CenterPoint Energy 2012 Annual Report Download - page 74

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for the non-qualified benefit restoration plan represent benefit payments made to participants and totaled $8 million, $10 million
and $9 million in 2010, 2011 and 2012, respectively.
Changes in pension obligations and assets may not be immediately recognized as pension expense in the income statement,
but generally are recognized in future years over the remaining average service period of plan participants. As such, significant
portions of pension expense recorded in any period may not reflect the actual level of benefit payments provided to plan participants.
As the sponsor of a plan, we are required to (a) recognize on our balance sheet as an asset a plan's over-funded status or as a
liability such plan's under-funded status, (b) measure a plan's assets and obligations as of the end of our fiscal year and (c) recognize
changes in the funded status of our plans in the year that changes occur through adjustments to other comprehensive income and
regulatory assets.
As of December 31, 2012, the projected benefit obligation exceeded the market value of plan assets of our pension plans by
$618 million. Changes in interest rates or the market values of the securities held by the plan during 2013 could materially, positively
or negatively, change our funded status and affect the level of pension expense and required contributions.
Pension cost was $86 million, $78 million and $82 million for 2010, 2011 and 2012, respectively, of which $44 million,
$49 million and $67 million impacted pre-tax earnings.
The calculation of pension expense and related liabilities requires the use of assumptions. Changes in these assumptions can
result in different expense and liability amounts, and future actual experience can differ from the assumptions. Two of the most
critical assumptions are the expected long-term rate of return on plan assets and the assumed discount rate.
As of December 31, 2012, our qualified pension plan had an expected long-term rate of return on plan assets of 8.00%, which
was unchanged from the rate assumed as of December 31, 2011. We believe that our actual asset allocation, on average, will
approximate the targeted allocation and the estimated return on net assets. We regularly review our actual asset allocation and
periodically rebalance plan assets as appropriate.
As of December 31, 2012, the projected benefit obligation was calculated assuming a discount rate of 4.00%, which is a 0.90%
decrease from the 4.90% discount rate assumed in 2011. The discount rate was determined by reviewing yields on high-quality
bonds that receive one of the two highest ratings given by a recognized rating agency and the expected duration of pension
obligations specific to the characteristics of our plan.
Pension cost for 2013, including the benefit restoration plan, is estimated to be $73 million, of which we expect $60 million
to impact pre-tax earnings, based on an expected return on plan assets of 8.00% and a discount rate of 4.00% as of
December 31, 2012. If the expected return assumption were lowered by 0.50% from 8.00% to 7.50%, 2013 pension cost would
increase by approximately $8 million.
As of December 31, 2012, the pension plan projected benefit obligation, including the unfunded benefit restoration plan,
exceeded plan assets by $618 million. If the discount rate were lowered by 0.50% from 4.00% to 3.50%, the assumption change
would increase our projected benefit obligation and 2013 pension expense by approximately $126 million and $6 million,
respectively. In addition, the assumption change would impact our Consolidated Balance Sheet by increasing the regulatory asset
recorded as of December 31, 2012 by $103 million and would result in a charge to comprehensive income in 2012 of $15 million,
net of tax.
Future changes in plan asset returns, assumed discount rates and various other factors related to the pension plan will impact
our future pension expense and liabilities. We cannot predict with certainty what these factors will be.