overall discount rate was evaluated in relation to the Aon Hewitt AA Above Median Yield Curve which represents a portfolio of above median AA-rated bonds used to settle pension obligations. Peer data and historical returns were also reviewed to verify the reasonableness and appropriateness of our discount rate used in the calculation of benefit obligations and expense.

The weighted average assumptions used to determine benefit obligations at December 31, 2013, 2012 and 2011 were:



Benefit Obligation Assumptions	Pension			Postretirement
	2013	2012	2011	2013	2012	2011
Discount rate for obligations	4.86%	4.04%	4.88%	4.58%	3.75%	4.62%
Rate of compensation increases	3.94%	3.94%	3.94%	N/A	N/A	N/A

The weighted-average assumptions used to determine net periodic benefit cost (income) for the years ended December 31, 2013, 2012 and 2011 were:



Net Periodic Benefit Cost / (Income) Assumptions	Pension			Postretirement
	2013	2012	2011	2013	2012	2011
Discount rate - Successor	4.04%	4.88%	5.31%	4.58%	4.62%	4.96%
Discount rate - Predecessor			4.88%			4.62%
Expected rate of return on plan assets - Successor	6.75%	7.00%	8.00%	6.00%	6.00%	6.00%
Expected rate of return on plan assets - Predecessor			7.00%			6.00%
Rate of compensation increases	3.94%	3.94%	3.94%	N/A	N/A	N/A

The assumed health care cost trend rates at December 31, 2013, 2012 and 2011 are as follows:



Health Care Cost Assumptions	Expense			Benefit Obligation
	2013	2012	2011	2013	2012	2011
Pre - age 65
Current health care cost trend rate	8.00%	8.50%	8.50%	7.75%	8.00%	8.50%

Year trend reaches ultimate - Successor	2019	2019	2018	2023	2019	2019
Year trend reaches ultimate - Predecessor			2019			2019

Post - age 65
Current health care cost trend rate	7.50%	8.00%	8.00%	6.75%	7.50%	8.00%

Year trend reaches ultimate - Successor	2018	2018	2017	2021	2018	2018
Year trend reaches ultimate - Predecessor			2018			2018

Ultimate health care cost trend rate	5.00%	5.00%	5.00%	5.00%	5.00%	5.00%

The assumed health care cost trend rates have an effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects on the net periodic postemployment benefit cost and the accumulated postemployment benefit obligation:



Effect of change in health care cost trend rate
$ in millions	One-percent increase		One-percent decrease
Service cost plus interest cost	$	0.1	$	(0.1)
Benefit obligation	$	0.9	$	(0.8)

Benefit payments, which reflect future service, are expected to be paid as follows:



Estimated future benefit payments and Medicare Part D reimbursements
$ in millions due within the following years:	Pension		Postretirement
2014	$	25.0	$	2.2
2015	$	23.9	$	2.1
2016	$	23.9	$	2.0
2017	$	24.3	$	1.8
2018	$	24.6	$	1.6
2019 - 2023	$	126.5	$	6.4

We expect to make contributions of $0.4 million to our SERP in 2014 to cover benefit payments. We also expect to contribute $1.9 million to our other postemployment benefit plans in 2014 to cover benefit payments.

The Pension Protection Act of 2006 (the Act) contained new requirements for our single employer defined benefit pension plan. In addition to establishing a 100% funding target for plan years beginning after December 31, 2008, the Act also limits some benefits if the funded status of pension plans drops below certain thresholds. Among other restrictions under the Act, if the funded status of a plan falls below a predetermined ratio of 80%, lump-sum payments to new retirees are limited to 50% of amounts that otherwise would have been paid and new benefit improvements may not go into effect. For the 2013 plan year, the funded status of our defined benefit pension plan as calculated under the requirements of the Act was 113.96% and is estimated to be 113.96% until the 2014 status is certified in September 2014 for the 2014 plan year. The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), which was signed into law on December 23, 2008, grants plan sponsors certain relief from funding requirements and benefit restrictions of the Act.

