Eversource 2005 Annual Report Download - page 73

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71
There were no curtailments or termination benefits in 2003 that
impacted earnings.
Market-Related Value of Pension Plan Assets: NU bases the actuarial
determination of pension plan expense or income on a market-related
valuation of assets, which reduces year-to-year volatility. This market-
related valuation calculation recognizes investment gains or losses
over a four-year period from the year in which they occur. Investment
gains or losses for this purpose are the difference between the
expected return calculated using the market-related value of assets
and the actual return based on the fair value of assets. Since the
market-related valuation calculation recognizes gains or losses over a
four-year period, the future value of the market-related assets will be
impacted as previously deferred gains or losses are recognized.
Postretirement Benefits Other Than Pensions: NU’s subsidiaries also provide
certain health care benefits, primarily medical and dental, and life
insurance benefits through a benefit plan to retired employees (PBOP
Plan). These benefits are available for employees retiring from NU who
have met specified service requirements. For current employees and
certain retirees, the total benefit is limited to two times the 1993 per
retiree health care cost. These costs are charged to expense over the
estimated work life of the employee. NU uses a December 31st
measurement date for the PBOP Plan.
NU annually funds postretirement costs through external trusts with
amounts that have been and will continue to be recovered in rates and
which also are tax deductible. Currently, there are no pending regulatory
actions regarding postretirement benefit costs and there are no
postretirement benefit costs that are deferred as regulatory assets.
Impact of New Medicare Changes on PBOP: On December 8, 2003, the
President signed into law a bill that expands Medicare, primarily by
adding a prescription drug benefit starting in 2006 for Medicare-eligible
retirees as well as a federal subsidy to plan sponsors of retiree health
care benefit plans who provide a prescription drug benefit at least
actuarially equivalent to the new Medicare benefit.
Based on the current PBOP Plan provisions, NU qualifies for this federal
subsidy because the actuarial value of NU’s PBOP Plan exceeds the
threshold required for the subsidy. The Medicare changes decreased
the PBOP benefit obligation by $27 million. The total $27 million
decrease is currently being amortized as a reduction to PBOP expense
over approximately 13 years. For the years ended December 31, 2005
and 2004, this reduction in PBOP expense totaled approximately $3.6
million, including amortization of the actuarial gain of $2 million and a
reduction in interest cost and service cost based on a lower PBOP
benefit obligation of $1.6 million.
PBOP Curtailments and Termination Benefits: NU recorded an estimated
$3.7 million pre-tax curtailment expense at December 31, 2005
relating to NU’s change in business strategy. NU also accrued a
$0.5 million pre-tax termination benefit at December 31, 2005 relating
to certain benefits provided under the terms of the PBOP Plan.
There were no curtailments or termination benefits in 2004 or 2003.
The following table represents information on the plans’ benefit obligation, fair value of plan assets, and the respective plans’ funded status:
At December 31,
Pension Benefits Postretirement Benefits
(Millions of Dollars) 2005 2004 2005 2004
Change in benefit obligation
Benefitobligation at beginning of year $(2,133.2) $(1,941.3) $(468.3) $(405.0)
Service cost (48.7) (40.7) (8.0) (6.0)
Interest cost (125.6) (118.9) (25.2) (25.3)
Actuarial loss (148.7) (136.7) (32.7) (68.7)
Benefits paid – excluding lump sum payments 109.1 105.0 38.9 36.7
Benefits paid – lump sum payments 0.1 1.5 ——
Curtailment/impact of plan changes 63.6 —2.0 —
Termination benefits (2.8) (2.1) (0.5) —
Benefit obligation at end of year $(2,286.2) $(2,133.2) $(493.8) $(468.3)
Change in plan assets
Fair value of plan assets at beginning of year $ 2,075.5 $ 1,945.1 $199.8 $ 178.0
Actual return on plan assets 156.3 236.9 12.1 16.8
Employer contribution ——49.9 41.7
Benefits paid – excluding lump sum payments (109.1) (105.0) (38.9) (36.7)
Benefits paid – lump sum payments (0.1) (1.5) ——
Fair value of plan assets at end of year $ 2,122.6 $2,075.5 $222.9 $199.8
Funded status at December 31st $ (163.6) $ (57.7) $(270.9) $(268.5)
Unrecognized transition obligation 0.5 0.4 78.6 94.8
Unrecognized prior service cost 40.5 56.3 (4.1) (5.2)
Unrecognized net loss 421.1 353.7 179.9 166.5
Prepaid/(accrued) benefit cost $ 298.5 $352.7 $(16.5) $ (12.4)