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Pension and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]  
PENSION AND OTHER POSTRETIREMENT BENEFITS
PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS
As described in Note 1, Organization, Basis of Presentation and Significant Accounting Policies, FirstEnergy elected to change its method of recognizing actuarial gains and losses for its defined benefit pension plans and OPEB plans and applied this change retrospectively to all periods presented.
FirstEnergy provides a noncontributory qualified defined benefit pension plan that covers substantially all of its employees and non-qualified pension plans that cover certain employees. The plans provide defined benefits based on years of service and compensation levels. In addition, FirstEnergy provides a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee contributions, deductibles and co-payments, are also available upon retirement to certain employees, their dependents and, under certain circumstances, their survivors. FirstEnergy recognizes the expected cost of providing OPEB to employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible to receive those benefits. FirstEnergy also has obligations to former or inactive employees after employment, but before retirement, for disability-related benefits.
FirstEnergy’s funding policy is based on actuarial computations using the projected unit credit method. During 2011, FirstEnergy made pre-tax contributions to its qualified pension plans of $372 million. FirstEnergy made an additional $600 million pre-tax contribution to its qualified pension plan on January 5, 2012. Pension and OPEB costs are affected by employee demographics (including age, compensation levels and employment periods), the level of contributions made to the plans and earnings on plan assets. Pension and OPEB costs may also be affected by changes in key assumptions, including anticipated rates of return on plan assets, the discount rates and health care trend rates used in determining the projected benefit obligations for pension and OPEB costs. FirstEnergy uses a December 31 measurement date for its pension and OPEB plans. The fair value of the plan assets represents the actual market value as of the measurement date.
As a result of the merger with AE, FirstEnergy assumed Allegheny's pension and OPEB plans. FirstEnergy measured the funded status of the Allegheny pension plans and OPEB plans as of the merger closing date using discount rates of 5.50% and 5.25%, respectively. The fair values of plan assets for Allegheny’s pension and OPEB plans as of the date of the merger were $954 million and $75 million, respectively, and the actuarially determined benefit obligations for such plans as of that date were $1,341 million and $272 million, respectively. The expected returns on plan assets used to calculate net periodic costs for periods in 2011 subsequent to the date of the merger were 8.25% for Allegheny’s qualified pension plan and 5.00% for Allegheny’s OPEB plans.
Obligations and Funded Status
 
Pensions
 
OPEB
 
 
2011
 
2010
 
2011
 
2010
 
 
(In millions)
Change in benefit obligation:
 
 
 
 
 
 
 
 
Benefit obligation as of January 1,
 
$
5,858

 
$
5,392

 
$
861

 
$
823

Liabilities assumed with Allegheny Merger
 
1,341

 
—

 
272

 
—

Service cost
 
130

 
99

 
13

 
10

Interest cost
 
374

 
314

 
48

 
45

Plan participants’ contributions
 
—

 
—

 
39

 
30

Plan amendments
 
—

 
16

 
(98
)
 
—

Special termination benefits
 
6

 
—

 
—

 
—

Medicare retiree drug subsidy
 
—

 
—

 
9

 
7

Actuarial (gain) loss
 
647

 
343

 
19

 
56

Benefits paid
 
(379
)
 
(306
)
 
(126
)
 
(110
)
Benefit obligation as of December 31,
 
$
7,977

 
$
5,858

 
$
1,037

 
$
861

 
 
 
 
 
 
 
 
 
Change in fair value of plan assets:
 
 
 
 
 
 
 
 
Fair value of plan assets as of January 1,
 
$
4,544

 
$
4,399

 
$
498

 
$
467

Assets assumed with Allegheny Merger
 
954

 
—

 
75

 
—

Actual return on plan assets
 
364

 
440

 
23

 
52

Company contributions
 
384

 
11

 
19

 
59

Plan participants’ contributions
 
—

 
—

 
39

 
30

Benefits paid
 
(379
)
 
(306
)
 
(126
)
 
(110
)
Fair value of plan assets as of December 31,
 
$
5,867

 
$
4,544

 
$
528

 
$
498

 
 
 
 
 
 
 
 
 
Funded Status:
 
 
 
 
 
 
 
 
Qualified plan
 
$
(1,820
)
 
$
(1,076
)
 
 
 
 
Non-qualified plans
 
(290
)
 
(238
)
 
 
 
 
Funded Status
 
$
(2,110
)
 
$
(1,314
)
 
$
(509
)
 
$
(363
)
 
 
 
 
 
 
 
 
 
Accumulated benefit obligation
 
$
7,409

 
$
5,469

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Amounts Recognized on the Balance Sheet:
 
 
 
 
 
 
 
 
Current liabilities
 
$
(13
)
 
$
(11
)
 
$
—

 
$
—

Noncurrent liabilities
 
(2,097
)
 
