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Benefit Plans
 12 Months Ended
Dec. 31, 2011
Benefit Plans [Abstract]  
Benefit Plans

7. BENEFIT PLANS

 

For a discussion of investment strategy, investment limitations, target asset allocations and the classification of investments within the fair value hierarchy, see “Investments Held in Trust for Future Liabilities” and “Fair Value Measurements of Assets and Liabilities” sections of Note 1.

 

We sponsor a qualified pension plan and two unfunded nonqualified pension plans. Substantially all of our employees are covered by the qualified plan or both the qualified and a nonqualified pension plan. We sponsor OPEB plans to provide medical and life insurance benefits for retired employees.

 

We recognize the funded status associated with our defined benefit pension and OPEB plans in the balance sheets. Disclosures about the plans are required by the “Compensation – Retirement Benefits” accounting guidance. We recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status, and recognize, as a component of other comprehensive income, 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. We record a regulatory asset instead of other comprehensive income for qualifying benefit costs of our regulated operations that for ratemaking purposes are deferred for future recovery. The cumulative funded status adjustment is equal to the remaining unrecognized deferrals for unamortized actuarial losses or gains, prior service costs and transition obligations, such that remaining deferred costs result in an AOCI equity reduction or regulatory asset and deferred gains result in an AOCI equity addition or regulatory liability.

Actuarial Assumptions for Benefit Obligations

 

The weighted-average assumptions as of December 31 of each year used in the measurement of our benefit obligations are shown in the following table:

 

      Other Postretirement
   Pension Plans  Benefit Plans
 Assumptions 2011  2010  2011 2010
 Discount Rate  4.55%   5.05%   4.75%  5.25%
 Rate of Compensation Increase  4.85%(a)  4.95%(a) NA NA

(a)       Rates are for base pay only. In addition, an amount is added to reflect target incentive compensation for exempt employees and overtime and incentive pay for nonexempt employees.

NA Not applicable

 

We use a duration-based method to determine the discount rate for our plans. A hypothetical portfolio of high quality corporate bonds similar to those included in the Moody's Aa bond index is constructed with a duration matching the benefit plan liability. The composite yield on the hypothetical bond portfolio is used as the discount rate for the plan.

 

For 2011, the rate of compensation increase assumed varies with the age of the employee, ranging from 3.5% per year to 11.5% per year, with an average increase of 4.85%.

Actuarial Assumptions for Net Periodic Benefit Costs

 

The weighted-average assumptions as of January 1 of each year used in the measurement of our benefit costs are shown in the following table:

 

      Other Postretirement
    Pension Plans Benefit Plans
   2011 2010 2009 2011 2010 2009
 Discount Rate  5.05%  5.60%  6.00%  5.25%  5.85%  6.10%
 Expected Return on Plan Assets  7.75%  8.00%  8.00%  7.50%  8.00%  7.75%
 Rate of Compensation Increase  4.85%  4.60%  5.90% NA NA NA
                    
 NA Not Applicable                  

The expected return on plan assets was determined by evaluating historical returns, the current investment climate (yield on fixed income securities and other recent investment market indicators), rate of inflation and current prospects for economic growth.

 

The health care trend rate assumptions as of January 1 of each year used for OPEB plans measurement purposes are shown below:

 

 Health Care Trend Rates 2011 2010
 Initial  7.50%  8.00%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2016 2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the OPEB health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

 

  1% Increase 1% Decrease
  (in millions)
 Effect on Total Service and Interest Cost     
  Components of Net Periodic Postretirement Health     
  Care Benefit Cost$ 23 $ (18)
       
 Effect on the Health Care Component of the     
  Accumulated Postretirement Benefit Obligation  274   (223)

Significant Concentrations of Risk within Plan Assets

 

In addition to establishing the target asset allocation of plan assets, the investment policy also places restrictions on securities to limit significant concentrations within plan assets. The investment policy establishes guidelines that govern maximum market exposure, security restrictions, prohibited asset classes, prohibited types of transactions, minimum credit quality, average portfolio credit quality, portfolio duration and concentration limits. The guidelines were established to mitigate the risk of loss due to significant concentrations in any investment. We monitor the plans to control security diversification and ensure compliance with our investment policy. At December 31, 2011, the assets were invested in compliance with all investment limits. See “Investments Held in Trust for Future Liabilities” section of Note 1 for limit details.

Benefit Plan Obligations, Plan Assets and Funded Status as of December 31, 2011 and 2010

 

The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of plan assets and funded status as of December 31. The benefit obligation for the defined benefit pension and OPEB plans are the projected benefit obligation and the accumulated benefit obligation, respectively.

    Other Postretirement
  Pension Plans Benefit Plans
  2011 2010 2011 2010
Change in Benefit Obligation (in millions)
Benefit Obligation at January 1 $ 4,807 $ 4,701 $ 2,125 $ 1,941
Service Cost   72   111   42   47
Interest Cost   237   253   109   113
Actuarial Loss   169   222   253   164
Plan Amendment Prior Service Credit   -   -   (196)   (36)
Curtailment   -   -   1   -
Benefit Payments   (294)   (480)   (150)   (142)
Participant Contributions   -   -   34   29
Medicare Subsidy   -   -   9   9
Benefit Obligation at December 31 $ 4,991 $ 4,807 $ 2,227 $ 2,125
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets at January 1 $ 3,858 $ 3,403 $ 1,461 $ 1,308
Actual Gain (Loss) on Plan Assets   282   420   (14)   149
Company Contributions   457   515   79   117
Participant Contributions   -   -   34   29
Benefit Payments   (294)   (480)   (150)   (142)
Fair Value of Plan Assets at December 31 $ 4,303 $ 3,858 $ 1,410 $ 1,461
             
Underfunded Status at December 31 $ (688) $ (949) $ (817) $ (664)

Benefit Amounts Recognized on the Balance Sheets as of December 31, 2011 and 2010
               
      Other Postretirement
    Pension Plans Benefit Plans
               
    December 31,
   2011 2010 2011 2010
    (in millions)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (8) $ (8) $ (4) $ (4)
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (680)   (941)   (813)   (660)
 Underfunded Status $ (688) $ (949) $ (817) $ (664)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2011 and 2010
  
     Other Postretirement
  Pension Plans Benefit Plans
   December 31,
   2011 2010 2011 2010 
Components (in millions)
Net Actuarial Loss $ 2,208 $ 2,129 $ 979 $ 638 
Prior Service Cost (Credit)   10   11   (210)   (20) 
Transition Obligation   -   -   1   3 
               
Recorded as             
Regulatory Assets $ 1,818 $ 1,764 $ 479 $ 388 
Deferred Income Taxes   140   132   102   81 
Net of Tax AOCI   260   244   189   152 

Components of the change in amounts included in AOCI and Regulatory Assets during the years ended December 31, 2011 and 2010 are as follows:

 

    Other Postretirement
  Pension Plans Benefit Plans
  Years Ended December 31,
  2011 2010 2011 2010
Components (in millions)
Actuarial Loss During the Year $ 201 $ 121 $ 370 $ 121
Prior Service Credit   -   -   (191)   (36)
Amortization of Actuarial Loss   (122)   (89)   (29)   (29)
Amortization of Prior Service Credit (Cost)   (1)   -   1   -
Amortization of Transition Obligation   -   -   (2)   (27)
Change for the Year $ 78 $ 32 $ 149 $ 29

Pension and Other Postretirement Plans' Assets

 

The following table presents the classification of pension plan assets within the fair value hierarchy at December 31, 2011:

 

                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in millions)   
 Equities:                  
  Domestic $ 1,455 $ - $ - $ - $ 1,455  33.8%
  International   399   -   -   -   399  9.3%
  Real Estate Investment Trusts   104   -   -   -   104  2.4%
  Common Collective Trust -                  
   International   -   128   -   -   128  3.0%
 Subtotal - Equities   1,958   128   -   -   2,086  48.5%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   26   -   -   26  0.6%
  United States Government and                  
   Agency Securities   -   566   -   -   566  13.2%
  Corporate Debt   -   985   6   -   991  23.0%
  Foreign Debt   -   190   -   -   190  4.4%
  State and Local Government   -   48   -   -   48  1.1%
  Other - Asset Backed   -   26   -   -   26  0.6%
 Subtotal - Fixed Income   -   1,841   6   -   1,847  42.9%
                    
 Real Estate   -   -   163   -   163  3.8%
                    
 Alternative Investments   -   -   161   -   161  3.7%
 Securities Lending   -   215   -   -   215  5.0%
 Securities Lending Collateral (a)   -   -   -   (236)   (236)  (5.5)%
                    
 Cash and Cash Equivalents   -   93   -   -   93  2.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   (26)   (26)  (0.6)%
                    
 Total $ 1,958 $ 2,277 $ 330 $ (262) $ 4,303  100.0%

  • Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.
  • Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

 

The following table sets forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy for AEP's pension assets:

 

    Corporate Real Alternative Total
    Debt Estate Investments Level 3
    (in millions)
 Balance as of January 1, 2011 $ - $ 83 $ 130 $ 213
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   22   9   31
  Relating to Assets Sold During the Period   -   -   3   3
 Purchases and Sales   -   58   19   77
 Transfers into Level 3   6   -   -   6
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2011 $ 6 $ 163 $ 161 $ 330

The following table presents the classification of OPEB plan assets within the fair value hierarchy at December 31, 2011:

 

                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in millions)   
 Equities:                  
  Domestic $ 348 $ - $ - $ - $ 348  24.7%
  International   380   -   -   -   380  27.0%
  Common Collective Trust -                  
   Global   -   99   -   -   99  7.0%
 Subtotal - Equities   728   99   -   -   827  58.7%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   69   -   -   69  4.9%
  United States Government and                  
   Agency Securities   -   81   -   -   81  5.7%
  Corporate Debt   -   152   -   -   152  10.8%
  Foreign Debt   -   32   -   -   32  2.3%
  State and Local Government   -   9   -   -   9  0.6%
  Other - Asset Backed   -   2   -   -   2  0.1%
 Subtotal - Fixed Income   -   345   -   -   345  24.4%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   46   -   -   46  3.3%
  United States Bonds   -   158   -   -   158  11.2%
                    
 Cash and Cash Equivalents   17   23   -   -   40  2.9%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   (6)   (6)  (0.5)%
                    
 Total $ 745 $ 671 $ - $ (6) $ 1,410  100.0%

  • Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following table presents the classification of pension plan assets within the fair value hierarchy at December 31, 2010:

 

                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in millions)   
 Equities:                  
  Domestic $ 1,350 $ 2 $ - $ - $ 1,352  35.1%
  International   403   -   -   -   403  10.4%
  Real Estate Investment Trusts   112   -   -   -   112  2.9%
  Common Collective Trust -                  
   International   -   163   -   -   163  4.2%
 Subtotal - Equities   1,865   165   -   -   2,030  52.6%
                    
 Fixed Income:                  
  United States Government and                  
   Agency Securities   -   634   -   -   634  16.4%
  Corporate Debt   -   672   -   -   672  17.4%
  Foreign Debt   -   127   -   -   127  3.3%
  State and Local Government   -   23   -   -   23  0.6%
  Other - Asset Backed   -   51   -   -   51  1.3%
 Subtotal - Fixed Income   -   1,507   -   -   1,507  39.0%
                    
 Real Estate   -   -   83   -   83  2.2%
                    
 Alternative Investments   -   -   130   -   130  3.4%
 Securities Lending   -   254   -   -   254  6.6%
 Securities Lending Collateral (a)   -   -   -   (276)   (276)  (7.1)%
                    
 Cash and Cash Equivalents (b)   -   127   -   2   129  3.3%
 Other - Pending Transactions and                  
  Accrued Income (c)   -   -   -   1   1  -%
                    
 Total $ 1,865 $ 2,053 $ 213 $ (273) $ 3,858  100.0%

(a) Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b) Amounts in "Other" column primarily represent foreign currency holdings.

(c) Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following table sets forth a reconciliation of changes in the fair value of real estate and alternative investments classified as Level 3 in the fair value hierarchy for the pension assets:

      Alternative Total
    Real Estate Investments Level 3
    (in millions)
 Balance as of January 1, 2010 $ 90 $ 106 $ 196
 Actual Return on Plan Assets         
  Relating to Assets Still Held as of the Reporting Date   (7)   4   (3)
  Relating to Assets Sold During the Period   -   1   1
 Purchases and Sales   -   19   19
 Transfers into Level 3   -   -   -
 Transfers out of Level 3   -   -   -
 Balance as of December 31, 2010 $ 83 $ 130 $ 213

The following table presents the classification of OPEB plan assets within the fair value hierarchy at December 31, 2010:

                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in millions)
 Equities:                  
  Domestic $ 584 $ - $ - $ - $ 584  40.0%
  International   220   -   -   -   220  15.1%
  Common Collective Trust -                  
   Global   -   115   -   -   115  7.9%
 Subtotal - Equities   804   115   -   -   919  63.0%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   48   -   -   48  3.3%
  United States Government and                  
   Agency Securities   -   93   -   -   93  6.4%
  Corporate Debt   -   110   -   -   110  7.5%
  Foreign Debt   -   25   -   -   25  1.7%
  State and Local Government   -   3   -   -   3  0.2%
  Other - Asset Backed   -   1   -   -   1  0.1%
 Subtotal - Fixed Income   -   280   -   -   280  19.2%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   49   -   -   49  3.3%
  United States Bonds   -   163   -   -   163  11.1%
                    
 Cash and Cash Equivalents (a)   21   25   -   1   47  3.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   3   3  0.2%
                    
 Total $ 825 $ 632 $ - $ 4 $ 1,461  100.0%

(a) Amounts in "Other" column primarily represent foreign currency holdings.

(b) Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

Determination of Pension Expense

 

We base our determination of pension expense or income on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

 

   December 31,
 Accumulated Benefit Obligation 2011 2010
   (in millions)
 Qualified Pension Plan $ 4,808 $ 4,659
 Nonqualified Pension Plans   89   80
 Total $ 4,897 $ 4,739

For our underfunded pension plans that had an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets of these plans at December 31, 2011 and 2010 were as follows:

 

   Underfunded Pension Plans
   December 31,
   2011 2010
   (in millions)
 Projected Benefit Obligation $ 4,991 $ 4,807
        
 Accumulated Benefit Obligation $ 4,897 $ 4,739
 Fair Value of Plan Assets   4,303   3,858
 Underfunded Accumulated Benefit Obligation $ (594) $ (881)

Estimated Future Benefit Payments and Contributions

 

We expect contributions and payments for the pension plans of $208 million and the OPEB plans of $99 million during 2012. The estimated pension benefit payments for the unfunded plan and contributions to the trust are at least the minimum amount required by the Employee Retirement Income Security Act plus payment of unfunded nonqualified benefits. For the qualified pension plan, we may make additional discretionary contributions to maintain the funded status of the plan. The contribution to the OPEB plans is generally based on the amount of the OPEB plans' periodic benefit costs for accounting purposes as provided in agreements with state regulatory authorities, plus the additional discretionary contribution of our Medicare subsidy receipts.

 

The table below reflects the total benefits expected to be paid from the plan or from our assets. The payments include the participants' contributions to the plan for their share of the cost. In December 2011, we amended the prescription drug program for certain participants. The impact of the change is reflected in the Benefit Plan Obligation table as a plan amendment. As a result of this amendment to the plan, the Medicare subsidy receipts in the following table are reduced from prior published estimates. Future benefit payments are dependent on the number of employees retiring, whether the retiring employees elect to receive pension benefits as annuities or as lump sum distributions, future integration of the benefit plans with changes to Medicare and other legislation, future levels of interest rates and variances in actuarial results. The estimated payments for pension benefits and OPEB are as follows:

   Pension Plans Other Postretirement Benefit Plans
   Pension Benefit Medicare Subsidy
   Payments Payments Receipts
   (in millions)
 2012 $ 327 $145 $ 9
 2013   334  148   -
 2014   354  153   -
 2015   356  160   -
 2016   360  168   -
 Years 2017 to 2021, in Total   1,864  955   2

Components of Net Periodic Benefit Cost

 

The following table provides the components of our net periodic benefit cost for the plans for the years ended December 31, 2011, 2010 and 2009:

 

      Other Postretirement
   Pension Plans Benefit Plans
    Years Ended December 31,
    2011 2010 2009 2011 2010 2009
    (in millions)
 Service Cost $ 72 $ 111 $ 104 $ 42 $ 47 $ 42
 Interest Cost   237   253   254   109   113   110
 Expected Return on Plan Assets   (314)   (312)   (321)   (109)   (105)   (80)
 Curtailment   -   -   -   1   -   -
 Amortization of Transition Obligation   -   -   -   2   27   27
 Amortization of Prior Service Cost (Credit)   1   -   -   (1)   -   -
 Amortization of Net Actuarial Loss   122   89   59   29   29   42
 Net Periodic Benefit Cost   118   141   96   73   111   141
 Capitalized Portion   (37)   (44)   (30)   (22)   (35)   (44)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 81 $ 97 $ 66 $ 51 $ 76 $ 97

Estimated amounts expected to be amortized to net periodic benefit costs and the impact on the balance sheet during 2012 are shown in the following table:

 

     Other
      Postretirement
    Pension Plans Benefit Plans
 Components (in millions)
 Net Actuarial Loss $ 145 $ 59
 Prior Service Credit   (1)   (18)
 Transition Obligation   -   1
 Total Estimated 2012 Amortization $ 144 $ 42
        
 Expected to be Recorded as      
 Regulatory Asset $ 116 $ 25
 Deferred Income Taxes   10   6
 Net of Tax AOCI   18   11
 Total $ 144 $ 42

American Electric Power System Retirement Savings Plan

 

We sponsor the American Electric Power System Retirement Savings Plan, a defined contribution retirement savings plan for substantially all employees who are not members of the United Mine Workers of America (UMWA). It is a qualified plan offering participants an opportunity to contribute a portion of their pay with features under Section 401(k) of the Internal Revenue Code. The matching contributions to the plan are 100% of the first 1% of eligible employee contributions and 70% of the next 5% of contributions. The cost for matching contributions totaled $64 million in 2011, $61 million in 2010 and $74 million in 2009.

