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Benefit Plans
 12 Months Ended
Dec. 31, 2012
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 health 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 2012  2011  2012 2011
 Discount Rate  3.95%   4.55%   3.95%  4.75%
 Rate of Compensation Increase  4.95%(a)  4.85%(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 is constructed with cash flows matching the benefit plan liability. The composite yield on the hypothetical bond portfolio is used as the discount rate for the plan.

 

For 2012, 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 4.95%.

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
   2012 2011 2010 2012 2011 2010
 Discount Rate  4.55%  5.05%  5.60%  4.75%  5.25%  5.85%
 Expected Return on Plan Assets  7.25%  7.75%  8.00%  7.25%  7.50%  8.00%
 Rate of Compensation Increase  4.85%  4.85%  4.60% 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 2012 2011
 Initial  7.00%  7.50%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2020 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$ 24 $ (19)
       
 Effect on the Health Care Component of the     
  Accumulated Postretirement Benefit Obligation  118   (89)

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. As of December 31, 2012, 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, 2012 and 2011

 

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
  2012 2011 2012 2011
Change in Benefit Obligation (in millions)
Benefit Obligation as of January 1 $ 4,991 $ 4,807 $ 2,227 $ 2,125
Service Cost   76   72   47   42
Interest Cost   223   237   103   109
Actuarial Loss   299   169   148   253
Plan Amendment Prior Service Credit   -   -   (570)   (196)
Curtailment and Settlements   (1)   -   -   1
Benefit Payments   (383)   (294)   (151)   (150)
Participant Contributions   -   -   35   34
Medicare Subsidy   -   -   10   9
Benefit Obligation as of December 31 $ 5,205 $ 4,991 $ 1,849 $ 2,227
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets as of January 1 $ 4,303 $ 3,858 $ 1,410 $ 1,461
Actual Gain (Loss) on Plan Assets   560   282   178   (14)
Company Contributions   216   457   96   79
Participant Contributions   -   -   35   34
Benefit Payments   (383)   (294)   (151)   (150)
Fair Value of Plan Assets as of December 31 $ 4,696 $ 4,303 $ 1,568 $ 1,410
             
Underfunded Status as of December 31 $ (509) $ (688) $ (281) $ (817)

Benefit Amounts Recognized on the Balance Sheets as of December 31, 2012 and 2011
               
      Other Postretirement
    Pension Plans Benefit Plans
               
    December 31,
   2012 2011 2012 2011
    (in millions)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (7) $ (8) $ (4) $ (4)
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (502)   (680)   (277)   (813)
 Underfunded Status $ (509) $ (688) $ (281) $ (817)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2012 and 2011
  
     Other Postretirement
  Pension Plans Benefit Plans
   December 31,
   2012 2011 2012 2011 
Components (in millions)
Net Actuarial Loss $ 2,111 $ 2,208 $ 989 $ 979 
Prior Service Cost (Credit)   11   10   (762)   (210) 
Transition Obligation   -   -   -   1 
               
Recorded as             
Regulatory Assets $ 1,774 $ 1,818 $ 108 $ 479 
Deferred Income Taxes   122   140   42   102 
Net of Tax AOCI   226   260   77   189 

Components of the change in amounts included in AOCI and Regulatory Assets during the years ended December 31, 2012 and 2011 are as follows:

 

    Other Postretirement
  Pension Plans Benefit Plans
  Years Ended December 31,
  2012 2011 2012 2011
Components (in millions)
Actuarial Loss During the Year $ 58 $ 201 $ 67 $ 370
Prior Service Credit   -   -   (570)   (191)
Amortization of Actuarial Loss   (155)   (122)   (57)   (29)
Amortization of Prior Service Credit (Cost)   1   (1)   18   1
Amortization of Transition Obligation   -   -   (1)   (2)
Change for the Year $ (96) $ 78 $ (543) $ 149

Pension and Other Postretirement Plans' Assets

 

The following table presents the classification of pension plan assets within the fair value hierarchy as of December 31, 2012:

                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in millions)   
 Equities:                  
  Domestic $ 1,308 $ - $ - $ - $ 1,308  27.9%
  International   497   -   -   -   497  10.5%
  Real Estate Investment Trusts   91   -   -   -   91  1.9%
  Common Collective Trust -                  
   International   -   4   -   -   4  0.1%
 Subtotal - Equities   1,896   4   -   -   1,900  40.4%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   32   -   -   32  0.7%
  United States Government and                  
   Agency Securities   -   715   -   -   715  15.2%
  Corporate Debt   -   1,235   -   -   1,235  26.3%
  Foreign Debt   -   199   -   -   199  4.2%
  State and Local Government   -   44   -   -   44  0.9%
  Other - Asset Backed   -   36   -   -   36  0.8%
 Subtotal - Fixed Income   -   2,261   -   -   2,261  48.1%
                    
 Real Estate   -   -   220   -   220  4.7%
                    
 Alternative Investments   -   -   195   -   195  4.2%
 Securities Lending   -   80   -   -   80  1.7%
 Securities Lending Collateral (a)   -   -   -   (91)   (91)  (1.9)%
                    
 Cash and Cash Equivalents   -   126   -   -   126  2.7%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   5   5  0.1%
                    
 Total $ 1,896 $ 2,471 $ 415 $ (86) $ 4,696  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 table sets forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy for the pension assets:

    Corporate Real Alternative Total
    Debt Estate Investments Level 3
    (in millions)
 Balance as of January 1, 2012 $ 6 $ 163 $ 161 $ 330
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   30   10   40
  Relating to Assets Sold During the Period   (2)   -   4   2
 Purchases and Sales   (4)   27   20   43
 Transfers into Level 3   -   -   -   -
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2012 $ - $ 220 $ 195 $ 415

The following table presents the classification of OPEB plan assets within the fair value hierarchy as of December 31, 2012:

                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in millions)   
 Equities:                  
  Domestic $ 422 $ - $ - $ - $ 422  26.9%
  International   505   -   -   -   505  32.2%
 Subtotal - Equities   927   -   -   -   927  59.1%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   72   -   -   72  4.6%
  United States Government and                  
   Agency Securities   -   82   -   -   82  5.2%
  Corporate Debt   -   155   -   -   155  9.9%
  Foreign Debt   -   26   -   -   26  1.7%
  State and Local Government   -   7   -   -   7  0.5%
  Other - Asset Backed   -   10   -   -   10  0.6%
 Subtotal - Fixed Income   -   352   -   -   352  22.5%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   52   -   -   52  3.3%
  United States Bonds   -   163   -   -   163  10.3%
                    
 Cash and Cash Equivalents   62   11   -   -   73  4.7%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   1   1  0.1%
                    
 Total $ 989 $ 578 $ - $ 1 $ 1,568  100.0%

(a) 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 as of 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%

(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 table sets forth a reconciliation of changes in the fair value of assets classified as Level 3 in the fair value hierarchy for the 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 as of 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%

(a) 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.

 

   December 31,
 Accumulated Benefit Obligation 2012 2011
   (in millions)
 Qualified Pension Plan $ 5,001 $ 4,808
 Nonqualified Pension Plans   82   89
 Total $ 5,083 $ 4,897

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 as of December 31, 2012 and 2011 were as follows:

   Underfunded Pension Plans
   December 31,
   2012 2011
   (in millions)
 Projected Benefit Obligation $ 5,205 $ 4,991
        
 Accumulated Benefit Obligation $ 5,083 $ 4,897
 Fair Value of Plan Assets   4,696   4,303
 Underfunded Accumulated Benefit Obligation $ (387) $ (594)

Estimated Future Benefit Payments and Contributions

 

We expect contributions and payments for the pension plans of $108 million and the OPEB plans of $4 million during 2013. For the pension plans, this amount includes the payment of unfunded nonqualified benefits plus contributions to the qualified trust fund of at least the minimum amount required by the Employee Retirement Income Security Act. For the qualified pension plan, we may also make additional discretionary contributions to maintain the funded status of the plan. For the OPEB plans, expected payments include the payment of unfunded benefits.

 

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 November 2012, we announced changes to our retiree medical coverage. Effective for retirements after December 2012, our contribution to retiree medical coverage will be capped reducing our exposure to future medical cost inflation. Effective for employees hired after December 2013, we will not provide retiree medical coverage. In December 2011, we amended the prescription drug program for certain participants. The impact of the changes is reflected in the Benefit Plan Obligation table as plan amendments. 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)
 2013 $ 340 $ 140 $ -
 2014   349   146   -
 2015   356   153   -
 2016   359   162   -
 2017   364   171   -
 Years 2018 to 2022, in Total   1,844   990   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, 2012, 2011 and 2010:

 

      Other Postretirement
   Pension Plans Benefit Plans
    Years Ended December 31,
    2012 2011 2010 2012 2011 2010
    (in millions)
 Service Cost $ 76 $ 72 $ 111 $ 47 $ 42 $ 47
 Interest Cost   223   237   253   103   109   113
 Expected Return on Plan Assets   (319)   (314)   (312)   (101)   (109)   (105)
 Curtailment   -   -   -   -   1   -
 Amortization of Transition Obligation   -   -   -   1   2   27
 Amortization of Prior Service Cost (Credit)   (1)   1   -   (18)   (1)   -
 Amortization of Net Actuarial Loss   155   122   89   57   29   29
 Net Periodic Benefit Cost   134   118   141   89   73   111
 Capitalized Portion   (42)   (37)   (44)   (28)   (22)   (35)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 92 $ 81 $ 97 $ 61 $ 51 $ 76

Estimated amounts expected to be amortized to net periodic benefit costs (credits) and the impact on the balance sheet during 2013 are shown in the following table:

 

     Other
      Postretirement
    Pension Plans Benefit Plans
 Components (in millions)
 Net Actuarial Loss $ 176 $ 64
 Prior Service Cost (Credit)   3   (69)
 Total Estimated 2013 Amortization $ 179 $ (5)
        
 Expected to be Recorded as      
 Regulatory Asset $ 148 $ (7)
 Deferred Income Taxes   11   1
 Net of Tax AOCI   20   1
 Total $ 179 $ (5)

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 $66 million in 2012, $64 million in 2011 and $61 million in 2010.