Plan Assets

Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt securities and other investments are used to preserve asset values, diversify risk and achieve our target investment return benchmark. Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plan's funded status and our financial condition. Investment performance and asset allocation are measured and monitored on an ongoing basis.

Plan assets are managed in a balanced portfolio comprised of two major components: an equity portion and a fixed income portion. The expected role of plan equity investments is to maximize the long-term real growth of plan assets, while the role of fixed income investments is to generate current income, provide for more stable periodic returns and provide some protection against a prolonged decline in the market value of plan equity investments.

Long-term strategic asset allocation guidelines are determined by management and take into account the Plan’s long-term objectives as well as its short-term constraints. The target allocations for plan assets are 30 – 80% for equity securities, 30 – 65% for fixed income securities, 0 – 10% for cash, and 0 – 25% for alternative investments. Equity securities include U.S. and international equity, while fixed income securities include long-duration and high-yield bond funds and emerging market debt funds. Other types of investments include hedge funds that follow several different strategies.

The fair values of our pension plan assets at December 31, 2013 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2013

Asset Category $ in millions	Market Value at December 31, 2013		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
Equity securities (a)
Small/Mid cap equity	$	10.5	$	10.5	$	-	$	-
Large cap equity		20.8		20.8		-		-
International equity		20.3		20.3		-		-
Emerging markets equity		3.2		3.2		-		-
SIIT dynamic equity		10.5		10.5		-		-
Total equity securities		65.3		65.3		-		-

Debt securities (b)
Emerging markets debt		6.6		6.6		-		-
High yield bond		6.9		6.9		-		-
Long duration fund		223.3		223.3		-		-
Total debt securities		236.8		236.8		-		-

Cash and cash equivalents (c)
Cash		0.9		0.9		-		-

Other investments (d)
Core property collective fund		23.5		-		23.5		-
Common collective fund		22.6		-		22.6		-
Total other investments		46.1		-		46.1		-

Total pension plan assets	$	349.1	$	303.0	$	46.1	$	-

(a)This category includes investments in equity securities of large, small and medium sized companies and equity securities of foreign companies including those in developing countries. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

(b)This category includes investments in investment-grade fixed-income instruments that are designed to mirror the term of the pension assets and generally have a tenor between 10 and 30 years. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

(c)This category comprises cash held to pay beneficiaries. The fair value of cash equals its book value.

(d)This category represents a hedge fund of funds made up of 30+ different hedge fund managers diversified over eight different hedge strategies. The fair value of the hedge fund is valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

The fair values of our pension plan assets at December 31, 2012 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2012

Asset Category $ in millions	Market Value at December 31, 2012		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
Equity securities (a)
Small/Mid cap equity	$	14.3	$	14.3	$	-	$	-
Large cap equity		50.5		50.5		-		-
International equity		37.0		37.0		-		-
Total equity securities		101.8		101.8		-		-

Debt securities (b)
Emerging markets debt		7.4		7.4		-		-
High yield bond		12.7		12.7		-		-
Long duration fund		188.6		188.6		-		-
Total debt securities		208.7		208.7		-		-

Cash and cash equivalents (c)
Cash		13.9		13.9		-		-

Other investments (d)
Limited partnership interest		-		-		-		-
Common collective fund		37.0		-		37.0		-
Total other investments		37.0		-		37.0		-

Total pension plan assets	$	361.4	$	324.4	$	37.0	$	-

(b)This category includes investments in investment-grade fixed-income instruments, U.S. dollar-denominated debt securities of emerging market issuers and high yield fixed-income securities that are rated below investment grade. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

(c)This category comprises cash held to pay beneficiaries. The fair value of cash equals its book value.