(1,303
)
 
(509
)
 
(363
)
Net liability as of December 31,
 
$
(2,110
)
 
$
(1,314
)
 
$
(509
)
 
$
(363
)
 
 
 
 
 
 
 
 
 
Amounts Recognized in AOCI:
 
 
 
 
 
 
 
 
Prior service cost (credit)
 
$
67

 
$
76

 
$
(847
)
 
$
(952
)
 
 
 
 
 
 
 
 
 
Assumptions Used to Determine Benefit Obligations
 
 
 
 
 
 
 
 
(as of December 31)
 
 
 
 
 
 
 
 
Discount rate
 
5.00
%
 
5.50
%
 
4.75
%
 
5.00
%
Rate of compensation increase
 
5.20
%
 
5.20
%
 
5.20
%
 
5.20
%
 
 
 
 
 
 
 
 
 
Allocation of Plan Assets (as of December 31)
 
 
 
 
 
 
 
 
Equity securities
 
19
%
 
28
%
 
38
%
 
47
%
Bonds
 
48

 
50

 
44

 
45

Absolute return strategies
 
21

 
11

 
13

 
3

Real estate
 
6

 
6

 
1

 
2

Private equities
 
2

 
4

 
—

 
1

Cash
 
4

 
1

 
4

 
2

Total
 
100
%
 
100
%
 
100
%
 
100
%


The estimated 2012 amortization of pensions and OPEB prior service costs (credits) from AOCI into net periodic pensions and OPEB costs is approximately $12 million and $(203) million, respectively.

 
 
Pensions
 
OPEB
Components of Net Periodic Benefit Costs
 
2011
 
2010
 
2009
 
2011
 
2010
 
2009
 
 
(In millions)
Service cost
 
$
130

 
$
99

 
$
91

 
$
13

 
$
10

 
$
12

Interest cost
 
374

 
314

 
317

 
48

 
45

 
64

Expected return on plan assets
 
(446
)
 
(361
)
 
(343
)
 
(40
)
 
(36
)
 
(36
)
Amortization of prior service cost (credit)
 
14

 
13

 
13

 
(203
)
 
(193
)
 
(175
)
Other adjustments (settlements, curtailments, etc.)
 
6

 
—

 
—

 
—

 
—

 
—

Pensions & OPEB mark-to-market adjustment
 
729

 
264

 
483

 
36

 
22

 
16

Net periodic cost
 
$
807

 
$
329

 
$
561

 
$
(146
)
 
$
(152
)
 
$
(119
)

Assumptions Used to Determine Net Periodic Benefit Cost
for Years Ended December 31
 
Pensions
 
OPEB
 
2011
 
2010
 
2009
 
2011
 
2010
 
2009
Weighted-average discount rate
 
5.50
%
 
6.00
%
 
7.00
%
 
5.00
%
 
5.75
%
 
7.00
%
Expected long-term return on plan assets
 
8.25
%
 
8.50
%
 
9.00
%
 
8.50
%
 
8.50
%
 
9.00
%
Rate of compensation increase
 
5.20
%
 
5.20
%
 
5.20
%
 
5.20
%
 
5.20
%
 
5.20
%

The following tables set forth pension financial assets and liabilities that are accounted for at fair value by level within the fair value hierarchy. See Note 9, Fair Value Measurements, for a description of each level of the fair value hierarchy. There were no significant transfers between levels during 2011 and 2010.
 
 
December 31, 2011
 
Asset Allocation
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(In millions)
 
 
Cash and short-term securities
 
$
—

 
$
198

 
$
—

 
$
198

 
4
%
Equity investments
 
 
 
 
 
 
 
 
 
 
Domestic
 
223

 
323

 
—

 
546

 
9
%
International
 
198

 
379

 
—

 
577

 
10
%
Fixed income
 
 
 
 
 
 
 
 
 
 
Government bonds
 
348

 
430

 
—

 
778

 
13
%
Corporate bonds
 
—

 
1,998

 
—

 
1,998

 
34
%
Distressed debt
 
—

 
—

 
—

 
—

 
—
%
Mortgaged-backed securities (non-government)
 
—

 
48

 
—

 
48

 
1
%
Alternatives
 
 
 
 
 
 
 
 
 
 
Hedge funds
 
—

 
1,131

 
—

 
1,131

 
19
%
Derivatives
 
—

 
75

 
70

 
145

 
2
%
Private equity funds
 
—

 
—

 
135

 
135

 
2
%
Real estate funds
 
—

 
—

 
327

 
327

 
6
%
 
 
$
769

 
$
4,582

 
$
532

 
$
5,883

 
100
%
 
 
December 31, 2010
 
Asset Allocation
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(In millions)
 
 
Cash and short-term securities
 
$
—

 
$
72

 
$
—

 
$
72

 
1
%
Equity investments
 
 
 
