PG&E 2007 Annual Report Download - page 68

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66
PENSION AND OTHER
POSTRETIREMENT PLANS
Certain employees and retirees of PG&E Corporation and
its subsidiaries participate in qualifi ed and non-qualifi ed
non-contributory defi ned benefi t pension plans. Certain
retired employees and their eligible dependents of PG&E
Corporation and its subsidiaries also participate in contribu-
tory medical plans, and certain retired employees participate
in life insurance plans (referred to collectively as “other post-
retirement benefi ts”). Amounts that PG&E Corporation and
the Utility recognize as costs and obligations to provide pen-
sion benefi ts under SFAS No. 158, “Employers’ Accounting
for Defi ned Benefi t Pension and Other Postretirement Plans”
(“SFAS No. 158”), SFAS No. 87, “Employers’ Accounting for
Pensions” (“SFAS No. 87”), and other benefi ts under SFAS
No. 106, “Employers’ Accounting for Postretirement Benefi ts
Other than Pensions” (“SFAS No. 106”) are based on a vari-
ety of factors. These factors include the provisions of the
plans, employee demographics and various actuarial calcula-
tions, assumptions, and accounting mechanisms. Because of
the complexity of these calculations, the long-term nature
of these obligations and the importance of the assumptions
utilized, PG&E Corporation’s and the Utility’s estimate of
these costs and obligations is a critical accounting estimate.
Actuarial assumptions used in determining pension
obligations include the discount rate, the average rate of
future compensation increases, and the expected return on
plan assets. Actuarial assumptions used in determining other
postretirement benefi t obligations include the discount rate,
the expected return on plan assets, and the assumed health
care cost trend rate. PG&E Corporation and the Utility
review these assumptions on an annual basis and adjust
them as necessary. While PG&E Corporation and the Utility
believe the assumptions used are appropriate, signifi cant
differences in actual experience, plan changes, or signifi cant
changes in assumptions may materially affect the recorded
pension and other postretirement benefi t obligations and
future plan expenses.
In accordance with accounting rules, changes in benefi t
obligations associated with these assumptions may not be
recognized as costs on the income statement. Differences
between actuarial assumptions and actual plan results are
deferred in accumulated other comprehensive income and
are amortized into cost only when the accumulated dif-
ferences exceed 10% of the greater of the projected benefi t
obligation or the market value of the related plan assets. If
necessary, the excess is amortized over the average remaining
service period of active employees. As such, signifi cant
portions of benefi t costs recorded in any period may not
refl ect the actual level of cash benefi ts provided to plan
participants. PG&E Corporation’s and the Utility’s recorded
pension expense totaled $117 million in 2007, $185 million
in 2006, and $176 million in 2005 in accordance with the
provisions of SFAS No. 87. PG&E Corporation’s and the
Utility’s recorded expense for other postretirement benefi ts
totaled $44 million in 2007, $49 million in 2006, and
$55 million in 2005 in accordance with the provisions
of SFAS No. 106.
As of December 31, 2006, PG&E Corporation and the
Utility adopted SFAS No. 158, which requires the funded
status of an entity’s plans to be recognized on the balance
sheet with an offsetting entry to accumulated other compre-
hensive income, resulting in no impact to the statement
of income.
Under SFAS No. 71, regulatory adjustments have been
recorded in the Consolidated Statements of Income and
Consolidated Balance Sheets of the Utility to refl ect the
difference between Utility pension expense or income for
accounting purposes and Utility pension expense or income
for ratemaking, which is based on a funding approach. Since
1993, the CPUC has authorized the Utility to recover the
costs associated with its other benefi ts based on the lesser
of the SFAS No. 106 expense or the annual tax-deductible
contributions to the appropriate trusts.
PG&E Corporation’s and the Utility’s funding policy is
to contribute tax-deductible amounts, consistent with appli-
cable regulatory decisions and federal minimum funding
requirements. Based upon current assumptions and available
information, PG&E Corporation and the Utility have not
identifi ed any minimum funding requirements related to its
pension plans.