ComEd 2006 Annual Report Download - page 269

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Exelon’s traditional and cash balance pension plans and AmerGen’s cash balance pension plan
are intended to be tax-qualified defined benefit plans, and Exelon submitted applications to the IRS for
rulings on the tax-qualification of the form of its plans for non-union and electing union employees. On
June 1, 2004, the IRS issued a favorable ruling on the union cash balance plan. Exelon has not yet
received a ruling with respect to its non-union plan, and AmerGen has not yet submitted an application
with respect to its cash balance formula, due to the IRS temporary moratorium on issuing any rulings to
plans that were involved in a “conversion” from a traditional to a cash balance formula. In December
2006, the IRS issued a notice announcing that the moratorium on consideration of determination letters
for cash balance plans would be lifted in 2007.
The costs of providing benefits under these plans are dependent on historical information such as
employee age, length of service and level of compensation and the actual rate of return on plan assets.
Also, Exelon and AmerGen utilize assumptions about the future, including the expected rate of return
on plan assets, the discount rate applied to benefit obligations, the incidence of mortality, the remaining
service period, rate of compensation increases and the anticipated rate of increase in health care
costs, in order to measure the plan obligations and costs to be recognized related to these plans. The
impact of changes in these factors on pension and other postretirement benefit obligations is generally
recognized over the expected remaining service life of the employees rather than immediately
recognized in the income statement. Exelon and AmerGen use a December 31 measurement date for
their plans.
Funding is based upon actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under ERISA, as amended.
The funded status of the pension and other postretirement benefit obligations refers to the difference
between plan assets and estimated obligations of the plan. The funded status may change over time
due to several factors, including contribution levels, assumed discount rates and actual long-term rates
of return on plan assets. Changes in these factors could impact the funded status of these obligations.
Exelon made discretionary aggregate contributions of approximately $2 billion to its traditional and
cash balance pension plans in 2005. The 2005 contributions were initially funded through borrowings
under a short-term loan agreement, which were subsequently refinanced with long-term senior notes,
as further described in Note 11—Debt and Credit Agreements.
In accordance with SFAS No. 158, which became effective in the fourth quarter of 2006, Exelon
and Generation are required to recognize the overfunded or underfunded status of their defined benefit
pension and other postretirement plans as an asset or liability on their balance sheets as of
December 31, 2006. The impacts of adopting SFAS No. 158 to Exelon’s and Generation’s
Consolidated Balance Sheets is described in more detail below.
In 2006, President Bush signed into law the Pension Protection Act of 2006 (the Act), which will
affect the manner in which many companies, including Exelon and Generation, administer their
pension plans. This legislation will require companies to, among other things, increase the amount by
which they fund their pension plans, pay higher premiums to the Pension Benefit Guaranty Corporation
if they sponsor defined benefit plans, amend plan documents and provide additional plan disclosures in
regulatory filings and to plan participants. This legislation will be effective as of January 1, 2008.
Exelon and Generation do not anticipate that the Act will have a material effect on their liquidity and
capital resources. Absent changes in plan design as a result of the Act, the Act is not expected to
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