 

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 any 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, 2012 and 2011, without utilization of extended amortization provisions. The Plan adopted a funding improvement plan in May 2012, as required under the PPA. Contributions in 2012, 2011 and 2010 were made under a collective bargaining agreement that is scheduled to expire December 31, 2013. We contributed immaterial amounts in 2012, 2011 and 2010 that represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2012, 2011 and 2010. The contributions we made did not include a surcharge. There are no minimum contributions for future years.

 
Appalachian Power Co [Member]
  
Benefit Plans

6. 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 health 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 2012 2011  2012 2011
Discount Rate  3.95%  4.55%   3.95%  4.75%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2012 2011
 APCo  4.70%  4.65%
 I&M  5.00%  4.90%
 OPCo  5.00%  4.95%
 PSO  4.90%  4.85%
 SWEPCo  4.75%  4.70%

(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 is constructed with cash flows 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 2012, 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 2012 2011 2010 2012 2011 2010
 Discount Rate  4.55%  5.05%  5.60%  4.75%  5.25%  5.85%
 Expected Return on Plan Assets  7.25%  7.75%  8.00%  7.25%  7.50%  8.00%

   Pension Plans
 Assumption - Rate of Compensation Increase 2012 2011 2010
 APCo  4.70%  4.65%  4.35%
 I&M  5.00%  4.90%  4.55%
 OPCo  5.00%  4.95%  4.70%
 PSO  4.90%  4.85%  4.60%
 SWEPCo  4.75%  4.70%  4.45%

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 2012 2011
 Initial  7.00%  7.50%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2020 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 $ 3,845 $ 3,017 $ 5,347 $ 1,336 $ 1,547
  1% Decrease   (3,029)   (2,390)   (4,206)   (1,059)   (1,227)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 26,416 $ 12,592 $ 34,018 $ 5,447 $ 6,008
  1% Decrease   (20,173)   (9,529)   (25,950)   (4,113)   (4,537)

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. As of December 31, 2012, 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, 2012 and 2011

 

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
  2012 2011 2012 2011
Change in Benefit Obligation (in thousands)
Benefit Obligation as of January 1 $ 681,450 $ 652,219 $ 395,482 $ 383,152
Service Cost   7,565   7,199   5,387   4,983
Interest Cost   30,211   32,293   18,462   19,468
Actuarial Loss   43,341   29,137   31,776   41,306
Plan Amendment Prior Service Credit   -   -   (80,528)   (31,145)
Benefit Payments   (44,107)   (39,398)   (29,228)   (30,040)
Participant Contributions   -   -   5,826   6,005
Medicare Subsidy   -   -   1,813   1,753
Benefit Obligation as of December 31 $ 718,460 $ 681,450 $ 348,990 $ 395,482
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets as of January 1 $ 570,756 $ 512,836 $ 229,735 $ 243,771
Actual Gain (Loss) on Plan Assets   69,686   36,970   44,919   (4,102)
Company Contributions   25,235   60,348   16,506   14,101
Participant Contributions   -   -   5,826   6,005
Benefit Payments   (44,107)   (39,398)   (29,228)   (30,040)
Fair Value of Plan Assets as of December 31 $ 621,570 $ 570,756 $ 267,758 $ 229,735
             
Underfunded Status as of December 31 $ (96,890) $ (110,694) $ (81,232) $ (165,747)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2012 and 2011

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 APCo 2012 2011 2012 2011
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (34) $ (34) $ (2,836) $ (2,956)
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (96,856)   (110,660)   (78,396)   (162,791)
 Underfunded Status $ (96,890) $ (110,694) $ (81,232) $ (165,747)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2012 and 2011

 

     Other Postretirement
APCo Pension Plans Benefit Plans
   December 31,
   2012 2011 2012 2011
Components (in thousands)
Net Actuarial Loss $ 303,483 $ 308,223 $ 167,173 $ 174,615
Prior Service Cost (Credit)   918   1,393   (110,726)   (33,060)
Transition Obligation   -   -   -   780
              
Recorded as            
Regulatory Assets $ 299,456 $ 305,558 $ 13,189 $ 56,764
Deferred Income Taxes   1,732   1,420   15,140   29,951
Net of Tax AOCI   3,213   2,638   28,118   55,620

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2012 and 2011 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 15,599 $ 12,905 $ 13,577 $ (4,718) $ (3,373)
Amortization of Actuarial Loss   (20,339)   (17,569)   (30,439)   (8,206)   (8,330)
Amortization of Prior Service Credit (Cost)   (475)   (407)   (743)   948   793
Change for the Year Ended               
  December 31, 2012$ (5,215) $ (5,071) $ (17,605) $ (11,976) $ (10,910)
                 
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 Credit (Cost)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
 December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 3,084 $ 11,747 $ (1,170) $ 5,166 $ 11,341
Amortization of Actuarial Loss   (10,526)   (7,050)   (13,669)   (3,189)   (3,659)
Prior Service Credit  (80,528)   (78,851)   (101,384)   (35,971)   (47,309)
Amortization of Prior Service Credit   2,862   2,383   3,873   1,079   933
Amortization of Transition Obligation   (780)   (132)   (104)   -   -
Change for the Year Ended               
 December 31, 2012$ (85,888) $ (71,903) $ (112,454) $ (32,915) $ (38,694)
                 
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 Credit (Cost)   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

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 APCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 173,149 $ - $ - $ - $ 173,149  27.9%
  International   65,757   -   -   -   65,757  10.5%
  Real Estate Investment Trusts   11,986   -   -   -   11,986  1.9%
  Common Collective Trust -                  
   International   -   574   -   -   574  0.1%
 Subtotal - Equities   250,892   574   -   -   251,466  40.4%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   4,200   -   -   4,200  0.7%
  United States Government and                  
   Agency Securities   -   94,682   -   -   94,682  15.2%
  Corporate Debt   -   163,484   -   -   163,484  26.3%
  Foreign Debt   -   26,292   -   -   26,292  4.2%
  State and Local Government   -   5,821   -   -   5,821  0.9%
  Other - Asset Backed   -   4,714   -   -   4,714  0.8%
 Subtotal - Fixed Income   -   299,193   -   -   299,193  48.1%
                    
 Real Estate   -   -   29,063   -   29,063  4.7%
                    
 Alternative Investments   -   -   25,888   -   25,888  4.2%
 Securities Lending   -   10,633   -   -   10,633  1.7%
 Securities Lending Collateral (a)   -   -   -   (12,025)   (12,025)  (1.9)%
                    
 Cash and Cash Equivalents   -   16,646   -   -   16,646  2.7%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   706   706  0.1%
                    
 Total $ 250,892 $ 327,046 $ 54,951 $ (11,319) $ 621,570  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, 2012 $ 846 $ 21,666 $ 21,269 $ 43,781
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   3,913   1,319   5,232
  Relating to Assets Sold During the Period   (298)   -   640   342
 Purchases and Sales   (548)   3,484   2,660   5,596
 Transfers into Level 3   -   -   -   -
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2012 $ - $ 29,063 $ 25,888 $ 54,951

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 APCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 72,063 $ - $ - $ - $ 72,063  26.9%
  International   86,158   -   -   -   86,158  32.2%
 Subtotal - Equities   158,221   -   -   -   158,221  59.1%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   12,388   -   -   12,388  4.6%
  United States Government and                  
   Agency Securities   -   14,036   -   -   14,036  5.2%
  Corporate Debt   -   26,437   -   -   26,437  9.9%
  Foreign Debt   -   4,469   -   -   4,469  1.7%
  State and Local Government   -   1,242   -   -   1,242  0.5%
  Other - Asset Backed   -   1,678   -   -   1,678  0.6%
 Subtotal - Fixed Income   -   60,250   -   -   60,250  22.5%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   8,800   -   -   8,800  3.3%
  United States Bonds   -   27,762   -   -   27,762  10.3%
                    
 Cash and Cash Equivalents   10,598   1,947   -   -   12,545  4.7%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   180   180  0.1%
                    
 Total $ 168,819 $ 98,759 $ - $ 180 $ 267,758  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 as of 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 for pension assets by Registrant Subsidiary:

 

    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 as of 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.