 
 
 
 
 
 
 
Domestic
 
342

 
189

 
—

 
531

 
12
%
International
 
118

 
615

 
—

 
733

 
16
%
Fixed income
 
 
 
 
 
 
 
 
 
 
Government bonds
 
—

 
722

 
—

 
722

 
16
%
Corporate bonds
 
—

 
1,414

 
—

 
1,414

 
31
%
Distressed debt
 
—

 
97

 
—

 
97

 
2
%
Mortgaged-backed securities (non-government)
 
—

 
52

 
—

 
52

 
1
%
Alternatives
 
 
 
 
 
 
 
 
 
 
Hedge funds
 
—

 
497

 
—

 
497

 
11
%
Private equity funds
 
—

 
—

 
119

 
119

 
4
%
Real estate funds
 
2

 
—

 
282

 
284

 
6
%
 
 
$
462

 
$
3,658

 
$
401

 
$
4,521

 
100
%

The following table provides a reconciliation of changes in the fair value of pension investments classified as Level 3 in the fair value hierarchy during 2011 and 2010:
 
 
Private Equity Funds
 
Real Estate Funds
 
Derivatives
 
 
(In millions)
Balance as of January 1, 2010
 
$
137

 
$
241

 
—

Actual return on plan assets:
 
 
 
 
 
 
Unrealized gains (losses)
 
1

 
45

 
—

Realized gains (losses)
 
11

 
(3
)
 
—

Purchases, sales and settlements
 
(28
)
 
(1
)
 
—

Transfers in (out)
 
(2
)
 
—

 
—

Balance as of December 31, 2010
 
119

 
282

 
—

Actual return on plan assets:
 
 
 
 
 
 
Unrealized gains
 
11

 
28

 
7

Realized gains (losses)
 
5

 
17

 
—

Purchases, sales and settlements
 
—

 
—

 
63

Transfers in (out)
 
—

 
—

 
—

Balance as of December 31, 2011
 
$
135

 
$
327

 
$
70


As of December 31, 2011 and 2010, the other OPEB trust investments measured at fair value were as follows:
 
 
December 31, 2011
 
Asset Allocation
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(In millions)
 
 
Cash and short-term securities
 
$
—

 
$
19

 
$
—

 
$
19

 
4
%
Equity investment
 
 
 
 
 
 
 
 
 
 
Domestic
 
164

 
25

 
—

 
189

 
35
%
International
 
15

 
3

 
—

 
18

 
3
%
Mutual funds
 
7

 
2

 
—

 
9

 
2
%
Fixed income
 
 
 
 
 
 
 
 
 
 
U.S. treasuries
 
—

 
30

 
—

 
30

 
6
%
Government bonds
 
8

 
136

 
—

 
144

 
27
%
Corporate bonds
 
—

 
89

 
—

 
89

 
17
%
Distressed debt
 
—

 
—

 
—

 
—

 
—
%
Mortgage-backed securities (non-government)
 
—

 
5

 
—

 
5

 
—
%
Alternatives
 
 
 
 
 
 
 
 
 
 
Hedge funds
 
—

 
25

 
—

 
25

 
5
%
Private equity funds
 
—

 
—

 
3

 
3

 
—
%
Real estate funds
 
—

 
—

 
7

 
7

 
1
%
 
 
$
194

 
$
334

 
$
10

 
$
538

 
100
%
 
 
December 31, 2010
 
Asset Allocation
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(In millions)
 
 
Cash and short-term securities
 
$
—

 
$
16

 
$
—

 
$
16

 
2
%
Equity investment
 
 
 
 
 
 
 
 
 
 
Domestic
 
178

 
6

 
—

 
184

 
36
%
International
 
20

 
19

 
—

 
39

 
9
%
Mutual funds
 
7

 
2

 
—

 
9

 
2
%
Fixed income
 
 
 
 
 
 
 
 
 
 
U.S. treasuries
 
—

 
27

 
—

 
27

 
5
%
Government bonds
 
—

 
143

 
—

 
143

 
28
%
Corporate bonds
 
—

 
55

 
—

 
55

 
10
%
Distressed debt
 
—

 
3

 
—

 
3

 
1
%
Mortgage-backed securities (non-government)
 
—

 
4

 
—

 
4

 
1
%
Alternatives
 
 
 
 
 
 
 
 
 
 
Hedge funds
 
—

 
15

 
—

 
15

 
3
%
Private equity funds
 
—

 
—

 
3

 
3

 
1
%
Real estate funds
 
—

 
—

 
9

 
9

 
2
%
 
 
$
205

 
$
290

 
$
12

 
$
507

 
100
%

The following table provides a reconciliation of changes in the fair value of OPEB trust investments classified as Level 3 in the fair value hierarchy during 2011 and 2010:
 
