
(11)	Employee Benefit Plans

MidAmerican Energy sponsors a noncontributory defined benefit pension plan covering a majority of all employees of MEHC and its domestic energy subsidiaries other than PacifiCorp. Benefit obligations under the plan are based on a cash balance arrangement for salaried employees and certain union employees and final average pay formulas for other union employees. Non-union employees hired on or after January 1, 2008 are not eligible to participate in the pension plan. Union employees hired on or after specified dates in their union contracts are not eligible to participate in the pension plan. These salaried and union employees are eligible to receive enhanced benefits under MidAmerican Energy's defined contribution plan. MidAmerican Energy also maintains noncontributory, nonqualified defined benefit supplemental executive retirement plans ("SERP") for certain active and retired participants.

MidAmerican Energy also sponsors certain postretirement healthcare and life insurance benefits covering substantially all retired employees of MEHC and its domestic energy subsidiaries other than PacifiCorp. Under the plans, a majority of all employees of the participating companies may become eligible for these benefits if they reach retirement age. New employees are not eligible for benefits under the plans. Effective January 1, 2012, MidAmerican Energy changed the medical benefits for all Medicare-eligible participants in its other postretirement benefit plan. Medicare-eligible participants now enroll in individual medical plans, rather than company-sponsored plans, under which MidAmerican Energy contributes fixed amounts to the participant's health reimbursement account. As a result of this change, MidAmerican Energy's benefit obligation for its other postretirement benefit plan and its related regulatory assets decreased $18 million as of December 31, 2011. MidAmerican Energy has been allowed to recover accrued pension and other postretirement benefit costs in its electric and gas service rates.

Net Periodic Benefit Cost

For purposes of calculating the expected return on pension plan assets, a market-related value is used. The market-related value of plan assets is calculated by spreading the difference between expected and actual investment returns on equity investments over a five-year period beginning after the first year in which they occur.

MidAmerican Energy bills to and is reimbursed currently for affiliates' share of the net periodic benefit costs from all plans in which such affiliates participate. In 2012, 2011 and 2010, MidAmerican Energy's share of pension cost was $8 million, $9 million and $9 million, respectively. MidAmerican Energy's share of other postretirement cost in 2012, 2011 and 2010 totaled $(2) million, $‑ million and $1 million, respectively.

Net periodic benefit cost for the plans of MidAmerican Energy and the aforementioned affiliates included the following components for the years ended December 31 (in millions):



	Pension									Other Postretirement
	2012			2011			2010			2012			2011			2010

Service cost	$	18		$	18		$	17		$	4		$	4		$	4
Interest cost	37			39			39			8			10			11
Expected return on plan assets	(45		)	(43		)	(40		)	(13		)	(13		)	(13		)
Net amortization	4			—			—			(3		)	(2		)	(2		)
Net periodic benefit cost (benefit)	$	14		$	14		$	16		$	(4	)	$	(1	)	$	—

Funded Status

The following table is a reconciliation of the fair value of plan assets for the years ended December 31 (in millions):



	Pension						Other Postretirement
	2012			2011			2012			2011

Plan assets at fair value, beginning of year	$	555		$	546		$	213		$	216
Employer contributions	65			55			1			2
Participant contributions	—			—			2			7
Actual return on plan assets	74			—			25			4
Benefits paid	(51		)	(46		)	(15		)	(16		)
Plan assets at fair value, end of year	$	643		$	555		$	226		$	213

The following table is a reconciliation of the benefit obligations for the years ended December 31 (in millions):



	Pension						Other Postretirement
	2012			2011			2012			2011

Benefit obligation, beginning of year	$	799		$	738		$	198		$	189
Service cost	18			18			4			4
Interest cost	37			39			8			10
Participant contributions	—			—			2			7
Plan amendments	—			—			—			(18		)
Actuarial loss (gain)	43			50			16			22
Benefits paid	(51		)	(46		)	(15		)	(16		)
Benefit obligation, end of year	$	846		$	799		$	213		$	198
Accumulated benefit obligation, end of year	$	821		$	771