The fair values of our other postemployment benefit plan assets at December 31, 2013 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2013
Asset Category $ in millions	Market Value at December 31, 2013		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
JP Morgan Core Bond Fund (a)	$	3.7	$	3.7	$	-	$	-

(a)This category includes investments in U.S. government obligations and mortgage-backed and asset-backed securities. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

The fair values of our other postemployment benefit plan assets at December 31, 2012 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2012
Asset Category $ in millions	Market Value at December 31, 2012		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
JP Morgan Core Bond Fund (a)	$	4.2	$	4.2	$	-	$	-

This disclosure reflects changes in the 2012 presentation for $4.2 million of debt mutual funds that were previously presented as Level 2 fair value measurements which have been reclassified as Level 1 fair value measurements. This change in presentation does not impact the fair value of the securities or the financial statements for the year ended December 31, 2012.

DP&L [Member]

Pension and Postretirement Benefits

Note 8 – Pension and Postretirement Benefits

We generally fund pension plan benefits as accrued in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and, in addition, make voluntary contributions from time to time. There were no contributions during the years ended December 31, 2013 and 2012. DP&L made a discretionary contribution of $40.0 million during the year ended December 31, 2011.



$ in millions	Pension
	Years ended December 31,
	2013		2012
Change in benefit obligation
Benefit obligation at beginning of period	$	395.6	$	365.2
Service cost		7.2		6.2
Interest cost		15.6		17.3
Plan amendments		-		-
Actuarial (gain) / loss		(26.5)		29.1
Benefits paid		(21.4)		(22.2)
Benefit obligation at end of period		370.5		395.6

Change in plan assets
Fair value of plan assets at beginning of period		361.4		335.9
Actual return on plan assets		8.7		46.2
Contributions to plan assets		0.4		1.5
Benefits paid		(21.4)		(22.2)
Fair value of plan assets at end of period		349.1		361.4

Funded status of plan	$	(21.4)	$	(34.2)



$ in millions	Postretirement
	Years ended December 31,
	2013		2012
Change in benefit obligation
Benefit obligation at beginning of period	$	22.4	$	21.7
Service cost		0.2		0.1
Interest cost		0.8		0.9
Actuarial (gain) / loss		(2.2)		1.2
Benefits paid		(1.5)		(1.7)
Medicare Part D reimbursement		-		0.2
Benefit obligation at end of period		19.7		22.4

Change in plan assets
Fair value of plan assets at beginning of period		4.2		4.5
Actual return on plan assets		-		0.2
Contributions to plan assets		1.0		1.2
Benefits paid		(1.5)		(1.7)
Fair value of plan assets at end of period		3.7		4.2

Funded status of plan	$	(16.0)	$	(18.2)



$ in millions	Pension				Postretirement
	December 31,				December 31,
	2013		2012		2013		2012
Amounts recognized in the Balance sheets
Current liabilities	$	(0.4)	$	(0.4)	$	(0.5)	$	(0.6)
Non-current liabilities		(21.0)		(33.8)		(15.5)		(17.6)
Net liability at Year ended December 31,	$	(21.4)	$	(34.2)	$	(16.0)	$	(18.2)

Amounts recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities, pre-tax
Components:
Prior service cost	$	16.3	$	19.0	$	0.7	$	0.8
Net actuarial loss / (gain)		115.1		136.1		(6.9)		(5.7)
Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities, pre-tax	$	131.4	$	155.1	$	(6.2)	$	(4.9)

Recorded as:
Regulatory asset	$	76.3	$	88.0	$	-	$	0.5
Regulatory liability		-		-		(5.2)		(5.0)
Accumulated other comprehensive income		55.1		67.1		(1.0)		(0.4)
Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities, pre-tax	$	131.4	$	155.1	$	(6.2)	$	(4.9)

The accumulated benefit obligation for our defined benefit pension plans was $359.8 million and $382.5 million at December 31, 2013 and 2012, respectively.

