Employee Benefit Plans

(a) Pension Plans

Substantially all of CenterPoint Houston’s employees participate in CenterPoint Energy’s non-contributory qualified defined benefit plan. Under the cash balance formula, participants accumulate a retirement benefit based upon 5% of eligible earnings and accrued interest.

CenterPoint Energy’s funding policy is to review amounts annually in accordance with applicable regulations in order to achieve adequate funding of projected benefit obligations. Pension expense is allocated to CenterPoint Houston based on covered employees. This calculation is intended to allocate pension costs in the same manner as a separate employer plan. Assets of the plan are not segregated or restricted by CenterPoint Energy’s participating subsidiaries. CenterPoint Houston recognized pension expense of $26 million, $25 million and $30 million for the years ended December 31, 2014, 2013 and 2012, respectively.

In addition to the pension plan, CenterPoint Houston participates in CenterPoint Energy’s non-qualified benefit restoration plans, which allow participants to receive the benefits to which they would have been entitled under the non-contributory pension plan except for federally mandated limits on qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated. The expense associated with the non-qualified pension plan was $1 million for each of the years ended December 31, 2014, 2013 and 2012.

(b) Savings Plan

CenterPoint Houston participates in CenterPoint Energy’s qualified savings plan, which includes a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code), and an Employee Stock Ownership Plan (ESOP) under Section 4975(e)(7) of the Code. Under the plan, participating employees may contribute a portion of their compensation, on a pre-tax or after-tax basis, generally up to a maximum of 50% of eligible compensation. CenterPoint Houston matches 100% of the first 6% of each employee’s compensation contributed. The matching contributions are fully vested at all times. CenterPoint Energy allocates to CenterPoint Houston the savings plan benefit expense related to CenterPoint Houston’s employees. Savings plan benefit expense was $13 million, $13 million and $12 million for each of the years ended December 31, 2014, 2013 and 2012.

CenterPoint Houston’s employees participate in CenterPoint Energy’s benefit plans which provide certain healthcare and life insurance benefits for retired employees on both a contributory and non-contributory basis. Employees become eligible for these benefits if they have met certain age and service requirements at retirement, as defined in the plans. Under plan amendments effective in early 1999, healthcare benefits for future retirees were changed to limit employer contributions for medical coverage. Such benefit costs are accrued over the active service period of employees.

CenterPoint Houston is required to fund a portion of its obligations in accordance with rate orders. The net postretirement benefit cost includes the following components:



	Year Ended December 31,
	2014			2013			2012
	(in millions)
Service cost - benefits earned during the period	$	1		$	1		$	—
Interest cost on accumulated benefit obligation	14			13			16
Expected return on plan assets	(6		)	(7		)	(7		)
Amortization of transition obligation	4			6			6
Amortization of prior service credit	(2		)	(1		)	—
Amortization of loss	1			4			3
Benefit enhancement	—			—			1
Net postretirement benefit cost	$	12		$	16		$	19

CenterPoint Houston used the following assumptions to determine net postretirement benefit costs:



	Year Ended December 31,
	2014		2013		2012
Discount rate	4.75	%	3.90	%	4.80	%
Expected return on plan assets	6.00	%	6.00	%	6.00	%

In determining net periodic benefits cost, CenterPoint Houston uses fair value, as of the beginning of the year, as its basis for determining expected return on plan assets.

Following are reconciliations of CenterPoint Houston’s beginning and ending balances of its postretirement benefit plan’s benefit obligation, plan assets and funded status for 2014 and 2013. The measurement dates for plan assets and obligations were December 31, 2014 and 2013.



	Year Ended December 31,
	2014			2013
	(in millions)
Change in Benefit Obligation
Accumulated benefit obligation, beginning of year	$	311		$	351
Service cost	1			1
Interest cost	14			13
Benefits paid	(18		)	(19		)
Participant contributions	3			3
Medicare drug reimbursement	1			1
Actuarial (gain) loss	35			(39		)
Accumulated benefit obligation, end of year	$	347		$	311
Change in Plan Assets
Plan assets, beginning of year	$	114		$	115
Benefits paid	(18		)	(19		)
Employer contributions	9			9
Participant contributions	3			3
Actual investment return	7			6
Plan assets, end of year	$	115		$	114
Amounts Recognized in Balance Sheets
Other liabilities-benefit obligations	$	(232	)	$	(197	)
Net liability, end of year	$	(232	)	$	(197	)
Actuarial Assumptions
Discount rate	3.90		%	4.75		%
Expected long-term return on assets	5.45		%	6.00		%
Healthcare cost trend rate assumed for the next year - Pre 65	7.25		%	7.00		%
Healthcare cost trend rate assumed for the next year - Post 65	8.50		%	7.50		%
Prescription drug cost trend rate assumed for the next year	6.50		%	7.00		%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	5.00		%	5.50		%
Year that the healthcare rate reaches the ultimate trend rate	2024			2018
Year that the prescription drug rate reaches the ultimate trend rate	2024			2018

The discount rate assumption was determined by matching the projected cash flows of CenterPoint Energy’s plans against a hypothetical yield curve of high-quality corporate bonds represented by a series of annualized individual discount rates from one-half to 99 years.