The funded status of the plans and the amounts recognized on the Consolidated Balance Sheets as of December 31 are as follows (in millions):



	Pension						Other Postretirement
	2012			2011			2012		2011

Plan assets at fair value, end of year	$	643		$	555		$	226	$	213
Less - Benefit obligation, end of year	846			799			213		198
Funded status	$	(203	)	$	(244	)	$	13	$	15

Amounts recognized on the Consolidated Balance Sheets:
Other assets	$	—		$	—		$	13	$	15
Other current liabilities	(8		)	(8		)	—		—
Other liabilities	(195		)	(236		)	—		—
Amounts recognized	$	(203	)	$	(244	)	$	13	$	15

MidAmerican Energy sponsors pension and other postretirement benefit plans on behalf of certain of its affiliates in addition to itself, and therefore, the portion of the funded status of the respective plans that has not yet been recognized in net periodic benefit cost is attributable to multiple entities. Additionally, substantially all of MidAmerican Energy's portion of such amounts is either refundable to or recoverable from its customers and is reflected as regulatory liabilities and regulatory assets.

The SERP has no plan assets; however, MidAmerican Energy and MEHC have Rabbi trusts that hold corporate-owned life insurance and other investments to provide funding for the future cash requirements of the SERP. The cash surrender value of all of the policies included in the Rabbi trusts, net of amounts borrowed against the cash surrender value, plus the fair market value of other Rabbi trust investments, was $136 million and $129 million as of December 31, 2012 and 2011, respectively, of which $94 million and $92 million was held by MidAmerican Energy as of December 31, 2012 and 2011, respectively, with the remainder held by MEHC. These assets are not included in the plan assets in the above table, but are reflected in investments and nonregulated property, net on the Consolidated Balance Sheets.

Unrecognized Amounts

The portion of the funded status of the plans not yet recognized in net periodic benefit cost as of December 31 is as follows (in millions):



	Pension				Other Postretirement
	2012		2011		2012			2011

Net loss	$	121	$	111	$	51		$	48
Prior service cost (credit)	4		4		(53		)	(58		)
Total	$	125	$	115	$	(2	)	$	(10	)

A reconciliation of the amounts not yet recognized as components of net periodic benefit cost for the years ended December 31, 2012 and 2011 is as follows (in millions):



	Regulatory Asset			Regulatory Liability			Receivables (Payables) with Affiliates			Total
Pension
Balance, December 31, 2010	$	14		$	(1	)	$	9		$	22
Net gain arising during the year	85			1			7			93
Balance, December 31, 2011	99			—			16			115
Net loss arising during the year	14			—			—			14
Net amortization	(3		)	—			(1		)	(4		)
Total	11			—			(1		)	10
Balance, December 31, 2012	$	110		$	—		$	15		$	125



	Regulatory Asset			Regulatory Liability			Receivables (Payables) with Affiliates			Total
Other Postretirement
Balance, December 31, 2010	$	—		$	(8	)	$	(14	)	$	(22	)
Net loss arising during the year	16			8			5			29
Prior service credit arising during the year	(15		)	—			(4		)	(19		)
Net amortization	1			—			1			2
Total	2			8			2			12
Balance, December 31, 2011	2			—			(12		)	(10		)
Net loss (gain) arising during the year	6			—			(2		)	4
Net amortization	3			—			1			4
Total	9			—			(1		)	8
Balance, December 31, 2012	$	11		$	—		$	(13	)	$	(2	)

The net loss and prior service cost (credit) that will be amortized in 2013 into net periodic benefit cost are estimated to be as follows (in millions):



	Net Loss		Prior Service Cost (Credit)			Total

Pension	$	10	$	1		$	11
Other postretirement	3		(6		)	(3		)
Total	$	13	$	(5	)	$	8

Plan Assumptions

Assumptions used to determine benefit obligations and net periodic benefit cost were as follows:



	Pension						Other Postretirement
	2012		2011		2010		2012		2011		2010
Benefit obligations as of December 31:
Discount rate	4.00	%	4.75	%	5.50	%	3.75	%	4.75	%	5.50	%
Rate of compensation increase	3.00	%	3.50	%	3.50	%	N/A		N/A		N/A

