Vectren 2010 Annual Report Download - page 86

84
Impact of Healthcare Legislation
In March 2010, the President signed into law comprehensive health care reform legislation under the Patient Protection and
Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. Included among the major provisions of the
law is a change in the federal income tax treatment of a subsidy received by the Company to offset the cost of providing
Medicare equivalent retiree prescription drug benefits, commonly referred to as the Medicare Part D subsidy. Prior to the
change in law, the deduction for retiree drug benefits excluded the government subsidy, effectively making the subsidy tax free.
Due to the change in tax treatment, the Company recorded a $2.3 million increase in its deferred tax liabilities, during the first
quarter of 2010, related to the estimated $6.1 million accrued subsidy receivable at that date. Like tax law changes in the past,
it is expected that the impact of this change will be reflected in customer rates in the future. As a result, the Company has
recorded a $5.1 million regulatory asset related to this matter in its financial statements at December 31, 2010.
9. Retirement Plans & Other Postretirement Benefits
At December 31, 2010, the Company maintains three qualified defined benefit pension plans, a nonqualified supplemental
executive retirement plan (SERP), and three other postretirement benefit plans. The defined benefit pension and other
postretirement benefit plans, which cover eligible full-time regular employees, are primarily noncontributory. The postretirement
health care and life insurance plans are a combination of self-insured and fully insured plans. The Company has a Voluntary
Employee Beneficiary Association (VEBA) Trust Agreement for the partial funding of postretirement health benefits for retirees
and their eligible dependents and beneficiaries in one of the three plans. Annual VEBA funding is discretionary; however, no
further funding is anticipated. The qualified pension plans and the SERP are aggregated under the heading “Pension Benefits.”
Other postretirement benefit plans are aggregated under the heading “Other Benefits.”
Measurement Date Change
Prior to 2008, the Company measured obligations as of September 30. The Company changed its measurement date due to a
required change in the accounting rules. The effects of moving the measurement date were calculated using a measurement of
plan assets and benefit obligations as of September 30, 2007 and a 15-month projection of periodic cost to December 31, 2008.
The Company recorded three months of that cost totaling $2.7 million, or $1.6 million after tax, directly to Retained earnings on
January 1, 2008.
Net Periodic Benefit Costs
A summary of the components of net periodic benefit cost for the three years ended December 31, 2010 follows:
(In millions) 2010 2009 2008 2010 2009 2008
Service cost 6.3$ 6.3$ 6.1$ 0.5$ 0.5$ 0.5$
Interest cost 15.9 15.8 15.1 4.6 4.4 4.2
Expected return on plan assets (18.4) (16.4) (16.6) (0.4) (0.3) (0.5)
Amortization of prior service cost (benefit) 1.6 1.7 1.7 (0.8) (0.8) (0.8)
Amortization of actuarial loss (gain) 3.2 2.2 0.1 0.5 0.4 -
Amortization of transitional obligation - - - 1.2 1.1 1.1
Net periodic benefit cost 8.6$ 9.6$ 6.4$ 5.6$ 5.3$ 4.5$
Pension Benefits Other Benefits
A portion of benefit costs are capitalized as Utility plant. Costs capitalized in 2010, 2009, and 2008 are estimated at $4.3
million, $4.5 million, and $3.0 million, respectively.
The Company lowered the discount rate used to measure periodic cost from 6.25 percent in 2009 to 6.00 percent in 2010 due to
lower benchmark interest rates that approximate the expected duration of the Company’s benefit obligations. For fiscal year
2011, the discount rate will be 5.50 percent. Over the periods presented other assumptions have also declined reflecting the
lower interest rate environment.