The expected rate of return assumption was developed by a weighted-average return analysis of the targeted asset allocation of CenterPoint Energy’s plans and the expected real return for each asset class, based on the long-term capital market assumptions, adjusted for investment fees and diversification effects, in addition to expected inflation.

For measurement purposes, medical costs are assumed to increase 7.25% and 8.50% for the pre-65 and post-65 retirees during 2015, respectively, and the prescription cost is assumed to increase 6.50% during 2015, after which these rates decrease until reaching the ultimate trend rate of 5.00% in 2024.

CenterPoint Houston does not have amounts recognized in accumulated other comprehensive income related to its postretirement benefit plans as of December 31, 2014 and 2013. Unrecognized costs were recorded as a regulatory asset because CenterPoint Houston historically and currently recovers postretirement expenses in rates.

Assumed healthcare cost trend rates have a significant effect on the reported amounts for CenterPoint Houston’s postretirement benefit plans. A 1% change in the assumed healthcare cost trend rate would have the following effects:



	1% Increase		1% Decrease
	(in millions)
Effect on the postretirement benefit obligation	$	13	$	11
Effect on total of service and interest cost	1		—

In managing the investments associated with the postretirement benefit plans, CenterPoint Houston’s objective is to preserve and enhance the value of plan assets while maintaining an acceptable level of volatility. These objectives are expected to be achieved through an investment strategy that manages liquidity requirements while maintaining a long-term horizon in making investment decisions and efficient and effective management of plan assets.

As part of the investment strategy discussed above, CenterPoint Houston has adopted and maintained the following asset allocation ranges for its postretirement benefit plans:



U.S. equity	14-24%
International equity	3-13%
Fixed income	68-78%
Cash	0-2%

The following tables present by level, within the fair value hierarchy, CenterPoint Houston’s postretirement plan assets as of December 31, 2014 and 2013, by asset category as follows:



	Fair Value Measurements at December 31, 2014 (in millions)
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual funds (1)	$	115	$	115	$	—	$	—
Total	$	115	$	115	$	—	$	—


(1)	73% of the amount invested in mutual funds is in fixed income securities; 19% is in U.S. equities and 8% is in international equities.



	Fair Value Measurements at December 31, 2013 (in millions)
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual funds (1)	$	114	$	114	$	—	$	—
Total	$	114	$	114	$	—	$	—


(1)	73% of the amount invested in mutual funds is in fixed income securities; 18% is in U.S. equities and 9% is in international equities.

CenterPoint Houston expects to contribute $7 million to its postretirement benefits plan in 2015. The following benefit payments are expected to be paid by the postretirement benefit plan (in millions):



	Postretirement Benefit Plan
	Benefit Payments		Medicare Subsidy Receipts
2015	$	21	$	(2	)
2016	22		(2		)
2017	23		(2		)
2018	24		(2		)
2019	26		(3		)
2020-2024	139		(17		)

(d) Postemployment Benefits

CenterPoint Houston participates in CenterPoint Energy’s plan which provides postemployment benefits for former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement (primarily health care and life insurance benefits for participants in the long-term disability plan). CenterPoint Houston recorded postemployment expenses of $1 million, $4 million and $3 million for the years ended December 31, 2014, 2013 and 2012, respectively. Amounts relating to postemployment obligations included in “Benefit Obligations” in the accompanying Consolidated Balance Sheets at December 31, 2014 and 2013 were $14 million and $16 million, respectively.

(e) Other Non-Qualified Plans

CenterPoint Houston participates in CenterPoint Energy’s deferred compensation plans that provide benefits payable to directors, officers and certain key employees or their designated beneficiaries at specified future dates, upon termination, retirement or death. Benefit payments are made from the general assets of CenterPoint Houston. CenterPoint Houston recorded benefit expense relating to these plans of $1 million in each of the years ended December 31, 2014, 2013 and 2012. Amounts relating to deferred compensation plans included in “Benefit Obligations” in the accompanying Consolidated Balance Sheets at December 31, 2014 and 2013 were $12 million and $13 million, respectively.

(f) Other Employee Matters

As of December 31, 2014, CenterPoint Houston had 2,650 full-time employees, of which approximately 49% were covered by a collective bargaining agreement.