Allegheny Power 2010 Annual Report Download - page 83

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68
3. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
FirstEnergy provides a noncontributory qualified defined benefit pension plan that covers substantially all of its
employees and non-qualified pension plans that cover certain employees. The plans provide defined benefits based on
years of service and compensation levels. FirstEnergy's funding policy is based on actuarial computations using the
projected unit credit method. On September 2, 2009, the Utilities and ATSI made a combined $500 million voluntary
contribution to their qualified pension plan. Due to the significance of the voluntary contribution, FirstEnergy elected to
remeasure its qualified pension plan as of August 31, 2009. FirstEnergy intends to voluntarily contribute $250 million to
its pension plan in 2011.
FirstEnergy provides a minimum amount of noncontributory life insurance to retired employees in addition to optional
contributory insurance. Health care benefits, which include certain employee contributions, deductibles and co-payments,
are also available upon retirement to employees hired prior to January 1, 2005, their dependents and, under certain
circumstances, their survivors. FirstEnergy recognizes the expected cost of providing other postretirement benefits to
employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible
to receive those benefits. During 2008, FirstEnergy amended the OPEB plan effective in 2010 to limit the monthly
contribution for pre-1990 retirees. On June 2, 2009, FirstEnergy amended its health care benefits plan for all employees
and retirees eligible to participate in that plan. The amendment, which reduces future health care coverage subsidies
paid by FirstEnergy on behalf of participants, triggered a remeasurement of FirstEnergy’s other postretirement benefit
plans as of May 31, 2009. FirstEnergy also has obligations to former or inactive employees after employment, but before
retirement, for disability-related benefits.
Pension and OPEB costs are affected by employee demographics (including age, compensation levels, and employment
periods), the level of contributions made to the plans and earnings on plan assets. Pension and OPEB costs may also be
affected by changes in key assumptions, including anticipated rates of return on plan assets, the discount rates and
health care trend rates used in determining the projected benefit obligations for pension and OPEB costs. FirstEnergy
uses a December 31 measurement date for its pension and OPEB plans. The fair value of the plan assets represents the
actual market value as of the measurement date.
In the third quarter of 2009, FirstEnergy incurred a $13 million net postretirement benefit cost (including amounts
capitalized) related to a liability created by the VERO offered by FirstEnergy to qualified employees. The special
termination benefits of the VERO included additional health care coverage subsidies paid by FirstEnergy to those
qualified employees who elected to retire. A total of 715 employees accepted the VERO.