Entergy 2007 Annual Report Download - page 92

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Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
OT H E R PO S T R E T I R E M E N T BE N E F I T OB L I G AT I O N S , PL A N
AS S E T S , FU N D E D ST A T U S , A N D AM O U N T S RE C O G N I Z E D
IN T H E BA L A N C E SH E E T O F EN T E R G Y CO R P O R AT I O N A N D
I T S S U B S I D I A R I E S A S O F DE C E M B E R 31, 2007 A N D 2006
(IN T H O U S A N D S ):
2007 2006
Change in APBO
Balance at beginning of year $1,074,559 $ 997,969
Service cost 44,137 41,480
Interest cost 63,231 57,263
Acquisition 11,336 –
Plan amendments (3,520) (10,708)
Special termination benets 603 –
Plan participant contributions 11,384 6,904
Actuarial gain (19,997) (17,838)
Benets paid (56,719) (62,314)
Medicare Part D subsidy received 4,617 1,610
Balance at end of year $1,129,631 $1,014,366
Change in Plan Assets
Fair value of assets at beginning of year $ 314,326 $ 234,516
Actual return on plan assets 20,314 27,912
Employer contributions 56,300 64,058
Plan participant contributions 11,384 6,904
Acquisition 5,114 –
Benets paid (56,719) (60,700)
Fair value of assets at end of year $ 350,719 $ 272,690
Funded status $ (778,912) $ (741,676)
Amounts recognized in the balance sheet (SFAS 158)
Current liabilities $ (28,859) $ (27,372)
Non-current liabilities (750,053) (714,304)
Total funded status $ (778,912) $ (741,676)
Amounts recognized as a regulatory asset
(before tax)
Transition obligation $ 12,435 $ 8,686
Prior service cost (30,833) (9,263)
Net loss 224,532 195,567
$ 206,134 $ 194,990
Amounts recognized as OCI (before tax)
Transition obligation $ 6,709 $ 4,321
Prior service cost (16,634) (52,799)
Net loss 112,692 158,166
$ 102,767 $ 109,688
Qualified Pension and Other Postretirement
Plans’ Assets
Entergy’s qualied pension and postretirement plans’ weighted-
average asset allocations by asset category at December 31, 2007 and
2006 are as follows:
Qualied Pension Postretirement
2007 2006 2007 2006
Domestic Equity Securities 44% 43% 37% 37%
International Equity Securities 20% 21% 14% 14%
Fixed-Income Securities 34% 34% 49% 49%
Other 2% 2% –% –%
e Plan Administrator’s trust asset investment strategy is to invest
the assets in a manner whereby long-term earnings on the assets
(plus cash contributions) provide adequate funding for retiree benet
payments. e mix of assets is based on an optimization study that
identies asset allocation targets in order to achieve the maximum
return for an acceptable level of risk, while minimizing the expected
contributions and pension and postretirement expense.
In the optimization study, the Plan Administrator formulates
assumptions about characteristics, such as expected asset class
investment returns, volatility (risk), and correlation coecients among
the various asset classes. e future market assumptions used in the
optimization study are determined by examining historical market
characteristics of the various asset classes, and making adjustments to
reect future conditions expected to prevail over the study period.
e optimization analysis utilized in the Plan Administrator’s latest
study produced the following approved asset class target allocations.
Pension Postretirement
Domestic Equity Securities 45% 37%
International Equity Securities 20% 14%
Fixed-Income Securities 31% 49%
Other (Cash and Group Annuity Contracts) 4% –%
These allocation percentages combined with each asset class’
expected investment return produced an aggregate return expectation
for the ve years following the study of 7.6% for pension assets,
5.4% for taxable postretirement assets, and 7.2% for non-taxable
postretirement assets.
The expected long term rate of return of 8.50% for the qualied
Retirement Plans assets is based on the expected long-term return of
each asset class, weighted by the target allocation for each class as
dened in the table above. The source for each asset class’ expected
long-term rate of return is the geometric mean of the respective asset
class total return. The time period reected in the total returns is a long
dated period spanning several decades.
The expected long term rate of return of 8.50% for the non-taxable
VEBA trust assets is based on the expected long-term return of each
asset class, weighted by the target allocation for each class as dened
in the table above. The source for each asset class’ expected long-term
rate of return is the geometric mean of the respective asset class’ total
return. The time period reected in the total returns is a long dated
period spanning several decades.
For the taxable VEBA trust assets the allocation has a high
percentage of tax-exempt xed income securities. The tax-exempt
xed income long-term total return was estimated using total return
data from the 2007 Economic Report of the President. e time period
reected in the tax-exempt xed income total return is 1929 to 2006.
Aer reecting the tax-exempt xed income percentage and unrelated
business income tax, the long-term rate of return for taxable VEBA
trust assets is expected to be 6.0%.
Since precise allocation targets are inecient to manage security
investments, the following ranges were established to produce an
acceptable economically ecient plan to manage to targets:
Pension Postretirement
Domestic Equity Securities 45% to 55% 32% to 42%
International Equity Securities 15% to 25% 9% to 19%
Fixed-Income Securities 25% to 35% 44% to 54%
Other 0% to 10% 0% to 5%
AC C U M U L AT E D PE N S I O N BE N E F I T OB L I G AT I O N
e accumulated benet obligation for Entergy’s qualied pension
plans was $2.8 billion and $2.7 billion at December 31, 2007 and 2006,
respectively.