 

UMWA Benefits

 

We provide UMWA pension, health and welfare benefits for certain unionized mining employees, retirees and their survivors who meet eligibility requirements. UMWA trustees make final interpretive determinations with regard to all benefits. The pension benefits are administered by UMWA trustees and contributions are made to their trust funds. The health and welfare benefits are administered by us and benefits are paid from our general assets.

 

The UMWA pension benefits are administered through a multiemployer plan that is different from single-employer plans as an employer's contributions may be used to provide benefits to employees of other participating employers. Required contributions not made by an employer may result in other employers bearing the unfunded plan obligations, while a withdrawing employer may be subject to a withdrawal liability. UMWA pension benefits are provided through the United Mine Workers of America 1974 Pension Plan (Employer Identification Number: 52-1050282, Plan Number 002), which under the Pension Protection Act of 2006 (PPA) was in Seriously Endangered Status for the plan years ending June 30, 2011 and 2010, without utilization of extended amortization provisions. The Plan is required under the PPA to adopt a funding improvement plan by May 25, 2012. Contributions in 2011, 2010 and 2009, which were made under a collective bargaining agreement that expires December 31, 2012, were immaterial and represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2011, 2010 and 2009. Contributions did not include a surcharge, and there are no minimum contributions for future years.

 
Appalachian Power Co [Member]
  
Benefit Plans [Abstract]  
Benefit Plans

7. BENEFIT PLANS

 

For a discussion of investment strategy, investment limitations, target asset allocations and the classification of investments within the fair value hierarchy, see “Investments Held in Trust for Future Liabilities” and “Fair Value Measurements of Assets and Liabilities” sections of Note 1.

 

The Registrant Subsidiaries participate in an AEP sponsored qualified pension plan and two unfunded nonqualified pension plans. Substantially all employees are covered by the qualified plan or both the qualified and a nonqualified pension plan. The Registrant Subsidiaries also participate in OPEB plans sponsored by AEP to provide medical and life insurance benefits for retired employees.

 

Due to the Registrant Subsidiaries' participation in AEP's benefits plans, the assumptions used by the actuary and the accounting for the plans by each subsidiary are the same. This section details the assumptions that apply to all Registrant Subsidiaries and the rate of compensation increase for each subsidiary.

 

The Registrant Subsidiaries recognize the funded status associated with defined benefit pension and OPEB plans in their balance sheets. Disclosures about the plans are required by the “Compensation – Retirement Benefits” accounting guidance. The Registrant Subsidiaries recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status, and recognize, as a component of other comprehensive income, 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. The Registrant Subsidiaries record a regulatory asset instead of other comprehensive income for qualifying benefit costs of regulated operations that for ratemaking purposes are deferred for future recovery. The cumulative funded status adjustment is equal to the remaining unrecognized deferrals for unamortized actuarial losses or gains, prior service costs and transition obligations, such that remaining deferred costs result in an AOCI equity reduction or regulatory asset and deferred gains result in an AOCI equity addition or regulatory liability.

Actuarial Assumptions for Benefit Obligations

 

The weighted-average assumptions as of December 31 of each year used in the measurement of the Registrant Subsidiaries' benefit obligations are shown in the following tables:

     Other Postretirement
  Pension Plans  Benefit Plans
Assumption 2011 2010  2011 2010
Discount Rate  4.55%  5.05%   4.75%  5.25%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2011 2010
 APCo  4.65%  4.70%
 I&M  4.90%  4.90%
 OPCo  4.95%  5.05%
 PSO  4.85%  4.95%
 SWEPCo  4.70%  4.80%

(a)       Rates are for base pay only. In addition, an amount is added to reflect target incentive compensation for exempt employees and overtime and incentive pay for nonexempt employees.

 

A duration-based method is used to determine the discount rate for the plans. A hypothetical portfolio of high quality corporate bonds similar to those included in the Moody's Aa bond index is constructed with a duration matching the benefit plan liability. The composite yield on the hypothetical bond portfolio is used as the discount rate for the plan. The discount rate is the same for each Registrant Subsidiary.

 

For 2011, the rate of compensation increase assumed varies with the age of the employee, ranging from 3.5% per year to 11.5% per year, with the average increase shown in the table above. The compensation increase rates reflect variations in each Registrant Subsidiary's population participating in the pension plan.

Actuarial Assumptions for Net Periodic Benefit Costs

 

The weighted-average assumptions as of January 1 of each year used in the measurement of each Registrant Subsidiary's benefit costs are shown in the following tables:

      Other Postretirement
    Pension Plans Benefit Plans
 Assumptions 2011 2010 2009 2011 2010 2009
 Discount Rate  5.05%  5.60%  6.00%  5.25%  5.85%  6.10%
 Expected Return on Plan Assets  7.75%  8.00%  8.00%  7.50%  8.00%  7.75%

   Pension Plans
 Assumption - Rate of Compensation Increase 2011 2010 2009
 APCo  4.65%  4.35%  5.65%
 I&M  4.90%  4.55%  5.85%
 OPCo  4.95%  4.70%  6.00%
 PSO  4.85%  4.60%  5.90%
 SWEPCo  4.70%  4.45%  5.75%

The expected return on plan assets was determined by evaluating historical returns, the current investment climate (yield on fixed income securities and other recent investment market indicators), rate of inflation and current prospects for economic growth. The expected return on plan assets is the same for each Registrant Subsidiary.

 

The health care trend rate assumptions as of January 1 of each year used for OPEB plans measurement purposes are shown below:

 Health Care Trend Rates 2011 2010
 Initial  7.50%  8.00%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2016 2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the OPEB health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Effect on Total Service and Interest Cost               
 Components of Net Periodic Postretirement               
 Health Care Benefit Cost:               
  1% Increase $ 3,806 $ 2,972 $ 5,188 $ 1,300 $ 1,500
  1% Decrease   (3,015)   (2,367)   (4,110)   (1,036)   (1,195)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 50,216 $ 33,657 $ 65,251 $ 15,088 $ 17,499
  1% Decrease   (40,748)   (27,448)   (53,015)   (12,314)   (14,281)

Significant Concentrations of Risk within Plan Assets

 

In addition to establishing the target asset allocation of plan assets, the investment policy also places restrictions on securities to limit significant concentrations within plan assets. The investment policy establishes guidelines that govern maximum market exposure, security restrictions, prohibited asset classes, prohibited types of transactions, minimum credit quality, average portfolio credit quality, portfolio duration and concentration limits. The guidelines were established to mitigate the risk of loss due to significant concentrations in any investment. Management monitors the plans to control security diversification and ensure compliance with the investment policy. At December 31, 2011, the assets were invested in compliance with all investment limits. See “Investments Held in Trust for Future Liabilities” section of Note 1 for limit details.

Benefit Plan Obligations, Plan Assets and Funded Status as of December 31, 2011 and 2010

 

The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of plan assets and funded status as of December 31. The benefit obligation for the defined benefit pension and OPEB plans are the projected benefit obligation and the accumulated benefit obligation, respectively.

APCo   Other Postretirement
  Pension Plans Benefit Plans
  2011 2010 2011 2010
Change in Benefit Obligation (in thousands)
Benefit Obligation at January 1 $ 652,219 $ 632,832 $ 383,152 $ 348,787
Service Cost   7,199   12,908   4,983   5,722
Interest Cost   32,293   33,956   19,468   20,300
Actuarial Loss   29,137   28,909   41,306   33,656
Plan Amendment Prior Service Credit   -   -   (31,145)   (4,257)
Benefit Payments   (39,398)   (56,386)   (30,040)   (27,677)
Participant Contributions   -   -   6,005   4,782
Medicare Subsidy   -   -   1,753   1,839
Benefit Obligation at December 31 $ 681,450 $ 652,219 $ 395,482 $ 383,152
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets at January 1 $ 512,836 $ 474,657 $ 243,771 $ 217,160
Actual Gain (Loss) on Plan Assets   36,970   57,745   (4,102)   29,112
Company Contributions   60,348   36,820   14,101   20,394
Participant Contributions   -   -   6,005   4,782
Benefit Payments   (39,398)   (56,386)   (30,040)   (27,677)
Fair Value of Plan Assets at December 31 $ 570,756 $ 512,836 $ 229,735 $ 243,771
             
Underfunded Status at December 31 $ (110,694) $ (139,383) $ (165,747) $ (139,381)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2011 and 2010

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 APCo 2011 2010 2011 2010
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (34) $ (34) $ (2,956) $ (2,854)
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (110,660)   (139,349)   (162,791)   (136,527)
 Underfunded Status $ (110,694) $ (139,383) $ (165,747) $ (139,381)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2011 and 2010

 

     Other Postretirement
APCo Pension Plans Benefit Plans
   December 31,
   2011 2010 2011 2010
Components (in thousands)
Net Actuarial Loss $ 308,223 $ 290,798 $ 174,615 $ 115,350
Prior Service Cost (Credit)   1,393   2,310   (33,060)   (2,086)
Transition Obligation   -   -   780   1,947
              
Recorded as            
Regulatory Assets $ 305,558 $ 289,214 $ 56,764 $ 45,891
Deferred Income Taxes   1,420   1,366   29,951   23,881
Net of Tax AOCI   2,638   2,528   55,620   45,439

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2011 and 2010 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 33,995 $ 21,372 $ 44,976 $ 8,712 $ 8,958
Amortization of Actuarial Loss   (16,570)   (14,144)   (24,828)   (6,757)   (6,759)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
  December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 14,769 $ 24,732 $ 26,308 $ (2,346) $ (6,379)
Amortization of Actuarial Loss   (11,842)   (10,065)   (18,150)   (5,188)   (5,242)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   796
Change for the Year Ended               
 December 31, 2010$ 2,010 $ 13,923 $ 6,684 $ (6,584) $ (10,825)
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 65,104 $ 46,321 $ 79,611 $ 22,147 $ 23,619
Amortization of Actuarial Loss   (5,839)   (3,566)   (7,298)   (1,553)   (1,785)
Prior Service Credit  (31,145)   (24,846)   (42,357)   (11,612)   (9,409)
Amortization of Prior Service Cost (Credit)   171   237   212   75   (258)
Amortization of Transition Obligation   (1,167)   (188)   (150)   -   -
Change for the Year Ended               
 December 31, 2011$ 27,124 $ 17,958 $ 30,018 $ 9,057 $ 12,167
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 23,876 $ 13,372 $ 31,207 $ 7,283 $ 7,570
Amortization of Actuarial Loss   (5,410)   (3,526)   (6,877)   (1,573)   (1,711)
Prior Service Credit  (4,257)   (4,273)   (6,039)   (2,408)   (2,399)
Amortization of Transition Obligation   (5,244)   (2,814)   (6,642)   (2,805)   (2,461)
Change for the Year Ended               
 December 31, 2010$ 8,965 $ 2,759 $ 11,649 $ 497 $ 999

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 

 APCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 192,957 $ - $ - $ - $ 192,957  33.8%
  International   52,904   -   -   -   52,904  9.3%
  Real Estate Investment Trusts   13,794   -   -   -   13,794  2.4%
  Common Collective Trust -                  
   International   -   17,038   -   -   17,038  3.0%
 Subtotal - Equities   259,655   17,038   -   -   276,693  48.5%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   3,483   -   -   3,483  0.6%
  United States Government and                  
   Agency Securities   -   75,042   -   -   75,042  13.2%
  Corporate Debt   -   130,606   846   -   131,452  23.0%
  Foreign Debt   -   25,289   -   -   25,289  4.4%
  State and Local Government   -   6,374   -   -   6,374  1.1%
  Other - Asset Backed   -   3,449   -   -   3,449  0.6%
 Subtotal - Fixed Income   -   244,243   846   -   245,089  42.9%
                    
 Real Estate   -   -   21,666   -   21,666  3.8%
                    
 Alternative Investments   -   -   21,269   -   21,269  3.7%
 Securities Lending   -   28,488   -   -   28,488  5.0%
 Securities Lending Collateral (a)   -   -   -   (31,276)   (31,276)  (5.5)%
                    
 Cash and Cash Equivalents   -   12,306   -   -   12,306  2.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   (3,479)   (3,479)  (0.6)%
                    
 Total $ 259,655 $ 302,075 $ 43,781 $ (34,755) $ 570,756  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy by Registrant Subsidiary for pension assets:

    Corporate Real Alternative Total
 APCo Debt Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2011 $ - $ 11,060 $ 17,281 $ 28,341
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   2,952   1,142   4,094
  Relating to Assets Sold During the Period   -   -   392   392
 Purchases and Sales   -   7,654   2,454   10,108
 Transfers into Level 3   846   -   -   846
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2011 $ 846 $ 21,666 $ 21,269 $ 43,781

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 APCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 56,670 $ - $ - $ - $ 56,670  24.7%
  International   61,982   -   -   -   61,982  27.0%
  Common Collective Trust -                  
   Global   -   16,159   -   -   16,159  7.0%
 Subtotal - Equities   118,652   16,159   -   -   134,811  58.7%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   11,279   -   -   11,279  4.9%
  United States Government and                  
   Agency Securities   -   13,165   -   -   13,165  5.7%
  Corporate Debt   -   24,792   -   -   24,792  10.8%
  Foreign Debt   -   5,256   -   -   5,256  2.3%
  State and Local Government   -   1,371   -   -   1,371  0.6%
  Other - Asset Backed   -   312   -   -   312  0.1%
 Subtotal - Fixed Income   -   56,175   -   -   56,175  24.4%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   7,533   -   -   7,533  3.3%
  United States Bonds   -   25,719   -   -   25,719  11.2%
                    
 Cash and Cash Equivalents   2,739   3,816   -   -   6,555  2.9%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   (1,058)   (1,058)  (0.5)%
                    
 Total $ 121,391 $ 109,402 $ - $ (1,058) $ 229,735  100.0%

(a)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 APCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 179,421 $ 366 $ - $ - $ 179,787  35.1%
  International   53,559   -   -   -   53,559  10.4%
  Real Estate Investment Trusts   14,932   -   -   -   14,932  2.9%
  Common Collective Trust -                  
   International   -   21,619   -   -   21,619  4.2%
 Subtotal - Equities   247,912   21,985   -   -   269,897  52.6%
                    
 Fixed Income:                  
  United States Government and                  
   Agency Securities   -   84,280   -   -   84,280  16.4%
  Corporate Debt   -   89,296   -   -   89,296  17.4%
  Foreign Debt   -   16,900   -   -   16,900  3.3%
  State and Local Government   -   3,021   -   -   3,021  0.6%
  Other - Asset Backed   -   6,798   -   -   6,798  1.3%
 Subtotal - Fixed Income   -   200,295   -   -   200,295  39.0%
                    
 Real Estate   -   -   11,060   -   11,060  2.2%
                    
 Alternative Investments   -   -   17,281   -   17,281  3.4%
 Securities Lending   -   33,804   -   -   33,804  6.6%
 Securities Lending Collateral (a)   -   -   -   (36,664)   (36,664)  (7.1)%
                    
 Cash and Cash Equivalents (b)   -   16,870   -   212   17,082  3.3%
 Other - Pending Transactions and                  
  Accrued Income (c)   -   -   -   81   81  -%
                    
 Total $ 247,912 $ 272,954 $ 28,341 $ (36,371) $ 512,836  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent foreign currency holdings.

