Xcel Energy 2010 Annual Report Download - page 119

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Pension Benefits
Xcel Energy has several noncontributory, defined benefit pension plans that cover almost all employees. Benefits are based on a
combination of years of service, the employee’s average pay and social security benefits. Xcel Energy’s policy is to fully fund
into an external trust the actuarially determined pension costs recognized for ratemaking and financial reporting purposes, subject
to the limitations of applicable employee benefit and tax laws.
Xcel Energy bases its investment-return assumption on expected long-term performance for each of the investment types included
in its pension asset portfolio. Xcel Energy considers the actual historical returns achieved by its asset portfolio over the past 20-
year or longer period, as well as the long-term return levels projected and recommended by investment experts. The historical
weighted average annual return for the past 20 years for the Xcel Energy portfolio of pension investments is 9.72 percent, which
is greater than the current assumption level. The pension cost determination assumes a forecasted mix of investment types over
the long term. Investment returns in 2010 were above the assumed level of 7.79 percent. Investment returns in 2009
were above the assumed level of 8.50 percent while returns in 2008 were below the assumed level of 8.75 percent. Xcel Energy
continually reviews its pension assumptions. In 2011, Xcel Energy will use an investment return assumption of 7.50 percent.
The assets are invested in a portfolio according to Xcel Energy’s return, liquidity and diversification objectives to provide a
source of funding for plan obligations and minimize the necessity of contributions to the plan, within appropriate levels of risk.
The principal mechanism for achieving these objectives is the allocation of assets to selected asset classes, given the long-term
risk, return, and liquidity characteristics of each particular asset class. There were no significant concentrations of risk in any
particular industry, index, or entity; however, as we have experienced in recent years, unusual market volatility can impact even
well-diversified portfolios and significantly affect the return levels achieved by pension assets in any year. The following table
presents the target pension asset allocations:
2010 2009
Domestic and international equity securities ................................................. 24% 24
%
Long-duration fixed income securities ...................................................... 41 34
Short-to-intermediate fixed income securities ................................................ 11 19
Alternative investments .................................................................... 17 18
Cash ..................................................................................... 7 5
Total ................................................................................... 100% 100
%
In 2009, Xcel Energy engaged J.P. Morgan’s Pension Advisory Group to evaluate the allocation of the total assets in the master
pension trust, taking into consideration the funded status of each individual pension plan provided by Xcel Energy. The ongoing
investment strategy is based on plan-specific investment recommendations that seek to minimize potential investment and interest
rate risk as a plan’s funded status increases over time. The investment recommendations result in a greater percentage of short-to-
intermediate term and long-duration fixed income securities being allocated to specific plans having relatively higher funded
status ratios, and a greater percentage of growth assets being allocated to plans having relatively lower funded status ratios. The
aggregate asset allocation presented in the table above for the master pension trust results from the plan-specific strategies.