Net periodic benefit cost for the years ended December 31:
Discount rate	4.75	%	5.50	%	6.00	%	4.75	%	5.50	%	6.00	%
Expected return on plan assets⁽¹⁾	7.50	%	7.50	%	7.50	%	7.50	%	7.50	%	7.50	%
Rate of compensation increase	3.50	%	3.50	%	3.00	%	N/A		N/A		N/A


(1)	Amounts reflected are pre-tax values. Assumed after-tax returns for a taxable, non-union other postretirement plan were 5.75% for 2012, 2011 and 2010.



	2012		2011
Assumed healthcare cost trend rates as of December 31:
Healthcare cost trend rate assumed for next year	8.00	%	7.40	%
Rate that the cost trend rate gradually declines to	5.00	%	5.00	%
Year that the rate reaches the rate it is assumed to remain at	2018		2016

In establishing its assumption as to the expected return on plan assets, MidAmerican Energy utilizes the expected asset allocation and return assumptions for each asset class based on historical performance and forward-looking views of the financial markets.

A one percentage-point change in assumed healthcare cost trend rates would have the following effects (in millions):



	One Percentage-Point
	Increase		Decrease
Increase (decrease) in:
Total service and interest cost	$	—	$	—
Other postretirement benefit obligation	1		(1		)

Contributions and Benefit Payments

Employer contributions to the pension and other postretirement benefit plans are expected to be $8 million and $‑ million, respectively, during 2013. Funding to MidAmerican Energy's pension benefit plan trust is based upon the actuarially determined costs of the plan and the requirements of the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006, as amended. MidAmerican Energy considers contributing additional amounts from time to time in order to achieve certain funding levels specified under the Pension Protection Act of 2006, as amended. MidAmerican Energy's funding policy for its other postretirement benefit plan is to contribute an amount equal to the sum of the net periodic benefit cost and the amount of Medicare subsidies expected to be earned during the period.

Net periodic benefit costs assigned to MidAmerican Energy affiliates are reimbursed currently in accordance with its intercompany administrative services agreement. The expected benefit payments to participants in MidAmerican Energy's pension and other postretirement benefit plans for 2013 through 2017 and for the five years thereafter are summarized below (in millions):



	Projected Benefit Payments
	Pension		Other Postretirement

2013	$	53	$	15
2014	56		15
2015	56		16
2016	58		17
2017	61		18
2018-22	310		92

Plan Assets

Investment Policy and Asset Allocations

MidAmerican Energy's investment policy for its pension and other postretirement benefit plans is to balance risk and return through a diversified portfolio of debt securities, equity securities and other alternative investments. Maturities for debt securities are managed to targets consistent with prudent risk tolerances. The plans retain outside investment advisors to manage plan investments within the parameters outlined by the MidAmerican Energy Pension and Employee Benefits Plans Administrative Committee. The investment portfolio is managed in line with the investment policy with sufficient liquidity to meet near-term benefit payments. The return on assets assumption for each plan is based on a weighted-average of the expected historical performance for the types of assets in which the plans invest.

The target allocations (percentage of plan assets) for MidAmerican Energy's pension and other postretirement benefit plan assets are as follows as of December 31, 2012:



	Pension	Other Postretirement
	%	%
Debt securities⁽¹⁾	20-30	25-35
Equity securities⁽¹⁾	65-75	60-80
Real estate funds	2-8	—
Other	0-5	0-5


(1)	For purposes of target allocation percentages and consistent with the plans' investment policy, investment funds have been allocated based on the underlying investments in debt and equity securities.