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.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 708,476 $ 603,448 $ 1,048,796 $ 269,738 $ 273,860
Nonqualified Pension Plans   191   200   796   1,287   1,098
Total as of December 31, 2012 $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 274,958
                
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

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 as of December 31, 2012 and 2011 were as follows:

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 718,460 $ 618,973 $ 1,068,186 $ 279,685 $ 1,098
                 
Accumulated Benefit Obligation $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 1,098
Fair Value of Plan Assets   621,570   552,026   1,015,115   264,823   -
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2012 $ (87,097) $ (51,622) $ (34,477) $ (6,202) $ (1,098)
                 
  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)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments 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 also be made to maintain the funded status of the plan. For OPEB plans, expected payments include the payment of unfunded benefits. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2013:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 11,883 $ 3,079
 I&M   14,867   315
 OPCo   8,965   1,027
 PSO   6,089   -
 SWEPCo   11,345   -

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 November 2012, changes to the retiree medical coverage were announced. Effective for retirements after December 2012, contributions to retiree medical coverage will be capped reducing exposure to future medical cost inflation. Effective for employees hired after December 2013, retiree medical coverage will not be provided. In December 2011, the prescription drug plan was amended for certain participants. The impact of the changes is reflected in the Benefit Plan Obligation tables as plan amendments. 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)
2013 $ 45,750 $ 36,365 $ 72,470 $ 20,560 $ 21,004
2014   47,455   36,958   73,771   21,772   22,223
2015   46,625   38,694   73,945   22,310   22,352
2016   47,604   39,469   75,347   22,297   22,278
2017   48,367   40,350   75,575   22,347   23,162
Years 2018 to 2022, in Total   245,312   213,444   370,934   110,866   114,257
                
Other Postretirement Benefit Plans:               
Benefit Payments APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 26,427 $ 17,092 $ 34,561 $ 7,821 $ 8,143
2014   27,549   17,999   35,532   8,169   8,748
2015   28,553   19,150   36,755   8,676   9,233
2016   29,738   20,468   38,435   9,239   9,879
2017   30,834   21,549   39,543   9,712   10,582
Years 2018 to 2022, in Total   172,977   127,047   224,357   56,882   64,145
                
Other Postretirement Benefit Plans:               
Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 243 $ 25 $ 41 $ - $ -
2014   257   24   47   -   -
2015   269   23   58   -   -
2016   278   23   65   -   -
2017   283   22   76   -   -
Years 2018 to 2022, in Total   1,452   97   599   -   -

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, 2012, 2011 and 2010:

      Other Postretirement
 APCo Pension Plans Benefit Plans
    Years Ended December 31,
    2012 2011 2010 2012 2011 2010
    (in thousands)
 Service Cost $ 7,565 $ 7,199 $ 12,908 $ 5,387 $ 4,983 $ 5,722
 Interest Cost   30,211   32,293   33,956   18,462   19,468   20,300
 Expected Return on Plan Assets   (41,944)   (41,833)   (43,805)   (16,753)   (17,985)   (17,628)
 Amortization of Transition Obligation   -   -   -   780   1,167   5,244
 Amortization of Prior Service Cost (Credit)   475   917   917   (2,862)   (171)   -
 Amortization of Net Actuarial Loss   20,339   16,570   11,842   10,526   5,839   5,410
 Net Periodic Benefit Cost   16,646   15,146   15,818   15,540   13,301   19,048
 Capitalized Portion   (6,525)   (5,604)   (6,058)   (6,092)   (4,921)   (7,295)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 10,121 $ 9,542 $ 9,760 $ 9,448 $ 8,380 $ 11,753

Estimated amounts expected to be amortized to net periodic benefit costs (credits) and the impact on each Registrant Subsidiary's balance sheet during 2013 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 24,305 $ 20,939 $ 36,137 $ 9,464 $ 9,662
Prior Service Cost   198   195   283   297   350
Total Estimated 2013 Amortization$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 24,367 $ 19,852 $ 19,387 $ 9,761 $ 10,012
Deferred Income Taxes   48   449   5,962   -   -
Net of Tax AOCI   88   833   11,071   -   -
Total$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 12,114 $ 7,624 $ 16,198 $ 3,480 $ 3,838
Prior Service Credit   (10,050)   (9,421)   (12,922)   (4,290)   (5,155)
Total Estimated 2013 Amortization$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 99 $ (1,767) $ 599 $ (810) $ (899)
Deferred Income Taxes   688   (10)   937   -   (146)
Net of Tax AOCI   1,277   (20)   1,740   -   (272)
Total$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)

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, 2012, 2011 and 2010:

    Years Ended December 31,
 Company 2012 2011 2010
    (in thousands)
 APCo $ 7,579 $ 7,432 $ 7,284
 I&M   9,706   9,541   8,969
 OPCo   10,798   10,166   9,706
 PSO   3,732   3,626   3,505
 SWEPCo   4,890   4,438   3,866

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, 2012 and 2011, without utilization of extended amortization provisions. The Plan adopted a funding improvement plan in May 2012, as required under the PPA. Contributions in 2012, 2011 and 2010 were made under a collective bargaining agreement that is scheduled to expire December 31, 2013, were immaterial and represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2012, 2011 and 2010. The contributions did not include a surcharge. There are no minimum contributions for future years.

 
Indiana Michigan Power Co [Member]
  
Benefit Plans

6. 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 health 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 2012 2011  2012 2011
Discount Rate  3.95%  4.55%   3.95%  4.75%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2012 2011
 APCo  4.70%  4.65%
 I&M  5.00%  4.90%
 OPCo  5.00%  4.95%
 PSO  4.90%  4.85%
 SWEPCo  4.75%  4.70%

(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 is constructed with cash flows 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 2012, 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 2012 2011 2010 2012 2011 2010
 Discount Rate  4.55%  5.05%  5.60%  4.75%  5.25%  5.85%
 Expected Return on Plan Assets  7.25%  7.75%  8.00%  7.25%  7.50%  8.00%

   Pension Plans
 Assumption - Rate of Compensation Increase 2012 2011 2010
 APCo  4.70%  4.65%  4.35%
 I&M  5.00%  4.90%  4.55%
 OPCo  5.00%  4.95%  4.70%
 PSO  4.90%  4.85%  4.60%
 SWEPCo  4.75%  4.70%  4.45%

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 2012 2011
 Initial  7.00%  7.50%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2020 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 $ 3,845 $ 3,017 $ 5,347 $ 1,336 $ 1,547
  1% Decrease   (3,029)   (2,390)   (4,206)   (1,059)   (1,227)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 26,416 $ 12,592 $ 34,018 $ 5,447 $ 6,008
  1% Decrease   (20,173)   (9,529)   (25,950)   (4,113)   (4,537)

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. As of December 31, 2012, 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, 2012 and 2011

 

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
  2012 2011 2012 2011
Change in Benefit Obligation (in thousands)
Benefit Obligation as of January 1 $ 581,677 $ 560,982 $ 277,353 $ 266,742
Service Cost   9,908   9,447   6,621   6,119
Interest Cost   26,245   27,726   12,785   13,610
Actuarial Loss   44,475   17,289   13,638   28,876
Plan Amendment Prior Service Credit   -   -   (78,851)   (24,846)
Benefit Payments   (43,332)   (33,767)   (18,394)   (18,387)
Participant Contributions   -   -   4,226   4,112
Medicare Subsidy   -   -   1,175   1,127
Benefit Obligation as of December 31 $ 618,973 $ 581,677 $ 218,553 $ 277,353
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets as of January 1 $ 503,926 $ 451,688 $ 181,237 $ 188,690
Actual Gain (Loss) on Plan Assets   69,136   32,773   14,357   (3,946)
Company Contributions   22,296   53,232   12,702   10,768
Participant Contributions   -   -   4,226   4,112
Benefit Payments   (43,332)   (33,767)   (18,394)   (18,387)
Fair Value of Plan Assets as of December 31 $ 552,026 $ 503,926 $ 194,128 $ 181,237
             
Underfunded Status as of December 31 $ (66,947) $ (77,751) $ (24,425) $ (96,116)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2012 and 2011

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 I&M 2012 2011 2012 2011
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (15) $ (14) $ (290) $ (308)
 Deferred Credits and Other Noncurrent Liabilities -            
  Accrued Long-term Benefit Liability   (66,932)   (77,737)   (24,135)   (95,808)
 Underfunded Status $ (66,947) $ (77,751) $ (24,425) $ (96,116)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2012 and 2011

 

     Other Postretirement
I&M Pension Plans Benefit Plans
   December 31,
   2012 2011 2012 2011
Components (in thousands)
Net Actuarial Loss $ 211,443 $ 216,107 $ 125,935 $ 121,238
Prior Service Cost (Credit)   900   1,307   (103,959)   (27,491)
Transition Obligation   -   -   -   132
              
Recorded as            
Regulatory Assets $ 202,821 $ 207,237 $ 17,976 $ 84,155
Deferred Income Taxes   3,332   3,561   1,400   3,403
Net of Tax AOCI   6,190   6,616   2,600   6,321

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2012 and 2011 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 15,599 $ 12,905 $ 13,577 $ (4,718) $ (3,373)
Amortization of Actuarial Loss   (20,339)   (17,569)   (30,439)   (8,206)   (8,330)
Amortization of Prior Service Credit (Cost)   (475)   (407)   (743)   948   793
Change for the Year Ended               
  December 31, 2012$ (5,215) $ (5,071) $ (17,605) $ (11,976) $ (10,910)
                 
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 Credit (Cost)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
 December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 3,084 $ 11,747 $ (1,170) $ 5,166 $ 11,341
Amortization of Actuarial Loss   (10,526)   (7,050)   (13,669)   (3,189)   (3,659)
Prior Service Credit  (80,528)   (78,851)   (101,384)   (35,971)   (47,309)
Amortization of Prior Service Credit   2,862   2,383   3,873   1,079   933
Amortization of Transition Obligation   (780)   (132)   (104)   -   -
Change for the Year Ended               
 December 31, 2012$ (85,888) $ (71,903) $ (112,454) $ (32,915) $ (38,694)
                 
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 Credit (Cost)   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

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 I&M                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 153,776 $ - $ - $ - $ 153,776  27.9%
  International   58,400   -   -   -   58,400  10.5%
  Real Estate Investment Trusts   10,645   -   -   -   10,645  1.9%
  Common Collective Trust -                  
   International   -   510   -   -   510  0.1%
 Subtotal - Equities   222,821   510   -   -   223,331  40.4%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   3,730   -   -   3,730  0.7%
  United States Government and                  
   Agency Securities   -   84,089   -   -   84,089  15.2%
  Corporate Debt   -   145,193   -   -   145,193  26.3%
  Foreign Debt   -   23,350   -   -   23,350  4.2%
  State and Local Government   -   5,170   -   -   5,170  0.9%
  Other - Asset Backed   -   4,187   -   -   4,187  0.8%
 Subtotal - Fixed Income   -   265,719   -   -   265,719  48.1%
                    
