Vectren 2013 Annual Report Download - page 94

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92
Plan Assets
A reconciliation of the Company’s plan assets at December 31, 2013 and 2012 follows:
Pension Benefits Other Benefits
(In millions) 2013 2012 2013 2012
Plan assets at fair value, beginning of period $ 295.7 $ 261.0 $ — $ —
Actual return on plan assets 48.4 33.8 — —
Employer contributions 10.8 15.7 3.0 5.3
Plan participants' contributions — — 0.8 1.6
Benefit payments (22.8) (14.8) (3.8) (6.9)
Settlement payments (8.2) — — —
Fair value of plan assets, end of period $ 323.9 $ 295.7 $ — $ —
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. 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 53 percent and 42 percent, respectively, of
their fair value as of December 31, 2013 and approximately 53 percent and 38 percent, respectively, as of December 31, 2012.
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 $161.7 million at December 31, 2013 and $145.0 million at December 31, 2012. In relation
to these investments, there are no unfunded commitments. Also, the Plan can exchange shares with minimal restrictions,
however, certain events may exist where share exchanges are restricted for up to 31 days.
Guaranteed Annuity Contract
One of the Company’s pension plans is party to a group annuity contract with John Hancock Life Insurance Company (John
Hancock). At December 31, 2013 and 2012, the estimate of undiscounted funds necessary to satisfy John Hancock’s remaining
obligation was $3.7 million and $3.6 million, respectively. 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
manager fees and other charges for the years ended December 31, 2013 and 2012 was 4.75 percent and 5.17 percent,
respectively. 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.