(c)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of real estate and alternative investments classified as Level 3 in the fair value hierarchy for pension assets by Registrant Subsidiary:

 

      Alternative Total
 APCo Real Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2010 $ 12,623 $ 14,739 $ 27,362
 Actual Return on Plan Assets         
  Relating to Assets Still Held as of the Reporting Date   (1,563)   412   (1,151)
  Relating to Assets Sold During the Period   -   134   134
 Purchases and Sales   -   1,996   1,996
 Transfers into Level 3   -   -   -
 Transfers out of Level 3   -   -   -
 Balance as of December 31, 2010 $ 11,060 $ 17,281 $ 28,341

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 

 APCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 97,469 $ - $ - $ - $ 97,469  40.0%
  International   36,792   -   -   -   36,792  15.1%
  Common Collective Trust -                  
   Global   -   19,153   -   -   19,153  7.9%
 Subtotal - Equities   134,261   19,153   -   -   153,414  63.0%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   7,966   -   -   7,966  3.3%
  United States Government and                  
   Agency Securities   -   15,636   -   -   15,636  6.4%
  Corporate Debt   -   18,365   -   -   18,365  7.5%
  Foreign Debt   -   4,140   -   -   4,140  1.7%
  State and Local Government   -   583   -   -   583  0.2%
  Other - Asset Backed   -   158   -   -   158  0.1%
 Subtotal - Fixed Income   -   46,848   -   -   46,848  19.2%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   8,189   -   -   8,189  3.3%
  United States Bonds   -   27,130   -   -   27,130  11.1%
                    
 Cash and Cash Equivalents (a)   3,422   4,179   -   143   7,744  3.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   446   446  0.2%
                    
 Total $ 137,683 $ 105,499 $ - $ 589 $ 243,771  100.0%

(a)       Amounts in "Other" column primarily represent foreign currency holdings.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

Determination of Pension Expense

 

The determination of pension expense or income is based on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 672,967 $ 569,855 $ 1,005,608 $ 269,230 $ 269,809
Nonqualified Pension Plans   234   168   821   1,368   1,223
Total as of December 31, 2011 $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
                
Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 646,513 $ 551,702 $ 973,802 $ 261,535 $ 260,838
Nonqualified Pension Plans   221   994   799   1,326   1,133
Total as of December 31, 2010 $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971

For the underfunded pension plans that had an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets of these plans at December 31, 2011 and 2010 were as follows:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 681,450 $ 581,677 $ 1,020,890 $ 277,448 $ 277,594
                 
Accumulated Benefit Obligation $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
Fair Value of Plan Assets   570,756   503,926   925,939   245,769   255,861
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2011 $ (102,445) $ (66,097) $ (80,490) $ (24,829) $ (15,171)
                 
  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 652,219 $ 560,982 $ 984,089 $ 268,180 $ 267,206
                 
Accumulated Benefit Obligation $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971
Fair Value of Plan Assets   512,836   451,688   799,281   213,576   224,618
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2010 $ (133,898) $ (101,008) $ (175,320) $ (49,285) $ (37,353)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments for the unfunded plan and contributions to the trust are at least the minimum amount required by the Employee Retirement Income Security Act plus payment of unfunded nonqualified benefits. For the qualified pension plan, additional discretionary contributions may be made to the trust to maintain the funded status of the plan. The contributions to the OPEB plans are generally based on the amount of the OPEB plans' periodic benefit costs for accounting purposes as provided in agreements with state regulatory authorities, plus the additional discretionary contribution of the Medicare subsidy receipts. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2012:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 33,442 $ 16,775
 I&M   23,938   13,465
 OPCo   39,095   19,705
 PSO   11,612   5,982
 SWEPCo   9,089   7,089

The tables below reflect the total benefits expected to be paid from the plan or from the Registrant Subsidiary's assets. The payments include the participants' contributions to the plan for their share of the cost. In December 2011, the prescription drug plan was amended for certain participants. The impact of the change is reflected in the Benefit Plan Obligation table as a plan amendment. As a result of this amendment to the plan, the Medicare subsidy receipts in the following table are reduced from prior published estimates. Future benefit payments are dependent on the number of employees retiring, whether the retiring employees elect to receive pension benefits as annuities or as lump sum distributions, future integration of the benefit plans with changes to Medicare and other legislation, future levels of interest rates and variances in actuarial results. The estimated payments for the pension benefits and OPEB are as follows:

 

Pension Plans APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 44,506 $ 34,963 $ 69,978 $ 19,989 $ 19,329
2013   45,202   35,686   72,422   20,472   20,281
2014   47,192   37,289   76,712   22,199   22,080
2015   46,327   37,831   75,063   22,020   22,288
2016   48,178   39,781   75,042   21,847   22,331
Years 2017 to 2021, in Total   248,647   213,381   371,555   113,723   115,691
                
Other Postretirement Benefit Plans: Benefit Payments APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 27,515 $ 17,849 $ 36,517 $ 7,833 $ 8,302
2013   27,741   18,289   36,412   8,120   8,628
2014   28,782   19,085   37,271   8,438   9,179
2015   29,668   20,117   38,306   8,934   9,598
2016   30,657   21,358   39,774   9,467   10,214
Years 2017 to 2021, in Total   168,810   123,258   218,695   54,491   61,146
                
Other Postretirement Benefit Plans: Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 1,777 $ 1,096 $ 2,276 $ 618 $ 586
2013   272   28   43   -   -
2014   287   27   48   -   -
2015   298   26   59   -   -
2016   307   26   67   -   -
Years 2017 to 2021, in Total   1,578   110   536   -   -

Components of Net Periodic Benefit Cost

 

The following tables provide the components of net periodic benefit cost by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

      Other Postretirement
 APCo Pension Plans Benefit Plans
    Years Ended December 31,
    2011 2010 2009 2011 2010 2009
    (in thousands)
 Service Cost $ 7,199 $ 12,908 $ 12,689 $ 4,983 $ 5,722 $ 5,142
 Interest Cost   32,293   33,956   34,050   19,468   20,300   19,710
 Expected Return on Plan Assets   (41,833)   (43,805)   (44,885)   (17,985)   (17,628)   (13,531)
 Amortization of Transition Obligation   -   -   -   1,167   5,244   5,244
 Amortization of Prior Service Cost (Credit)   917   917   917   (171)   -   -
 Amortization of Net Actuarial Loss   16,570   11,842   7,688   5,839   5,410   7,666
 Net Periodic Benefit Cost   15,146   15,818   10,459   13,301   19,048   24,231
 Capitalized Portion   (5,604)   (6,058)   (3,661)   (4,921)   (7,295)   (8,481)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 9,542 $ 9,760 $ 6,798 $ 8,380 $ 11,753 $ 15,750

Estimated amounts expected to be amortized to net periodic benefit costs and the impact on each Registrant Subsidiary's balance sheet during 2012 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 19,816 $ 16,915 $ 29,690 $ 8,074 $ 8,077
Prior Service Cost (Credit)   475   407   743   (948)   (793)
Total Estimated 2012 Amortization$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 20,190 $ 16,303 $ 16,299 $ 7,126 $ 7,284
Deferred Income Taxes   35   357   4,947   -   -
Net of Tax AOCI   66   662   9,187   -   -
Total$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 10,671 $ 7,325 $ 13,951 $ 3,296 $ 3,822
Prior Service Credit   (2,862)   (2,383)   (3,873)   (1,079)   (933)
Transition Obligation   780   132   104   -   -
Total Estimated 2012 Amortization$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 3,049 $ 4,400 $ 4,565 $ 2,217 $ 1,804
Deferred Income Taxes   1,939   236   1,966   -   380
Net of Tax AOCI   3,601   438   3,651   -   705
Total$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889

American Electric Power System Retirement Savings Plans

 

The Registrant Subsidiaries participate in an AEP sponsored defined contribution retirement savings plan, the American Electric Power System Retirement Savings Plan, for substantially all employees who are not members of the United Mine Workers of America (UMWA). This qualified plan offers participants an opportunity to contribute a portion of their pay, includes features under Section 401(k) of the Internal Revenue Code and provides for company matching contributions. The matching contributions to the plan are 100% of the first 1% of eligible employee contributions and 70% of the next 5% of contributions.

 

The following table provides the cost for matching contributions to the retirement savings plans by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

    Years Ended December 31,
 Company 2011 2010 2009
    (in thousands)
 APCo $ 7,432 $ 7,284 $ 8,673
 I&M   9,541   8,969   10,315
 OPCo   10,166   9,706   11,640
 PSO   3,626   3,505   4,083
 SWEPCo   4,438   3,866   5,269

UMWA Benefits

 

APCo, I&M and OPCo provide UMWA pension, health and welfare benefits for certain unionized mining employees, retirees and their survivors who meet eligibility requirements. UMWA trustees make final interpretive determinations with regard to all benefits. The pension benefits are administered by UMWA trustees and contributions are made to their trust funds. APCo, I&M and OPCo administer the health and welfare benefits and pay them from their general assets.

 

The UMWA pension benefits are administered through a multiemployer plan that is different from single-employer plans as an employer's contributions may be used to provide benefits to employees of other participating employers. Required contributions not made by an employer may result in other employers bearing the unfunded plan obligations, while a withdrawing employer may be subject to a withdrawal liability. UMWA pension benefits are provided through the United Mine Workers of America 1974 Pension Plan (Employer Identification Number: 52-1050282, Plan Number 002), which under the Pension Protection Act of 2006 (PPA) was in Seriously Endangered Status for the plan years ending June 30, 2011 and 2010, without utilization of extended amortization provisions. The Plan is required under the PPA to adopt a funding improvement plan by May 25, 2012. Contributions in 2011, 2010 and 2009, which were made under a collective bargaining agreement that expires December 31, 2012, were immaterial and represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2011, 2010 and 2009. Contributions did not include a surcharge, and there are no minimum contributions for future years.

 
Indiana Michigan Power Co [Member]
  
Benefit Plans [Abstract]  
Benefit Plans

7. BENEFIT PLANS

 

For a discussion of investment strategy, investment limitations, target asset allocations and the classification of investments within the fair value hierarchy, see “Investments Held in Trust for Future Liabilities” and “Fair Value Measurements of Assets and Liabilities” sections of Note 1.

 

The Registrant Subsidiaries participate in an AEP sponsored qualified pension plan and two unfunded nonqualified pension plans. Substantially all employees are covered by the qualified plan or both the qualified and a nonqualified pension plan. The Registrant Subsidiaries also participate in OPEB plans sponsored by AEP to provide medical and life insurance benefits for retired employees.

 

Due to the Registrant Subsidiaries' participation in AEP's benefits plans, the assumptions used by the actuary and the accounting for the plans by each subsidiary are the same. This section details the assumptions that apply to all Registrant Subsidiaries and the rate of compensation increase for each subsidiary.

 

The Registrant Subsidiaries recognize the funded status associated with defined benefit pension and OPEB plans in their balance sheets. Disclosures about the plans are required by the “Compensation – Retirement Benefits” accounting guidance. The Registrant Subsidiaries recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status, and recognize, as a component of other comprehensive income, 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. The Registrant Subsidiaries record a regulatory asset instead of other comprehensive income for qualifying benefit costs of regulated operations that for ratemaking purposes are deferred for future recovery. The cumulative funded status adjustment is equal to the remaining unrecognized deferrals for unamortized actuarial losses or gains, prior service costs and transition obligations, such that remaining deferred costs result in an AOCI equity reduction or regulatory asset and deferred gains result in an AOCI equity addition or regulatory liability.

Actuarial Assumptions for Benefit Obligations

 

The weighted-average assumptions as of December 31 of each year used in the measurement of the Registrant Subsidiaries' benefit obligations are shown in the following tables:

     Other Postretirement
  Pension Plans  Benefit Plans
Assumption 2011 2010  2011 2010
Discount Rate  4.55%  5.05%   4.75%  5.25%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2011 2010
 APCo  4.65%  4.70%
 I&M  4.90%  4.90%
 OPCo  4.95%  5.05%
 PSO  4.85%  4.95%
 SWEPCo  4.70%  4.80%

(a)       Rates are for base pay only. In addition, an amount is added to reflect target incentive compensation for exempt employees and overtime and incentive pay for nonexempt employees.

 

A duration-based method is used to determine the discount rate for the plans. A hypothetical portfolio of high quality corporate bonds similar to those included in the Moody's Aa bond index is constructed with a duration matching the benefit plan liability. The composite yield on the hypothetical bond portfolio is used as the discount rate for the plan. The discount rate is the same for each Registrant Subsidiary.

 

For 2011, the rate of compensation increase assumed varies with the age of the employee, ranging from 3.5% per year to 11.5% per year, with the average increase shown in the table above. The compensation increase rates reflect variations in each Registrant Subsidiary's population participating in the pension plan.

Actuarial Assumptions for Net Periodic Benefit Costs

 

The weighted-average assumptions as of January 1 of each year used in the measurement of each Registrant Subsidiary's benefit costs are shown in the following tables:

      Other Postretirement
    Pension Plans Benefit Plans
 Assumptions 2011 2010 2009 2011 2010 2009
 Discount Rate  5.05%  5.60%  6.00%  5.25%  5.85%  6.10%
 Expected Return on Plan Assets  7.75%  8.00%  8.00%  7.50%  8.00%  7.75%

   Pension Plans
 Assumption - Rate of Compensation Increase 2011 2010 2009
 APCo  4.65%  4.35%  5.65%
 I&M  4.90%  4.55%  5.85%
 OPCo  4.95%  4.70%  6.00%
 PSO  4.85%  4.60%  5.90%
 SWEPCo  4.70%  4.45%  5.75%

The expected return on plan assets was determined by evaluating historical returns, the current investment climate (yield on fixed income securities and other recent investment market indicators), rate of inflation and current prospects for economic growth. The expected return on plan assets is the same for each Registrant Subsidiary.

 

The health care trend rate assumptions as of January 1 of each year used for OPEB plans measurement purposes are shown below:

 Health Care Trend Rates 2011 2010
 Initial  7.50%  8.00%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2016 2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the OPEB health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Effect on Total Service and Interest Cost               
 Components of Net Periodic Postretirement               
 Health Care Benefit Cost:               
  1% Increase $ 3,806 $ 2,972 $ 5,188 $ 1,300 $ 1,500
  1% Decrease   (3,015)   (2,367)   (4,110)   (1,036)   (1,195)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 50,216 $ 33,657 $ 65,251 $ 15,088 $ 17,499
  1% Decrease   (40,748)   (27,448)   (53,015)   (12,314)   (14,281)

Significant Concentrations of Risk within Plan Assets

 

In addition to establishing the target asset allocation of plan assets, the investment policy also places restrictions on securities to limit significant concentrations within plan assets. The investment policy establishes guidelines that govern maximum market exposure, security restrictions, prohibited asset classes, prohibited types of transactions, minimum credit quality, average portfolio credit quality, portfolio duration and concentration limits. The guidelines were established to mitigate the risk of loss due to significant concentrations in any investment. Management monitors the plans to control security diversification and ensure compliance with the investment policy. At December 31, 2011, the assets were invested in compliance with all investment limits. See “Investments Held in Trust for Future Liabilities” section of Note 1 for limit details.

Benefit Plan Obligations, Plan Assets and Funded Status as of December 31, 2011 and 2010

 

The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of plan assets and funded status as of December 31. The benefit obligation for the defined benefit pension and OPEB plans are the projected benefit obligation and the accumulated benefit obligation, respectively.

