Eversource 2002 Annual Report Download - page 54

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. The effect of changing the
assumed health care cost trend rate by one percentage point in each
year would have the following effects:
One One
Percentage Percentage
Point Point
(Millions of Dollars) Increase Decrease
Effect on total service and
interest cost components $ 0.9 $ (0.8)
Effect on postretirement
benefit obligation $12.2 $(11.0)
Currently, NU’s policy is to annually fund an amount at least equal to
that which will satisfy the requirements of the Employee Retirement
Income Security Act and Internal Revenue Code.
Pension and trust assets are invested primarily in domestic and
international equity securities and bonds.
The trust holding the health plan assets is subject to federal income taxes.
B. 401(k) Savings Plan
NU maintains a 401(k) Savings Plan for substantially all NU employees.
This savings plan provides for employee contributions up to specified
limits. NU matches employee contributions up to a maximum of 3 percent
of eligible compensation with cash and NU shares. The matching
contributions made by NU were $11.1 million in 2002, $11.7 million
in 2001, and $13.6 million in 2000.
C. Employee Stock Ownership Plan
NU maintains an Employee Stock Ownership Plan (ESOP) for purposes
of allocating shares to employees participating in the NU’s 401(k)
Savings Plan. Under this arrangement, NU issued unsecured notes during
1991 and 1992 totaling $250 million, the proceeds of which were
loaned to the ESOP trust for the purchase of 10.8 million newly issued
NU common shares (ESOP shares). The ESOP trust is obligated to
make principal and interest payments on the ESOP notes at the same
rate that ESOP shares are allocated to employees. NU makes annual
contributions to the ESOP equal to the ESOP’s debt service, less dividends
received by the ESOP. All dividends received by the ESOP on unallocated
shares are used to pay debt service and are not considered dividends
for financial reporting purposes. During the first and second quarters
of 2001, NU declared a $0.10 per share quarterly dividend. During the
third quarter of 2001 through the second quarter of 2002, NU declared
a $0.125 per share quarterly dividend. NU declared a $0.1375 per share
dividend during the third and fourth quarters of 2002.
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The components of net periodic benefit (income)/expense are as follows:
For the Years Ended December 31,
Pension Benefits Postretirement Benefits
(Millions of Dollars) 2002 2001 2000 2002 2001 2000
Service cost $ 37.2 $ 35.7 $ 41.2 $ 6.2 $ 6.2 $ 6.8
Interest cost 119.8 119.7 118.5 29.2 27.2 23.7
Expected return on plan assets (204.9) (214.1) (205.1) (16.6) (17.0) (14.1)
Amortization of unrecognized net
transition (asset)/obligation (1.4) (1.5) (1.4) 13.6 14.5 15.1
Amortization of prior service cost 7.7 6.9 7.9 (0.1) ——
Amortization of actuarial gain (31.8) (47.7) (52.0) ———
Other amortization, net ——— 2.2 (2.6) (4.3)
Net periodic (income)/expense – before settlements,
curtailments and special termination benefits (73.4) (101.0) (90.9) 34.5 28.3 27.2
Settlement income —(26.0) — ———
Curtailment (income)/expense (30.3) (64.7) (6.6) —3.3 —
Special termination benefits expense/(income) 8.1 93.3 (0.4) (1.2) 8.6 (0.4)
Total – settlements, curtailments and special
termination benefits (22.2) 2.6 (7.0) (1.2) 11.9 (0.4)
Total – net periodic (income)/expense $(95.6) $ (98.4) $(97.9) $33.3 $ 40.2 $ 26.8
For calculating pension and postretirement benefit income and expense amounts, the following assumptions were used:
For the Years Ended December 31,
Pension Benefits Postretirement Benefits
2002 2001 2000 2002 2001 2000
Discount rate 7.25% 7.50% 7.75% 7.25% 7.50% 7.75%
Expected long-term rate of return 9.25% 9.50% 9.50% N/A N/A N/A
Compensation/progression rate 4.25% 4.50% 4.75% 4.25% 4.50% 4.75%
Long-term rate of return –
Health assets, net of tax N/A N/A N/A 7.25% 7.50% 7.50%
Life assets N/A N/A N/A 9.25% 9.50% 9.50%