Vectren 2010 Annual Report Download - page 88

Download and view the complete annual report

Please find page 88 of the 2010 Vectren annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

86
Plan Assets
A reconciliation of the Company’s plan assets at December 31, 2010 and 2009 follows:
(In millions) 2010 2009 2010 2009
Plan assets at fair value, beginning of period 211.1$ 150.9$ 4.0$ 4.3$
Actual return on plan assets 26.8 38.6 0.3 0.9
Employer contributions 17.8 34.9 4.5 4.4
Plan participants' contributions - - 1.7 2.8
Benefit payments (18.5) (13.3) (7.4) (8.4)
Fair value of plan assets, end of period 237.2$ 211.1$ 3.1$ 4.0$
Pension Benefits Other Benefits
The Company’s overall investment strategy for its retirement plan trusts is to maintain investments in a diversified portfolio,
comprised of primarily equity and fixed income investments, which are further diversified among various asset classes. The
diversification is designed to minimize the risk of large losses while maximizing total return within reasonable and prudent levels
of risk. The investment objectives specify a targeted investment allocation for the pension plans of 60 percent equities, 35
percent debt, and 5 percent for other investments, including real estate. Both the equity and debt securities have a blend of
domestic and international exposures. For other benefit plans the targeted allocation is 75 percent equities and 25 percent
debt. Objectives do not target a specific return by asset class. The portfolios’ return is monitored in total. Following is a
description of the valuation methodologies used for trust assets measured at fair value.
Mutual Funds
The fair values of mutual funds are derived from quoted market prices or net asset values as these instruments have active
markets (Level 1 inputs).
Common Collective Trust Funds (CTF’s)
The Company’s plans have investments in trust funds similar to mutual funds in that they are created by pooling of funds from
investors into a common trust and such funds are managed by a third party investment manager. These trust funds typically
give investors a wider range of investment options through this pooling of funds than that generally available to investors on an
individual basis. However, unlike mutual funds, these trusts are not publicly traded in an active market. The fair values of these
trusts are derived from Level 2 market inputs based on a daily calculated unit value as determined by the issuer. This daily
calculated value is based on the fair market value of the underlying investments. These funds are primarily comprised of
investments in equity and fixed income securities which represent approximately 55 percent and 37 percent, respectively, of
their fair value as of December 31, 2010. Equity securities within these funds are primarily valued using quoted market prices
as these instruments have active markets. From time to time, less liquid equity securities are valued using Level 2 inputs, such
as bid prices or a closing price, as determined in good faith by the investment manager. Fixed income securities are valued at
the last available bid prices quoted by an independent pricing service. When valuations are not readily available, fixed income
securities are valued using primarily other Level 2 inputs as determined in good faith by the investment manager.
The fair value of these funds totals $110.4 million at December 31, 2010 and $105.5 million at December 31, 2009. In relation
to these investments, there are no unfunded commitments. Also, the Plan can exchange shares with minimal restrictions.
However, in certain events, a restriction of up to 31 days may exist.
Guaranteed Annuity Contract
One of the Company’s pension plans is party to a group annuity contract with John Hancock Life Insurance Company. At
December 31, 2010, the estimate of undiscounted funds necessary to satisfy John Hancock’s remaining obligation was $3.1
million. If funds retained by John Hancock are not sufficient to satisfy retirement payments due these retirees, the shortfall must
be funded by the Company. The composite investment return, net of manger fees and other charges for the year ended
December 31, 2010 was 5.37 percent. The Company values this illiquid investment using long-term interest rate and mortality
assumptions, among others, and is therefore considered a Level 3 investment. There is no unfunded commitment related to
this investment.