 Real Estate   -   -   25,811   -   25,811  4.7%
                    
 Alternative Investments   -   -   22,992   -   22,992  4.2%
 Securities Lending   -   9,443   -   -   9,443  1.7%
 Securities Lending Collateral (a)   -   -   -   (10,680)   (10,680)  (1.9)%
                    
 Cash and Cash Equivalents   -   14,783   -   -   14,783  2.7%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   627   627  0.1%
                    
 Total $ 222,821 $ 290,455 $ 48,803 $ (10,053) $ 552,026  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, 2012 $ 747 $ 19,129 $ 18,779 $ 38,655
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   3,535   1,203   4,738
  Relating to Assets Sold During the Period   (263)   -   584   321
 Purchases and Sales   (484)   3,147   2,426   5,089
 Transfers into Level 3   -   -   -   -
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2012 $ - $ 25,811 $ 22,992 $ 48,803

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 I&M                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 52,245 $ - $ - $ - $ 52,245  26.9%
  International   62,466   -   -   -   62,466  32.2%
 Subtotal - Equities   114,711   -   -   -   114,711  59.1%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   8,982   -   -   8,982  4.6%
  United States Government and                  
   Agency Securities   -   10,176   -   -   10,176  5.2%
  Corporate Debt   -   19,167   -   -   19,167  9.9%
  Foreign Debt   -   3,240   -   -   3,240  1.7%
  State and Local Government   -   901   -   -   901  0.5%
  Other - Asset Backed   -   1,217   -   -   1,217  0.6%
 Subtotal - Fixed Income   -   43,683   -   -   43,683  22.5%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   6,380   -   -   6,380  3.3%
  United States Bonds   -   20,128   -   -   20,128  10.3%
                    
 Cash and Cash Equivalents   7,684   1,412   -   -   9,096  4.7%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   130   130  0.1%
                    
 Total $ 122,395 $ 71,603 $ - $ 130 $ 194,128  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 as of 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 for pension assets by Registrant Subsidiary:

 

    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 as of 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.

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.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 708,476 $ 603,448 $ 1,048,796 $ 269,738 $ 273,860
Nonqualified Pension Plans   191   200   796   1,287   1,098
Total as of December 31, 2012 $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 274,958
                
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

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 as of December 31, 2012 and 2011 were as follows:

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 718,460 $ 618,973 $ 1,068,186 $ 279,685 $ 1,098
                 
Accumulated Benefit Obligation $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 1,098
Fair Value of Plan Assets   621,570   552,026   1,015,115   264,823   -
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2012 $ (87,097) $ (51,622) $ (34,477) $ (6,202) $ (1,098)
                 
  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)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments 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 also be made to maintain the funded status of the plan. For OPEB plans, expected payments include the payment of unfunded benefits. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2013:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 11,883 $ 3,079
 I&M   14,867   315
 OPCo   8,965   1,027
 PSO   6,089   -
 SWEPCo   11,345   -

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 November 2012, changes to the retiree medical coverage were announced. Effective for retirements after December 2012, contributions to retiree medical coverage will be capped reducing exposure to future medical cost inflation. Effective for employees hired after December 2013, retiree medical coverage will not be provided. In December 2011, the prescription drug plan was amended for certain participants. The impact of the changes is reflected in the Benefit Plan Obligation tables as plan amendments. 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)
2013 $ 45,750 $ 36,365 $ 72,470 $ 20,560 $ 21,004
2014   47,455   36,958   73,771   21,772   22,223
2015   46,625   38,694   73,945   22,310   22,352
2016   47,604   39,469   75,347   22,297   22,278
2017   48,367   40,350   75,575   22,347   23,162
Years 2018 to 2022, in Total   245,312   213,444   370,934   110,866   114,257
                
Other Postretirement Benefit Plans:               
Benefit Payments APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 26,427 $ 17,092 $ 34,561 $ 7,821 $ 8,143
2014   27,549   17,999   35,532   8,169   8,748
2015   28,553   19,150   36,755   8,676   9,233
2016   29,738   20,468   38,435   9,239   9,879
2017   30,834   21,549   39,543   9,712   10,582
Years 2018 to 2022, in Total   172,977   127,047   224,357   56,882   64,145
                
Other Postretirement Benefit Plans:               
Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 243 $ 25 $ 41 $ - $ -
2014   257   24   47   -   -
2015   269   23   58   -   -
2016   278   23   65   -   -
2017   283   22   76   -   -
Years 2018 to 2022, in Total   1,452   97   599   -   -

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, 2012, 2011 and 2010:

      Other Postretirement
 I&M Pension Plans Benefit Plans
    Years Ended December 31,
    2012 2011 2010 2012 2011 2010
    (in thousands)
 Service Cost $ 9,908 $ 9,447 $ 15,284 $ 6,621 $ 6,119 $ 6,750
 Interest Cost   26,245   27,726   29,085   12,785   13,610   14,164
 Expected Return on Plan Assets   (37,566)   (36,856)   (35,040)   (12,847)   (13,886)   (13,397)
 Amortization of Transition Obligation   -   -   -   132   188   2,814
 Amortization of Prior Service Cost (Credit)   407   744   744   (2,383)   (237)   -
 Amortization of Net Actuarial Loss   17,569   14,144   10,065   7,050   3,566   3,526
 Net Periodic Benefit Cost   16,563   15,205   20,138   11,358   9,360   13,857
 Capitalized Portion   (3,114)   (3,163)   (4,028)   (2,135)   (1,947)   (2,771)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 13,449 $ 12,042 $ 16,110 $ 9,223 $ 7,413 $ 11,086

Estimated amounts expected to be amortized to net periodic benefit costs (credits) and the impact on each Registrant Subsidiary's balance sheet during 2013 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 24,305 $ 20,939 $ 36,137 $ 9,464 $ 9,662
Prior Service Cost   198   195   283   297   350
Total Estimated 2013 Amortization$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 24,367 $ 19,852 $ 19,387 $ 9,761 $ 10,012
Deferred Income Taxes   48   449   5,962   -   -
Net of Tax AOCI   88   833   11,071   -   -
Total$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 12,114 $ 7,624 $ 16,198 $ 3,480 $ 3,838
Prior Service Credit   (10,050)   (9,421)   (12,922)   (4,290)   (5,155)
Total Estimated 2013 Amortization$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 99 $ (1,767) $ 599 $ (810) $ (899)
Deferred Income Taxes   688   (10)   937   -   (146)
Net of Tax AOCI   1,277   (20)   1,740   -   (272)
Total$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)

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, 2012, 2011 and 2010:

    Years Ended December 31,
 Company 2012 2011 2010
    (in thousands)
 APCo $ 7,579 $ 7,432 $ 7,284
 I&M   9,706   9,541   8,969
 OPCo   10,798   10,166   9,706
 PSO   3,732   3,626   3,505
 SWEPCo   4,890   4,438   3,866

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, 2012 and 2011, without utilization of extended amortization provisions. The Plan adopted a funding improvement plan in May 2012, as required under the PPA. Contributions in 2012, 2011 and 2010 were made under a collective bargaining agreement that is scheduled to expire December 31, 2013, were immaterial and represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2012, 2011 and 2010. The contributions did not include a surcharge. There are no minimum contributions for future years.

 
Ohio Power Co [Member]
  
Benefit Plans

6. 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 health 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 2012 2011  2012 2011
Discount Rate  3.95%  4.55%   3.95%  4.75%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2012 2011
 APCo  4.70%  4.65%
 I&M  5.00%  4.90%
 OPCo  5.00%  4.95%
 PSO  4.90%  4.85%
 SWEPCo  4.75%  4.70%

(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 is constructed with cash flows 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 2012, 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 2012 2011 2010 2012 2011 2010
 Discount Rate  4.55%  5.05%  5.60%  4.75%  5.25%  5.85%
 Expected Return on Plan Assets  7.25%  7.75%  8.00%  7.25%  7.50%  8.00%

   Pension Plans
 Assumption - Rate of Compensation Increase 2012 2011 2010
 APCo  4.70%  4.65%  4.35%
 I&M  5.00%  4.90%  4.55%
 OPCo  5.00%  4.95%  4.70%
 PSO  4.90%  4.85%  4.60%
 SWEPCo  4.75%  4.70%  4.45%

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 2012 2011
 Initial  7.00%  7.50%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2020 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 $ 3,845 $ 3,017 $ 5,347 $ 1,336 $ 1,547
  1% Decrease   (3,029)   (2,390)   (4,206)   (1,059)   (1,227)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 26,416 $ 12,592 $ 34,018 $ 5,447 $ 6,008
  1% Decrease   (20,173)   (9,529)   (25,950)   (4,113)   (4,537)

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. As of December 31, 2012, 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, 2012 and 2011

 

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
  2012 2011 2012 2011
Change in Benefit Obligation (in thousands)
Benefit Obligation as of January 1 $ 1,020,890 $ 984,089 $ 519,892 $ 506,255
Service Cost   11,003   10,230   8,748   7,827
Interest Cost   45,194   48,350   24,189   25,497
Actuarial Loss   63,571   42,693   42,013   49,132
Plan Amendment Prior Service Credit   -   -   (101,384)   (42,357)
Curtailment   -   -   -   605
Benefit Payments   (72,472)   (64,472)   (38,269)   (38,347)
Participant Contributions   -   -   8,545   8,828
Medicare Subsidy   -   -   2,556   2,452
Benefit Obligation as of December 31 $ 1,068,186 $ 1,020,890 $ 466,290 $ 519,892
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets as of January 1 $ 925,939 $ 799,281 $ 311,836 $ 333,198
Actual Gain (Loss) on Plan Assets   118,395   63,181   65,125   (6,589)
Company Contributions   43,253   127,949   19,064   14,746
Participant Contributions   -   -   8,545   8,828
Benefit Payments   (72,472)   (64,472)   (38,269)   (38,347)
Fair Value of Plan Assets as of December 31 $ 1,015,115 $ 925,939 $ 366,301 $ 311,836
             
