Dominion Power 2003 Annual Report Download - page 84

82.Dominion 2003
Notes to Consolidated Financial Statements, Continued
The Virginia Commission may prohibit any public service
company, including Virginia Power, from declaring or paying a
dividend to an affiliate, if found not to be in the public interest. At
December 31, 2003, the Virginia Commission had not restricted
the payment of dividends by Virginia Power.
Certain agreements associated with Dominion’s credit facilities
contain restrictions on the ratio of debt to total capitalization.
These limitations did not restrict Dominion’s ability to pay divi-
dends or receive dividends from its subsidiaries at December 31,
2003.
See Note 19 for a description of potential restrictions on divi-
dend payments by Dominion and certain subsidiaries in connec-
tion with the deferral of distribution payments on trust preferred
securities.
22. Employee Benefit Plans
Dominion and its subsidiaries provide certain benefits to eligible
active employees, retirees and qualifying dependents. Under the
terms of its benefit plans, Dominion and its subsidiaries reserve
the right to change, modify or terminate the plans. From time to
time in the past, benefits have changed, and some of these
changes have reduced benefits.
Dominion maintains qualified noncontributory defined benefit
pension plans covering virtually all employees. Retirement bene-
fits are based primarily on years of service, age and compensa-
tion. Dominion’s funding policy is to generally contribute annually
an amount that is in accordance with the provisions of the
Employment Retirement Income Security Act of 1974. The pension
program also provides benefits to certain retired executives under
company-sponsored nonqualified employee benefit plans. Cer-
tain of these nonqualified plans are funded through contributions
to a grantor trust.
Dominion provides retiree health care and life insurance bene-
fits with annual premiums based on several factors such as age,
retirement date and years of service. On December 8, 2003, the
Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Act) was signed into law. The Act introduces a
prescription drug benefit under Medicare (Medicare Part D) as
well as a federal subsidy to sponsors of retiree health care benefit
plans that provide a benefit that is at least actuarially equivalent
to Medicare Part D. Under the provisions of SFAS No. 106,
Employers’ Accounting for Postretirement Benefits Other Than
Pensions, presently enacted changes in relevant laws are
required to be considered in current period measurements of
postretirement benefit costs and the accumulated postretirement
benefit obligation (APBO).
In January 2004, the FASB issued Staff Position No. FAS
106-1, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization
Act of 2003, which allowed plan sponsors to elect to defer rec-
ognizing the effects of the Act. Dominion elected not to defer
recognition of the effects of the Act. Specific authoritative guid-
ance on the accounting for the federal subsidy is pending. When
issued, that guidance could require Dominion to change previ-
ously reported information.
Based on an analysis performed by a third party actuary,
Dominion has determined that the prescription drug benefit
offered under its other postretirement benefit plans is at least actu-
arially equivalent to Medicare Part D and therefore expects to
receive the federal subsidy offered under the Act. Dominion con-
sidered the passage of the Act a significant event requiring
remeasurement of its APBO on December 8, 2003. The impact of
remeasurement on the 2003 postretirement net periodic benefits
cost was not material. Dominion will amortize the unrecognized
actuarial gains associated with the benefits of the subsidy over
the average remaining service period of plan participants in
accordance with SFAS No. 106. This amortization will lower
future annual net postretirement benefits costs by approximately
$13 million beginning in 2004.
Dominion uses December 31 as its measurement date for virtu-
ally all of its employee benefit plans. Dominion uses a market-
related value of pension plan assets to determine the expected
return on pension plan assets, a component of net periodic pen-
sion cost. The market-related value recognizes changes in fair
value on a straight-line basis over a four-year period. Changes in
fair value are measured as the difference between the expected
and actual plan asset returns, including dividends, interest and
realized and unrealized investment gains and losses.