The net periodic benefit cost (income) of the pension and postemployment benefit plans were:



Net Periodic Benefit Cost - Pension
	Years ended December 31,
$ in millions	2013		2012		2011
Service cost	$	7.2	$	6.2	$	5.0
Interest cost		15.6		17.3		17.0
Expected return on assets (a)		(23.6)		(22.7)		(24.5)
Amortization of unrecognized:
Actuarial gain		9.3		8.8		8.0
Prior service cost		2.8		2.8		2.1
Net periodic benefit cost before adjustments		11.3		12.4		7.6
Settlement Expense		-		0.6		-
Net periodic benefit cost after adjustments	$	11.3	$	13.0	$	7.6

(a)For purposes of calculating the expected return on pension plan assets under GAAP, the market-related value of assets (MRVA) is used. GAAP requires that the difference between actual plan asset returns and estimated plan asset returns be amortized into the MRVA equally over a period not to exceed five years. We use a methodology under which we include the difference between actual and estimated asset returns in the MRVA equally over a three year period. The MRVA used in the calculation of expected return on pension plan assets was approximately $351.2 million in 2013, $346.0 million in 2012, and $335.0 million in 2011.



Net Periodic Benefit Cost / (Income) - Postretirement
	Years ended December 31,
$ in millions	2013		2012		2011
Service cost	$	0.2	$	0.1	$	0.1
Interest cost		0.8		0.9		1.0
Expected return on assets		(0.2)		(0.3)		(0.3)
Amortization of unrecognized:
Actuarial loss		(0.7)		(0.9)		(1.1)
Prior service credit		0.1		0.1		0.1
Net periodic benefit cost / (income) before adjustments	$	0.2	$	(0.1)	$	(0.2)

Other Changes in Plan Assets and Benefit Obligation Recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities



Pension
	Years ended December 31,
$ in millions	2013		2012		2011
Net actuarial loss / (gain)	$	(11.7)	$	5.2	$	22.8
Prior service cost		-		-		7.1
Reversal of amortization item:
Net actuarial loss		(9.3)		(9.4)		(8.0)
Prior service cost		(2.8)		(2.8)		(2.0)
Transition asset		-		-		-
Total recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(23.8)	$	(7.0)	$	19.9

Total recognized in net periodic benefit cost Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(12.5)	$	6.0	$	27.5



Postretirement
	Years ended December 31,
$ in millions	2013		2012		2011
Net actuarial loss / (gain)	$	(1.9)	$	1.1	$	(1.3)
Prior service credit		-		-		-
Reversal of amortization item:
Net actuarial gain		0.7		0.9		1.2
Prior service credit		(0.1)		(0.1)		(0.1)
Transition asset		-		-		-
Total recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(1.3)	$	1.9	$	(0.2)

Total recognized in net periodic benefit cost and Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities	$	(1.1)	$	1.8	$	(0.4)

Estimated amounts that will be amortized from AOCI, Regulatory assets and Regulatory liabilities into net periodic benefit costs during 2014 are:



$ in millions	Pension		Postretirement
Net actuarial gain / (loss)	$	6.4	$	(0.8)
Prior service cost	$	2.8	$	0.1

For 2014, we are decreasing our expected long-term rate of return assumption from 7.00% to 6.75% for pension plan assets and we are maintaining 6.00% for postemployment benefit plan assets. These rates of return represent our long-term assumptions based on our current portfolio mixes. Also, for 2014, we have increased our assumed discount rate to 4.86% from 4.04% for pension and to 4.58% from 3.75% for postemployment benefits expense to reflect current duration-based yield curve discount rates. A one percent change in the rate of return assumption for pension would result in an increase or decrease to the 2014 pension expense of approximately $3.4 million. A 25 basis point change in the discount rate for pension would result in an increase or decrease of approximately $0.3 million to 2014 pension expense.

Our overall discount rate was evaluated in relation to the Aon AA Above Median Yield Curve which represents a portfolio of Above Median AA-rated bonds used to settle pension obligations. Peer data and historical returns were also reviewed to verify the reasonableness and appropriateness of our discount rate used in the calculation of benefit obligations and expense.