Underfunded Status as of December 31 $ (53,071) $ (94,951) $ (99,989) $ (208,056)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2012 and 2011

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 OPCo 2012 2011 2012 2011
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (64) $ (62) $ (986) $ (991)
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (53,007)   (94,889)   (99,003)   (207,065)
 Underfunded Status $ (53,071) $ (94,951) $ (99,989) $ (208,056)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2012 and 2011

 

     Other Postretirement
OPCo Pension Plans Benefit Plans
   December 31,
   2012 2011 2012 2011
Components (in thousands)
Net Actuarial Loss $ 500,318 $ 517,180 $ 216,350 $ 231,189
Prior Service Cost (Credit)   1,282   2,025   (142,253)   (44,742)
Transition Obligation   -   -   -   104
              
Recorded as            
Regulatory Assets $ 289,931 $ 305,240 $ 19,754 $ 84,472
Deferred Income Taxes   74,084   74,888   19,020   35,728
Net of Tax AOCI   137,585   139,077   35,323   66,351

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2012 and 2011 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 15,599 $ 12,905 $ 13,577 $ (4,718) $ (3,373)
Amortization of Actuarial Loss   (20,339)   (17,569)   (30,439)   (8,206)   (8,330)
Amortization of Prior Service Credit (Cost)   (475)   (407)   (743)   948   793
Change for the Year Ended               
  December 31, 2012$ (5,215) $ (5,071) $ (17,605) $ (11,976) $ (10,910)
                 
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 Credit (Cost)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
 December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 3,084 $ 11,747 $ (1,170) $ 5,166 $ 11,341
Amortization of Actuarial Loss   (10,526)   (7,050)   (13,669)   (3,189)   (3,659)
Prior Service Credit  (80,528)   (78,851)   (101,384)   (35,971)   (47,309)
Amortization of Prior Service Credit   2,862   2,383   3,873   1,079   933
Amortization of Transition Obligation   (780)   (132)   (104)   -   -
Change for the Year Ended               
 December 31, 2012$ (85,888) $ (71,903) $ (112,454) $ (32,915) $ (38,694)
                 
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 Credit (Cost)   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

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 OPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 282,777 $ - $ - $ - $ 282,777  27.9%
  International   107,391   -   -   -   107,391  10.5%
  Real Estate Investment Trusts   19,576   -   -   -   19,576  1.9%
  Common Collective Trust -                  
   International   -   938   -   -   938  0.1%
 Subtotal - Equities   409,744   938   -   -   410,682  40.4%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   6,858   -   -   6,858  0.7%
  United States Government and                  
   Agency Securities   -   154,630   -   -   154,630  15.2%
  Corporate Debt   -   266,994   -   -   266,994  26.3%
  Foreign Debt   -   42,938   -   -   42,938  4.2%
  State and Local Government   -   9,506   -   -   9,506  0.9%
  Other - Asset Backed   -   7,699   -   -   7,699  0.8%
 Subtotal - Fixed Income   -   488,625   -   -   488,625  48.1%
                    
 Real Estate   -   -   47,464   -   47,464  4.7%
                    
 Alternative Investments   -   -   42,279   -   42,279  4.2%
 Securities Lending   -   17,365   -   -   17,365  1.7%
 Securities Lending Collateral (a)   -   -   -   (19,639)   (19,639)  (1.9)%
                    
 Cash and Cash Equivalents   -   27,185   -   -   27,185  2.7%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   1,154   1,154  0.1%
                    
 Total $ 409,744 $ 534,113 $ 89,743 $ (18,485) $ 1,015,115  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
 OPCo Debt Estate Investments Level 3
    (in thousands)
 Balance as of January 1, 2012 $ 1,372 $ 35,148 $ 34,505 $ 71,025
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   6,515   2,220   8,735
  Relating to Assets Sold During the Period   (483)   -   1,077   594
 Purchases and Sales   (889)   5,801   4,477   9,389
 Transfers into Level 3   -   -   -   -
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2012 $ - $ 47,464 $ 42,279 $ 89,743

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 OPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 98,583 $ - $ - $ - $ 98,583  26.9%
  International   117,867   -   -   -   117,867  32.2%
 Subtotal - Equities   216,450   -   -   -   216,450  59.1%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   16,947   -   -   16,947  4.6%
  United States Government and                  
   Agency Securities   -   19,202   -   -   19,202  5.2%
  Corporate Debt   -   36,166   -   -   36,166  9.9%
  Foreign Debt   -   6,113   -   -   6,113  1.7%
  State and Local Government   -   1,700   -   -   1,700  0.5%
  Other - Asset Backed   -   2,296   -   -   2,296  0.6%
 Subtotal - Fixed Income   -   82,424   -   -   82,424  22.5%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   12,038   -   -   12,038  3.3%
  United States Bonds   -   37,980   -   -   37,980  10.3%
                    
 Cash and Cash Equivalents   14,499   2,664   -   -   17,163  4.7%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   246   246  0.1%
                    
 Total $ 230,949 $ 135,106 $ - $ 246 $ 366,301  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 as of 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 for pension assets by Registrant Subsidiary:

 

    Corporate Real Alternative Total
 OPCo Debt 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 as of 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.

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.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 708,476 $ 603,448 $ 1,048,796 $ 269,738 $ 273,860
Nonqualified Pension Plans   191   200   796   1,287   1,098
Total as of December 31, 2012 $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 274,958
                
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

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 as of December 31, 2012 and 2011 were as follows:

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 718,460 $ 618,973 $ 1,068,186 $ 279,685 $ 1,098
                 
Accumulated Benefit Obligation $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 1,098
Fair Value of Plan Assets   621,570   552,026   1,015,115   264,823   -
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2012 $ (87,097) $ (51,622) $ (34,477) $ (6,202) $ (1,098)
                 
  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)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments 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 also be made to maintain the funded status of the plan. For OPEB plans, expected payments include the payment of unfunded benefits. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2013:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 11,883 $ 3,079
 I&M   14,867   315
 OPCo   8,965   1,027
 PSO   6,089   -
 SWEPCo   11,345   -

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 November 2012, changes to the retiree medical coverage were announced. Effective for retirements after December 2012, contributions to retiree medical coverage will be capped reducing exposure to future medical cost inflation. Effective for employees hired after December 2013, retiree medical coverage will not be provided. In December 2011, the prescription drug plan was amended for certain participants. The impact of the changes is reflected in the Benefit Plan Obligation tables as plan amendments. 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)
2013 $ 45,750 $ 36,365 $ 72,470 $ 20,560 $ 21,004
2014   47,455   36,958   73,771   21,772   22,223
2015   46,625   38,694   73,945   22,310   22,352
2016   47,604   39,469   75,347   22,297   22,278
2017   48,367   40,350   75,575   22,347   23,162
Years 2018 to 2022, in Total   245,312   213,444   370,934   110,866   114,257
                
Other Postretirement Benefit Plans:               
Benefit Payments APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 26,427 $ 17,092 $ 34,561 $ 7,821 $ 8,143
2014   27,549   17,999   35,532   8,169   8,748
2015   28,553   19,150   36,755   8,676   9,233
2016   29,738   20,468   38,435   9,239   9,879
2017   30,834   21,549   39,543   9,712   10,582
Years 2018 to 2022, in Total   172,977   127,047   224,357   56,882   64,145
                
Other Postretirement Benefit Plans:               
Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 243 $ 25 $ 41 $ - $ -
2014   257   24   47   -   -
2015   269   23   58   -   -
2016   278   23   65   -   -
2017   283   22   76   -   -
Years 2018 to 2022, in Total   1,452   97   599   -   -

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, 2012, 2011 and 2010:

      Other Postretirement
 OPCo Pension Plans Benefit Plans
    Years Ended December 31,
    2012 2011 2010 2012 2011 2010
    (in thousands)
 Service Cost $ 11,003 $ 10,230 $ 17,254 $ 8,748 $ 7,827 $ 8,187
 Interest Cost   45,194   48,350   51,900   24,189   25,497   26,498
 Expected Return on Plan Assets   (68,401)   (65,464)   (69,077)   (22,555)   (24,514)   (24,092)
 Curtailment   -   -   -   -   605   -
 Amortization of Transition Obligation   -   -   -   104   150   6,642
 Amortization of Prior Service Cost (Credit)   743   1,474   1,474   (3,873)   (212)   -
 Amortization of Net Actuarial Loss   30,439   24,828   18,150   13,669   7,298   6,877
 Net Periodic Benefit Cost   18,978   19,418   19,701   20,282   16,651   24,112
 Capitalized Portion   (7,060)   (6,932)   (6,843)   (7,545)   (5,944)   (8,334)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 11,918 $ 12,486 $ 12,858 $ 12,737 $ 10,707 $ 15,778

Estimated amounts expected to be amortized to net periodic benefit costs (credits) and the impact on each Registrant Subsidiary's balance sheet during 2013 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 24,305 $ 20,939 $ 36,137 $ 9,464 $ 9,662
Prior Service Cost   198   195   283   297   350
Total Estimated 2013 Amortization$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 24,367 $ 19,852 $ 19,387 $ 9,761 $ 10,012
Deferred Income Taxes   48   449   5,962   -   -
Net of Tax AOCI   88   833   11,071   -   -
Total$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 12,114 $ 7,624 $ 16,198 $ 3,480 $ 3,838
Prior Service Credit   (10,050)   (9,421)   (12,922)   (4,290)   (5,155)
Total Estimated 2013 Amortization$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 99 $ (1,767) $ 599 $ (810) $ (899)
Deferred Income Taxes   688   (10)   937   -   (146)
Net of Tax AOCI   1,277   (20)   1,740   -   (272)
Total$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)

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, 2012, 2011 and 2010:

    Years Ended December 31,
 Company 2012 2011 2010
    (in thousands)
 APCo $ 7,579 $ 7,432 $ 7,284
 I&M   9,706   9,541   8,969
 OPCo   10,798   10,166   9,706
 PSO   3,732   3,626   3,505
 SWEPCo   4,890   4,438   3,866

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, 2012 and 2011, without utilization of extended amortization provisions. The Plan adopted a funding improvement plan in May 2012, as required under the PPA. Contributions in 2012, 2011 and 2010 were made under a collective bargaining agreement that is scheduled to expire December 31, 2013, were immaterial and represent less than 5% of the total contributions in the plan's latest annual report for the years ended June 30, 2012, 2011 and 2010. The contributions did not include a surcharge. There are no minimum contributions for future years.

