OG&E 2014 Annual Report Download - page 31

58 OGE Energy Corp. OGE Energy Corp. 59
Postretirement Benefit Plans
In addition to providing pension benefits, the Company provides certain
medical and life insurance benefits for eligible retired members.
Regular, full-time, active employees hired prior to February 1, 2000
whose age and years of credited service total or exceed 80 or have
attained at least age 55 with 10 or more years of service at the time
of retirement are entitled to postretirement medical benefits while
employees hired on or after February 1, 2000 are not entitled to
postretirement medical benefits. Eligible retirees must contribute such
amount as the Company specifies from time to time toward the cost of
coverage for postretirement benefits. The benefits are subject to
deductibles, co-payment provisions and other limitations. OG&E
charges to expense the postretirement benefit costs and includes an
annual amount as a component of the cost-of-service in future
ratemaking proceedings.
The Company’s contribution to the medical costs for pre-65 aged
eligible retirees are fixed at the 2011 level and the Company covers
future annual medical inflationary cost increases up to five percent.
Increases in excess of five percent annually are covered by the pre-65
aged retiree in the form of premium increases. The Company provides
Medicare-eligible retirees and their Medicare-eligible spouses an
annual fixed contribution to a Company-sponsored health
reimbursement arrangement. Medicare-eligible retirees are able to
purchase individual insurance policies supplemental to Medicare
through a third-party administrator and use their health reimbursement
arrangement funds for reimbursement of medical premiums and other
eligible medical expenses.
Plan Investments
The following tables summarize the postretirement benefit plans
investments that are measured at fair value on a recurring basis at
December 31, 2014 and 2013. There were no Level 2 investments held
by the postretirement benefit plans at December 31, 2014 and 2013.
(In millions) December 31, 2014 Level 1 Level 3
Group retiree medical
insurance contract (A) $51.0 $ — $51.0
Mutual funds investment
U.S. equity investments 8.5 8.5 —
Money market funds investment 0.1 0.1 —
Total Plan investments $59.6 $8.6 $51.0
(In millions) December 31, 2013 Level 1 Level 3
Group retiree medical
insurance contract (A) $53.1 $ — $53.1
Mutual funds investment
U.S. equity investments 7.9 7.9 —
Money market funds investment 0.4 0.4 —
Total Plan investments $61.4 $8.3 $53.1
(A)
This category represents a group retiree medical insurance contract which invests in a
pool of common stocks, bonds and money market accounts, of which a significant
portion is comprised of mortgage-backed securities.
The postretirement benefit plans Level 3 investment includes an
investment in a group retiree medical insurance contract. The
unobservable input included in the valuation of the contract includes
the approach for determining the allocation of the postretirement
benefit plans pro-rata share of the total assets in the contract.
The following table summarizes the postretirement benefit plans
investments that are measured at fair value on a recurring basis using
significant unobservable inputs (Level 3).
Year ended December 31 (In millions) 2014
Group retiree medical insurance contract
Beginning balance $53.1
Net unrealized gains related to instruments
held at the reporting date 1.5
Interest income 1.0
Dividend income 0.6
Realized losses (0.9)
Claims paid (4.3)
Ending balance $51.0
Medicare Prescription Drug, Improvement and
Modernization Act of 2003
The Medicare Prescription Drug, Improvement and Modernization Act
of 2003 expanded coverage for prescription drugs. The following table
summarizes the gross benefit payments the Company expects to pay
related to its postretirement benefit plans, including prescription drug
benefits.
Gross Projected
Postretirement
(In millions) Benefit Payments
2015 $15.3
2016 15.9
2017 16.3
2018 16.7
2019 17.0
After 2019 86.2
The following table summarizes the benefit payments the Company
expects to pay related to its Pension Plan and Restoration of
Retirement Income Plan. These expected benefits are based on the
same assumptions used to measure the Company’s benefit obligation
at the end of the year and include benefits attributable to estimated
future employee service.
Projected
(In millions) Benefit Payments
2015 $ 98.3
2016 80.6
2017 75.6
2018 70.4
2019 84.8
After 2019 247.8
Post-Employment Benefit Plan
Disabled employees receiving benefits from the Company’s Group
Long-Term Disability Plan are entitled to continue participating in the
Company’s Medical Plan along with their dependents. The post-
employment benefit obligation represents the actuarial present value
of estimated future medical benefits that are attributed to employee
service rendered prior to the date as of which such information
is presented. The obligation also includes future medical benefits
expected to be paid to current employees participating in the
Company’s Group Long-Term Disability Plan and their dependents,
as defined in the Company’s Medical Plan.
The post-employment benefit obligation is determined by an actuary
on a basis similar to the accumulated postretirement benefit obligation.
The estimated future medical benefits are projected to grow with
expected future medical cost trend rates and are discounted for
interest at the discount rate and for the probability that the participant
will discontinue receiving benefits from the Company’s Group
Long-Term Disability Plan due to death, recovery from disability, or
eligibility for retiree medical benefits. The Company’s post-employment
benefit obligation was $1.2 million and $1.6 million at December 31,
2014 and 2013, respectively.
401(k) Plan
The Company provides a 401(k) Plan. Each regular full-time employee
of the Company or a participating affiliate is eligible to participate in the
401(k) Plan immediately. All other employees of the Company or a
participating affiliate are eligible to become participants in the 401(k)
Plan after completing one year of service as defined in the 401(k) Plan.