Fair Value Measurements

The following table presents the fair value of plan assets, by major category, for MidAmerican Energy's defined benefit pension plan (in millions):



	Input Levels for Fair Value Measurements⁽¹⁾
	Level 1		Level 2		Level 3		Total
As of December 31, 2012
Cash equivalents	$	—	$	7	$	—	$	7
Debt securities:
United States government obligations	19		—		—		19
Corporate obligations	—		31		—		31
Municipal obligations	—		5		—		5
Agency, asset and mortgage-backed obligations	—		29		—		29
Equity securities:
United States companies	137		—		—		137
Investment funds⁽²⁾	101		288		—		389
Real estate funds	—		—		26		26
Total	$	257	$	360	$	26	$	643

As of December 31, 2011
Cash equivalents	$	—	$	9	$	—	$	9
Debt securities:
United States government obligations	6		—		—		6
Corporate obligations	—		29		—		29
Municipal obligations	—		5		—		5
Agency, asset and mortgage-backed obligations	—		35		—		35
Equity securities:
United States companies	115		—		—		115
Investment funds⁽²⁾	76		256		—		332
Real estate funds	—		—		24		24
Total	$	197	$	334	$	24	$	555


(1)	Refer to Note 14 for additional discussion regarding the three levels of the fair value hierarchy.


(2)	Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 74% and 26%, respectively, for 2012 and 77% and 23%, respectively, for 2011. Additionally, these funds are invested in United States and international securities of approximately 77% and 23%, respectively, for 2012 and 79% and 21%, respectively, for 2011.

The following table presents the fair value of plan assets, by major category, for MidAmerican Energy's defined benefit other postretirement plans (in millions):



	Input Levels for Fair Value Measurements⁽¹⁾
	Level 1		Level 2		Level 3		Total
As of December 31, 2012
Cash equivalents	$	2	$	—	$	—	$	2
Debt securities:
United States government obligations	4		—		—		4
Corporate obligations	—		9		—		9
Municipal obligations	—		32		—		32
Agency, asset and mortgage-backed obligations	—		14		—		14
Equity securities:
United States companies	102		—		—		102
Investment funds⁽²⁾	63		—		—		63
Total	$	171	$	55	$	—	$	226

As of December 31, 2011
Cash equivalents	$	6	$	—	$	—	$	6
Debt securities:
United States government obligations	6		—		—		6
Corporate obligations	—		7		—		7
Municipal obligations	—		30		—		30
Agency, asset and mortgage-backed obligations	—		12		—		12
Equity securities:
United States companies	88		—		—		88
Investment funds⁽²⁾	64		—		—		64
Total	$	164	$	49	$	—	$	213


(1)	Refer to Note 14 for additional discussion regarding the three levels of the fair value hierarchy.


(2)	Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 86% and 14%, respectively, for 2012 and 83% and 17%, respectively, for 2011. Additionally, these funds are invested in United States and international securities of approximately 51% and 49%, respectively, for 2012 and 59% and 41%, respectively, for 2011.

When available, a readily observable quoted market price or net asset value of an identical security in an active market is used to record the fair value. In the absence of a quoted market price or net asset value of an identical security, the fair value is determined using pricing models or net asset values based on observable market inputs and quoted market prices of securities with similar characteristics. When observable market data is not available, the fair value is determined using unobservable inputs, such as estimated future cash flows, purchase multiples paid in other comparable third-party transactions or other information. The real estate funds determine fair value of their underlying assets using independent appraisals given there is no current liquid market for the underlying assets. The following table reconciles the beginning and ending balances of MidAmerican Energy's pension plan assets measured at fair value using significant Level 3 inputs for the years ended December 31, (in millions):



	Real Estate Funds
	2012		2011		2010

Beginning balance	$	24	$	17	$	15
Actual return on plan assets still held at period end	2		4		2
Purchases and sales	—		3		—
Ending balance	$	26	$	24	$	17

MidAmerican Energy sponsors a defined contribution plan ("401(k) plan") covering substantially all employees. MidAmerican Energy's contributions are based primarily on each participant's level of contribution and cannot exceed the maximum allowable for tax purposes. MidAmerican Energy's contributions to the plan were $16 million, $15 million, and $15 million for the years ended December 31, 2012, 2011 and 2010, respectively. As previously described, certain participants now receive enhanced benefits in the 401(k) plan and no longer accrue benefits in the noncontributory defined benefit pension plans.