The weighted average assumptions used to determine benefit obligations during the years ended December 31, 2013, 2012 and 2011 were:



Benefit Obligation Assumptions	Pension			Postretirement
	2013	2012	2011	2013	2012	2011
Discount rate for obligations	4.86%	4.04%	4.88%	4.58%	3.75%	4.62%
Rate of compensation increases	3.94%	3.94%	3.94%	N/A	N/A	N/A

The weighted-average assumptions used to determine net periodic benefit cost (income) for the years ended December 31, 2013, 2012 and 2011 were:



Net Periodic Benefit Cost / (Income) Assumptions	Pension			Postretirement
	2013	2012	2011	2013	2012	2011
Discount rate	4.04%	4.88%	5.31%	4.58%	4.62%	4.96%
Expected rate of return on plan assets	6.75%	7.00%	8.00%	6.00%	6.00%	6.00%
Rate of compensation increases	3.94%	3.94%	3.94%	N/A	N/A	N/A

The assumed health care cost trend rates at December 31, 2013, 2012 and 2011 are as follows:



Health Care Cost Assumptions	Expense			Benefit Obligation
	2013	2012	2011	2013	2012	2011
Pre - age 65
Current health care cost trend rate	8.00%	8.50%	8.50%	7.75%	8.00%	8.50%

Year trend reaches ultimate	2019	2019	2018	2023	2019	2019

Post - age 65
Current health care cost trend rate	7.50%	8.00%	8.00%	6.75%	7.50%	8.00%

Year trend reaches ultimate	2018	2018	2017	2021	2018	2018

Ultimate health care cost trend rate	5.00%	5.00%	5.00%	5.00%	5.00%	5.00%



Effect of change in health care cost trend rate
$ in millions	One-percent increase		One-percent decrease
Service cost plus interest cost	$	0.1	$	(0.1)
Benefit obligation	$	0.9	$	(0.8)

Benefit payments, which reflect future service, are expected to be paid as follows:



Estimated future benefit payments and Medicare Part D reimbursements
$ in millions due within the following years:	Pension		Postretirement
2014	$	25.0	$	2.2
2015	$	23.9	$	2.1
2016	$	23.9	$	2.0
2017	$	24.3	$	1.8
2018	$	24.6	$	1.6
2019 - 2023	$	126.5	$	6.7

Plan Assets

Plan assets are managed in a balanced portfolio comprised of two major components: an equity portion and a fixed income portion. The expected role of Plan equity investments is to maximize the long-term real growth of Plan assets, while the role of fixed income investments is to generate current income, provide for more stable periodic returns and provide some protection against a prolonged decline in the market value of Plan equity investments.

Long-term strategic asset allocation guidelines are determined by management and take into account the Plan’s long-term objectives as well as its short-term constraints. The target allocations for plan assets are 30 - 80% for equity securities, 30 - 65% for fixed income securities, 0 – 10% for cash, and 0 - 25% for alternative investments. Equity securities include U.S. and international equity, while fixed income securities include long-duration and high-yield bond funds and emerging market debt funds. Other types of investments include hedge funds that follow several different strategies.

The fair values of our pension plan assets at December 31, 2013 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2013

Asset Category $ in millions	Market Value at December 31, 2013		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
Equity securities (a)
Small/Mid cap equity	$	10.5	$	10.5	$	-	$	-
Large cap equity		20.8		20.8		-		-
International equity		20.3		20.3		-		-
Emerging markets equity		3.2		3.2		-		-
SIIT dynamic equity		10.5		10.5		-		-
Total equity securities		65.3		65.3		-		-

Debt Securities (b)
Emerging markets debt		6.6		6.6		-		-
High yield bond		6.9		6.9		-		-
Long duration fund		223.3		223.3		-		-
Total debt securities		236.8		236.8		-		-

Cash and cash equivalents (c)
Cash		0.9		0.9		-		-

Other investments (d)
Core property collective fund		23.5		-		23.5		-
Common collective fund		22.6		-		22.6		-
Total other investments		46.1		-		46.1		-

Total pension plan assets	$	349.1	$	303.0	$	46.1	$	-

(c)This category comprises cash held to pay beneficiaries. The fair value of cash equals its book value.

