Pension and Other Postretirement Benefits

(8) PENSION AND OTHER POSTRETIREMENT BENEFITS

The table below provides the components of net periodic benefit costs recognized by Pepco Holdings for the three months ended June 30, 2014 and 2013:


	Pension Benefits						Other Postretirement Benefits
	2014			2013			2014			2013
	*(millions of dollars)*
Service cost	$	9		$	13		$	2		$	2
Interest cost		28			25			6			8
Expected return on plan assets		(36	)		(36	)		(6	)		(5	)
Amortization of prior service cost (benefit)		1			1			(4	)		(1	)
Amortization of net actuarial loss		11			18			(1	)		4

Net periodic benefit cost	$	13		$	21		$	(3	)	$	8

The table below provides the components of net periodic benefit costs recognized by Pepco Holdings for the six months ended June 30, 2014 and 2013:


	Pension Benefits						Other Postretirement Benefits
	2014			2013			2014			2013
	*(millions of dollars)*
Service cost	$	21		$	26		$	4		$	4
Interest cost		55			50			13			16
Expected return on plan assets		(71	)		(73	)		(12	)		(10	)
Amortization of prior service cost (benefit)		1			1			(7	)		(2	)
Amortization of net actuarial loss		22			34			2			8

Net periodic benefit cost	$	28		$	38		$	—		$	16

Pension and Other Postretirement Benefits

Net periodic benefit cost related to continuing operations is included in other operation and maintenance expense, net of the portion of the net periodic benefit cost that is capitalized as part of the cost of labor for internal construction projects. PHI anticipates approximately 37% of annual net periodic pension and other postretirement benefit costs will be capitalized.

Pension Contributions

PHI’s funding policy with regard to PHI’s non-contributory retirement plan (the PHI Retirement Plan) is to maintain a funding level that is at least equal to the target liability as defined under the Pension Protection Act of 2006. In 2014, PHI, Pepco, DPL and ACE made no discretionary tax-deductible contributions to the PHI Retirement Plan. In the second quarter of 2013, PHI made a discretionary tax-deductible contribution to the PHI Retirement Plan of $60 million. In the first quarter of 2013, PHI, Pepco, DPL and ACE made discretionary tax-deductible contributions to the PHI Retirement Plan of $20 million, zero, $10 million and $30 million, respectively, which brought the PHI Retirement Plan assets to the funding target level for 2013 under the Pension Protection Act.

Benefit Plan Modifications

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree health care and the retiree life insurance benefits, and became effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its accumulated postretirement benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $16 million reduction in net periodic benefit cost for other postretirement benefits during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013.

Pension and Other Postretirement Benefits

(7) PENSION AND OTHER POSTRETIREMENT BENEFITS

Pepco accounts for its participation in its parent’s single-employer plans, Pepco Holdings’ non-contributory retirement plan (the PHI Retirement Plan) and its other postretirement benefits plan (the Pepco Holdings, Inc. Welfare Plan for Retirees), as participation in multiemployer plans. PHI’s pension and other postretirement net periodic benefit cost for the three months ended June 30, 2014 and 2013, before intercompany allocations from the PHI Service Company, were $10 million and $29 million, respectively. Pepco’s allocated share was $4 million and $11 million, respectively, for the three months ended June 30, 2014 and 2013. PHI’s pension and other postretirement net periodic benefit cost for the six months ended June 30, 2014 and 2013, before intercompany allocations from the PHI Service Company, were $28 million and $54 million, respectively. Pepco’s allocated share was $11 million and $19 million, respectively, for the six months ended June 30, 2014 and 2013.

In 2014 and 2013, Pepco made no contributions to the PHI Retirement Plan.

Other Postretirement Benefit Plan Amendments

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree medical plan and the retiree life insurance benefits, and became effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its projected benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $18 million reduction in Pepco’s net periodic benefit cost for other postretirement benefits during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013. Pepco anticipates approximately 37% of annual net periodic other postretirement benefit costs will be capitalized.

Pension and Other Postretirement Benefits

(8) PENSION AND OTHER POSTRETIREMENT BENEFITS

DPL accounts for its participation in its parent’s single-employer plans, Pepco Holdings’ non-contributory retirement plan (the PHI Retirement Plan) and its other postretirement benefits plan (the Pepco Holdings, Inc. Welfare Plan for Retirees), as participation in multiemployer plans. PHI’s pension and other postretirement net periodic benefit cost for the three months ended June 30, 2014 and 2013, before intercompany allocations from the PHI Service Company, were $10 million and $29 million, respectively. DPL’s allocated share was $1 million and $6 million for the three months ended June 30, 2014 and 2013, respectively. PHI’s pension and other postretirement net periodic benefit cost for the six months ended June 30, 2014 and 2013, before intercompany allocations from the PHI Service Company, were $28 million and $54 million, respectively. DPL’s allocated share was $4 million and $10 million for the six months ended June 30, 2014 and 2013, respectively.

In the first quarter of 2013, DPL made a discretionary tax-deductible contribution to the PHI Retirement Plan of $10 million. In 2014, DPL has made no such contributions.

Other Postretirement Benefit Plan Amendments

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree medical plan and the retiree life insurance benefits, and became effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its projected benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $13 million reduction in DPL’s net periodic benefit cost for other postretirement benefits during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013. DPL anticipates approximately 37% of annual net periodic other postretirement benefit costs will be capitalized.

Pension and Other Postretirement Benefits

(7) PENSION AND OTHER POSTRETIREMENT BENEFITS

ACE accounts for its participation in its parent’s single-employer plans, Pepco Holdings’ non-contributory retirement plan (the PHI Retirement Plan) and its other postretirement benefits plan (the Pepco Holdings, Inc. Welfare Plan for Retirees), as participation in multiemployer plans. PHI’s pension and other postretirement net periodic benefit cost for the three months ended June 30, 2014 and 2013, before intercompany allocations from the PHI Service Company, were $10 million and $29 million, respectively. ACE’s allocated share was $2 million and $5 million for the three months ended June 30, 2014 and 2013, respectively. PHI’s pension and other postretirement net periodic benefit cost for the six months ended June 30, 2014 and 2013, before intercompany allocations from the PHI Service Company, were $28 million and $54 million, respectively. ACE’s allocated share was $6 million and $10 million for the six months ended June 30, 2014 and 2013, respectively.

In the first quarter of 2013, ACE made a discretionary tax-deductible contribution to the PHI Retirement Plan of $30 million. In 2014, ACE has made no such contributions.

Other Postretirement Benefit Plan Amendments

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree medical plan and the retiree life insurance benefits, and became effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its projected benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $11 million reduction in ACE’s net periodic benefit cost for other postretirement benefits during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013. ACE anticipates approximately 37% of annual net periodic other postretirement benefit costs will be capitalized.