Allegheny Power 2013 Annual Report Download - page 102
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87
The following table provides a reconciliation of changes in the fair value of OPEB trust investments classified as Level 3 in the fair
value hierarchy during 2013 and 2012:
Private Equity
Funds
Real Estate
Funds
(in millions)
Balance as of January 1, 2012 $ 3 $ 7
Actual return on plan assets:
Unrealized losses (1) —
Realized gains (losses) — —
Purchases, sales and settlements — —
Transfers out (2) (2)
Balance as of December 31, 2012 $ — $ 5
Balance as of December 31, 2013 $ — $ 5
FirstEnergy follows a total return investment approach using a mix of equities, fixed income and other available investments while
taking into account the pension plan liabilities to optimize the long-term return on plan assets for a prudent level of risk. Risk tolerance
is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The investment
portfolio contains a diversified blend of equity and fixed-income investments. Equity investments are diversified across U.S. and
non-U.S. stocks, as well as growth, value, and small and large capitalization funds. Other assets such as real estate and private
equity are used to enhance long-term returns while improving portfolio diversification. Derivatives may be used to gain market
exposure in an efficient and timely manner; however, derivatives are not used to leverage the portfolio beyond the market value of
the underlying investments. Investment risk is measured and monitored on a continuing basis through periodic investment portfolio
reviews, annual liability measurements and periodic asset/liability studies.
FirstEnergy’s target asset allocations for its pensions and OPEB trust portfolios for 2013 and 2012 are shown in the following table:
Target Asset Allocations
2013 2012
Equities 26% 20%
Fixed income 40% 51%
Absolute return strategies 22% 21%
Real estate 5% 5%
Private equity 1% —%
Cash 6% 3%
100% 100%
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-
percentage-point change in assumed health care cost trend rates would have the following effects:
1-Percentage-
Point Increase
1-Percentage-
Point Decrease
(in millions)
Effect on total of service and interest cost $ 1 $ (1)
Effect on accumulated benefit obligation $ 26 $ (23)