Entergy 2002 Annual Report Download - page 75

OTHER POSTRETIREMENT BENEFITS
Entergy also provides health care and life insurance benefits
for retired employees. Substantially all domestic employees
may become eligible for these benefits if they reach retirement
age while still working for Entergy.
Effective January 1, 1993, Entergy adopted SFAS 106, which
required a change from a cash method to an accrual method
of accounting for postretirement benefits other than pensions.
At January 1, 1993, the actuarially determined accumulated
postretirement benefit obligation (APBO) earned by retirees
and active employees was estimated to be approximately
$241.4 million for Entergy (other than Entergy Gulf States)
and $128 million for Entergy Gulf States. Such obligations are
being amortized over a 20-year period that began in 1993.
Entergy Arkansas, the portion of Entergy Gulf States
regulated by the PUCT, Entergy Mississippi, and Entergy New
Orleans have received regulatory approval to recover SFAS 106
costs through rates. Entergy Arkansas began recovery in 1998,
pursuant to an APSC order. This order also allowed Entergy
Arkansas to amortize a regulatory asset (representing the
difference between SFAS 106 costs and cash expenditures for
other postretirement benefits incurred for a five-year period
that began January 1, 1993) over a 15-year period that began
in January 1998.
The LPSC ordered the portion of Entergy Gulf States
regulated by the LPSC and Entergy Louisiana to continue the
use of the pay-as-you-go method for ratemaking purposes for
postretirement benefits other than pensions. However, the
LPSC retains the flexibility to examine individual companies’
accounting for postretirement benefits to determine if special
exceptions to this order are warranted.
Pursuant to regulatory directives, Entergy Arkansas, Entergy
Mississippi, Entergy New Orleans, the portion of Entergy Gulf
States regulated by the PUCT, and System Energy fund
postretirement benefit obligations collected in rates. System
Energy is funding on behalf of Entergy Operations postretirement
benefits associated with Grand Gulf 1. Entergy Louisiana and
Entergy Gulf States continue to recover a portion of these
benefits regulated by the LPSC and FERC on a pay-as-you-go
basis. The assets of the various postretirement benefit plans
other than pensions include common stocks, fixed-income
securities, and a money market fund.
Total 2002, 2001, and 2000 other postretirement benefit
costs of Entergy Corporation and its subsidiaries, including
amounts capitalized and deferred, included the following
components (in thousands):
2002 2001 2000
Service cost - benefits earned
during the period $ 29,199 $ 24,225 $ 18,252
Interest cost on APBO 44,819 38,811 34,022
Expected return on assets (14,066) (12,578) (10,566)
Amortization of transition obligation 17,874 17,874 17,874
Amortization of prior service cost 992 992 520
Recognized net (gain)/loss 1,874 (1,506) (3,070)
Net postretirement benefit cost $ 80,692 $ 67,818 $ 57,032
The funded status of Entergy’s other postretirement benefit
plans as of December 31, 2002 and 2001 was (in thousands):
2002 2001
Change in APBO
Balance at beginning of year $ 590,731 $ 507,756
Service cost 29,199 24,225
Interest cost 44,819 38,811
Actuarial loss 159,143 44,289
Benefits paid (35,861) (37,403)
Acquisition of subsidiary 11,475 13,053
Balance at end of year $ 799,506 $ 590,731
Change in Plan Assets
Fair value of assets
at beginning of year $ 158,190 $ 143,038
Actual return on plan assets (11,559) 663
Employer contributions 59,542 51,892
Benefits paid (35,861) (37,403)
Acquisition of subsidiary 12,380 –
Fair value of assets at end of year $ 182,692 $ 158,190
Funded status $(616,814) $(432,541)
Unrecognized transition obligation 114,724 126,196
Unrecognized prior service cost 3,522 4,514
Unrecognized net loss 245,795 70,208
Accrued postretirement
benefit cost $(252,773) $(231,623)
The assumed health care cost trend rate used in measuring
the APBO of Entergy was 10% for 2003, gradually decreasing
each successive year until it reaches 4.5% in 2009 and beyond.
A one percentage point increase in the assumed health care
cost trend rate for 2002 would have increased the APBO and
the sum of the service cost and interest cost of Entergy as of
December 31, 2002, by approximately $87.8 million and
$10.6 million, respectively. A one percentage point decrease in
the assumed health care cost trend rate for 2002 would have
decreased the APBO and the sum of the service cost and interest
cost of Entergy as of December 31, 2002, by approximately
$79.8 million and $9.4 million, respectively.
The significant actuarial assumptions used in determining
the pension PBO and the SFAS 106 APBO for 2002, 2001, and
2000 were as follows:
2002 2001 2000
Weighted-average discount rate 6.75% 7.50% 7.50%
Weighted-average rate of increase
in future compensation levels 3.25% 4.60% 4.60%
Expected long-term rate of
return on plan assets:
Taxable assets 5.50% 5.50% 5.50%
Non-taxable assets 8.75% 9.00% 9.00%
Entergy’s remaining pension transition assets are being
amortized over the greater of the remaining service period of
active participants or 15 years, and its SFAS 106 transition
obligations are being amortized over 20 years.
ENTERGY CORPORATION AND SUBSIDIARIES 2002 73