(d)This category represents a property fund that invests in commercial real estate and a hedge fund of funds made up of 30+ different hedge fund managers diversified over eight different hedge strategies. The fair value of the funds is valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

The fair values of our pension plan assets at December 31, 2012 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2012

Asset Category $ in millions	Market Value at December 31, 2012		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
Equity securities (a)
Small/Mid cap equity	$	14.3	$	14.3	$	-	$	-
Large cap equity		50.5		50.5		-		-
International equity		37.0		37.0		-		-
Total equity securities		101.8		101.8		-		-

Debt Securities (b)
Emerging markets debt		7.4		7.4		-		-
High yield bond		12.7		12.7		-		-
Long duration fund		188.6		188.6		-		-
Total debt securities		208.7		208.7		-		-

Cash and cash equivalents (c)
Cash		13.9		13.9		-		-

Other investments (d)
Limited partnership interest		-		-		-		-
Common collective fund		37.0		-		37.0		-
Total other investments		37.0		-		37.0		-

Total pension plan assets	$	361.4	$	324.4	$	37.0	$	-

(c)This category comprises cash held to pay beneficiaries. The fair value of cash equals its book value.

This disclosure reflects changes in the 2012 presentation for $310.5 million of equity and debt mutual funds that were previously presented as Level 2 fair value measurements which have been reclassified as Level 1 fair value measurements. In addition, this disclosure reflects changes in the 2012 presentation for $37.0 million of alternative investment funds that were previously presented as Level 3 fair value measurements which have been reclassified as Level 2 fair value measurements. This change in presentation does not impact the fair value of the securities or the financial statements for the year ended December 31, 2012.

The fair values of our other postemployment benefit plan assets at December 31, 2013 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2013
Asset Category $ in millions	Market Value at December 31, 2013		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
JP Morgan Core Bond Fund (a)	$	3.7	$	3.7	$	-	$	-

The fair values of our other postemployment benefit plan assets at December 31, 2012 by asset category are as follows:



Fair Value Measurements for Pension Plan Assets at December 31, 2012
Asset Category $ in millions	Market Value at December 31, 2012		Quoted prices in active markets for identical assets		Significant observable inputs		Significant unobservable inputs
				(Level 1)		(Level 2)		(Level 3)
JP Morgan Core Bond Fund (a)	$	4.2	$	4.2	$	-	$	-

During October 1992, our Board of Directors approved the formation of a Company-sponsored ESOP to fund matching contributions to DP&L’s 401(k) retirement savings plan and certain other payments to eligible full-time employees. ESOP shares that were used to fund matching contributions to DP&L’s 401(k) vested after either two or three years of service in accordance with the match formula effective for the respective plan match year; other compensation shares awarded vested immediately. In 1992, the ESOP Plan entered into a $90 million loan agreement with DPL in order to purchase shares of DPL common stock in the open market. The leveraged ESOP was funded by an exempt loan, which was secured by the ESOP shares. As debt service payments were made on the loan, shares were released on a pro rata basis. The term loan agreement provided for principal and interest on the loan to be paid prior to October 9, 2007, with the right to extend the loan for an additional ten years. In 2007, the maturity date was extended to October 7, 2017. Effective January 1, 2009, the interest on the loan was amended to a fixed rate of 2.06%, payable annually. Dividends received by the ESOP were used to repay the principal and interest on the ESOP loan to DPL. Dividends on the allocated shares were charged to retained earnings and the share value of these dividends was allocated to participants.

During December 2011, the ESOP Plan was terminated and participant balances were transferred to one of the two DP&L sponsored defined contribution 401(k) plans. On December 5, 2011, the ESOP Trust paid the total outstanding principal and interest of $68 million on the loan with DPL, using the merger proceeds from DPL common stock held within the ESOP suspense account.

Compensation expense recorded, based on the fair value of the shares committed to be released, amounted to $4.8 million in the year ended December 31, 2011.