 
Public Service Co of Oklahoma [Member]
  
Benefit Plans

6. 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 health 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 2012 2011  2012 2011
Discount Rate  3.95%  4.55%   3.95%  4.75%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2012 2011
 APCo  4.70%  4.65%
 I&M  5.00%  4.90%
 OPCo  5.00%  4.95%
 PSO  4.90%  4.85%
 SWEPCo  4.75%  4.70%

(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 is constructed with cash flows 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 2012, 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 2012 2011 2010 2012 2011 2010
 Discount Rate  4.55%  5.05%  5.60%  4.75%  5.25%  5.85%
 Expected Return on Plan Assets  7.25%  7.75%  8.00%  7.25%  7.50%  8.00%

   Pension Plans
 Assumption - Rate of Compensation Increase 2012 2011 2010
 APCo  4.70%  4.65%  4.35%
 I&M  5.00%  4.90%  4.55%
 OPCo  5.00%  4.95%  4.70%
 PSO  4.90%  4.85%  4.60%
 SWEPCo  4.75%  4.70%  4.45%

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 2012 2011
 Initial  7.00%  7.50%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2020 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 $ 3,845 $ 3,017 $ 5,347 $ 1,336 $ 1,547
  1% Decrease   (3,029)   (2,390)   (4,206)   (1,059)   (1,227)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 26,416 $ 12,592 $ 34,018 $ 5,447 $ 6,008
  1% Decrease   (20,173)   (9,529)   (25,950)   (4,113)   (4,537)

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. As of December 31, 2012, 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, 2012 and 2011

 

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
  2012 2011 2012 2011
Change in Benefit Obligation (in thousands)
Benefit Obligation as of January 1 $ 277,448 $ 268,180 $ 125,164 $ 116,935
Service Cost   5,951   5,760   2,836   2,621
Interest Cost   12,301   13,285   5,797   6,046
Actuarial Loss   6,128   7,679   7,511   16,705
Plan Amendment Prior Service Credit   -   -   (35,971)   (11,612)
Benefit Payments   (22,143)   (17,456)   (8,363)   (8,110)
Participant Contributions   -   -   2,024   1,926
Medicare Subsidy   -   -   682   653
Benefit Obligation as of December 31 $ 279,685 $ 277,448 $ 99,680 $ 125,164
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets as of January 1 $ 245,769 $ 213,576 $ 83,090 $ 83,917
Actual Gain on Plan Assets   28,861   16,430   8,089   646
Company Contributions   12,336   33,219   5,681   4,711
Participant Contributions   -   -   2,024   1,926
Benefit Payments   (22,143)   (17,456)   (8,363)   (8,110)
Fair Value of Plan Assets as of December 31 $ 264,823 $ 245,769 $ 90,521 $ 83,090
             
Underfunded Status as of December 31 $ (14,862) $ (31,679) $ (9,159) $ (42,074)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2012 and 2011

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 PSO 2012 2011 2012 2011
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (89) $ (88) $ - $ -
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (14,773)   (31,591)   (9,159)   (42,074)
 Underfunded Status $ (14,862) $ (31,679) $ (9,159) $ (42,074)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2012 and 2011

 

     Other Postretirement
PSO Pension Plans Benefit Plans
   December 31,
   2012 2011 2012 2011
Components (in thousands)
Net Actuarial Loss $ 123,132 $ 136,056 $ 56,493 $ 54,516
Prior Service Cost (Credit)   1,129   181   (47,350)   (12,458)
              
Recorded as            
Regulatory Assets $ 124,261 $ 136,237 $ 9,143 $ 42,058

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2012 and 2011 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 15,599 $ 12,905 $ 13,577 $ (4,718) $ (3,373)
Amortization of Actuarial Loss   (20,339)   (17,569)   (30,439)   (8,206)   (8,330)
Amortization of Prior Service Credit (Cost)   (475)   (407)   (743)   948   793
Change for the Year Ended               
  December 31, 2012$ (5,215) $ (5,071) $ (17,605) $ (11,976) $ (10,910)
                 
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 Credit (Cost)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
 December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 3,084 $ 11,747 $ (1,170) $ 5,166 $ 11,341
Amortization of Actuarial Loss   (10,526)   (7,050)   (13,669)   (3,189)   (3,659)
Prior Service Credit  (80,528)   (78,851)   (101,384)   (35,971)   (47,309)
Amortization of Prior Service Credit   2,862   2,383   3,873   1,079   933
Amortization of Transition Obligation   (780)   (132)   (104)   -   -
Change for the Year Ended               
 December 31, 2012$ (85,888) $ (71,903) $ (112,454) $ (32,915) $ (38,694)
                 
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 Credit (Cost)   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

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 PSO                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 73,770 $ - $ - $ - $ 73,770  27.9%
  International   28,016   -   -   -   28,016  10.5%
  Real Estate Investment Trusts   5,107   -   -   -   5,107  1.9%
  Common Collective Trust -                  
   International   -   245   -   -   245  0.1%
 Subtotal - Equities   106,893   245   -   -   107,138  40.4%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   1,789   -   -   1,789  0.7%
  United States Government and                  
   Agency Securities   -   40,340   -   -   40,340  15.2%
  Corporate Debt   -   69,653   -   -   69,653  26.3%
  Foreign Debt   -   11,202   -   -   11,202  4.2%
  State and Local Government   -   2,480   -   -   2,480  0.9%
  Other - Asset Backed   -   2,009   -   -   2,009  0.8%
 Subtotal - Fixed Income   -   127,473   -   -   127,473  48.1%
                    
 Real Estate   -   -   12,382   -   12,382  4.7%
                    
 Alternative Investments   -   -   11,030   -   11,030  4.2%
 Securities Lending   -   4,530   -   -   4,530  1.7%
 Securities Lending Collateral (a)   -   -   -   (5,123)   (5,123)  (1.9)%
                    
 Cash and Cash Equivalents   -   7,092   -   -   7,092  2.7%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   301   301  0.1%
                    
 Total $ 106,893 $ 139,340 $ 23,412 $ (4,822) $ 264,823  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, 2012 $ 364 $ 9,329 $ 9,159 $ 18,852
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   1,615   534   2,149
  Relating to Assets Sold During the Period   (128)   -   259   131
 Purchases and Sales   (236)   1,438   1,078   2,280
 Transfers into Level 3   -   -   -   -
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2012 $ - $ 12,382 $ 11,030 $ 23,412

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 PSO                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 24,362 $ - $ - $ - $ 24,362  26.9%
  International   29,128   -   -   -   29,128  32.2%
 Subtotal - Equities   53,490   -   -   -   53,490  59.1%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   4,188   -   -   4,188  4.6%
  United States Government and                  
   Agency Securities   -   4,745   -   -   4,745  5.2%
  Corporate Debt   -   8,937   -   -   8,937  9.9%
  Foreign Debt   -   1,511   -   -   1,511  1.7%
  State and Local Government   -   420   -   -   420  0.5%
  Other - Asset Backed   -   567   -   -   567  0.6%
 Subtotal - Fixed Income   -   20,368   -   -   20,368  22.5%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   2,975   -   -   2,975  3.3%
  United States Bonds   -   9,386   -   -   9,386  10.3%
                    
 Cash and Cash Equivalents   3,583   658   -   -   4,241  4.7%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   61   61  0.1%
                    
 Total $ 57,073 $ 33,387 $ - $ 61 $ 90,521  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 as of 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 for pension assets by Registrant Subsidiary:

 

    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 as of 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.

