CenterPoint Energy 2013 Annual Report Download - page 88

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Pension and Other Retirement Plans
We sponsor pension and other retirement plans in various forms covering all employees who meet eligibility requirements.
We use several statistical and other factors that attempt to anticipate future events in calculating the expense and liability related
to our plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future
compensation increases as estimated by management, within certain guidelines. In addition, our actuarial consultants use subjective
factors such as withdrawal and mortality rates. The actuarial assumptions used may differ materially from actual results due to
changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of pension expense recorded. Please read “— Other Significant
Matters — Pension Plans” for further discussion.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2(o) to our consolidated financial statements for a discussion of new accounting pronouncements that affect us.
OTHER SIGNIFICANT MATTERS
Pension Plans. As discussed in Note 6(b) to our consolidated financial statements, we maintain a non-contributory qualified
defined benefit pension plan covering substantially all employees. Employer contributions for the qualified plan are based on
actuarial computations that establish the minimum contribution required under the Employee Retirement Income Security Act of
1974 (ERISA) and the maximum deductible contribution for income tax purposes.
Under the terms of our pension plan, we reserve the right to change, modify or terminate the plan. Our funding policy is to
review amounts annually and contribute an amount at least equal to the minimum contribution required under ERISA.
The minimum funding requirements for the qualified pension plan were $83 million, $73 million and $35 million for 2013,
2012 and 2011, respectively. We made contributions of $83 million, $73 million and $65 million in 2013, 2012 and 2011 for the
respective years. We expect to make contributions aggregating approximately $87 million in 2014.
Additionally, we maintain an unfunded non-qualified benefit restoration plan that allows participants to receive the benefits
to which they would have been entitled under our non-contributory pension plan except for the federally mandated limits on
qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated. Employer contributions
for the non-qualified benefit restoration plan represent benefit payments made to participants and totaled $8 million, $9 million
and $10 million in 2013, 2012 and 2011, 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, 2013, the projected benefit obligation exceeded the market value of plan assets of our pension plans by
$350 million. Changes in interest rates or the market values of the securities held by the plan during 2014 could materially, positively
or negatively, change our funded status and affect the level of pension expense and required contributions.
Pension cost was $72 million, $82 million and $78 million for 2013, 2012 and 2011, respectively, of which $64 million,
$67 million and $49 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, 2013, our qualified pension plan had an expected long-term rate of return on plan assets of 7.00%, which
is a 1.00% decrease from the rate assumed as of December 31, 2012 due to the increase in the allocation to fixed income investments
in our targeted asset allocation. The expected rate of return assumption was developed by a weighted-average return analysis of
the targeted asset allocation for CenterPoint Energy’ s plans and the expected real return for each asset class, based on the long-