Entergy 2004 Annual Report Download - page 83

Entergy Corporation and Subsidiaries 2004
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The significant actuarial assumptions used in determining the net
periodic pension and other postretirement benefit costs for 2004,
2003, and 2002 were as follows:
2004 2003 2002
Weighted-average discount rate
Pension 6.25% 6.75% 7.50%
Other postretirement 6.71% 6.75% 7.50%
Weighted-average rate of increase
in future compensation levels 3.25% 3.25% 4.60%
Expected long-term rate of
return on plan assets:
Taxable assets 5.50% 5.50% 5.50%
Non-taxable assets 8.75% 8.75% 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 ending in 2005, and its SFAS 106 transition
obligations arebeing amortized over 20 years ending in 2012.
Voluntary Severance Program
As partof an initiativeto achieveproductivity improvements with a
goal of reducing costs, primarily in the Non-Utility Nuclear and
U.S. Utility businesses, in the second half of 2003 Entergy offered a
voluntary severance program to employees in various departments.
Approximately 1,100 employees, including 650 employees in
nuclear operations from the Non-Utility Nuclear and U.S. Utility
businesses, accepted the offers. As a result of this program, in the
fourth quarter of 2003 Entergy recorded additional pension
and postretirement costs (including amounts capitalized) of
$110.3 millionfor special termination benefits and plan curtailment
charges.These amounts are included in the net pension cost and net
postretirement benefit cost for the year ended December 31, 2003.
Medicare Prescription Drug, Improvement
and Modernization Act of 2003
In December 2003, the President signed the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 into law. The
Act introduces a prescription drug benefit cost under Medicare
(PartD), starting in 2006, as well as federal subsidy to employers
who provide a retiree prescription drug benefit that is at least
actuarially equivalent to Medicare Part D.
AtDecember 2003, specific authoritative guidance on the
accounting for the federal subsidy was pending. As allowed by
Financial Accounting Standards Board Staff Position No. FAS
106-1, Entergyelected to recordan estimate of the effects of the
Act in accounting for its postretirement benefit plans at December
31, 2003, under SFAS 106 and in providing disclosures required by
SFAS No. 132 (revised 2003), Employers’ Disclosures about
Pensions and Other Postretirement Benefits. At December 31,
2003, based on actuarial analysis of prescription drug benefits,
estimated future Medicare subsidies were expected to reduce the
December 31, 2003 Accumulated Postretirement Benefit
Obligation by $56 million. For the year ended December 31, 2003,
the impact of the Act onnet postretirement benefit cost was
immaterial, as it reflected only one month’s impact of the Act.
In 2004, Entergy continued to record an estimate of the effects
of the Act in accounting for its postretirement benefit plans. In
mid-2004, the Financial Accounting Standards Board issued Staff
Position No. FAS 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, which was effective for Entergy’s June
30, 2004 interim reporting.
In August 2004, the Centers for Medicare and Medicaid Services
issued proposed regulations to implement the new Medicare law.
Aruling from the Centers for Medicare and Medicaid Services
was issued in late January 2005 with final guidance expected later
this year.
The actuarially estimated effect of future Medicare subsidies
reduced the December 31, 2003 and 2004 Accumulated
Postretirement Benefit Obligation by $128 million and $161
million, respectively, and reduced the 2004 other postretirement
benefit cost by $23.3 million.
Defined Contribution Plans
Entergy sponsors the Savings Plan of Entergy Corporation and
Subsidiaries (System Savings Plan). The System Savings Plan is a
defined contribution plan covering eligible employees of Entergy
and its subsidiaries. Through January31, 2004, the System Savings
Plan provided that the employing Entergy subsidiary:
•make matching contributions to the System Savings Plan in an
amount equal to 75% of the participants’ basic contributions, up
to 6% of their eligible earnings, in shares of Entergy
Corporation common stock if the employees direct their
company-matching contributionto the purchase of Entergy
Corporation’s common stock; or
•make matching contributions in the amount of 50% of the
participants’ basic contributions, up to 6% of their eligible
earnings, if the employees direct their company-matching
contribution to other investment funds.
Effective February 1, 2004, the employing Entergy subsidiary began
making matching contributions for non-bargaining employees to
the System Savings Plan in an amount equal to 70% of the
participants’ basic contributions, up to 6% of their eligible
earnings. The 70% match is allocated to investments as directed
by the employee.
Entergy also sponsors the Savings Plan of Entergy Corporation
and Subsidiaries II (established in 2001), the Savings Plan of
EntergyCorporationand Subsidiaries III (established in 2002), and
the Savings Plan of Entergy Corporation and Subsidiaries V
(established in 2002). The plans are defined contribution plans that
cover eligible employees, as defined by eachplan, of Entergyand its
subsidiaries. The employing Entergy subsidiary makes matching
contributions equal to 50% of the participants’ participating
contributions for each of these plans. Effective September 30, 2004,
employees participating in the Savings Plan of Entergy
Corporation and Subsidiaries III (Savings Plan III) were
transferred into the System Savings Plan and Savings Plan III
was terminated.
Entergy’s subsidiaries’ contributions to defined contribution
plans collectivelywere$32.9 millionin 2004, $31.5 million in 2003,
and $29.6 million in 2002. The majority of the contributions were
to the System Savings Plan.
NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued