Duke Energy 2014 Annual Report Download - page 220

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PART II
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. •
DUKE ENERGY PROGRESS, INC. • DUKE ENERGY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
PLAN ASSETS
Description and Allocations
Duke Energy Master Retirement Trust
Assets for both the qualifi ed pension and other post-retirement benefi ts
are maintained in the Duke Energy Master Retirement Trust. Approximately 98
percent of the Duke Energy Master Retirement Trust assets were allocated to
qualifi ed pension plans and approximately 2 percent were allocated to other
post-retirement plans, as of December 31, 2014 and 2013. The investment
objective of the Duke Energy Master Retirement Trust is to achieve reasonable
returns, subject to a prudent level of portfolio risk, for the purpose of enhancing
the security of benefi ts for plan participants.
The asset allocation targets were set after considering the investment
objective and the risk profi le. Equity securities are held for their higher expected
return. Debt securities are primarily held to hedge qualifi ed pension plan liability.
Hedge funds, real estate and other global securities are held for diversifi cation.
Investments within asset classes are to be diversifi ed to achieve broad market
participation and reduce the impact of individual managers or investments.
In 2013, Duke Energy adopted a de-risking investment strategy for the
Duke Energy Master Retirement Trust. As the funded status of the qualifi ed
pension plans increases, the targeted allocation to return seeking assets will
be reduced and the targeted allocation to fi xed-income assets will be increased
to better manage Duke Energy’s qualifi ed pension liability and reduced funded
status volatility. Duke Energy regularly reviews its actual asset allocation
and periodically rebalances its investments to the targeted allocation when
considered appropriate.
The Duke Energy Retirement Master Trust is authorized to engage in the
lending of certain plan assets. Securities lending is an investment management
enhancement that utilizes certain existing securities of the Duke Energy
Retirement Master Trust to earn additional income. Securities lending involves the
loaning of securities to approved parties. In return for the loaned securities, the
Duke Energy Retirement Master Trust receives collateral in the form of cash as a
safeguard against possible default of any borrower on the return of the loan under
terms that permit the Duke Energy Retirement Master Trust to sell the securities.
The Master Trust mitigates credit risk associated with securities lending
arrangements by monitoring the fair value of the securities loaned, with additional
collateral obtained or refunded as necessary. The fair value of securities on
loan was approximately $383 million and $43 million at December 31, 2014
and 2013, respectively. Cash obtained as collateral exceeded the fair value of
the securities loaned at December 31, 2014 and 2013, respectively. Securities
lending income earned by the Master Trust was immaterial for the years ended
December 31, 2014, 2013 and 2012, respectively.
Qualifi ed pension and other post-retirement benefi ts for the Subsidiary
Registrants are derived from the Duke Energy Master Retirement Trust, as such,
each are allocated their proportionate share of the assets discussed below.
The following table includes the target asset allocations by asset class at
December 31, 2014 and the actual asset allocations for the Duke Energy Master
Retirement Trust.
Target
Allocation
Actual Allocation at December 31,
2014 2013
U.S. equity securities 10% 10% 10%
Non-U.S. equity securities 8% 8% 8%
Global equity securities 10% 10% 10%
Global private equity securities 3% 3% 3%
Debt securities 63% 63% 63%
Hedge funds 2% 3% 3%
Real estate and cash 2% 1% 1%
Other global securities 2% 2% 2%
Total 100% 100% 100%
VEBA I
Duke Energy also invests other post-retirement assets in the Duke Energy
Corporation Employee Benefi ts Trust (VEBA I). The investment objective of VEBA
I is to achieve suffi cient returns, subject to a prudent level of portfolio risk, for
the purpose of promoting the security of plan benefi ts for participants. VEBA I is
passively managed.
The following table presents target and actual asset allocations for VEBA I
at December 31, 2014.
Target
Allocation
Actual Allocation at December 31,
2014 2013
U.S. equity securities 30% 29% 29%
Debt securities 45% 28% 29%
Cash 25% 43% 42%
Total 100% 100% 100%