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.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 708,476 $ 603,448 $ 1,048,796 $ 269,738 $ 273,860
Nonqualified Pension Plans   191   200   796   1,287   1,098
Total as of December 31, 2012 $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 274,958
                
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

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 as of December 31, 2012 and 2011 were as follows:

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 718,460 $ 618,973 $ 1,068,186 $ 279,685 $ 1,098
                 
Accumulated Benefit Obligation $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 1,098
Fair Value of Plan Assets   621,570   552,026   1,015,115   264,823   -
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2012 $ (87,097) $ (51,622) $ (34,477) $ (6,202) $ (1,098)
                 
  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)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments 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 also be made to maintain the funded status of the plan. For OPEB plans, expected payments include the payment of unfunded benefits. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2013:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 11,883 $ 3,079
 I&M   14,867   315
 OPCo   8,965   1,027
 PSO   6,089   -
 SWEPCo   11,345   -

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 November 2012, changes to the retiree medical coverage were announced. Effective for retirements after December 2012, contributions to retiree medical coverage will be capped reducing exposure to future medical cost inflation. Effective for employees hired after December 2013, retiree medical coverage will not be provided. In December 2011, the prescription drug plan was amended for certain participants. The impact of the changes is reflected in the Benefit Plan Obligation tables as plan amendments. 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)
2013 $ 45,750 $ 36,365 $ 72,470 $ 20,560 $ 21,004
2014   47,455   36,958   73,771   21,772   22,223
2015   46,625   38,694   73,945   22,310   22,352
2016   47,604   39,469   75,347   22,297   22,278
2017   48,367   40,350   75,575   22,347   23,162
Years 2018 to 2022, in Total   245,312   213,444   370,934   110,866   114,257
                
Other Postretirement Benefit Plans:               
Benefit Payments APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 26,427 $ 17,092 $ 34,561 $ 7,821 $ 8,143
2014   27,549   17,999   35,532   8,169   8,748
2015   28,553   19,150   36,755   8,676   9,233
2016   29,738   20,468   38,435   9,239   9,879
2017   30,834   21,549   39,543   9,712   10,582
Years 2018 to 2022, in Total   172,977   127,047   224,357   56,882   64,145
                
Other Postretirement Benefit Plans:               
Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 243 $ 25 $ 41 $ - $ -
2014   257   24   47   -   -
2015   269   23   58   -   -
2016   278   23   65   -   -
2017   283   22   76   -   -
Years 2018 to 2022, in Total   1,452   97   599   -   -

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, 2012, 2011 and 2010:

      Other Postretirement
 PSO Pension Plans Benefit Plans
    Years Ended December 31,
    2012 2011 2010 2012 2011 2010
    (in thousands)
 Service Cost $ 5,951 $ 5,760 $ 6,052 $ 2,836 $ 2,621 $ 2,815
 Interest Cost   12,301   13,285   14,888   5,797   6,046   6,360
 Expected Return on Plan Assets   (18,015)   (17,464)   (19,739)   (5,922)   (6,264)   (6,110)
 Amortization of Transition Obligation   -   -   -   -   -   2,805
 Amortization of Prior Service Credit   (948)   (950)   (950)   (1,079)   (75)   -
 Amortization of Net Actuarial Loss   8,206   6,757   5,188   3,189   1,553   1,573
 Net Periodic Benefit Cost   7,495   7,388   5,439   4,821   3,881   7,443
 Capitalized Portion   (2,533)   (2,379)   (1,806)   (1,629)   (1,249)   (2,471)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 4,962 $ 5,009 $ 3,633 $ 3,192 $ 2,632 $ 4,972

Estimated amounts expected to be amortized to net periodic benefit costs (credits) and the impact on each Registrant Subsidiary's balance sheet during 2013 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 24,305 $ 20,939 $ 36,137 $ 9,464 $ 9,662
Prior Service Cost   198   195   283   297   350
Total Estimated 2013 Amortization$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 24,367 $ 19,852 $ 19,387 $ 9,761 $ 10,012
Deferred Income Taxes   48   449   5,962   -   -
Net of Tax AOCI   88   833   11,071   -   -
Total$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 12,114 $ 7,624 $ 16,198 $ 3,480 $ 3,838
Prior Service Credit   (10,050)   (9,421)   (12,922)   (4,290)   (5,155)
Total Estimated 2013 Amortization$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 99 $ (1,767) $ 599 $ (810) $ (899)
Deferred Income Taxes   688   (10)   937   -   (146)
Net of Tax AOCI   1,277   (20)   1,740   -   (272)
Total$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)

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, 2012, 2011 and 2010:

    Years Ended December 31,
 Company 2012 2011 2010
    (in thousands)
 APCo $ 7,579 $ 7,432 $ 7,284
 I&M   9,706   9,541   8,969
 OPCo   10,798   10,166   9,706
 PSO   3,732   3,626   3,505
 SWEPCo   4,890   4,438   3,866
Southwestern Electric Power Co [Member]
  
Benefit Plans

6. 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 health 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 2012 2011  2012 2011
Discount Rate  3.95%  4.55%   3.95%  4.75%

   Pension Plans
 Assumption - Rate of Compensation Increase (a) 2012 2011
 APCo  4.70%  4.65%
 I&M  5.00%  4.90%
 OPCo  5.00%  4.95%
 PSO  4.90%  4.85%
 SWEPCo  4.75%  4.70%

(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 is constructed with cash flows 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 2012, 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 2012 2011 2010 2012 2011 2010
 Discount Rate  4.55%  5.05%  5.60%  4.75%  5.25%  5.85%
 Expected Return on Plan Assets  7.25%  7.75%  8.00%  7.25%  7.50%  8.00%

   Pension Plans
 Assumption - Rate of Compensation Increase 2012 2011 2010
 APCo  4.70%  4.65%  4.35%
 I&M  5.00%  4.90%  4.55%
 OPCo  5.00%  4.95%  4.70%
 PSO  4.90%  4.85%  4.60%
 SWEPCo  4.75%  4.70%  4.45%

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 2012 2011
 Initial  7.00%  7.50%
 Ultimate  5.00%  5.00%
 Year Ultimate Reached 2020 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 $ 3,845 $ 3,017 $ 5,347 $ 1,336 $ 1,547
  1% Decrease   (3,029)   (2,390)   (4,206)   (1,059)   (1,227)
                 
Effect on the Health Care Component of the                
 Accumulated Postretirement Benefit               
 Obligation:               
  1% Increase $ 26,416 $ 12,592 $ 34,018 $ 5,447 $ 6,008
  1% Decrease   (20,173)   (9,529)   (25,950)   (4,113)   (4,537)

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. As of December 31, 2012, 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, 2012 and 2011

 

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
  2012 2011 2012 2011
Change in Benefit Obligation (in thousands)
Benefit Obligation as of January 1 $ 277,594 $ 267,206 $ 145,160 $ 129,726
Service Cost   7,099   6,573   3,324   3,029
Interest Cost   12,537   13,331   6,673   6,969
Actuarial Loss   9,752   7,861   7,885   24,547
Plan Amendment Prior Service Credit   -   -   (47,309)   (13,534)
Benefit Payments   (21,422)   (17,377)   (8,610)   (8,226)
Participant Contributions   -   -   2,189   2,041
Medicare Subsidy   -   -   636   608
Benefit Obligation as of December 31 $ 285,560 $ 277,594 $ 109,948 $ 145,160
             
Change in Fair Value of Plan Assets            
Fair Value of Plan Assets as of January 1 $ 255,861 $ 224,618 $ 96,364 $ 93,097
Actual Gain on Plan Assets   31,992   17,283   3,143   3,797
Company Contributions   13,268   31,337   6,760   5,655
Participant Contributions   -   -   2,189   2,041
Benefit Payments   (21,422)   (17,377)   (8,610)   (8,226)
Fair Value of Plan Assets as of December 31 $ 279,699 $ 255,861 $ 99,846 $ 96,364
             
Underfunded Status as of December 31 $ (5,861) $ (21,733) $ (10,102) $ (48,796)

Amounts Recognized on the Registrant Subsidiaries' Balance Sheets as of December 31, 2012 and 2011

      Other Postretirement
    Pension Plans Benefit Plans
    December 31,
 SWEPCo 2012 2011 2012 2011
    (in thousands)
 Other Current Liabilities - Accrued Short-term            
  Benefit Liability $ (80) $ (78) $ - $ -
 Employee Benefits and Pension Obligations -            
  Accrued Long-term Benefit Liability   (5,781)   (21,655)   (10,102)   (48,796)
 Underfunded Status $ (5,861) $ (21,733) $ (10,102) $ (48,796)

Amounts Included in AOCI and Regulatory Assets as of December 31, 2012 and 2011

 

     Other Postretirement
SWEPCo Pension Plans Benefit Plans
   December 31,
   2012 2011 2012 2011
Components (in thousands)
Net Actuarial Loss $ 121,839 $ 133,542 $ 67,223 $ 59,541
Prior Service Cost (Credit)   1,353   560   (57,138)   (10,762)
              
Recorded as            
Regulatory Assets $ 123,192 $ 134,102 $ 6,528 $ 31,407
Deferred Income Taxes   -   -   1,246   6,081
Net of Tax AOCI   -   -   2,311   11,291

Components of the change in amounts included in AOCI and Regulatory Assets by Registrant Subsidiary during the years ended December 31, 2012 and 2011 are as follows:

 

Pension Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 15,599 $ 12,905 $ 13,577 $ (4,718) $ (3,373)
Amortization of Actuarial Loss   (20,339)   (17,569)   (30,439)   (8,206)   (8,330)
Amortization of Prior Service Credit (Cost)   (475)   (407)   (743)   948   793
Change for the Year Ended               
  December 31, 2012$ (5,215) $ (5,071) $ (17,605) $ (11,976) $ (10,910)
                 
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 Credit (Cost)   (917)   (744)   (1,474)   950   795
Change for the Year Ended               
 December 31, 2011$ 16,508 $ 6,484 $ 18,674 $ 2,905 $ 2,994
                 
Other Postretirement Benefit Plans - Components APCo I&M OPCo PSO SWEPCo
   (in thousands)
Actuarial Loss (Gain) During the Year $ 3,084 $ 11,747 $ (1,170) $ 5,166 $ 11,341
Amortization of Actuarial Loss   (10,526)   (7,050)   (13,669)   (3,189)   (3,659)
Prior Service Credit  (80,528)   (78,851)   (101,384)   (35,971)   (47,309)
Amortization of Prior Service Credit   2,862   2,383   3,873   1,079   933
Amortization of Transition Obligation   (780)   (132)   (104)   -   -
Change for the Year Ended               
 December 31, 2012$ (85,888) $ (71,903) $ (112,454) $ (32,915) $ (38,694)
                 
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 Credit (Cost)   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

Pension and Other Postretirement Plans' Assets

 