 
Private Equity Funds
 
Real Estate Funds
 
 
(in millions)
Balance as of January 1, 2010
 
$
4

 
$
7

Actual return on plan assets:
 
 
 
 
Unrealized gains (losses)
 
—

 
—

Realized gains (losses)
 
—

 
2

Purchases, sales and settlements
 
(1
)
 
—

Transfers in (out)
 
—

 
—

Balance as of December 31, 2010
 
3

 
9

Actual return on plan assets:
 
 
 
 
Unrealized gains
 
—

 
1

Realized gains (losses)
 
—

 
—

Purchases, sales and settlements
 
—

 
—

Transfers in (out)
 
—

 
(3
)
Balance as of December 31, 2011
 
$
3

 
$
7


In selecting an assumed discount rate, FirstEnergy considers currently available rates of return on high-quality fixed income investments expected to be available during the period to maturity of the pensions and OPEB obligations. The assumed rates of return on plan assets consider historical market returns and economic forecasts for the types of investments held by FirstEnergy’s pension trusts. The long-term rate of return is developed considering the portfolio’s asset allocation strategy.
FirstEnergy follows a total return investment approach using a mix of equities, fixed income and other available investments while taking into account the pension plan liabilities to optimize the long-term return on plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalization funds. Other assets such as real estate and private equity are used to enhance long-term returns while improving portfolio diversification. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives are not used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on a continuing basis through periodic investment portfolio reviews, annual liability measurements and periodic asset/liability studies.
FirstEnergy’s target asset allocations for its pensions and OPEB trust portfolios for 2011 and 2010 are shown in the following table:
 
 
Target Asset Allocations
 
 
2011
 
2010
Equities
 
23
%
 
21
%
Fixed income
 
50

 
50

Absolute return strategies
 
19

 
21

Real estate
 
6

 
6

Private equity
 
2

 
2

 
 
100
%
 
100
%

 
 
As of December 31,
Assumed Health Care Cost Trend Rates
 
2011
 
2010
Health care cost trend rate assumed (pre/post-Medicare)
 
7.5-8.5%

 
8.0-9.0%

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
 
5
%
 
5
%
Year that the rate reaches the ultimate trend rate (pre/post-Medicare)
 
2016-2018

 
2016-2018


Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
 
 
1-Percentage-Point Increase
 
1-Percentage-Point Decrease
 
 
(in millions)
Effect on total of service and interest cost
 
2

 
(2
)
Effect on accumulated benefit obligation
 
20

 
(17
)

Taking into account estimated employee future service, FirstEnergy expects to make the following benefit payments from plan assets and other payments, net of the Medicare subsidy and participant contributions:
 
 
Pensions
 
OPEB
 
 
(in millions)
2012
 
$
417

 
$
111

2013
 
433

 
116

2014
 
461

 
118

2015
 
479

 
62

2016
 
493

 
63

Years 2017-2021
 
2,713

 
314


FES’ and the Utility Registrants' shares of the net pensions and OPEB asset (liability) as of December 31, 2011 and 2010, were as follows:
Net Pension and OPEB Asset (Liability)
 
Pensions
 
OPEB
 
2011
 
2010
 
2011
 
2010
 
 
(In millions)
FES
 
$
(653
)
 
$
(488
)
 
$
(11
)
 
$
(36
)
OE
 
(4
)
 
29

 
(75
)
 
(66
)
CEI
 
(12
)
 
(22
)
 
(61
)
 
(62
)
TE
 
11

 
(21
)
 
(45
)
 
(46
)
JCP&L
 
(69
)
 
(106
)
 
(94
)
 
(70
)
Met-Ed
 
(6
)
 
(6
)
 
(31
)
 
(19
)
Penelec
 
(151
)
 
(99
)
 
(108
)
 
(85
)

FES’ and the Utility Registrants' shares of the net periodic pensions and OPEB costs for the three years ended December 31, 2011, 2010 and 2009 were as follows:
Net Periodic Pension and OPEB Costs
 
Pensions
 
OPEB
 
2011
 
2010
 
2009
 
2011
 
2010
 
2009
 
 
(In millions)
FES
 
$
168

 
$
122

 
$
169

 
$
(42
)
 
$
(12
)
 
$
—

OE
 
63

 
4

 
38

 
(34
)
 
(26
)
 
(30
)
CEI
 
27

 
10

 
74

 
(18
)
 
(9
)
 
(10
)
TE
 
14

 
6

 
26

 
(7
)
 
(6
)
 
(2
)
JCP&L
 
68

 
29

 
49

 
2

 
(10
)
 
(3
)
Met-Ed
 
35

 
12

 
29

 
(9
)
 
(24
)
 
(15
)
Penelec
 
52

 
19

 
76

 
(7
)
 
(24
)
 
(14
)