Eversource 2008 Annual Report Download - page 71

The following assumptions were used to calculate pension and postretirement benefit
expense and income amounts:
For the Years Ended December 31,
Pension Benefits Postretirement
and SERP Benefits
Statements of Income 2008 2007 2006 2008 2007 2006
Discount rate 6.60% 5.95%(1) 5.80% 6.35% 5.80% 5.65%
Expected long-term
rate of return 8.75% 8.75% 8.75% N/A N/A N/A
Compensation/progression
rate 4.00% 4.00% 4.00% N/A N/A N/A
Expected long-term rate
of return -
Health assets, net of tax N/A N/A N/A 6.85% 6.85% 6.85%
Life assets and non-taxable
health assets N/A N/A N/A 8.75% 8.75% 8.75%
(1) The 2007 discount rate for the SERP was 5.9 percent.
The following table represents the PBOP assumed health care cost trend rate for the
next year and the assumed ultimate trend rate:
Year Following December 31,
2008 2007
Health care cost trend rate assumed for next year 8.00% 8.50%
Rate to which health care cost trend rate is assumed
to decline (the ultimate trend rate) 5.00% 5.00%
Year that the rate reaches the ultimate trend rate 2015 2015
Assumed health care cost trend rates have a significant eect on the amounts reported
for the health care plans. The eect of changing the assumed health care cost trend
rate by one percentage point in each year would have the following eects:
One Percentage One Percentage
(Millions of Dollars) Point Increase Point Decrease
Effect on total service and interest
cost components $ 1.0 $ (0.8)
Effect on postretirement benefit obligation 11.4 (10.0)
NU’s investment strategy for its Pension Plan and PBOP Plan is to maximize the
long-term rate of return on those plans’ assets within an acceptable level of risk. The
investment strategy establishes target allocations, which are routinely reviewed and
periodically rebalanced. NU’s expected long-term rates of return on Pension Plan
assets and PBOP Plan assets are based on these target asset allocation assumptions
and related expected long-term rates of return. In developing its expected long-term
rate of return assumptions for the Pension Plan and the PBOP Plan, NU also evaluated
input from actuaries and consultants, as well as long-term inflation assumptions and
NU’s historical 25-year compounded return of over 11 percent. The Pension Plan’s and
PBOP Plan’s target asset allocation assumptions and expected long-term rate of return
assumptions by asset category are as follows:
At December 31,
Postretirement
Pension Benefits Benefits
2008 and 2007 2008 and 2007
Target Assumed Target Assumed
Asset Rate Asset Rate
Allocation of Return Allocation of Return
Equity Securities:
United States 40% 9.25% 55% 9.25%
Non-United States 17% 9.25% 11% 9.25%
Emerging markets 5% 10.25% 2% 10.25%
Private 8% 14.25% - -
Debt Securities:
Fixed income 25% 5.50% 27% 5.50%
High yield fixed income - - 5% 7.50%
Real Estate 5% 7.50% - -
The actual asset allocations at December 31, 2008 and 2007 approximated these
target asset allocations. The plans’ actual weighted-average asset allocations by asset
category are as follows:
At December 31,
Postretirement
Pension Benefits Benefits
2008 2007 2008 2007
Equity Securities:
United States 34% 40% 57% 55%
Non-United States 16% 17% 12% 14%
Emerging markets 4% 5% 1% 1%
Private 11% 7% - -
Debt Securities:
Fixed income 29% 26% 29% 29%
High yield fixed income - - 1% 1%
Real Estate 6% 5% - -
Totals 100% 100% 100% 100%
Estimated Future Benefit Payments: The following benefit payments, which reflect
expected future service, are expected to be paid/(received) for the Pension, SERP and
PBOP Plans:
Pension SERP Postretirement Goverment
(Millions of Dollars) Benefits Benefits Benefits Benefits
2009 $124.1 $2.3 $43.2 $(3.9)
2010 128.9 2.5 43.9 (4.2)
2011 132.4 2.7 44.2 (4.6)
2012 136.0 2.9 44.3 (5.0)
2013 140.8 3.1 44.6 (5.3)
2014-2018 805.1 17.4 224.8 (31.3)
The government benefits represent amounts expected to be received from the federal
government for the new Medicare prescription drug benefit under the PBOP Plan
related to the corresponding year’s benefit payments.
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