Vectren 2013 Annual Report Download - page 92

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jurisdiction, has conducted examinations of state income tax returns for tax years through December 31, 2008. The statutes of
limitations for assessment of federal income tax and Indiana income tax have expired with respect to tax years through 2008.
Final Federal Income Tax Regulations
In September 2013, the Internal Revenue Service (IRS) released final tangible property regulations regarding the deduction and
capitalization of expenditures related to tangible property. The final regulations are generally effective for tax years beginning on
or after January 1, 2014, but may be adopted for 2013 tax years. The Company intends to adopt the guidance for its 2014 tax
year. The IRS has been working with the utility industry to provide industry specific guidance concerning the deductibility and
capitalization of expenditures related to tangible property. The IRS has indicated that it expects to issue guidance with respect
to natural gas transmission and distribution assets during 2014. The Company continues to evaluate the impact adoption of the
regulations and industry guidance will have on its consolidated financial statements. As of this date, the Company does not
expect the adoption of the regulations to have a material impact on its consolidated financial statements.
11. Retirement Plans & Other Postretirement Benefits
At December 31, 2013, the Company maintains three qualified defined benefit pension plans, a nonqualified supplemental
executive retirement plan (SERP), and a postretirement benefit plan. The defined benefit pension plans and postretirement
benefit plan, 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 qualified pension plans and the SERP are
aggregated under the heading “Pension Benefits.” The postretirement benefit plan is presented under the heading “Other
Benefits.”
Net Periodic Benefit Costs
A summary of the components of net periodic benefit cost for the three years ended December 31, 2013 follows:
Pension Benefits Other Benefits
(In millions) 2013 2012 2011 2013 2012 2011
Service cost $ 8.6 $ 7.7 $ 6.9 $ 0.5 $ 0.5 $ 0.5
Interest cost 14.7 15.5 15.9 2.0 2.8 4.3
Expected return on plan assets (22.1) (21.2) (21.2) — — —
Amortization of prior service cost (benefit) 1.5 1.6 1.7 (3.2) (2.5) (0.8)
Amortization of actuarial loss (gain) 10.1 6.8 3.8 0.7 0.7 0.6
Amortization of transitional obligation — — — — 0.5 1.1
Settlement (credit) charge 1.3 — — — — —
Net periodic benefit cost $ 14.1 $ 10.4 $ 7.1 $ — $ 2.0 $ 5.7
A portion of the net periodic benefit cost disclosed in the table above is capitalized as Utility plant. Costs capitalized in 2013,
2012, and 2011 are estimated at $4.2 million, $3.7 million, and $3.9 million, respectively.
The Company lowered the discount rate used to measure periodic cost from 4.82 percent in 2012 to 4.03 percent in 2013 due to
lower benchmark interest rates that approximated the expected duration of the Company’s benefit obligations as of that
valuation date. For fiscal year 2014, the weighted average discount rate assumption will increase to 4.74 percent for the defined
benefit pension plans, based on increased benchmark interest rates.
The weighted averages of significant assumptions used to determine net periodic benefit costs follow:
Pension Benefits Other Benefits
2013 2012 2011 2013 2012 2011
Discount rate 4.03% 4.82% 5.50% 3.91% 4.75% 5.50%
Rate of compensation increase 3.50% 3.50% 3.50% N/A N/A N/A
Expected return on plan assets 7.75% 7.75% 8.00% N/A N/A 8.00%
Expected increase in Consumer Price Index N/A N/A N/A 2.75% 2.75% 3.00%