Allegheny Power 2015 Annual Report Download - page 96

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key assumptions, including anticipated rates of return on plan assets, the discount rates and health care trend rates used in
determiningtheprojectedbenefitobligationsforpensionandOPEBcosts.FirstEnergyusesaDecember31measurementdateforits
pensionandOPEBplans.Thefairvalueoftheplanassetsrepresentstheactualmarketvalueasofthemeasurementdate.
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FirstEnergy’sassumedrateofreturnonpensionplanassetsconsidershistoricalmarketreturnsandeconomicforecastsforthetypes
ofinvestmentsheldbythepensiontrusts.In2015,FirstEnergy’squalifiedpensionandOPEBplanassetsexperiencedlossesof
$(172)million,or(2.7)%comparedtoearningsof$387million,or6.2%in2014andlossesof$(22)million,or(0.3)%in2013,and
assumeda7.75%rateofreturnforeachyearonplanassetswhichgenerated$476million,$496millionand$535millionofexpected
returnsonplanassets,respectively.TheexpectedreturnonpensionandOPEBassetsisbasedonthetrusts’assetallocationtargets
andthehistoricalperformanceofriskbasedandfixedincomesecurities.Thegainsorlossesgeneratedasaresultofthedifference
betweenexpectedandactualreturnsonplanassetswillincreaseordecreasefuturenetperiodicpensionandOPEBcostasthe
difference is recognized annually in the fourth quarter of each fiscal year or whenever a plan is determined to qualify for
remeasurement.
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During2014,theSocietyofActuariespublishednewmortalitytablesandimprovementscalesreflectingimprovedlifeexpectancies
andanexpectationthatthetrendwillcontinue.AnanalysisofFirstEnergypensionandOPEBplanmortalitydataindicatedtheuseof
theRP2014mortalitytablewithbluecollaradjustmentforfemalesandprojectionscaleSS2014INTwasmostappropriateasof
December31,2015.Assuch,theRP2014mortalitytablewithprojectionscaleSS2014INTwasutilizedtodeterminethe2015benefit
costandobligationasofDecember31,2015fortheFirstEnergypensionandOPEBplans.TheimpactofusingtheRP2014mortality
tableandprojectionscaleSS2014INTresultedinanincreaseintheprojectedbenefitobligationof$49millionand$1millionforthe
pensionandOPEBplans,respectively,andwasincludedinthe2015pensionandOPEBmarktomarketadjustment.
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PensionOPEB
ObligationsandFundedStatus2015201420152014
(Inmillions)
Changeinbenefitobligation:
BenefitobligationasofJanuary1 $ 9,249 $ 8,263 $ 757 $ 879
Servicecost193167 5 9
Interestcost3834022939
Planparticipants’contributions — — 6 16
Planamendments — 5 (10) (97)
Medicareretireedrugsubsidy — — 1 —
Actuarial(gain)loss(277) 1,123(2) 13
Benefitspaid(469) (711) (62) (102)
BenefitobligationasofDecember31 $ 9,079 $ 9,249 $ 724 $ 757
Changeinfairvalueofplanassets:
FairvalueofplanassetsasofJanuary1 $ 5,824 $ 6,171 $ 464 $ 495
Actualreturn(losses)onplanassets(178) 349 6 38
Companycontributions161151717
Planparticipants’contributions — — 6 16
Benefitspaid(469) (711) (62) (102)
FairvalueofplanassetsasofDecember31 $ 5,338 $ 5,824 $ 431 $ 464
FundedStatus:
Qualifiedplan $ (3,366) $ (3,064)
Nonqualifiedplans(375) (361)
FundedStatus $ (3,741) $ (3,425) $ (293) $ (293)
Accumulatedbenefitobligation$ 8,579 $ 8,744 $ — $ —
AmountsRecognizedontheBalanceSheet:
Currentliabilities $ (18) $ (17) $ — $ —
Noncurrentliabilities(3,723) (3,408) (293) (293)
NetliabilityasofDecember31 $ (3,741) $ (3,425) $ (293) $ (293)
AmountsRecognizedinAOCI:
Priorservicecost(credit) $ 37 $ 45 $ (355) $ (479)
AssumptionsUsedtoDetermineBenefitObligations
(asofDecember31)
Discountrate4.50% 4.25% 4.25% 4.00%
Rateofcompensationincrease4.20% 4.20% N/AN/A
AssumedHealthCareCostTrendRates
(asofDecember31)
Healthcarecosttrendrateassumed(pre/postMedicare)N/AN/A6.05.5%7.57.0%
Ratetowhichthecosttrendrateisassumedtodecline(theultimate
trendrate)N/AN/A4.5% 4.5%
YearthattheratereachestheultimatetrendrateN/AN/A20262026
AllocationofPlanAssets(asofDecember31)
Equitysecurities40% 36% 51% 49%
Bonds34% 33% 43% 40%
Absolutereturnstrategies 7% 14% —% 1%
Realestate11% 7% —% 1%
Derivatives —% 1% —% —%
Cashandshorttermsecurities 8% 9% 6% 9%
Total100% 100% 100% 100%
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Theestimated2016amortizationofpensionandOPEBpriorservicecosts(credits)fromAOCIintonetperiodicpensionand
OPEBcosts(credits)isapproximately$8millionand$(80)million,respectively.