I&M   Other Postretirement
  Pension Plans Benefit Plans
  2011 2010 2011 2010
Change in Benefit Obligation (in thousands)
Benefit Obligation at January 1 $ 560,982 $ 526,363 $ 266,742 $ 241,847
Service Cost   9,447   15,284   6,119   6,750
Interest Cost   27,726   29,085   13,610   14,164
Actuarial Loss   17,289   40,694   28,876   20,980
Plan Amendment Prior Service Credit   -   -   (24,846)   (4,273)
Benefit Payments   (33,767)   (50,444)   (18,387)   (17,439)
Participant Contributions   -   -   4,112   3,526
Medicare Subsidy   -   -   1,127   1,187
Benefit Obligation at December 31 $ 581,677 $ 560,982 $ 277,353 $ 266,742
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets at January 1 $ 451,688 $ 379,562 $ 188,690 $ 166,682
Actual Gain (Loss) on Plan Assets   32,773   50,811   (3,946)   20,983
Company Contributions   53,232   71,759   10,768   14,938
Participant Contributions   -   -   4,112   3,526
Benefit Payments   (33,767)   (50,444)   (18,387)   (17,439)
Fair Value of Plan Assets at December 31 $ 503,926 $ 451,688 $ 181,237 $ 188,690
             
Underfunded Status at December 31 $ (77,751) $ (109,294) $ (96,116) $ (78,052)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2011 and 2010

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 I&M 2011 2010 2011 2010
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (14) $ (57) $ (308) $ (313)
 Deferred Credits and Other Noncurrent Liabilities            
  Accrued Long-term Benefit Liability   (77,737)   (109,237)   (95,808)   (77,739)
 Underfunded Status $ (77,751) $ (109,294) $ (96,116) $ (78,052)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2011 and 2010

 

     Other Postretirement
I&M Pension Plans Benefit Plans
   December 31,
   2011 2010 2011 2010
Components (in thousands)
Net Actuarial Loss $ 216,107 $ 208,879 $ 121,238 $ 78,483
Prior Service Cost (Credit)   1,307   2,051   (27,491)   (2,882)
Transition Obligation   -   -   132   320
              
Recorded as            
Regulatory Assets $ 207,237 $ 199,982 $ 84,155 $ 68,098
Deferred Income Taxes   3,561   3,830   3,403   2,737
Net of Tax AOCI   6,616   7,118   6,321   5,086

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2011 and 2010 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 33,995 $ 21,372 $ 44,976 $ 8,712 $ 8,958
Amortization of Actuarial Loss   (16,570)   (14,144)   (24,828)   (6,757)   (6,759)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
  December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 14,769 $ 24,732 $ 26,308 $ (2,346) $ (6,379)
Amortization of Actuarial Loss   (11,842)   (10,065)   (18,150)   (5,188)   (5,242)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   796
Change for the Year Ended               
 December 31, 2010$ 2,010 $ 13,923 $ 6,684 $ (6,584) $ (10,825)
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 65,104 $ 46,321 $ 79,611 $ 22,147 $ 23,619
Amortization of Actuarial Loss   (5,839)   (3,566)   (7,298)   (1,553)   (1,785)
Prior Service Credit  (31,145)   (24,846)   (42,357)   (11,612)   (9,409)
Amortization of Prior Service Cost (Credit)   171   237   212   75   (258)
Amortization of Transition Obligation   (1,167)   (188)   (150)   -   -
Change for the Year Ended               
 December 31, 2011$ 27,124 $ 17,958 $ 30,018 $ 9,057 $ 12,167
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 23,876 $ 13,372 $ 31,207 $ 7,283 $ 7,570
Amortization of Actuarial Loss   (5,410)   (3,526)   (6,877)   (1,573)   (1,711)
Prior Service Credit  (4,257)   (4,273)   (6,039)   (2,408)   (2,399)
Amortization of Transition Obligation   (5,244)   (2,814)   (6,642)   (2,805)   (2,461)
Change for the Year Ended               
 December 31, 2010$ 8,965 $ 2,759 $ 11,649 $ 497 $ 999

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 

 I&M                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 170,364 $ - $ - $ - $ 170,364  33.8%
  International   46,709   -   -   -   46,709  9.3%
  Real Estate Investment Trusts   12,179   -   -   -   12,179  2.4%
  Common Collective Trust -                  
   International   -   15,043   -   -   15,043  3.0%
 Subtotal - Equities   229,252   15,043   -   -   244,295  48.5%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   3,075   -   -   3,075  0.6%
  United States Government and                  
   Agency Securities   -   66,255   -   -   66,255  13.2%
  Corporate Debt   -   115,313   747   -   116,060  23.0%
  Foreign Debt   -   22,328   -   -   22,328  4.4%
  State and Local Government   -   5,628   -   -   5,628  1.1%
  Other - Asset Backed   -   3,045   -   -   3,045  0.6%
 Subtotal - Fixed Income   -   215,644   747   -   216,391  42.9%
                    
 Real Estate   -   -   19,129   -   19,129  3.8%
                    
 Alternative Investments   -   -   18,779   -   18,779  3.7%
 Securities Lending   -   25,153   -   -   25,153  5.0%
 Securities Lending Collateral (a)   -   -   -   (27,614)   (27,614)  (5.5)%
                    
 Cash and Cash Equivalents   -   10,865   -   -   10,865  2.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   (3,072)   (3,072)  (0.6)%
                    
 Total $ 229,252 $ 266,705 $ 38,655 $ (30,686) $ 503,926  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy by Registrant Subsidiary for pension assets:

    Corporate Real Alternative Total
 I&M Debt Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2011 $ - $ 9,742 $ 15,220 $ 24,962
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   2,612   1,019   3,631
  Relating to Assets Sold During the Period   -   -   350   350
 Purchases and Sales   -   6,775   2,190   8,965
 Transfers into Level 3   747   -   -   747
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2011 $ 747 $ 19,129 $ 18,779 $ 38,655

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 I&M                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 44,707 $ - $ - $ - $ 44,707  24.7%
  International   48,897   -   -   -   48,897  27.0%
  Common Collective Trust -                  
   Global   -   12,748   -   -   12,748  7.0%
 Subtotal - Equities   93,604   12,748   -   -   106,352  58.7%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   8,898   -   -   8,898  4.9%
  United States Government and                  
   Agency Securities   -   10,386   -   -   10,386  5.7%
  Corporate Debt   -   19,558   -   -   19,558  10.8%
  Foreign Debt   -   4,146   -   -   4,146  2.3%
  State and Local Government   -   1,082   -   -   1,082  0.6%
  Other - Asset Backed   -   246   -   -   246  0.1%
 Subtotal - Fixed Income   -   44,316   -   -   44,316  24.4%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   5,943   -   -   5,943  3.3%
  United States Bonds   -   20,290   -   -   20,290  11.2%
                    
 Cash and Cash Equivalents   2,161   3,010   -   -   5,171  2.9%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   (835)   (835)  (0.5)%
                    
 Total $ 95,765 $ 86,307 $ - $ (835) $ 181,237  100.0%

(a)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 I&M                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 158,027 $ 323 $ - $ - $ 158,350  35.1%
  International   47,173   -   -   -   47,173  10.4%
  Real Estate Investment Trusts   13,152   -   -   -   13,152  2.9%
  Common Collective Trust -                  
   International   -   19,041   -   -   19,041  4.2%
 Subtotal - Equities   218,352   19,364   -   -   237,716  52.6%
                    
 Fixed Income:                  
  United States Government and                  
   Agency Securities   -   74,231   -   -   74,231  16.4%
  Corporate Debt   -   78,649   -   -   78,649  17.4%
  Foreign Debt   -   14,885   -   -   14,885  3.3%
  State and Local Government   -   2,661   -   -   2,661  0.6%
  Other - Asset Backed   -   5,987   -   -   5,987  1.3%
 Subtotal - Fixed Income   -   176,413   -   -   176,413  39.0%
                    
 Real Estate   -   -   9,742   -   9,742  2.2%
                    
 Alternative Investments   -   -   15,220   -   15,220  3.4%
 Securities Lending   -   29,773   -   -   29,773  6.6%
 Securities Lending Collateral (a)   -   -   -   (32,292)   (32,292)  (7.1)%
                    
 Cash and Cash Equivalents (b)   -   14,859   -   186   15,045  3.3%
 Other - Pending Transactions and                  
  Accrued Income (c)   -   -   -   71   71  -%
                    
 Total $ 218,352 $ 240,409 $ 24,962 $ (32,035) $ 451,688  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent foreign currency holdings.

(c)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of real estate and alternative investments classified as Level 3 in the fair value hierarchy for pension assets by Registrant Subsidiary:

 

      Alternative Total
 I&M Real Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2010 $ 10,094 $ 11,786 $ 21,880
 Actual Return on Plan Assets         
  Relating to Assets Still Held as of the Reporting Date   (352)   556   204
  Relating to Assets Sold During the Period   -   181   181
 Purchases and Sales   -   2,697   2,697
 Transfers into Level 3   -   -   -
 Transfers out of Level 3   -   -   -
 Balance as of December 31, 2010 $ 9,742 $ 15,220 $ 24,962

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 

 I&M                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 75,446 $ - $ - $ - $ 75,446  40.0%
  International   28,479   -   -   -   28,479  15.1%
  Common Collective Trust -                  
   Global   -   14,825   -   -   14,825  7.9%
 Subtotal - Equities   103,925   14,825   -   -   118,750  63.0%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   6,166   -   -   6,166  3.3%
  United States Government and                  
   Agency Securities   -   12,103   -   -   12,103  6.4%
  Corporate Debt   -   14,215   -   -   14,215  7.5%
  Foreign Debt   -   3,204   -   -   3,204  1.7%
  State and Local Government   -   452   -   -   452  0.2%
  Other - Asset Backed   -   122   -   -   122  0.1%
 Subtotal - Fixed Income   -   36,262   -   -   36,262  19.2%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   6,338   -   -   6,338  3.3%
  United States Bonds   -   21,000   -   -   21,000  11.1%
                    
 Cash and Cash Equivalents (a)   2,649   3,234   -   111   5,994  3.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   346   346  0.2%
                    
 Total $ 106,574 $ 81,659 $ - $ 457 $ 188,690  100.0%

(a)       Amounts in "Other" column primarily represent foreign currency holdings.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

Determination of Pension Expense

 

The determination of pension expense or income is based on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 672,967 $ 569,855 $ 1,005,608 $ 269,230 $ 269,809
Nonqualified Pension Plans   234   168   821   1,368   1,223
Total as of December 31, 2011 $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
                
Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 646,513 $ 551,702 $ 973,802 $ 261,535 $ 260,838
Nonqualified Pension Plans   221   994   799   1,326   1,133
Total as of December 31, 2010 $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971

For the underfunded pension plans that had an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets of these plans at December 31, 2011 and 2010 were as follows:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 681,450 $ 581,677 $ 1,020,890 $ 277,448 $ 277,594
                 
Accumulated Benefit Obligation $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
Fair Value of Plan Assets   570,756   503,926   925,939   245,769   255,861
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2011 $ (102,445) $ (66,097) $ (80,490) $ (24,829) $ (15,171)
                 
  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 652,219 $ 560,982 $ 984,089 $ 268,180 $ 267,206
                 
Accumulated Benefit Obligation $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971
Fair Value of Plan Assets   512,836   451,688   799,281   213,576   224,618
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2010 $ (133,898) $ (101,008) $ (175,320) $ (49,285) $ (37,353)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments for the unfunded plan and contributions to the trust are at least the minimum amount required by the Employee Retirement Income Security Act plus payment of unfunded nonqualified benefits. For the qualified pension plan, additional discretionary contributions may be made to the trust to maintain the funded status of the plan. The contributions to the OPEB plans are generally based on the amount of the OPEB plans' periodic benefit costs for accounting purposes as provided in agreements with state regulatory authorities, plus the additional discretionary contribution of the Medicare subsidy receipts. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2012:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 33,442 $ 16,775
 I&M   23,938   13,465
 OPCo   39,095   19,705
 PSO   11,612   5,982
 SWEPCo   9,089   7,089

The tables below reflect the total benefits expected to be paid from the plan or from the Registrant Subsidiary's assets. The payments include the participants' contributions to the plan for their share of the cost. In December 2011, the prescription drug plan was amended for certain participants. The impact of the change is reflected in the Benefit Plan Obligation table as a plan amendment. As a result of this amendment to the plan, the Medicare subsidy receipts in the following table are reduced from prior published estimates. Future benefit payments are dependent on the number of employees retiring, whether the retiring employees elect to receive pension benefits as annuities or as lump sum distributions, future integration of the benefit plans with changes to Medicare and other legislation, future levels of interest rates and variances in actuarial results. The estimated payments for the pension benefits and OPEB are as follows:

 

Pension Plans APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 44,506 $ 34,963 $ 69,978 $ 19,989 $ 19,329
2013   45,202   35,686   72,422   20,472   20,281
2014   47,192   37,289   76,712   22,199   22,080
2015   46,327   37,831   75,063   22,020   22,288
2016   48,178   39,781   75,042   21,847   22,331
Years 2017 to 2021, in Total   248,647   213,381   371,555   113,723   115,691
                
Other Postretirement Benefit Plans: Benefit Payments APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 27,515 $ 17,849 $ 36,517 $ 7,833 $ 8,302
2013   27,741   18,289   36,412   8,120   8,628
2014   28,782   19,085   37,271   8,438   9,179
2015   29,668   20,117   38,306   8,934   9,598
2016   30,657   21,358   39,774   9,467   10,214
Years 2017 to 2021, in Total   168,810   123,258   218,695   54,491   61,146
                
Other Postretirement Benefit Plans: Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 1,777 $ 1,096 $ 2,276 $ 618 $ 586
2013   272   28   43   -   -
2014   287   27   48   -   -
2015   298   26   59   -   -
2016   307   26   67   -   -
Years 2017 to 2021, in Total   1,578   110   536   -   -

Components of Net Periodic Benefit Cost

 

The following tables provide the components of net periodic benefit cost by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

      Other Postretirement
 I&M Pension Plans Benefit Plans
    Years Ended December 31,
    2011 2010 2009 2011 2010 2009
    (in thousands)
 Service Cost $ 9,447 $ 15,284 $ 14,002 $ 6,119 $ 6,750 $ 5,990
 Interest Cost   27,726   29,085   28,520   13,610   14,164   13,675
 Expected Return on Plan Assets   (36,856)   (35,040)   (35,733)   (13,886)   (13,397)   (10,259)
 Amortization of Transition Obligation   -   -   -   188   2,814   2,814
 Amortization of Prior Service Cost (Credit)   744   744   744   (237)   -   -
 Amortization of Net Actuarial Loss   14,144   10,065   6,406   3,566   3,526   5,213
 Net Periodic Benefit Cost   15,205   20,138   13,939   9,360   13,857   17,433
 Capitalized Portion   (3,163)   (4,028)   (2,732)   (1,947)   (2,771)   (3,417)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 12,042 $ 16,110 $ 11,207 $ 7,413 $ 11,086 $ 14,016

Estimated amounts expected to be amortized to net periodic benefit costs and the impact on each Registrant Subsidiary's balance sheet during 2012 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 19,816 $ 16,915 $ 29,690 $ 8,074 $ 8,077
Prior Service Cost (Credit)   475   407   743   (948)   (793)
Total Estimated 2012 Amortization$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 20,190 $ 16,303 $ 16,299 $ 7,126 $ 7,284
Deferred Income Taxes   35   357   4,947   -   -
Net of Tax AOCI   66   662   9,187   -   -
Total$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 10,671 $ 7,325 $ 13,951 $ 3,296 $ 3,822
Prior Service Credit   (2,862)   (2,383)   (3,873)   (1,079)   (933)
Transition Obligation   780   132   104   -   -
Total Estimated 2012 Amortization$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 3,049 $ 4,400 $ 4,565 $ 2,217 $ 1,804
Deferred Income Taxes   1,939   236   1,966   -   380
Net of Tax AOCI   3,601   438   3,651   -   705
Total$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889

American Electric Power System Retirement Savings Plans

 

The Registrant Subsidiaries participate in an AEP sponsored defined contribution retirement savings plan, the American Electric Power System Retirement Savings Plan, for substantially all employees who are not members of the United Mine Workers of America (UMWA). This qualified plan offers participants an opportunity to contribute a portion of their pay, includes features under Section 401(k) of the Internal Revenue Code and provides for company matching contributions. The matching contributions to the plan are 100% of the first 1% of eligible employee contributions and 70% of the next 5% of contributions.

 

The following table provides the cost for matching contributions to the retirement savings plans by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

    Years Ended December 31,
 Company 2011 2010 2009
    (in thousands)
 APCo $ 7,432 $ 7,284 $ 8,673
 I&M   9,541   8,969   10,315
 OPCo   10,166   9,706   11,640
 PSO   3,626   3,505   4,083
 SWEPCo   4,438   3,866   5,269

UMWA Benefits

 

APCo, I&M and OPCo provide UMWA pension, health and welfare benefits for certain unionized mining employees, retirees and their survivors who meet eligibility requirements. UMWA trustees make final interpretive determinations with regard to all benefits. The pension benefits are administered by UMWA trustees and contributions are made to their trust funds. APCo, I&M and OPCo administer the health and welfare benefits and pay them from their general assets.

 

The UMWA pension benefits are administered through a multiemployer plan that is different from single-employer plans as an employer's contributions may be used to provide benefits to employees of other participating employers. Required contributions not made by an employer may result in other employers bearing the unfunded plan obligations, while a withdrawing employer may be subject to a withdrawal liability. UMWA pension benefits are provided through the United Mine Workers of America 1974 Pension Plan (Employer Identification Number: 52-1050282, Plan Number 002), which under the Pension Protection Act of 2006 (PPA) was in Seriously Endangered Status for the plan years ending June 30, 2011 and 2010, without utilization of extended amortization provisions. The Plan is required under the PPA to adopt a funding improvement plan by May 25, 2012. Contributions in 2011, 2010 and 2009, which were made under a collective bargaining agreement that expires December 31, 2012, were immaterial and represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2011, 2010 and 2009. Contributions did not include a surcharge, and there are no minimum contributions for future years.

 
Ohio Power Co [Member]
  
Benefit Plans [Abstract]  
Benefit Plans

7. BENEFIT PLANS

 

For a discussion of investment strategy, investment limitations, target asset allocations and the classification of investments within the fair value hierarchy, see “Investments Held in Trust for Future Liabilities” and “Fair Value Measurements of Assets and Liabilities” sections of Note 1.

 

The Registrant Subsidiaries participate in an AEP sponsored qualified pension plan and two unfunded nonqualified pension plans. Substantially all employees are covered by the qualified plan or both the qualified and a nonqualified pension plan. The Registrant Subsidiaries also participate in OPEB plans sponsored by AEP to provide medical and life insurance benefits for retired employees.

 

Due to the Registrant Subsidiaries' participation in AEP's benefits plans, the assumptions used by the actuary and the accounting for the plans by each subsidiary are the same. This section details the assumptions that apply to all Registrant Subsidiaries and the rate of compensation increase for each subsidiary.

 

The Registrant Subsidiaries recognize the funded status associated with defined benefit pension and OPEB plans in their balance sheets. Disclosures about the plans are required by the “Compensation – Retirement Benefits” accounting guidance. The Registrant Subsidiaries recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status, and recognize, as a component of other comprehensive income, 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. The Registrant Subsidiaries record a regulatory asset instead of other comprehensive income for qualifying benefit costs of regulated operations that for ratemaking purposes are deferred for future recovery. The cumulative funded status adjustment is equal to the remaining unrecognized deferrals for unamortized actuarial losses or gains, prior service costs and transition obligations, such that remaining deferred costs result in an AOCI equity reduction or regulatory asset and deferred gains result in an AOCI equity addition or regulatory liability.

