Eversource 2009 Annual Report Download - page 147

FS-62
The following assumptions were used to calculate pension and PBOP expense and income amounts:
For the Years Ended December 31,
Statements of Income Pension Benefits and SERP PBOP Benefits
2009 2008 2007 2009 2008 2007
Discount rate 6.89 % 6.60 % 5.95 % (1) 6.90 % 6.35 %5.80 %
Expected long-term rate of return 8.75 % 8.75 % 8.75 % N/A N/A N/A
Compensation/progression rate 4.00 % 4.00 % 4.00 % N/A N/A N/A
Expected long-term rate of return -
Health assets, taxable N/A N/A N/A 6.85 % 6.85 %6.85 %
Life assets and non-taxable health assets N/A N/A N/A 8.75 % 8.75 %8.75 %
(1) The 2007 discount rate for the SERP was 5.9 percent.
The following table represents the PBOP assumed health care cost trend rate for the next year and the assumed ultimate trend rate:
Year Following December 31,
2009 2008
Health care cost trend rate assumed for next year 7.50 % 8.00 %
Rate to which health care cost trend rate is assumed
to decline (the ultimate trend rate) 5.00 % 5.00 %
Year that the rate reaches the ultimate trend rate 2015 2015
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 (millions of
dollars):
NU
One Percentage
Point Increase
One Percentage
Point Decrease
Effect on total service and interest cost components $ 0.9 $ (0.8)
Effect on postretirement benefit obligation 12.9 (11.0)
Fair Value of Pension and PBOP Assets: Pension and PBOP funds are held in external trusts. Trust assets, including accumulated
earnings, must be used exclusively for pension and PBOP payments. NU's investment strategy for its Pension and PBOP Plans is to
maximize the long-term rates of return on these plans' assets within an acceptable level of risk. The investment strategy for each asset
category includes a diversification of asset types, fund strategy and fund managers and establishes target asset allocations that are
routinely reviewed and periodically rebalanced. NU's expected long-term rates of return on Pension and PBOP Plan assets are based
on these target asset allocation assumptions and related expected long-term rates of return. In developing its expected long-term rate
of return assumptions for the Pension and PBOP Plans, NU evaluated input from actuaries and consultants, as well as long-term
inflation assumptions and historical returns. For 2010, management has assumed long-term rates of return of 8.75 percent on Pension
Plan assets and PBOP Plan life and non-taxable health assets and 6.85 percent for PBOP taxable health assets. These long-term
rates of return are based on the assumed rates of return for the target asset allocations as follows:
As of December 31,
Pension PBOP Pension PBOP
2009 2009 2008 2008
Target
Asset
Allocation
Assumed
Rate
of Return
Target
Asset
Allocation
Assumed
Rate
of Return
Target
Asset
Allocation
Assumed
Rate
of Return
Target
Asset
Allocation
Assumed
Rate
of Return
Equity Securities:
United States 24% 9.25% 55% 9.25% 40% 9.25% 55% 9.25%
International 13% 9.25% 11% 9.25% 17% 9.25% 11% 9.25%
Emerging markets 3% 10.25% 2% 10.25% 5% 10.25% 2% 10.25%
Private equity 12% 14.25% - - 8% 14.25% - -
Debt Securities:
Fixed income 20% 5.70% 27% 5.70% 25% 5.50% 27% 5.50%
High yield fixed income 3.5% 7.70% 5% 7.70% - - 5% 7.50%
Emerging markets debt 3.5% 7.70% - - - - - -
Real estate and other assets 8% 7.50% - - 5% 7.50% - -
Hedge Funds 13% 8.00% - - - - - -