Participants may contribute each pay period any whole percentage
between two percent and 19 percent of their compensation, as defined
in the 401(k) Plan, for that pay period. Participants who have attained
age 50 before the close of a year are allowed to make additional
contributions referred to as “Catch-Up Contributions,” subject to certain
limitations of the Code. Participants may designate, at their discretion,
all or any portion of their contributions as: (i) a before-tax contribution
under Section 401(k) of the Code subject to the limitations thereof; or
(ii) a contribution made on an after-tax basis. The 401(k) Plan also
includes an eligible automatic contribution arrangement and provides
for a qualified default investment alternative consistent with the U.S.
Department of Labor regulations. Participants may elect, in accordance
with the 401(k) Plan procedures, to have his or her future salary
deferral rate to be automatically increased annually on a date and in an
amount as specified by the participant in such election. For employees
hired or rehired on or after December 1, 2009, the Company
contributes to the 401(k) Plan, on behalf of each participant,
200 percent of the participant’s contributions up to five percent
of compensation.
No Company contributions are made with respect to a participant’s
Catch-Up Contributions, rollover contributions, or with respect to a
participant’s contributions based on overtime payments, pay-in-lieu of
overtime for exempt personnel, special lump-sum recognition awards
and lump-sum merit awards included in compensation for determining
the amount of participant contributions. Once made, the Company’s
contribution may be directed to any available investment option in the
401(k) Plan. The Company match contributions vest over a three-year
period. After two years of service, participants become 20 percent
vested in their Company contribution account and become fully vested
on completing three years of service. In addition, participants fully vest
when they are eligible for normal or early retirement under the Pension
Plan, in the event of their termination due to death or permanent
disability or upon attainment of age 65 while employed by the
Company or its affiliates. The Company contributed $15.2 million,
$14.2 million and $13.4 million in 2014, 2013 and 2012, respectively,
to the 401(k) Plan.
Deferred Compensation Plan
The Company provides a nonqualified deferred compensation plan
which is intended to be an unfunded plan. The plan’s primary purpose
is to provide a tax-deferred capital accumulation vehicle for a select
group of management, highly compensated employees and non-
employee members of the Board of Directors of the Company and to
supplement such employees’ 401(k) Plan contributions as well as
offering this plan to be competitive in the marketplace.
Eligible employees who enroll in the plan have the following deferral
options: (i) eligible employees may elect to defer up to a maximum of
70 percent of base salary and 100 percent of annual bonus awards or
(ii) eligible employees may elect a deferral percentage of base salary
and bonus awards based on the deferral percentage elected for a year
under the 401(k) Plan with such deferrals to start when maximum
deferrals to the qualified 401(k) Plan have been made because of
limitations in that plan. Eligible directors who enroll in the plan may
elect to defer up to a maximum of 100 percent of directors’ meeting
fees and annual retainers. The Company matches employee (but not
non-employee director) deferrals to make up for any match lost in the
401(k) Plan because of deferrals to the deferred compensation plan,
and to allow for a match that would have been made under the 401(k)
Plan on that portion of either the first six percent of total compensation
or the first five percent of total compensation, depending on prior
participant elections, deferred that exceeds the limits allowed in the
401(k) Plan. Matching credits vest based on years of service, with full
vesting after three years or, if earlier, on retirement, disability, death, a
change in control of the Company or termination of the plan. Deferrals,
plus any Company match, are credited to a recordkeeping account in
the participant’s name. Earnings on the deferrals are indexed to the
assumed investment funds selected by the participant. In 2014, those
investment options included a Company Common Stock fund, whose
value was determined based on the stock price of the Company’s
Common Stock. The Company accounts for the contributions related
to the Company’s executive officers in this plan as Accrued Benefit
Obligations and the Company accounts for the contributions related
to the Company’s directors in this plan as Other Deferred Credits and
Other Liabilities in the Consolidated Balance Sheets. The investment
associated with these contributions is accounted for as Other Property
and Investments in the Consolidated Balance Sheets. The appreciation
of these investments is accounted for as Other Income and the
increase in the liability under the plan is accounted for as Other
Expense in the Consolidated Statements of Income.
Supplemental Executive Retirement Plan
The Company provides a supplemental executive retirement plan in
order to attract and retain lateral hires or other executives designated
by the Compensation Committee of the Company’s Board of Directors
who may not otherwise qualify for a sufficient level of benefits under
the Company’s Pension Plan and Restoration of Retirement Income
Plan. The supplemental executive retirement plan is intended to be an
unfunded plan and not subject to the benefit limitations of the Code.
13. Report of Business Segments
The Company reports its operations in two business segments:
(i) the electric utility segment, which is engaged in the generation,
transmission, distribution and sale of electric energy, and (ii) natural
gas midstream operations segment.
As discussed in Note 3, in connection with the formation of Enable,
effective May 1, 2013, OGE Energy deconsolidated its interest in
Enogex Holdings and began accounting for its interest in Enable using
the equity method of accounting. Accordingly, for periods through
April 30, 2013, amounts reported for the natural gas midstream
operations segment reflect the operating results of Enogex Holdings.
Equity in earnings of unconsolidated affiliates in the natural gas
midstream operations segment reflects OGE Energy’s equity interest
in Enable since May 1, 2013. Investment in unconsolidated affiliates
in the natural gas midstream operations segment represents OGE
Energy’s investment in Enable.