Actuarial Assumptions for Benefit Obligations

 

The weighted-average assumptions as of December 31 of each year used in the measurement of the Registrant Subsidiaries' benefit obligations are shown in the following tables:

     Other Postretirement
  Pension Plans  Benefit Plans
Assumption 2011 2010  2011 2010
Discount Rate  4.55%  5.05%   4.75%  5.25%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2011 2010
 APCo  4.65%  4.70%
 I&M  4.90%  4.90%
 OPCo  4.95%  5.05%
 PSO  4.85%  4.95%
 SWEPCo  4.70%  4.80%

(a)       Rates are for base pay only. In addition, an amount is added to reflect target incentive compensation for exempt employees and overtime and incentive pay for nonexempt employees.

 

A duration-based method is used to determine the discount rate for the plans. A hypothetical portfolio of high quality corporate bonds similar to those included in the Moody's Aa bond index is constructed with a duration matching the benefit plan liability. The composite yield on the hypothetical bond portfolio is used as the discount rate for the plan. The discount rate is the same for each Registrant Subsidiary.

 

For 2011, the rate of compensation increase assumed varies with the age of the employee, ranging from 3.5% per year to 11.5% per year, with the average increase shown in the table above. The compensation increase rates reflect variations in each Registrant Subsidiary's population participating in the pension plan.

Actuarial Assumptions for Net Periodic Benefit Costs

 

The weighted-average assumptions as of January 1 of each year used in the measurement of each Registrant Subsidiary's benefit costs are shown in the following tables:

      Other Postretirement
    Pension Plans Benefit Plans
 Assumptions 2011 2010 2009 2011 2010 2009
 Discount Rate  5.05%  5.60%  6.00%  5.25%  5.85%  6.10%
 Expected Return on Plan Assets  7.75%  8.00%  8.00%  7.50%  8.00%  7.75%

   Pension Plans
 Assumption - Rate of Compensation Increase 2011 2010 2009
 APCo  4.65%  4.35%  5.65%
 I&M  4.90%  4.55%  5.85%
 OPCo  4.95%  4.70%  6.00%
 PSO  4.85%  4.60%  5.90%
 SWEPCo  4.70%  4.45%  5.75%

The expected return on plan assets was determined by evaluating historical returns, the current investment climate (yield on fixed income securities and other recent investment market indicators), rate of inflation and current prospects for economic growth. The expected return on plan assets is the same for each Registrant Subsidiary.

 

The health care trend rate assumptions as of January 1 of each year used for OPEB plans measurement purposes are shown below:

 Health Care Trend Rates 2011 2010
 Initial  7.50%  8.00%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2016 2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the OPEB health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Effect on Total Service and Interest Cost               
 Components of Net Periodic Postretirement               
 Health Care Benefit Cost:               
  1% Increase $ 3,806 $ 2,972 $ 5,188 $ 1,300 $ 1,500
  1% Decrease   (3,015)   (2,367)   (4,110)   (1,036)   (1,195)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 50,216 $ 33,657 $ 65,251 $ 15,088 $ 17,499
  1% Decrease   (40,748)   (27,448)   (53,015)   (12,314)   (14,281)

Significant Concentrations of Risk within Plan Assets

 

In addition to establishing the target asset allocation of plan assets, the investment policy also places restrictions on securities to limit significant concentrations within plan assets. The investment policy establishes guidelines that govern maximum market exposure, security restrictions, prohibited asset classes, prohibited types of transactions, minimum credit quality, average portfolio credit quality, portfolio duration and concentration limits. The guidelines were established to mitigate the risk of loss due to significant concentrations in any investment. Management monitors the plans to control security diversification and ensure compliance with the investment policy. At December 31, 2011, the assets were invested in compliance with all investment limits. See “Investments Held in Trust for Future Liabilities” section of Note 1 for limit details.

Benefit Plan Obligations, Plan Assets and Funded Status as of December 31, 2011 and 2010

 

The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of plan assets and funded status as of December 31. The benefit obligation for the defined benefit pension and OPEB plans are the projected benefit obligation and the accumulated benefit obligation, respectively.

OPCo   Other Postretirement
  Pension Plans Benefit Plans
  2011 2010 2011 2010
Change in Benefit Obligation (in thousands)
Benefit Obligation at January 1 $ 984,089 $ 981,481 $ 506,255 $ 457,872
Service Cost   10,230   17,254   7,827   8,187
Interest Cost   48,350   51,900   25,497   26,498
Actuarial Loss   42,693   31,409   49,132   45,633
Plan Amendment Prior Service Credit   -   -   (42,357)   (6,039)
Curtailment   -   -   605   -
Benefit Payments   (64,472)   (97,955)   (38,347)   (35,673)
Participant Contributions   -   -   8,828   7,253
Medicare Subsidy   -   -   2,452   2,524
Benefit Obligation at December 31 $ 1,020,890 $ 984,089 $ 519,892 $ 506,255
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets at January 1 $ 799,281 $ 756,768 $ 333,198 $ 299,551
Actual Gain (Loss) on Plan Assets   63,181   81,765   (6,589)   38,466
Company Contributions   127,949   58,703   14,746   23,601
Participant Contributions   -   -   8,828   7,253
Benefit Payments   (64,472)   (97,955)   (38,347)   (35,673)
Fair Value of Plan Assets at December 31 $ 925,939 $ 799,281 $ 311,836 $ 333,198
             
Underfunded Status at December 31 $ (94,951) $ (184,808) $ (208,056) $ (173,057)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2011 and 2010

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 OPCo 2011 2010 2011 2010
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (62) $ (59) $ (991) $ (667)
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (94,889)   (184,749)   (207,065)   (172,390)
 Underfunded Status $ (94,951) $ (184,808) $ (208,056) $ (173,057)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2011 and 2010

 

     Other Postretirement
OPCo Pension Plans Benefit Plans
   December 31,
   2011 2010 2011 2010
Components (in thousands)
Net Actuarial Loss $ 517,180 $ 497,032 $ 231,189 $ 158,876
Prior Service Cost (Credit)   2,025   3,499   (44,742)   (2,597)
Transition Obligation   -   -   104   254
              
Recorded as            
Regulatory Assets $ 305,240 $ 292,702 $ 84,472 $ 71,129
Deferred Income Taxes   74,888   72,741   35,728   29,888
Net of Tax AOCI   139,077   135,088   66,351   55,516

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2011 and 2010 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 33,995 $ 21,372 $ 44,976 $ 8,712 $ 8,958
Amortization of Actuarial Loss   (16,570)   (14,144)   (24,828)   (6,757)   (6,759)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
  December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 14,769 $ 24,732 $ 26,308 $ (2,346) $ (6,379)
Amortization of Actuarial Loss   (11,842)   (10,065)   (18,150)   (5,188)   (5,242)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   796
Change for the Year Ended               
 December 31, 2010$ 2,010 $ 13,923 $ 6,684 $ (6,584) $ (10,825)
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 65,104 $ 46,321 $ 79,611 $ 22,147 $ 23,619
Amortization of Actuarial Loss   (5,839)   (3,566)   (7,298)   (1,553)   (1,785)
Prior Service Credit  (31,145)   (24,846)   (42,357)   (11,612)   (9,409)
Amortization of Prior Service Cost (Credit)   171   237   212   75   (258)
Amortization of Transition Obligation   (1,167)   (188)   (150)   -   -
Change for the Year Ended               
 December 31, 2011$ 27,124 $ 17,958 $ 30,018 $ 9,057 $ 12,167
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 23,876 $ 13,372 $ 31,207 $ 7,283 $ 7,570
Amortization of Actuarial Loss   (5,410)   (3,526)   (6,877)   (1,573)   (1,711)
Prior Service Credit  (4,257)   (4,273)   (6,039)   (2,408)   (2,399)
Amortization of Transition Obligation   (5,244)   (2,814)   (6,642)   (2,805)   (2,461)
Change for the Year Ended               
 December 31, 2010$ 8,965 $ 2,759 $ 11,649 $ 497 $ 999

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 

 OPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 313,034 $ - $ - $ - $ 313,034  33.8%
  International   85,825   -   -   -   85,825  9.3%
  Real Estate Investment Trusts   22,379   -   -   -   22,379  2.4%
  Common Collective Trust -                  
   International   -   27,641   -   -   27,641  3.0%
 Subtotal - Equities   421,238   27,641   -   -   448,879  48.5%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   5,650   -   -   5,650  0.6%
  United States Government and                  
   Agency Securities   -   121,741   -   -   121,741  13.2%
  Corporate Debt   -   211,883   1,372   -   213,255  23.0%
  Foreign Debt   -   41,027   -   -   41,027  4.4%
  State and Local Government   -   10,341   -   -   10,341  1.1%
  Other - Asset Backed   -   5,595   -   -   5,595  0.6%
 Subtotal - Fixed Income   -   396,237   1,372   -   397,609  42.9%
                    
 Real Estate   -   -   35,148   -   35,148  3.8%
                    
 Alternative Investments   -   -   34,505   -   34,505  3.7%
 Securities Lending   -   46,217   -   -   46,217  5.0%
 Securities Lending Collateral (a)   -   -   -   (50,739)   (50,739)  (5.5)%
                    
 Cash and Cash Equivalents   -   19,964   -   -   19,964  2.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   (5,644)   (5,644)  (0.6)%
                    
 Total $ 421,238 $ 490,059 $ 71,025 $ (56,383) $ 925,939  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy by Registrant Subsidiary for pension assets:

    Corporate   Alternative Total
 OPCo Debt Real Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2011 $ - $ 17,239 $ 26,933 $ 44,172
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   4,985   2,167   7,152
  Relating to Assets Sold During the Period   -   -   744   744
 Purchases and Sales   -   12,924   4,661   17,585
 Transfers into Level 3   1,372   -   -   1,372
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2011 $ 1,372 $ 35,148 $ 34,505 $ 71,025

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 OPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 76,921 $ - $ - $ - $ 76,921  24.7%
  International   84,133   -   -   -   84,133  27.0%
  Common Collective Trust -                  
   Global   -   21,934   -   -   21,934  7.0%
    Subtotal Equities   161,054   21,934   -   -   182,988  58.7%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   15,310   -   -   15,310  4.9%
  United States Government and                  
   Agency Securities   -   17,870   -   -   17,870  5.7%
  Corporate Debt   -   33,652   -   -   33,652  10.8%
  Foreign Debt   -   7,134   -   -   7,134  2.3%
  State and Local Government   -   1,861   -   -   1,861  0.6%
  Other - Asset Backed   -   424   -   -   424  0.1%
    Subtotal Fixed Income   -   76,251   -   -   76,251  24.4%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   10,225   -   -   10,225  3.3%
  United States Bonds   -   34,910   -   -   34,910  11.2%
                    
 Cash and Cash Equivalents   3,718   5,180   -   -   8,898  2.9%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   (1,436)   (1,436)  (0.5)%
                    
 Total $ 164,772 $ 148,500 $ - $ (1,436) $ 311,836  100.0%

(a)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 OPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 279,635 $ 571 $ - $ - $ 280,206  35.1%
  International   83,473   -   -   -   83,473  10.4%
  Real Estate Investment Trusts   23,273   -   -   -   23,273  2.9%
  Common Collective Trust -                  
   International   -   33,695   -   -   33,695  4.2%
 Subtotal - Equities   386,381   34,266   -   -   420,647  52.6%
                    
 Fixed Income:                  
  United States Government and                  
   Agency Securities   -   131,355   -   -   131,355  16.4%
  Corporate Debt   -   139,172   -   -   139,172  17.4%
  Foreign Debt   -   26,340   -   -   26,340  3.3%
  State and Local Government   -   4,708   -   -   4,708  0.6%
  Other - Asset Backed   -   10,594   -   -   10,594  1.3%
 Subtotal - Fixed Income   -   312,169   -   -   312,169  39.0%
                    
 Real Estate   -   -   17,239   -   17,239  2.2%
                    
 Alternative Investments   -   -   26,933   -   26,933  3.4%
 Securities Lending   -   52,686   -   -   52,686  6.6%
 Securities Lending Collateral (a)   -   -   -   (57,142)   (57,142)  (7.1)%
                    
 Cash and Cash Equivalents (b)   -   26,293   -   330   26,623  3.3%
 Other - Pending Transactions and                  
  Accrued Income (c)   -   -   -   126   126  -%
                    
 Total $ 386,381 $ 425,414 $ 44,172 $ (56,686) $ 799,281  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent foreign currency holdings.

(c)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of real estate and alternative investments classified as Level 3 in the fair value hierarchy for pension assets by Registrant Subsidiary:

 

      Alternative Total
 OPCo Real Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2010 $ 20,125 $ 23,498 $ 43,623
 Actual Return on Plan Assets         
  Relating to Assets Still Held as of the Reporting Date   (2,886)   557   (2,329)
  Relating to Assets Sold During the Period   -   181   181
 Purchases and Sales   -   2,697   2,697
 Transfers into Level 3   -   -   -
 Transfers out of Level 3   -   -   -
 Balance as of December 31, 2010 $ 17,239 $ 26,933 $ 44,172

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 

 OPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 133,225 $ - $ - $ - $ 133,225  40.0%
  International   50,290   -   -   -   50,290  15.1%
  Common Collective Trust -                  
   Global   -   26,179   -   -   26,179  7.9%
 Subtotal - Equities   183,515   26,179   -   -   209,694  63.0%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   10,889   -   -   10,889  3.3%
  United States Government and                  
   Agency Securities   -   21,372   -   -   21,372  6.4%
  Corporate Debt   -   25,102   -   -   25,102  7.5%
  Foreign Debt   -   5,658   -   -   5,658  1.7%
  State and Local Government   -   797   -   -   797  0.2%
  Other - Asset Backed   -   216   -   -   216  0.1%
 Subtotal - Fixed Income   -   64,034   -   -   64,034  19.2%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   11,192   -   -   11,192  3.3%
  United States Bonds   -   37,082   -   -   37,082  11.1%
                    
 Cash and Cash Equivalents (a)   4,678   5,712   -   195   10,585  3.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   611   611  0.2%
                    
 Total $ 188,193 $ 144,199 $ - $ 806 $ 333,198  100.0%

(a)       Amounts in "Other" column primarily represent foreign currency holdings.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

Determination of Pension Expense

 

The determination of pension expense or income is based on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 672,967 $ 569,855 $ 1,005,608 $ 269,230 $ 269,809
Nonqualified Pension Plans   234   168   821   1,368   1,223
Total as of December 31, 2011 $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
                
Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 646,513 $ 551,702 $ 973,802 $ 261,535 $ 260,838
Nonqualified Pension Plans   221   994   799   1,326   1,133
Total as of December 31, 2010 $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971

For the underfunded pension plans that had an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets of these plans at December 31, 2011 and 2010 were as follows:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 681,450 $ 581,677 $ 1,020,890 $ 277,448 $ 277,594
                 
Accumulated Benefit Obligation $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
Fair Value of Plan Assets   570,756   503,926   925,939   245,769   255,861
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2011 $ (102,445) $ (66,097) $ (80,490) $ (24,829) $ (15,171)
                 
  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 652,219 $ 560,982 $ 984,089 $ 268,180 $ 267,206
                 
Accumulated Benefit Obligation $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971
Fair Value of Plan Assets   512,836   451,688   799,281   213,576   224,618
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2010 $ (133,898) $ (101,008) $ (175,320) $ (49,285) $ (37,353)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments for the unfunded plan and contributions to the trust are at least the minimum amount required by the Employee Retirement Income Security Act plus payment of unfunded nonqualified benefits. For the qualified pension plan, additional discretionary contributions may be made to the trust to maintain the funded status of the plan. The contributions to the OPEB plans are generally based on the amount of the OPEB plans' periodic benefit costs for accounting purposes as provided in agreements with state regulatory authorities, plus the additional discretionary contribution of the Medicare subsidy receipts. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2012:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 33,442 $ 16,775
 I&M   23,938   13,465
 OPCo   39,095   19,705
 PSO   11,612   5,982
 SWEPCo   9,089   7,089

The tables below reflect the total benefits expected to be paid from the plan or from the Registrant Subsidiary's assets. The payments include the participants' contributions to the plan for their share of the cost. In December 2011, the prescription drug plan was amended for certain participants. The impact of the change is reflected in the Benefit Plan Obligation table as a plan amendment. As a result of this amendment to the plan, the Medicare subsidy receipts in the following table are reduced from prior published estimates. Future benefit payments are dependent on the number of employees retiring, whether the retiring employees elect to receive pension benefits as annuities or as lump sum distributions, future integration of the benefit plans with changes to Medicare and other legislation, future levels of interest rates and variances in actuarial results. The estimated payments for the pension benefits and OPEB are as follows:

 

