Eversource 2003 Annual Report Download - page 66

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Effective February 1, 2002, certain CL&P and Utility Group employees
who were displaced were eligible for a Voluntary Retirement Program
(VRP). The VRP supplements the Pension Plan and provides special provisions.
Eligible employees include non-bargaining unit employees or employees
belonging to a collective bargaining unit that agreed to accept the
VRP who were active participants in the Pension Plan at January 1, 2002,
and that were displaced as part of the reorganization between
January 22, 2002 and March 2003. Eligible employees received a special
retirement benefit under the VRP whose value was roughly equivalent to
a multiple of base pay based on years of credited service. During 2002,
NU recorded an expense of $8.1 million associated with special pension
termination benefits related to the VRP. The cost of the VRP was recovered
through regulated utility rates, and the $8.1 million was recorded as a
regulatory asset with no impact on 2002 earnings.
In conjunction with the Voluntary Separation Program (VSP) that was
announced in December 2000, NU recorded $26 million in settlement
income and $64.7 million in curtailment income in 2001. The VSP was
intended to reduce the generation-related support staff between March
1, 2001 and February 28, 2002, and was available to non-bargaining
unit employees who, by February 1, 2002, were at least age 50, with a
minimum of five years of credited service, and at December 15, 2000,
were assigned to certain groups and in eligible job classifications.
One component of the VSP included special pension termination benefits
equal to the greater of 5 years added to both age and credited service of
eligible participants or two weeks of pay for each year of service subject
to a minimum level of 12 weeks and a maximum of 52 weeks for eligible
participants. The special pension termination benefits expense associated
with the VSP totaled $93.3 million in 2001. The net total of the settlement
and curtailment income and the special termination benefits expense
was $2.6 million, of which $7.5 million of costs were included in operating
expenses, $5.1 million was deferred as a regulatory liability and is
expected to be returned to customers and $0.2 million was billed to the
joint owners of Millstone and Seabrook.
Postretirement Benefits Other Than Pensions (PBOP): NU’s subsidiaries
also provide certain health care benefits, primarily medical and dental,
and life insurance benefits through a benefit plan to retired employees
(PBOP Plan). These benefits are available for employees retiring from NU
who have met specified service requirements. For current employees and
certain retirees, the total benefit is limited to two times the 1993 per
retiree health care cost. These costs are charged to expense over the
estimated work life of the employee. NU uses a December 31 measure-
ment date for the PBOP Plan. NU annually funds postretirement costs
through external trusts with amounts that have been rate-recovered and
which also are tax deductible.
In 2002, the PBOP Plan was amended to change the claims experience
basis, to increase minimum retiree contributions and to reduce the cap
on the company’s subsidy to the dental plan. These amendments resulted
in a $34.2 million decrease in NU’s benefit obligation under the PBOP
Plan at December 31, 2002.
Impact of New Medicare Changes on PBOP: On December 8, 2003, the
President signed into law a bill that expands Medicare, primarily by
adding a prescription drug benefit starting in 2006 for Medicare-eligible
retirees as well as a federal subsidy to plan sponsors of retiree health
care benefit plans who provide a prescription drug benefit at least
actuarially equivalent to the new Medicare benefit.
Based on the current PBOP Plan provisions, NU’s actuaries believe that
NU will qualify for this federal subsidy because the actuarial value of
NU’s PBOP Plan is estimated to be 60 percent greater than that of the
standard Medicare benefit. NU will directly benefit from the federal
subsidy for retirees of PSNH and NAESCO who retired before 1993, and
other NU-company retirees who retired before 1991. For other retirees,
management does not believe that NU will benefit from the subsidy
because NU’s cost support for these retirees is capped at a fixed
dollar commitment.
The aggregate effect of recognizing the Medicare change is a decrease
to the PBOP benefit obligation of $19.5 million. This amount includes
the present value of the future government subsidy, which was estimated
by discounting the expected payments using the actuarial assumptions
used to determine the PBOP liability at December 31, 2003. Also included
in the $19.5 million estimate is a decrease in the assumed participation in
NU’s retiree health plan from 95 percent to 85 percent for future retirees,
which reflects the expectation that the Medicare prescription benefit will
produce insurer-sponsored health plans that are more financially attractive
to future retirees. The per capita claims cost estimate was not changed.
Management reduced the PBOP benefit obligation as of December 31,
2003 by $19.5 million and recorded this amount as an actuarial gain
within unrecognized net loss/(gain) in the tables that follow. The $19.5
million actuarial gain will be amortized beginning in 2004 as a reduction
to PBOP expense over the future working lifetime of employees covered
under the plan (approximately 13 years). PBOP expense in 2004 will also
reflect a lower interest cost due to the reduction in the December 31, 2003
benefit obligation.
Specific authoritative guidance on accounting for the effect of the
Medicare federal subsidy on PBOP plans and amounts is pending from the
FASB. When issued, that guidance could require NU to change the
accounting described above and change the information reported herein.
PBOP Settlements, Curtailments and Special Termination Benefits: There
were no settlements, curtailments or special termination benefits in
2003. In 2002, NU recorded PBOP special termination benefits income of
$1.2 million related to the sale of Seabrook. CL&P and PSNH recorded
their shares of this curtailment as reductions to stranded costs. In 2001,
NU recorded PBOP curtailment expense totaling $3.3 million and special
termination benefits expense totaling $8.6 million in connection with the
VSP. This amount was recorded as a regulatory asset and collected
through regulated utility rates in 2002.