Dominion Power 2004 Annual Report Download - page 86

Notes to Consolidated Financial Statements, Continued
On December 8, 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Medicare Act) was signed into law.
The Medicare 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 equiva-
lent to Medicare Part D. 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 actuarially
equivalent to Medicare Part D and therefore expects to receive the federal
subsidy offered under the Medicare Act. Dominion expects to receive sub-
sidies of approximately $4 million annually during the period 2006 through
2009 and expects to receive approximately $26 million during the period
2010 through 2014. Dominion considered the passage of the Medicare Act
a significant event requiring remeasurement of its APBO on December 8,
2003. 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. Dominion uses
December 31 as its measurement date for virtually all of its employee ben-
efit 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 pension 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.
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The following tables summarize the changes in Dominion’s pension and other postretirement benefit plan obligations and plan assets and a statement of
the plans’ funded status:
Pension Benefits Other Postretirement Benefits
Year Ended December 31, 2004 2003 2004 2003
(millions)
Change in benefit obligation:
Benefit obligation at beginning of year $3,110 $2,799 $1,351 $1,119
Service cost 97 86 63 55
Interest cost 190 182 83 79
Benefits paid (143) (159) (68) (60)
Actuarial loss during the year 143 200 11 228
Actuarial gain related to Medicare Part D ———(70)
Plan amendments 13 2(59) —
Benefit obligation at end of year 3,410 3,110 1,381 1,351
Change in plan assets:
Fair value of plan assets at beginning of year 3,734 3,074 587 443
Actual return on plan assets 453 627 60 89
Contributions 5192 85 87
Benefits paid from plan assets (143) (159) (35) (32)
Fair value of plan assets at end of year 4,049 3,734 697 587
Funded status 639 624 (684) (764)
Unrecognized net actuarial loss 1,225 1,244 366 392
Unrecognized prior service cost 28 18 (7) 4
Unrecognized net transition (asset) obligation ——27 82
Prepaid (accrued) benefit cost $1,892 $1,886 $ (298) $ (286)
Amounts recognized in the Consolidated Balance Sheets at December 31:
Prepaid pension cost $1,947 $1,939 ——
Accrued benefit liability (94) (86) $ (298) $ (286)
Intangible asset 15 9——
Accumulated other comprehensive loss 24 24 ——
Net amount recognized $1,892 $1,886 $ (298) $ (286)
The accumulated benefit obligation for all defined benefit pension plans
was $3.0 billion and $2.7 billion at December 31, 2004 and 2003, respec-
tively. Under its funding policies, Dominion evaluates plan funding require-
ments annually, usually in the third quarter after receiving updated plan
information from its actuary. Based on the funded status of each plan and
other factors, the amount of contributions for the current year, if any, is
determined at that time.
Included above are nonqualified and supplemental pension plans that
do not have “plan assets” as defined by generally accepted accounting
principles. The total projected benefit obligation for these plans was
$112 million and $99 million at December 31, 2004 and 2003, respectively.
The total accumulated benefit obligation for these plans was $97 million
and $90 million at December 31, 2004 and 2003, respectively. Because
the accumulated benefit obligation relating to these plans is in excess of
the fair value of plan assets, Dominion recognized an additional minimum
liability of $39 million and $34 million at December 31, 2004 and
2003, respectively.