Pension Plans APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 44,506 $ 34,963 $ 69,978 $ 19,989 $ 19,329
2013   45,202   35,686   72,422   20,472   20,281
2014   47,192   37,289   76,712   22,199   22,080
2015   46,327   37,831   75,063   22,020   22,288
2016   48,178   39,781   75,042   21,847   22,331
Years 2017 to 2021, in Total   248,647   213,381   371,555   113,723   115,691
                
Other Postretirement Benefit Plans: Benefit Payments APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 27,515 $ 17,849 $ 36,517 $ 7,833 $ 8,302
2013   27,741   18,289   36,412   8,120   8,628
2014   28,782   19,085   37,271   8,438   9,179
2015   29,668   20,117   38,306   8,934   9,598
2016   30,657   21,358   39,774   9,467   10,214
Years 2017 to 2021, in Total   168,810   123,258   218,695   54,491   61,146
                
Other Postretirement Benefit Plans: Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 1,777 $ 1,096 $ 2,276 $ 618 $ 586
2013   272   28   43   -   -
2014   287   27   48   -   -
2015   298   26   59   -   -
2016   307   26   67   -   -
Years 2017 to 2021, in Total   1,578   110   536   -   -

Components of Net Periodic Benefit Cost

 

The following tables provide the components of net periodic benefit cost by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

      Other Postretirement
 OPCo Pension Plans Benefit Plans
    Years Ended December 31,
    2011 2010 2009 2011 2010 2009
    (in thousands)
 Service Cost $ 10,230 $ 17,254 $ 16,538 $ 7,827 $ 8,187 $ 7,347
 Interest Cost   48,350   51,900   52,629   25,497   26,498   25,818
 Expected Return on Plan Assets   (65,464)   (69,077)   (71,554)   (24,514)   (24,092)   (18,685)
 Curtailment   -   -   -   605   -   -
 Amortization of Transition Obligation   -   -   -   150   6,642   6,643
 Amortization of Prior Service Cost (Credit)   1,474   1,474   1,475   (212)   -   -
 Amortization of Net Actuarial Loss   24,828   18,150   11,931   7,298   6,877   9,988
 Net Periodic Benefit Cost   19,418   19,701   11,019   16,651   24,112   31,111
 Capitalized Portion   (6,932)   (6,843)   (3,901)   (5,944)   (8,334)   (10,913)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 12,486 $ 12,858 $ 7,118 $ 10,707 $ 15,778 $ 20,198

Estimated amounts expected to be amortized to net periodic benefit costs and the impact on each Registrant Subsidiary's balance sheet during 2012 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 19,816 $ 16,915 $ 29,690 $ 8,074 $ 8,077
Prior Service Cost (Credit)   475   407   743   (948)   (793)
Total Estimated 2012 Amortization$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 20,190 $ 16,303 $ 16,299 $ 7,126 $ 7,284
Deferred Income Taxes   35   357   4,947   -   -
Net of Tax AOCI   66   662   9,187   -   -
Total$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 10,671 $ 7,325 $ 13,951 $ 3,296 $ 3,822
Prior Service Credit   (2,862)   (2,383)   (3,873)   (1,079)   (933)
Transition Obligation   780   132   104   -   -
Total Estimated 2012 Amortization$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 3,049 $ 4,400 $ 4,565 $ 2,217 $ 1,804
Deferred Income Taxes   1,939   236   1,966   -   380
Net of Tax AOCI   3,601   438   3,651   -   705
Total$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889

American Electric Power System Retirement Savings Plans

 

The Registrant Subsidiaries participate in an AEP sponsored defined contribution retirement savings plan, the American Electric Power System Retirement Savings Plan, for substantially all employees who are not members of the United Mine Workers of America (UMWA). This qualified plan offers participants an opportunity to contribute a portion of their pay, includes features under Section 401(k) of the Internal Revenue Code and provides for company matching contributions. The matching contributions to the plan are 100% of the first 1% of eligible employee contributions and 70% of the next 5% of contributions.

 

The following table provides the cost for matching contributions to the retirement savings plans by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

    Years Ended December 31,
 Company 2011 2010 2009
    (in thousands)
 APCo $ 7,432 $ 7,284 $ 8,673
 I&M   9,541   8,969   10,315
 OPCo   10,166   9,706   11,640
 PSO   3,626   3,505   4,083
 SWEPCo   4,438   3,866   5,269

UMWA Benefits

 

APCo, I&M and OPCo provide UMWA pension, health and welfare benefits for certain unionized mining employees, retirees and their survivors who meet eligibility requirements. UMWA trustees make final interpretive determinations with regard to all benefits. The pension benefits are administered by UMWA trustees and contributions are made to their trust funds. APCo, I&M and OPCo administer the health and welfare benefits and pay them from their general assets.

 

The UMWA pension benefits are administered through a multiemployer plan that is different from single-employer plans as an employer's contributions may be used to provide benefits to employees of other participating employers. Required contributions not made by an employer may result in other employers bearing the unfunded plan obligations, while a withdrawing employer may be subject to a withdrawal liability. UMWA pension benefits are provided through the United Mine Workers of America 1974 Pension Plan (Employer Identification Number: 52-1050282, Plan Number 002), which under the Pension Protection Act of 2006 (PPA) was in Seriously Endangered Status for the plan years ending June 30, 2011 and 2010, without utilization of extended amortization provisions. The Plan is required under the PPA to adopt a funding improvement plan by May 25, 2012. Contributions in 2011, 2010 and 2009, which were made under a collective bargaining agreement that expires December 31, 2012, were immaterial and represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2011, 2010 and 2009. Contributions did not include a surcharge, and there are no minimum contributions for future years.

 
Public Service Co Of Oklahoma [Member]
  
Benefit Plans [Abstract]  
Benefit Plans

7. BENEFIT PLANS

 

For a discussion of investment strategy, investment limitations, target asset allocations and the classification of investments within the fair value hierarchy, see “Investments Held in Trust for Future Liabilities” and “Fair Value Measurements of Assets and Liabilities” sections of Note 1.

 

The Registrant Subsidiaries participate in an AEP sponsored qualified pension plan and two unfunded nonqualified pension plans. Substantially all employees are covered by the qualified plan or both the qualified and a nonqualified pension plan. The Registrant Subsidiaries also participate in OPEB plans sponsored by AEP to provide medical and life insurance benefits for retired employees.

 

Due to the Registrant Subsidiaries' participation in AEP's benefits plans, the assumptions used by the actuary and the accounting for the plans by each subsidiary are the same. This section details the assumptions that apply to all Registrant Subsidiaries and the rate of compensation increase for each subsidiary.

 

The Registrant Subsidiaries recognize the funded status associated with defined benefit pension and OPEB plans in their balance sheets. Disclosures about the plans are required by the “Compensation – Retirement Benefits” accounting guidance. The Registrant Subsidiaries recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status, and recognize, as a component of other comprehensive income, 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. The Registrant Subsidiaries record a regulatory asset instead of other comprehensive income for qualifying benefit costs of regulated operations that for ratemaking purposes are deferred for future recovery. The cumulative funded status adjustment is equal to the remaining unrecognized deferrals for unamortized actuarial losses or gains, prior service costs and transition obligations, such that remaining deferred costs result in an AOCI equity reduction or regulatory asset and deferred gains result in an AOCI equity addition or regulatory liability.

Actuarial Assumptions for Benefit Obligations

 

The weighted-average assumptions as of December 31 of each year used in the measurement of the Registrant Subsidiaries' benefit obligations are shown in the following tables:

     Other Postretirement
  Pension Plans  Benefit Plans
Assumption 2011 2010  2011 2010
Discount Rate  4.55%  5.05%   4.75%  5.25%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2011 2010
 APCo  4.65%  4.70%
 I&M  4.90%  4.90%
 OPCo  4.95%  5.05%
 PSO  4.85%  4.95%
 SWEPCo  4.70%  4.80%

(a)       Rates are for base pay only. In addition, an amount is added to reflect target incentive compensation for exempt employees and overtime and incentive pay for nonexempt employees.

 

A duration-based method is used to determine the discount rate for the plans. A hypothetical portfolio of high quality corporate bonds similar to those included in the Moody's Aa bond index is constructed with a duration matching the benefit plan liability. The composite yield on the hypothetical bond portfolio is used as the discount rate for the plan. The discount rate is the same for each Registrant Subsidiary.

 

For 2011, the rate of compensation increase assumed varies with the age of the employee, ranging from 3.5% per year to 11.5% per year, with the average increase shown in the table above. The compensation increase rates reflect variations in each Registrant Subsidiary's population participating in the pension plan.

Actuarial Assumptions for Net Periodic Benefit Costs

 

The weighted-average assumptions as of January 1 of each year used in the measurement of each Registrant Subsidiary's benefit costs are shown in the following tables:

      Other Postretirement
    Pension Plans Benefit Plans
 Assumptions 2011 2010 2009 2011 2010 2009
 Discount Rate  5.05%  5.60%  6.00%  5.25%  5.85%  6.10%
 Expected Return on Plan Assets  7.75%  8.00%  8.00%  7.50%  8.00%  7.75%

   Pension Plans
 Assumption - Rate of Compensation Increase 2011 2010 2009
 APCo  4.65%  4.35%  5.65%
 I&M  4.90%  4.55%  5.85%
 OPCo  4.95%  4.70%  6.00%
 PSO  4.85%  4.60%  5.90%
 SWEPCo  4.70%  4.45%  5.75%

The expected return on plan assets was determined by evaluating historical returns, the current investment climate (yield on fixed income securities and other recent investment market indicators), rate of inflation and current prospects for economic growth. The expected return on plan assets is the same for each Registrant Subsidiary.

 

The health care trend rate assumptions as of January 1 of each year used for OPEB plans measurement purposes are shown below:

 Health Care Trend Rates 2011 2010
 Initial  7.50%  8.00%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2016 2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the OPEB health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Effect on Total Service and Interest Cost               
 Components of Net Periodic Postretirement               
 Health Care Benefit Cost:               
  1% Increase $ 3,806 $ 2,972 $ 5,188 $ 1,300 $ 1,500
  1% Decrease   (3,015)   (2,367)   (4,110)   (1,036)   (1,195)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 50,216 $ 33,657 $ 65,251 $ 15,088 $ 17,499
  1% Decrease   (40,748)   (27,448)   (53,015)   (12,314)   (14,281)

Significant Concentrations of Risk within Plan Assets

 

In addition to establishing the target asset allocation of plan assets, the investment policy also places restrictions on securities to limit significant concentrations within plan assets. The investment policy establishes guidelines that govern maximum market exposure, security restrictions, prohibited asset classes, prohibited types of transactions, minimum credit quality, average portfolio credit quality, portfolio duration and concentration limits. The guidelines were established to mitigate the risk of loss due to significant concentrations in any investment. Management monitors the plans to control security diversification and ensure compliance with the investment policy. At December 31, 2011, the assets were invested in compliance with all investment limits. See “Investments Held in Trust for Future Liabilities” section of Note 1 for limit details.

Benefit Plan Obligations, Plan Assets and Funded Status as of December 31, 2011 and 2010

 

The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of plan assets and funded status as of December 31. The benefit obligation for the defined benefit pension and OPEB plans are the projected benefit obligation and the accumulated benefit obligation, respectively.

PSO   Other Postretirement
  Pension Plans Benefit Plans
  2011 2010 2011 2010
Change in Benefit Obligation (in thousands)
Benefit Obligation at January 1 $ 268,180 $ 285,592 $ 116,935 $ 108,220
Service Cost   5,760   6,052   2,621   2,815
Interest Cost   13,285   14,888   6,046   6,360
Actuarial (Gain) Loss   7,679   (1,047)   16,705   7,540
Plan Amendment Prior Service Credit   -   -   (11,612)   (2,408)
Benefit Payments   (17,456)   (37,305)   (8,110)   (8,049)
Participant Contributions   -   -   1,926   1,763
Medicare Subsidy   -   -   653   694
Benefit Obligation at December 31 $ 277,448 $ 268,180 $ 125,164 $ 116,935
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets at January 1 $ 213,576 $ 216,966 $ 83,917 $ 75,700
Actual Gain on Plan Assets   16,430   21,040   646   6,357
Company Contributions   33,219   12,875   4,711   8,146
Participant Contributions   -   -   1,926   1,763
Benefit Payments   (17,456)   (37,305)   (8,110)   (8,049)
Fair Value of Plan Assets at December 31 $ 245,769 $ 213,576 $ 83,090 $ 83,917
             
Underfunded Status at December 31 $ (31,679) $ (54,604) $ (42,074) $ (33,018)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2011 and 2010

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 PSO 2011 2010 2011 2010
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (88) $ (68) $ - $ -
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (31,591)   (54,536)   (42,074)   (33,018)
 Underfunded Status $ (31,679) $ (54,604) $ (42,074) $ (33,018)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2011 and 2010

 

     Other Postretirement
PSO Pension Plans Benefit Plans
   December 31,
   2011 2010 2011 2010
Components (in thousands)
Net Actuarial Loss $ 136,056 $ 134,101 $ 54,516 $ 33,922
Prior Service Cost (Credit)   181   (769)   (12,458)   (921)
              
Recorded as            
Regulatory Assets $ 136,237 $ 133,332 $ 42,058 $ 33,001

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2011 and 2010 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 33,995 $ 21,372 $ 44,976 $ 8,712 $ 8,958
Amortization of Actuarial Loss   (16,570)   (14,144)   (24,828)   (6,757)   (6,759)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
  December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 14,769 $ 24,732 $ 26,308 $ (2,346) $ (6,379)
Amortization of Actuarial Loss   (11,842)   (10,065)   (18,150)   (5,188)   (5,242)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   796
Change for the Year Ended               
 December 31, 2010$ 2,010 $ 13,923 $ 6,684 $ (6,584) $ (10,825)
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 65,104 $ 46,321 $ 79,611 $ 22,147 $ 23,619
Amortization of Actuarial Loss   (5,839)   (3,566)   (7,298)   (1,553)   (1,785)
Prior Service Credit  (31,145)   (24,846)   (42,357)   (11,612)   (9,409)
Amortization of Prior Service Cost (Credit)   171   237   212   75   (258)
Amortization of Transition Obligation   (1,167)   (188)   (150)   -   -
Change for the Year Ended               
 December 31, 2011$ 27,124 $ 17,958 $ 30,018 $ 9,057 $ 12,167
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 23,876 $ 13,372 $ 31,207 $ 7,283 $ 7,570
Amortization of Actuarial Loss   (5,410)   (3,526)   (6,877)   (1,573)   (1,711)
Prior Service Credit  (4,257)   (4,273)   (6,039)   (2,408)   (2,399)
Amortization of Transition Obligation   (5,244)   (2,814)   (6,642)   (2,805)   (2,461)
Change for the Year Ended               
 December 31, 2010$ 8,965 $ 2,759 $ 11,649 $ 497 $ 999

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 

 PSO                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 83,086 $ - $ - $ - $ 83,086  33.8%
  International   22,781   -   -   -   22,781  9.3%
  Real Estate Investment Trusts   5,940   -   -   -   5,940  2.4%
  Common Collective Trust -                  
   International   -   7,337   -   -   7,337  3.0%
 Subtotal - Equities   111,807   7,337   -   -   119,144  48.5%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   1,500   -   -   1,500  0.6%
  United States Government and                  
   Agency Securities   -   32,313   -   -   32,313  13.2%
  Corporate Debt   -   56,239   364   -   56,603  23.0%
  Foreign Debt   -   10,890   -   -   10,890  4.4%
  State and Local Government   -   2,745   -   -   2,745  1.1%
  Other - Asset Backed   -   1,485   -   -   1,485  0.6%
 Subtotal - Fixed Income   -   105,172   364   -   105,536  42.9%
                    
 Real Estate   -   -   9,329   -   9,329  3.8%
                    
 Alternative Investments   -   -   9,159   -   9,159  3.7%
 Securities Lending   -   12,267   -   -   12,267  5.0%
 Securities Lending Collateral (a)   -   -   -   (13,467)   (13,467)  (5.5)%
                    
 Cash and Cash Equivalents   -   5,299   -   -   5,299  2.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   (1,498)   (1,498)  (0.6)%
                    
 Total $ 111,807 $ 130,075 $ 18,852 $ (14,965) $ 245,769  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy by Registrant Subsidiary for pension assets:

    Corporate Real Alternative Total
 PSO Debt Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2011 $ - $ 4,606 $ 7,197 $ 11,803
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   1,314   561   1,875
  Relating to Assets Sold During the Period   -   -   193   193
 Purchases and Sales   -   3,409   1,208   4,617
 Transfers into Level 3   364   -   -   364
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2011 $ 364 $ 9,329 $ 9,159 $ 18,852

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 PSO                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 20,497 $ - $ - $ - $ 20,497  24.7%
  International   22,417   -   -   -   22,417  27.0%
  Common Collective Trust -                  
   Global   -   5,844   -   -   5,844  7.0%
 Subtotal - Equities   42,914   5,844   -   -   48,758  58.7%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   4,079   -   -   4,079  4.9%
  United States Government and                  
   Agency Securities   -   4,762   -   -   4,762  5.7%
  Corporate Debt   -   8,967   -   -   8,967  10.8%
  Foreign Debt   -   1,901   -   -   1,901  2.3%
  State and Local Government   -   496   -   -   496  0.6%
  Other - Asset Backed   -   113   -   -   113  0.1%
 Subtotal - Fixed Income   -   20,318   -   -   20,318  24.4%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   2,724   -   -   2,724  3.3%
  United States Bonds   -   9,302   -   -   9,302  11.2%
                    
 Cash and Cash Equivalents   991   1,380   -   -   2,371  2.9%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   (383)   (383)  (0.5)%
                    
 Total $ 43,905 $ 39,568 $ - $ (383) $ 83,090  100.0%

(a)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 PSO                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 74,721 $ 153 $ - $ - $ 74,874  35.1%
  International   22,305   -   -   -   22,305  10.4%
  Real Estate Investment Trusts   6,219   -   -   -   6,219  2.9%
  Common Collective Trust -                  
   International   -   9,004   -   -   9,004  4.2%
 Subtotal - Equities   103,245   9,157   -   -   112,402  52.6%
                    
 Fixed Income:                  
  United States Government and                  
   Agency Securities   -   35,099   -   -   35,099  16.4%
  Corporate Debt   -   37,188   -   -   37,188  17.4%
  Foreign Debt   -   7,038   -   -   7,038  3.3%
  State and Local Government   -   1,258   -   -   1,258  0.6%
  Other - Asset Backed   -   2,831   -   -   2,831  1.3%
 Subtotal - Fixed Income   -   83,414   -   -   83,414  39.0%
                    
 Real Estate   -   -   4,606   -   4,606  2.2%
                    
 Alternative Investments   -   -   7,197   -   7,197  3.4%
 Securities Lending   -   14,078   -   -   14,078  6.6%
 Securities Lending Collateral (a)   -   -   -   (15,269)   (15,269)  (7.1)%
                    
 Cash and Cash Equivalents (b)   -   7,026   -   88   7,114  3.3%
 Other - Pending Transactions and                  
  Accrued Income (c)   -   -   -   34   34  -%
                    
 Total $ 103,245 $ 113,675 $ 11,803 $ (15,147) $ 213,576  100.0%

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent foreign currency holdings.