The following tables present the classification of pension plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 SWEPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 77,915 $ - $ - $ - $ 77,915  27.9%
  International   29,590   -   -   -   29,590  10.5%
  Real Estate Investment Trusts   5,394   -   -   -   5,394  1.9%
  Common Collective Trust -                  
   International   -   258   -   -   258  0.1%
 Subtotal - Equities   112,899   258   -   -   113,157  40.4%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   1,890   -   -   1,890  0.7%
  United States Government and                  
   Agency Securities   -   42,606   -   -   42,606  15.2%
  Corporate Debt   -   73,566   -   -   73,566  26.3%
  Foreign Debt   -   11,831   -   -   11,831  4.2%
  State and Local Government   -   2,619   -   -   2,619  0.9%
  Other - Asset Backed   -   2,121   -   -   2,121  0.8%
 Subtotal - Fixed Income   -   134,633   -   -   134,633  48.1%
                    
 Real Estate   -   -   13,078   -   13,078  4.7%
                    
 Alternative Investments   -   -   11,649   -   11,649  4.2%
 Securities Lending   -   4,785   -   -   4,785  1.7%
 Securities Lending Collateral (a)   -   -   -   (5,411)   (5,411)  (1.9)%
                    
 Cash and Cash Equivalents   -   7,490   -   -   7,490  2.7%
 Other - Pending Transactions and                  
  Accrued Income (b)   -   -   -   318   318  0.1%
                    
 Total $ 112,899 $ 147,166 $ 24,727 $ (5,093) $ 279,699  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, 2012 $ 379 $ 9,712 $ 9,535 $ 19,626
 Actual Return on Plan Assets            
  Relating to Assets Still Held as of the Reporting Date   -   1,780   603   2,383
  Relating to Assets Sold During the Period   (134)   -   293   159
 Purchases and Sales   (245)   1,586   1,218   2,559
 Transfers into Level 3   -   -   -   -
 Transfers out of Level 3   -   -   -   -
 Balance as of December 31, 2012 $ - $ 13,078 $ 11,649 $ 24,727

The following tables present the classification of OPEB plan assets within the fair value hierarchy by Registrant Subsidiary as of December 31, 2012:

 SWEPCo                  
                     Year End
 Asset Class Level 1 Level 2 Level 3 Other Total Allocation
   (in thousands)
 Equities:                  
  Domestic $ 26,874 $ - $ - $ - $ 26,874  26.9%
  International   32,128   -   -   -   32,128  32.2%
 Subtotal - Equities   59,002   -   -   -   59,002  59.1%
                    
 Fixed Income:                  
  Common Collective Trust - Debt   -   4,619   -   -   4,619  4.6%
  United States Government and                  
   Agency Securities   -   5,234   -   -   5,234  5.2%
  Corporate Debt   -   9,858   -   -   9,858  9.9%
  Foreign Debt   -   1,666   -   -   1,666  1.7%
  State and Local Government   -   463   -   -   463  0.5%
  Other - Asset Backed   -   626   -   -   626  0.6%
 Subtotal - Fixed Income   -   22,466   -   -   22,466  22.5%
                    
 Trust Owned Life Insurance:                  
  International Equities   -   3,281   -   -   3,281  3.3%
  United States Bonds   -   10,352   -   -   10,352  10.3%
                    
 Cash and Cash Equivalents   3,952   726   -   -   4,678  4.7%
 Other - Pending Transactions and                  
  Accrued Income (a)   -   -   -   67   67  0.1%
                    
 Total $ 62,954 $ 36,825 $ - $ 67 $ 99,846  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 as of 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 for pension assets by Registrant Subsidiary:

 

    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 as of 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.

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.

Accumulated Benefit Obligation APCo I&M OPCo PSO SWEPCo
  (in thousands)
Qualified Pension Plan $ 708,476 $ 603,448 $ 1,048,796 $ 269,738 $ 273,860
Nonqualified Pension Plans   191   200   796   1,287   1,098
Total as of December 31, 2012 $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 274,958
                
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

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 as of December 31, 2012 and 2011 were as follows:

  APCo I&M OPCo PSO SWEPCo
   (in thousands)
Projected Benefit Obligation$ 718,460 $ 618,973 $ 1,068,186 $ 279,685 $ 1,098
                 
Accumulated Benefit Obligation $ 708,667 $ 603,648 $ 1,049,592 $ 271,025 $ 1,098
Fair Value of Plan Assets   621,570   552,026   1,015,115   264,823   -
Underfunded Accumulated Benefit              
 Obligation as of December 31, 2012 $ (87,097) $ (51,622) $ (34,477) $ (6,202) $ (1,098)
                 
  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)

Estimated Future Benefit Payments and Contributions

 

The estimated pension benefit payments 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 also be made to maintain the funded status of the plan. For OPEB plans, expected payments include the payment of unfunded benefits. The following table provides the estimated contributions and payments by Registrant Subsidiary for 2013:

     Other Postretirement
 Company Pension Plans Benefit Plans
   (in thousands)
 APCo $ 11,883 $ 3,079
 I&M   14,867   315
 OPCo   8,965   1,027
 PSO   6,089   -
 SWEPCo   11,345   -

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 November 2012, changes to the retiree medical coverage were announced. Effective for retirements after December 2012, contributions to retiree medical coverage will be capped reducing exposure to future medical cost inflation. Effective for employees hired after December 2013, retiree medical coverage will not be provided. In December 2011, the prescription drug plan was amended for certain participants. The impact of the changes is reflected in the Benefit Plan Obligation tables as plan amendments. 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)
2013 $ 45,750 $ 36,365 $ 72,470 $ 20,560 $ 21,004
2014   47,455   36,958   73,771   21,772   22,223
2015   46,625   38,694   73,945   22,310   22,352
2016   47,604   39,469   75,347   22,297   22,278
2017   48,367   40,350   75,575   22,347   23,162
Years 2018 to 2022, in Total   245,312   213,444   370,934   110,866   114,257
                
Other Postretirement Benefit Plans:               
Benefit Payments APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 26,427 $ 17,092 $ 34,561 $ 7,821 $ 8,143
2014   27,549   17,999   35,532   8,169   8,748
2015   28,553   19,150   36,755   8,676   9,233
2016   29,738   20,468   38,435   9,239   9,879
2017   30,834   21,549   39,543   9,712   10,582
Years 2018 to 2022, in Total   172,977   127,047   224,357   56,882   64,145
                
Other Postretirement Benefit Plans:               
Medicare Subsidy Receipts APCo I&M OPCo PSO SWEPCo
                
  (in thousands)
2013 $ 243 $ 25 $ 41 $ - $ -
2014   257   24   47   -   -
2015   269   23   58   -   -
2016   278   23   65   -   -
2017   283   22   76   -   -
Years 2018 to 2022, in Total   1,452   97   599   -   -

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, 2012, 2011 and 2010:

      Other Postretirement
 SWEPCo Pension Plans Benefit Plans
    Years Ended December 31,
    2012 2011 2010 2012 2011 2010
    (in thousands)
 Service Cost $ 7,099 $ 6,573 $ 7,046 $ 3,324 $ 3,029 $ 3,108
 Interest Cost   12,537   13,331   15,093   6,673   6,969   6,940
 Expected Return on Plan Assets   (18,866)   (18,380)   (19,489)   (6,795)   (7,200)   (6,646)
 Amortization of Transition Obligation   -   -   -   -   -   2,461
 Amortization of Prior Service Cost (Credit)   (793)   (795)   (796)   (933)   258   -
 Amortization of Net Actuarial Loss   8,330   6,759   5,242   3,659   1,785   1,711
 Net Periodic Benefit Cost   8,307   7,488   7,096   5,928   4,841   7,574
 Capitalized Portion   (2,924)   (2,636)   (2,406)   (2,087)   (1,704)   (2,568)
 Net Periodic Benefit Cost Recognized as                  
  Expense $ 5,383 $ 4,852 $ 4,690 $ 3,841 $ 3,137 $ 5,006

Estimated amounts expected to be amortized to net periodic benefit costs (credits) and the impact on each Registrant Subsidiary's balance sheet during 2013 are shown in the following tables:

 

   APCo I&M OPCo PSO SWEPCo
Pension Plan - Components (in thousands)
Net Actuarial Loss $ 24,305 $ 20,939 $ 36,137 $ 9,464 $ 9,662
Prior Service Cost   198   195   283   297   350
Total Estimated 2013 Amortization$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
Pension Plans -                
Expected to be Recorded as          
Regulatory Asset $ 24,367 $ 19,852 $ 19,387 $ 9,761 $ 10,012
Deferred Income Taxes   48   449   5,962   -   -
Net of Tax AOCI   88   833   11,071   -   -
Total$ 24,503 $ 21,134 $ 36,420 $ 9,761 $ 10,012
                 
  APCo I&M OPCo PSO SWEPCo
Other Postretirement Benefit Plans -  (in thousands)
Components               
Net Actuarial Loss $ 12,114 $ 7,624 $ 16,198 $ 3,480 $ 3,838
Prior Service Credit   (10,050)   (9,421)   (12,922)   (4,290)   (5,155)
Total Estimated 2013 Amortization$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)
                 
Other Postretirement Benefit Plans - Expected to be Recorded as          
Regulatory Asset $ 99 $ (1,767) $ 599 $ (810) $ (899)
Deferred Income Taxes   688   (10)   937   -   (146)
Net of Tax AOCI   1,277   (20)   1,740   -   (272)
Total$ 2,064 $ (1,797) $ 3,276 $ (810) $ (1,317)

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, 2012, 2011 and 2010:

    Years Ended December 31,
 Company 2012 2011 2010
    (in thousands)
 APCo $ 7,579 $ 7,432 $ 7,284
 I&M   9,706   9,541   8,969
 OPCo   10,798   10,166   9,706
 PSO   3,732   3,626   3,505
 SWEPCo   4,890   4,438   3,866