OG&E 2009 Annual Report Download - page 90

At December 31, 2009, the accumulated postretirement benefit obligation and fair value of assets of the Company’s portion
of OGE Energy’s postretirement benefit plans was approximately $232.5 million and $52.5 million, respectively, for an underfunded
status of approximately $180.0 million. These amounts have been recorded in Accrued Benefit Obligations with the offset recorded as
a regulatory asset in the Company’s Balance Sheet as discussed in Note 1. The amount recorded as a regulatory asset represents a net
periodic benefit cost to be recognized in the Statements of Income in future periods.
At December 31, 2008, the accumulated postretirement benefit obligation and fair value of assets of the Company’s portion
of OGE Energy’s postretirement benefit plans was approximately $191.9 million and $55.1 million, respectively, for an underfunded
status of approximately $136.8 million. These amounts have been recorded in Accrued Benefit Obligations with the offset recorded as
a regulatory asset in the Company’s Balance Sheet as discussed in Note 1. The amount recorded as a regulatory asset represents a net
periodic benefit cost to be recognized in the Statements of Income in future periods.
The assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical benefit
plans. Future health care cost trend rates are assumed to be 9.49 percent in 2010 with the rates trending downward to five percent by
2018. A one-percentage point change in the assumed health care cost trend rate would have the following effects:
ONE-PERCENTAGE POINT INCREASE
Year ended December 31 (In millions) 2009 2008 2007
Effect on aggregate of the service and interest cost components $ 1.8 $ 1.7 $ 1.8
Effect on accumulated postretirement benefit obligations 31.2 22.3 21.4
ONE-PERCENTAGE POINT DECREASE
Year ended December 31 (In millions) 2009 2008 2007
Effect on aggregate of the service and interest cost components $ 1.4 $ 1.4 $ 1.5
Effect on accumulated postretirement benefit obligations 25.6 18.6 17.8
Medicare Prescription Drug, Improvement and Modernization Act of 2003
On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (the “Medicare Act”). The Medicare Act expanded Medicare to include, for the first time, coverage for prescription drugs.
Management expects that the accumulated postretirement benefit obligation (“APBO”) for OGE Energy with respect to its
postretirement medical plan will be reduced by approximately $50.3 million as a result of savings to OGE Energy resulting from the
Medicare Act provided subsidy, which will reduce OGE Energy’s costs for its postretirement medical plan by approximately $6.8
million annually. The $6.8 million in annual savings is comprised of a reduction of approximately $3.2 million from amortization of
the $50.3 million gain due to the reduction of the APBO, a reduction in the interest cost on the APBO of approximately $3.1 million
and a reduction in the service cost due to the subsidy of approximately $0.5 million.
The Company expects to pay gross benefits payments related to its postretirement benefit plans, including prescription drug
benefits, of approximately $11.3 million in 2010, $12.4 million in 2011, $13.4 million in 2012, $14.6 million in 2013, $15.7 million in
2014 and an aggregate of $91.7 million in years 2015 to 2019. Based on the current law, the Company expects to receive Federal
subsidy receipts provided by the Medicare Act of approximately $1.5 million in 2010, $1.7 million in 2011, $1.9 million in 2012, $2.1
million in 2013, $2.3 million in 2014 and an aggregate of $14.4 million in years 2015 to 2019. OGE Energy received approximately
$1.5 million in Federal subsidy receipts in 2009.
Obligations and Funded Status
The following table presents the status of the Company’s portion of OGE Energy’s Pension Plan, the restoration of retirement
income plan and the postretirement benefit plans for 2009 and 2008. The Company’s portion of the benefit obligation for OGE
Energy’s Pension Plan and the restoration of retirement income plan represents the projected benefit obligation, while the benefit
obligation for the postretirement benefit plans represents the accumulated postretirement benefit obligation. The accumulated
postretirement benefit obligation for OGE Energy’s Pension Plan and restoration of retirement income plan differs from the projected
benefit obligation in that the former includes no assumption about future compensation levels. The accumulated benefit obligation for
the Pension Plan and the restoration of retirement income plan at December 31, 2009 was approximately $445.0 million and $1.6
million, respectively. The accumulated benefit obligation for the Pension Plan and the restoration of retirement income plan at
December 31, 2008 was approximately $391.7 million and $0.8 million, respectively. The details of the funded status of the Pension
Plan, the restoration of retirement income plan and the postretirement benefit plans and the amounts included in the Balance Sheets
are as follows:
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