(c)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of real estate and alternative investments classified as Level 3 in the fair value hierarchy for pension assets by Registrant Subsidiary:

 

      Alternative Total
 PSO Real Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2010 $ 5,770 $ 6,737 $ 12,507
 Actual Return on Plan Assets         
  Relating to Assets Still Held as of the Reporting Date   (1,164)   75   (1,089)
  Relating to Assets Sold During the Period   -   24   24
 Purchases and Sales   -   361   361
 Transfers into Level 3   -   -   -
 Transfers out of Level 3   -   -   -
 Balance as of December 31, 2010 $ 4,606 $ 7,197 $ 11,803

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 

 PSO                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 33,555 $ - $ - $ - $ 33,555  40.0%
  International   12,666   -   -   -   12,666  15.1%
  Common Collective Trust -                  
   Global   -   6,593   -   -   6,593  7.9%
 Subtotal - Equities   46,221   6,593   -   -   52,814  63.0%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   2,742   -   -   2,742  3.3%
  United States Government and                  
   Agency Securities   -   5,382   -   -   5,382  6.4%
  Corporate Debt   -   6,322   -   -   6,322  7.5%
  Foreign Debt   -   1,425   -   -   1,425  1.7%
  State and Local Government   -   201   -   -   201  0.2%
  Other - Asset Backed   -   54   -   -   54  0.1%
 Subtotal - Fixed Income   -   16,126   -   -   16,126  19.2%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   2,819   -   -   2,819  3.3%
  United States Bonds   -   9,339   -   -   9,339  11.1%
                    
 Cash and Cash Equivalents (a)   1,178   1,438   -   49   2,665  3.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   154   154  0.2%
                    
 Total $ 47,399 $ 36,315 $ - $ 203 $ 83,917  100.0%

(a)       Amounts in "Other" column primarily represent foreign currency holdings.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

Determination of Pension Expense

 

The determination of pension expense or income is based on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 672,967 $ 569,855 $ 1,005,608 $ 269,230 $ 269,809
Nonqualified Pension Plans   234   168   821   1,368   1,223
Total as of December 31, 2011 $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
                
Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 646,513 $ 551,702 $ 973,802 $ 261,535 $ 260,838
Nonqualified Pension Plans   221   994   799   1,326   1,133
Total as of December 31, 2010 $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971

For the underfunded pension plans that had an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets of these plans at December 31, 2011 and 2010 were as follows:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 681,450 $ 581,677 $ 1,020,890 $ 277,448 $ 277,594
                 
Accumulated Benefit Obligation $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
Fair Value of Plan Assets   570,756   503,926   925,939   245,769   255,861
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2011 $ (102,445) $ (66,097) $ (80,490) $ (24,829) $ (15,171)
                 
  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 652,219 $ 560,982 $ 984,089 $ 268,180 $ 267,206
                 
Accumulated Benefit Obligation $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971
Fair Value of Plan Assets   512,836   451,688   799,281   213,576   224,618
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2010 $ (133,898) $ (101,008) $ (175,320) $ (49,285) $ (37,353)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments for the unfunded plan and contributions to the trust are at least the minimum amount required by the Employee Retirement Income Security Act plus payment of unfunded nonqualified benefits. For the qualified pension plan, additional discretionary contributions may be made to the trust to maintain the funded status of the plan. The contributions to the OPEB plans are generally based on the amount of the OPEB plans' periodic benefit costs for accounting purposes as provided in agreements with state regulatory authorities, plus the additional discretionary contribution of the Medicare subsidy receipts. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2012:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 33,442 $ 16,775
 I&M   23,938   13,465
 OPCo   39,095   19,705
 PSO   11,612   5,982
 SWEPCo   9,089   7,089

The tables below reflect the total benefits expected to be paid from the plan or from the Registrant Subsidiary's assets. The payments include the participants' contributions to the plan for their share of the cost. In December 2011, the prescription drug plan was amended for certain participants. The impact of the change is reflected in the Benefit Plan Obligation table as a plan amendment. As a result of this amendment to the plan, the Medicare subsidy receipts in the following table are reduced from prior published estimates. Future benefit payments are dependent on the number of employees retiring, whether the retiring employees elect to receive pension benefits as annuities or as lump sum distributions, future integration of the benefit plans with changes to Medicare and other legislation, future levels of interest rates and variances in actuarial results. The estimated payments for the pension benefits and OPEB are as follows:

 

Pension Plans APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 44,506 $ 34,963 $ 69,978 $ 19,989 $ 19,329
2013   45,202   35,686   72,422   20,472   20,281
2014   47,192   37,289   76,712   22,199   22,080
2015   46,327   37,831   75,063   22,020   22,288
2016   48,178   39,781   75,042   21,847   22,331
Years 2017 to 2021, in Total   248,647   213,381   371,555   113,723   115,691
                
Other Postretirement Benefit Plans: Benefit Payments APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 27,515 $ 17,849 $ 36,517 $ 7,833 $ 8,302
2013   27,741   18,289   36,412   8,120   8,628
2014   28,782   19,085   37,271   8,438   9,179
2015   29,668   20,117   38,306   8,934   9,598
2016   30,657   21,358   39,774   9,467   10,214
Years 2017 to 2021, in Total   168,810   123,258   218,695   54,491   61,146
                
Other Postretirement Benefit Plans: Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 1,777 $ 1,096 $ 2,276 $ 618 $ 586
2013   272   28   43   -   -
2014   287   27   48   -   -
2015   298   26   59   -   -
2016   307   26   67   -   -
Years 2017 to 2021, in Total   1,578   110   536   -   -

Components of Net Periodic Benefit Cost

 

The following tables provide the components of net periodic benefit cost by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

      Other Postretirement
 PSO Pension Plans Benefit Plans
    Years Ended December 31,
    2011 2010 2009 2011 2010 2009
    (in thousands)
 Service Cost $ 5,760 $ 6,052 $ 5,744 $ 2,621 $ 2,815 $ 2,522
 Interest Cost   13,285   14,888   15,369   6,046   6,360   6,154
 Expected Return on Plan Assets   (17,464)   (19,739)   (20,438)   (6,264)   (6,110)   (4,695)
 Amortization of Transition Obligation   -   -   -   -   2,805   2,805
 Amortization of Prior Service Credit   (950)   (950)   (1,082)   (75)   -   -
 Amortization of Net Actuarial Loss   6,757   5,188   3,487   1,553   1,573   2,348
 Net Periodic Benefit Cost   7,388   5,439   3,080   3,881   7,443   9,134
 Capitalized Portion   (2,379)   (1,806)   (1,087)   (1,249)   (2,471)   (3,224)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 5,009 $ 3,633 $ 1,993 $ 2,632 $ 4,972 $ 5,910

Estimated amounts expected to be amortized to net periodic benefit costs and the impact on each Registrant Subsidiary's balance sheet during 2012 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 19,816 $ 16,915 $ 29,690 $ 8,074 $ 8,077
Prior Service Cost (Credit)   475   407   743   (948)   (793)
Total Estimated 2012 Amortization$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 20,190 $ 16,303 $ 16,299 $ 7,126 $ 7,284
Deferred Income Taxes   35   357   4,947   -   -
Net of Tax AOCI   66   662   9,187   -   -
Total$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 10,671 $ 7,325 $ 13,951 $ 3,296 $ 3,822
Prior Service Credit   (2,862)   (2,383)   (3,873)   (1,079)   (933)
Transition Obligation   780   132   104   -   -
Total Estimated 2012 Amortization$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 3,049 $ 4,400 $ 4,565 $ 2,217 $ 1,804
Deferred Income Taxes   1,939   236   1,966   -   380
Net of Tax AOCI   3,601   438   3,651   -   705
Total$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889

American Electric Power System Retirement Savings Plans

 

The Registrant Subsidiaries participate in an AEP sponsored defined contribution retirement savings plan, the American Electric Power System Retirement Savings Plan, for substantially all employees who are not members of the United Mine Workers of America (UMWA). This qualified plan offers participants an opportunity to contribute a portion of their pay, includes features under Section 401(k) of the Internal Revenue Code and provides for company matching contributions. The matching contributions to the plan are 100% of the first 1% of eligible employee contributions and 70% of the next 5% of contributions.

 

The following table provides the cost for matching contributions to the retirement savings plans by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

    Years Ended December 31,
 Company 2011 2010 2009
    (in thousands)
 APCo $ 7,432 $ 7,284 $ 8,673
 I&M   9,541   8,969   10,315
 OPCo   10,166   9,706   11,640
 PSO   3,626   3,505   4,083
 SWEPCo   4,438   3,866   5,269
Southwestern Electric Power Co [Member]
  
Benefit Plans [Abstract]  
Benefit Plans

7. BENEFIT PLANS

 

For a discussion of investment strategy, investment limitations, target asset allocations and the classification of investments within the fair value hierarchy, see “Investments Held in Trust for Future Liabilities” and “Fair Value Measurements of Assets and Liabilities” sections of Note 1.

 

The Registrant Subsidiaries participate in an AEP sponsored qualified pension plan and two unfunded nonqualified pension plans. Substantially all employees are covered by the qualified plan or both the qualified and a nonqualified pension plan. The Registrant Subsidiaries also participate in OPEB plans sponsored by AEP to provide medical and life insurance benefits for retired employees.

 

Due to the Registrant Subsidiaries' participation in AEP's benefits plans, the assumptions used by the actuary and the accounting for the plans by each subsidiary are the same. This section details the assumptions that apply to all Registrant Subsidiaries and the rate of compensation increase for each subsidiary.

 

The Registrant Subsidiaries recognize the funded status associated with defined benefit pension and OPEB plans in their balance sheets. Disclosures about the plans are required by the “Compensation – Retirement Benefits” accounting guidance. The Registrant Subsidiaries recognize an asset for a plan's overfunded status or a liability for a plan's underfunded status, and recognize, as a component of other comprehensive income, 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. The Registrant Subsidiaries record a regulatory asset instead of other comprehensive income for qualifying benefit costs of regulated operations that for ratemaking purposes are deferred for future recovery. The cumulative funded status adjustment is equal to the remaining unrecognized deferrals for unamortized actuarial losses or gains, prior service costs and transition obligations, such that remaining deferred costs result in an AOCI equity reduction or regulatory asset and deferred gains result in an AOCI equity addition or regulatory liability.

Actuarial Assumptions for Benefit Obligations

 

The weighted-average assumptions as of December 31 of each year used in the measurement of the Registrant Subsidiaries' benefit obligations are shown in the following tables:

     Other Postretirement
  Pension Plans  Benefit Plans
Assumption 2011 2010  2011 2010
Discount Rate  4.55%  5.05%   4.75%  5.25%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2011 2010
 APCo  4.65%  4.70%
 I&M  4.90%  4.90%
 OPCo  4.95%  5.05%
 PSO  4.85%  4.95%
 SWEPCo  4.70%  4.80%

(a)       Rates are for base pay only. In addition, an amount is added to reflect target incentive compensation for exempt employees and overtime and incentive pay for nonexempt employees.

 

A duration-based method is used to determine the discount rate for the plans. A hypothetical portfolio of high quality corporate bonds similar to those included in the Moody's Aa bond index is constructed with a duration matching the benefit plan liability. The composite yield on the hypothetical bond portfolio is used as the discount rate for the plan. The discount rate is the same for each Registrant Subsidiary.

 

For 2011, the rate of compensation increase assumed varies with the age of the employee, ranging from 3.5% per year to 11.5% per year, with the average increase shown in the table above. The compensation increase rates reflect variations in each Registrant Subsidiary's population participating in the pension plan.

Actuarial Assumptions for Net Periodic Benefit Costs

 

The weighted-average assumptions as of January 1 of each year used in the measurement of each Registrant Subsidiary's benefit costs are shown in the following tables:

      Other Postretirement
    Pension Plans Benefit Plans
 Assumptions 2011 2010 2009 2011 2010 2009
 Discount Rate  5.05%  5.60%  6.00%  5.25%  5.85%  6.10%
 Expected Return on Plan Assets  7.75%  8.00%  8.00%  7.50%  8.00%  7.75%

   Pension Plans
 Assumption - Rate of Compensation Increase 2011 2010 2009
 APCo  4.65%  4.35%  5.65%
 I&M  4.90%  4.55%  5.85%
 OPCo  4.95%  4.70%  6.00%
 PSO  4.85%  4.60%  5.90%
 SWEPCo  4.70%  4.45%  5.75%

The expected return on plan assets was determined by evaluating historical returns, the current investment climate (yield on fixed income securities and other recent investment market indicators), rate of inflation and current prospects for economic growth. The expected return on plan assets is the same for each Registrant Subsidiary.

 

The health care trend rate assumptions as of January 1 of each year used for OPEB plans measurement purposes are shown below:

 Health Care Trend Rates 2011 2010
 Initial  7.50%  8.00%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2016 2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the OPEB health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Effect on Total Service and Interest Cost               
 Components of Net Periodic Postretirement               
 Health Care Benefit Cost:               
  1% Increase $ 3,806 $ 2,972 $ 5,188 $ 1,300 $ 1,500
  1% Decrease   (3,015)   (2,367)   (4,110)   (1,036)   (1,195)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 50,216 $ 33,657 $ 65,251 $ 15,088 $ 17,499
  1% Decrease   (40,748)   (27,448)   (53,015)   (12,314)   (14,281)

Significant Concentrations of Risk within Plan Assets

 

In addition to establishing the target asset allocation of plan assets, the investment policy also places restrictions on securities to limit significant concentrations within plan assets. The investment policy establishes guidelines that govern maximum market exposure, security restrictions, prohibited asset classes, prohibited types of transactions, minimum credit quality, average portfolio credit quality, portfolio duration and concentration limits. The guidelines were established to mitigate the risk of loss due to significant concentrations in any investment. Management monitors the plans to control security diversification and ensure compliance with the investment policy. At December 31, 2011, the assets were invested in compliance with all investment limits. See “Investments Held in Trust for Future Liabilities” section of Note 1 for limit details.

Benefit Plan Obligations, Plan Assets and Funded Status as of December 31, 2011 and 2010

 

The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of plan assets and funded status as of December 31. The benefit obligation for the defined benefit pension and OPEB plans are the projected benefit obligation and the accumulated benefit obligation, respectively.

