CenterPoint Energy 2014 Annual Report Download - page 75

OTHER SIGNIFICANT MATTERS
Pension Plans. As discussed in Note 6(b) to our consolidated financial statements, we maintain a non-
contributory qualified defined
benefit pension plan covering substantially all employees. Employer contributions for the qualified plan are based on actuarial computations that
establish the minimum contribution required under the Employee Retirement Income Security Act of 1974 (ERISA) and the maximum
deductible contribution for income tax purposes.
Under the terms of our pension plan, we reserve the right to change, modify or terminate the plan. Our funding policy is to review amounts
annually and contribute an amount at least equal to the minimum contribution required under ERISA.
The minimum funding requirements for the qualified pension plan were $87 million, $83 million and $73 million for 2014 , 2013 and 2012
,
respectively. We made contributions of $87 million, $83 million and $73 million in 2014 , 2013 and 2012
for the respective years. We expect to
make contributions aggregating approximately $35 million in 2015 .
Additionally, we maintain an unfunded non-
qualified benefit restoration plan that allows participants to receive the benefits to which they
would have been entitled under our non-
contributory pension plan except for the federally mandated limits on qualified plan benefits or on the
level of compensation on which qualified plan benefits may be calculated. Employer contributions for the non-
qualified benefit restoration plan
represent benefit payments made to participants and totaled $10 million, $8 million and $9 million in 2014 , 2013 and 2012
, respectively. We
expect to make contributions aggregating approximately $31 million in 2015 .
Changes in pension obligations and assets may not be immediately recognized as pension expense in the income statement, but generally are
recognized in future years over the remaining average service period of plan participants. As such, significant portions of pension expense
recorded in any period may not reflect the actual level of benefit payments provided to plan participants.
As the sponsor of a plan, we are required to (a) recognize on our balance sheet as an asset a plan’s over-
funded status or as a liability such
plan’s under-funded status, (b) measure a plan’
s assets and obligations as of the end of our fiscal year and (c) recognize changes in the funded
status of our plans in the year that changes occur through adjustments to other comprehensive income and regulatory assets.
The projected benefit obligation for all defined benefit pension plans was $2,403 million and $2,153 million as of December 31, 2014 and
2013, respectively. The adoption of the new mortality table by the Society of Actuaries as of December 31, 2014 significantly contributed to the
increase in the projected benefit obligation for the year.
As of December 31, 2014
, the projected benefit obligation exceeded the market value of plan assets of our pension plans by $478 million.
Changes in interest rates or the market values of the securities held by the plan during 2015
could materially, positively or negatively, change our
funded status and affect the level of pension expense and required contributions.
Pension cost was $77 million, $72 million and $82 million for 2014 , 2013 and 2012
, respectively, of which $71 million, $64 million and
$67 million impacted pre-tax earnings. Included in the 2014 pension cost was $6 million related to the curtailment loss discussed below.
During the fourth quarter of 2014, CenterPoint Energy received notification from Enable of its intent to provide employment offers to
substantially all seconded employees. As a result, an additional pension cost of $6 million
was recognized for the curtailment loss related to our
pension plans. Substantially all of the seconded employees became employees of Enable effective January 1, 2015.
The calculation of pension expense and related liabilities requires the use of assumptions. Changes in these assumptions can result in
different expense and liability amounts, and future actual experience can differ from the assumptions. Two of the most critical assumptions are
the expected long-term rate of return on plan assets and the assumed discount rate.
As of December 31, 2014 , our qualified pension plan had an expected long-
term rate of return on plan assets of 6.50%, which is a 0.50%
decrease from the rate assumed as of December 31, 2013
due to the increase in the allocation to fixed income investments in our targeted asset
allocation. The expected rate of return assumption was developed using the targeted asset allocation of our plans and the expected return for each
asset class. We regularly review our actual asset allocation and periodically rebalance plan assets to reduce volatility and better match plan assets
and liabilities.
As of December 31, 2014
, the projected benefit obligation was calculated assuming a discount rate of 4.05%, which is 0.75% lower than
the 4.80% discount rate assumed in 2013 . The discount rate was determined by reviewing yields on high-quality bonds
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