SWEPCo   Other Postretirement
  Pension Plans Benefit Plans
  2011 2010 2011 2010
Change in Benefit Obligation (in thousands)
Benefit Obligation at January 1 $ 267,206 $ 288,081 $ 129,726 $ 118,571
Service Cost   6,573   7,046   3,029   3,108
Interest Cost   13,331   15,093   6,969   6,940
Actuarial (Gain) Loss   7,861   (2,014)   24,547   9,084
Plan Amendment Prior Service Credit   -   -   (13,534)   (2,399)
Benefit Payments   (17,377)   (41,000)   (8,226)   (8,125)
Participant Contributions   -   -   2,041   1,907
Medicare Subsidy   -   -   608   640
Benefit Obligation at December 31 $ 277,594 $ 267,206 $ 145,160 $ 129,726
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets at January 1 $ 224,618 $ 212,626 $ 93,097 $ 82,940
Actual Gain on Plan Assets   17,283   23,854   3,797   8,150
Company Contributions   31,337   29,138   5,655   8,225
Participant Contributions   -   -   2,041   1,907
Benefit Payments   (17,377)   (41,000)   (8,226)   (8,125)
Fair Value of Plan Assets at December 31 $ 255,861 $ 224,618 $ 96,364 $ 93,097
             
Underfunded Status at December 31 $ (21,733) $ (42,588) $ (48,796) $ (36,629)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2011 and 2010

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 SWEPCo 2011 2010 2011 2010
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (78) $ (73) $ - $ -
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (21,655)   (42,515)   (48,796)   (36,629)
 Underfunded Status $ (21,733) $ (42,588) $ (48,796) $ (36,629)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2011 and 2010

 

     Other Postretirement
SWEPCo Pension Plans Benefit Plans
   December 31,
   2011 2010 2011 2010
Components (in thousands)
Net Actuarial Loss $ 133,542 $ 131,343 $ 59,541 $ 37,707
Prior Service Cost (Credit)   560   (235)   (10,762)   (1,095)
              
Recorded as            
Regulatory Assets $ 134,102 $ 131,108 $ 31,407 $ 23,842
Deferred Income Taxes   -   -   6,081   4,469
Net of Tax AOCI   -   -   11,291   8,301

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2011 and 2010 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 33,995 $ 21,372 $ 44,976 $ 8,712 $ 8,958
Amortization of Actuarial Loss   (16,570)   (14,144)   (24,828)   (6,757)   (6,759)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
  December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 14,769 $ 24,732 $ 26,308 $ (2,346) $ (6,379)
Amortization of Actuarial Loss   (11,842)   (10,065)   (18,150)   (5,188)   (5,242)
Amortization of Prior Service Cost (Credit)   (917)   (744)   (1,474)   950   796
Change for the Year Ended               
 December 31, 2010$ 2,010 $ 13,923 $ 6,684 $ (6,584) $ (10,825)
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 65,104 $ 46,321 $ 79,611 $ 22,147 $ 23,619
Amortization of Actuarial Loss   (5,839)   (3,566)   (7,298)   (1,553)   (1,785)
Prior Service Credit  (31,145)   (24,846)   (42,357)   (11,612)   (9,409)
Amortization of Prior Service Cost (Credit)   171   237   212   75   (258)
Amortization of Transition Obligation   (1,167)   (188)   (150)   -   -
Change for the Year Ended               
 December 31, 2011$ 27,124 $ 17,958 $ 30,018 $ 9,057 $ 12,167
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss During the Year $ 23,876 $ 13,372 $ 31,207 $ 7,283 $ 7,570
Amortization of Actuarial Loss   (5,410)   (3,526)   (6,877)   (1,573)   (1,711)
Prior Service Credit  (4,257)   (4,273)   (6,039)   (2,408)   (2,399)
Amortization of Transition Obligation   (5,244)   (2,814)   (6,642)   (2,805)   (2,461)
Change for the Year Ended               
 December 31, 2010$ 8,965 $ 2,759 $ 11,649 $ 497 $ 999

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 

 SWEPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 86,499 $ - $ - $ - $ 86,499  33.8%
  International   23,716   -   -   -   23,716  9.3%
  Real Estate Investment Trusts   6,184   -   -   -   6,184  2.4%
  Common Collective Trust -                  
   International   -   7,638   -   -   7,638  3.0%
 Subtotal - Equities   116,399   7,638   -   -   124,037  48.5%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   1,561   -   -   1,561  0.6%
  United States Government and                  
   Agency Securities   -   33,640   -   -   33,640  13.2%
  Corporate Debt   -   58,549   379   -   58,928  23.0%
  Foreign Debt   -   11,337   -   -   11,337  4.4%
  State and Local Government   -   2,857   -   -   2,857  1.1%
  Other - Asset Backed   -   1,546   -   -   1,546  0.6%
 Subtotal - Fixed Income   -   109,490   379   -   109,869  42.9%
                    
 Real Estate   -   -   9,712   -   9,712  3.8%
                    
 Alternative Investments   -   -   9,535   -   9,535  3.7%
 Securities Lending   -   12,771   -   -   12,771  5.0%
 Securities Lending Collateral (a)   -   -   -   (14,020)   (14,020)  (5.5)%
                    
 Cash and Cash Equivalents   -   5,517   -   -   5,517  2.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   (1,560)   (1,560)  (0.6)%
                    
 Total $ 116,399 $ 135,416 $ 19,626 $ (15,580) $ 255,861  100.0%
                       

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy by Registrant Subsidiary for pension assets:

    Corporate Real Alternative Total
 SWEPCo Debt Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2011 $ - $ 4,844 $ 7,569 $ 12,413
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   1,355   563   1,918
  Relating to Assets Sold During the Period   -   -   194   194
 Purchases and Sales   -   3,513   1,209   4,722
 Transfers into Level 3   379   -   -   379
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2011 $ 379 $ 9,712 $ 9,535 $ 19,626

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2011:

 SWEPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 23,770 $ - $ - $ - $ 23,770  24.7%
  International   25,999   -   -   -   25,999  27.0%
  Common Collective Trust -                  
   Global   -   6,778   -   -   6,778  7.0%
 Subtotal - Equities   49,769   6,778   -   -   56,547  58.7%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   4,731   -   -   4,731  4.9%
  United States Government and                  
   Agency Securities   -   5,522   -   -   5,522  5.7%
  Corporate Debt   -   10,399   -   -   10,399  10.8%
  Foreign Debt   -   2,205   -   -   2,205  2.3%
  State and Local Government   -   575   -   -   575  0.6%
  Other - Asset Backed   -   131   -   -   131  0.1%
 Subtotal - Fixed Income   -   23,563   -   -   23,563  24.4%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   3,160   -   -   3,160  3.3%
  United States Bonds   -   10,788   -   -   10,788  11.2%
                    
 Cash and Cash Equivalents   1,149   1,601   -   -   2,750  2.9%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   (444)   (444)  (0.5)%
                    
 Total $ 50,918 $ 45,890 $ - $ (444) $ 96,364  100.0%
                       

(a)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 SWEPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 78,585 $ 160 $ - $ - $ 78,745  35.1%
  International   23,458   -   -   -   23,458  10.4%
  Real Estate Investment Trusts   6,540   -   -   -   6,540  2.9%
  Common Collective Trust -                  
   International   -   9,469   -   -   9,469  4.2%
 Subtotal - Equities   108,583   9,629   -   -   118,212  52.6%
                    
 Fixed Income:                  
  United States Government and                  
   Agency Securities   -   36,914   -   -   36,914  16.4%
  Corporate Debt   -   39,111   -   -   39,111  17.4%
  Foreign Debt   -   7,402   -   -   7,402  3.3%
  State and Local Government   -   1,323   -   -   1,323  0.6%
  Other - Asset Backed   -   2,977   -   -   2,977  1.3%
 Subtotal - Fixed Income   -   87,727   -   -   87,727  39.0%
                    
 Real Estate   -   -   4,844   -   4,844  2.2%
                    
 Alternative Investments   -   -   7,569   -   7,569  3.4%
 Securities Lending   -   14,806   -   -   14,806  6.6%
 Securities Lending Collateral (a)   -   -   -   (16,058)   (16,058)  (7.1)%
                    
 Cash and Cash Equivalents (b)   -   7,389   -   93   7,482  3.3%
 Other - Pending Transactions and                  
  Accrued Income (c)   -   -   -   36   36  -%
                    
 Total $ 108,583 $ 119,551 $ 12,413 $ (15,929) $ 224,618  100.0%
                       

(a)       Amounts in "Other" column primarily represent an obligation to repay cash collateral received as part of the Securities Lending Program.

(b)       Amounts in "Other" column primarily represent foreign currency holdings.

(c)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

The following tables set forth a reconciliation of changes in the fair value of real estate and alternative investments classified as Level 3 in the fair value hierarchy for pension assets by Registrant Subsidiary:

 

      Alternative Total
 SWEPCo Real Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2010 $ 5,654 $ 6,602 $ 12,256
 Actual Return on Plan Assets         
  Relating to Assets Still Held as of the Reporting Date   (810)   156   (654)
  Relating to Assets Sold During the Period   -   51   51
 Purchases and Sales   -   760   760
 Transfers into Level 3   -   -   -
 Transfers out of Level 3   -   -   -
 Balance as of December 31, 2010 $ 4,844 $ 7,569 $ 12,413

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary at December 31, 2010:

 

 SWEPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
                       
   (in thousands)
 Equities:                  
  Domestic $ 37,225 $ - $ - $ - $ 37,225  40.0%
  International   14,051   -   -   -   14,051  15.1%
  Common Collective Trust -                  
   Global   -   7,314   -   -   7,314  7.9%
 Subtotal - Equities   51,276   7,314   -   -   58,590  63.0%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   3,042   -   -   3,042  3.3%
  United States Government and                  
   Agency Securities   -   5,971   -   -   5,971  6.4%
  Corporate Debt   -   7,014   -   -   7,014  7.5%
  Foreign Debt   -   1,581   -   -   1,581  1.7%
  State and Local Government   -   223   -   -   223  0.2%
  Other - Asset Backed   -   60   -   -   60  0.1%
 Subtotal - Fixed Income   -   17,891   -   -   17,891  19.2%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   3,127   -   -   3,127  3.3%
  United States Bonds   -   10,361   -   -   10,361  11.1%
                    
 Cash and Cash Equivalents (a)   1,307   1,596   -   55   2,958  3.2%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   170   170  0.2%
                    
 Total $ 52,583 $ 40,289 $ - $ 225 $ 93,097  100.0%
                       

(a)       Amounts in "Other" column primarily represent foreign currency holdings.

(b)       Amounts in "Other" column primarily represent accrued interest, dividend receivables and transactions pending settlement.

Determination of Pension Expense

 

The determination of pension expense or income is based on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 672,967 $ 569,855 $ 1,005,608 $ 269,230 $ 269,809
Nonqualified Pension Plans   234   168   821   1,368   1,223
Total as of December 31, 2011 $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
                
Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 646,513 $ 551,702 $ 973,802 $ 261,535 $ 260,838
Nonqualified Pension Plans   221   994   799   1,326   1,133
Total as of December 31, 2010 $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971

For the underfunded pension plans that had an accumulated benefit obligation in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets of these plans at December 31, 2011 and 2010 were as follows:

 

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 681,450 $ 581,677 $ 1,020,890 $ 277,448 $ 277,594
                 
Accumulated Benefit Obligation $ 673,201 $ 570,023 $ 1,006,429 $ 270,598 $ 271,032
Fair Value of Plan Assets   570,756   503,926   925,939   245,769   255,861
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2011 $ (102,445) $ (66,097) $ (80,490) $ (24,829) $ (15,171)
                 
  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 652,219 $ 560,982 $ 984,089 $ 268,180 $ 267,206
                 
Accumulated Benefit Obligation $ 646,734 $ 552,696 $ 974,601 $ 262,861 $ 261,971
Fair Value of Plan Assets   512,836   451,688   799,281   213,576   224,618
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2010 $ (133,898) $ (101,008) $ (175,320) $ (49,285) $ (37,353)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments for the unfunded plan and contributions to the trust are at least the minimum amount required by the Employee Retirement Income Security Act plus payment of unfunded nonqualified benefits. For the qualified pension plan, additional discretionary contributions may be made to the trust to maintain the funded status of the plan. The contributions to the OPEB plans are generally based on the amount of the OPEB plans' periodic benefit costs for accounting purposes as provided in agreements with state regulatory authorities, plus the additional discretionary contribution of the Medicare subsidy receipts. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2012:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 33,442 $ 16,775
 I&M   23,938   13,465
 OPCo   39,095   19,705
 PSO   11,612   5,982
 SWEPCo   9,089   7,089

The tables below reflect the total benefits expected to be paid from the plan or from the Registrant Subsidiary's assets. The payments include the participants' contributions to the plan for their share of the cost. In December 2011, the prescription drug plan was amended for certain participants. The impact of the change is reflected in the Benefit Plan Obligation table as a plan amendment. As a result of this amendment to the plan, the Medicare subsidy receipts in the following table are reduced from prior published estimates. Future benefit payments are dependent on the number of employees retiring, whether the retiring employees elect to receive pension benefits as annuities or as lump sum distributions, future integration of the benefit plans with changes to Medicare and other legislation, future levels of interest rates and variances in actuarial results. The estimated payments for the pension benefits and OPEB are as follows:

 

Pension Plans APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 44,506 $ 34,963 $ 69,978 $ 19,989 $ 19,329
2013   45,202   35,686   72,422   20,472   20,281
2014   47,192   37,289   76,712   22,199   22,080
2015   46,327   37,831   75,063   22,020   22,288
2016   48,178   39,781   75,042   21,847   22,331
Years 2017 to 2021, in Total   248,647   213,381   371,555   113,723   115,691
                
Other Postretirement Benefit Plans: Benefit Payments APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 27,515 $ 17,849 $ 36,517 $ 7,833 $ 8,302
2013   27,741   18,289   36,412   8,120   8,628
2014   28,782   19,085   37,271   8,438   9,179
2015   29,668   20,117   38,306   8,934   9,598
2016   30,657   21,358   39,774   9,467   10,214
Years 2017 to 2021, in Total   168,810   123,258   218,695   54,491   61,146
                
Other Postretirement Benefit Plans: Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
  (in thousands)
2012 $ 1,777 $ 1,096 $ 2,276 $ 618 $ 586
2013   272   28   43   -   -
2014   287   27   48   -   -
2015   298   26   59   -   -
2016   307   26   67   -   -
Years 2017 to 2021, in Total   1,578   110   536   -   -

Components of Net Periodic Benefit Cost

 

The following tables provide the components of net periodic benefit cost by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

      Other Postretirement
 SWEPCo Pension Plans Benefit Plans
    Years Ended December 31,
    2011 2010 2009 2011 2010 2009
    (in thousands)
 Service Cost $ 6,573 $ 7,046 $ 6,757 $ 3,029 $ 3,108 $ 2,817
 Interest Cost   13,331   15,093   15,557   6,969   6,940   6,735
 Expected Return on Plan Assets   (18,380)   (19,489)   (20,083)   (7,200)   (6,646)   (5,120)
 Amortization of Transition Obligation   -   -   -   -   2,461   2,461
 Amortization of Prior Service Cost (Credit)   (795)   (796)   (916)   258   -   -
 Amortization of Net Actuarial Loss   6,759   5,242   3,516   1,785   1,711   2,560
 Net Periodic Benefit Cost   7,488   7,096   4,831   4,841   7,574   9,453
 Capitalized Portion   (2,636)   (2,406)   (1,546)   (1,704)   (2,568)   (3,025)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 4,852 $ 4,690 $ 3,285 $ 3,137 $ 5,006 $ 6,428

Estimated amounts expected to be amortized to net periodic benefit costs and the impact on each Registrant Subsidiary's balance sheet during 2012 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 19,816 $ 16,915 $ 29,690 $ 8,074 $ 8,077
Prior Service Cost (Credit)   475   407   743   (948)   (793)
Total Estimated 2012 Amortization$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 20,190 $ 16,303 $ 16,299 $ 7,126 $ 7,284
Deferred Income Taxes   35   357   4,947   -   -
Net of Tax AOCI   66   662   9,187   -   -
Total$ 20,291 $ 17,322 $ 30,433 $ 7,126 $ 7,284
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 10,671 $ 7,325 $ 13,951 $ 3,296 $ 3,822
Prior Service Credit   (2,862)   (2,383)   (3,873)   (1,079)   (933)
Transition Obligation   780   132   104   -   -
Total Estimated 2012 Amortization$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 3,049 $ 4,400 $ 4,565 $ 2,217 $ 1,804
Deferred Income Taxes   1,939   236   1,966   -   380
Net of Tax AOCI   3,601   438   3,651   -   705
Total$ 8,589 $ 5,074 $ 10,182 $ 2,217 $ 2,889

American Electric Power System Retirement Savings Plans

 

The Registrant Subsidiaries participate in an AEP sponsored defined contribution retirement savings plan, the American Electric Power System Retirement Savings Plan, for substantially all employees who are not members of the United Mine Workers of America (UMWA). This qualified plan offers participants an opportunity to contribute a portion of their pay, includes features under Section 401(k) of the Internal Revenue Code and provides for company matching contributions. The matching contributions to the plan are 100% of the first 1% of eligible employee contributions and 70% of the next 5% of contributions.

 

The 2009 contributions below for SWEPCo include a legacy savings plan of an acquired subsidiary.

 

The following table provides the cost for matching contributions to the retirement savings plans by Registrant Subsidiary for the years ended December 31, 2011, 2010 and 2009:

    Years Ended December 31,
 Company 2011 2010 2009
    (in thousands)
 APCo $ 7,432 $ 7,284 $ 8,673
 I&M   9,541   8,969   10,315
 OPCo   10,166   9,706   11,640
 PSO   3,626   3,505   4,083
 SWEPCo   4,438   3,866   5,269