Eversource 2010 Annual Report Download - page 114

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97
The following assumptions were used to calculate pension and PBOP expense and income amounts:
For the Years Ended December 31,
Pension Benefits and SERP PBOP Benefits
Statements of Income 2010 2009 2008 2010 2009 2008
Discount Rate 5.98 % 6.89 % 6.60 % 5.73 % 6.90 %6.35 %
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, Taxable 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 %
For 2011 through 2013, the health care trend cost assumption is 7 percent, subsequently decreasing one half percentage point per year
to an ultimate rate of 5 percent in 2017. For the year ended December 31, 2010, the assumed healthcare trend was 7.5 percent,
decreasing by 5 percent and reaching the ultimate trend rate of 5 percent in 2015.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of
changing the assumed health care cost trend rate by one percentage point for the year ended December 31, 2010 would have the
following effects:
(Millions of Dollars)
NU One Percentage
Point Increase
One Percentage
Point Decrease
Effect on Postretirement Benefit Obligation $ 14.5 $ (12.1)
Effect on Total Service and Interest Cost Components 1.2 (0.9)
Fair Value of Pension and PBOP Assets: Pension and PBOP funds are held in external trusts. Trust assets, including accumulated
earnings, must be used exclusively for pension and PBOP payments. NU's investment strategy for its Pension and PBOP Plans is to
maximize the long-term rates of return on these plans' assets within an acceptable level of risk. The investment strategy for each asset
category includes a diversification of asset types, fund strategy and fund managers and establishes target asset allocations that are
routinely reviewed and periodically rebalanced. NU's expected long-term rates of return on Pension 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 and PBOP Plans, NU evaluated input from actuaries and consultants, as well as long-term
inflation assumptions and historical returns. For 2010, management has assumed long-term rates of return of 8.25 percent on Pension
Plan assets and PBOP Plan life and nontaxable health assets and 6.45 percent for PBOP taxable health assets. These long-term rates
of return are based on the assumed rates of return for the target asset allocations as follows:
As of December 31,
Pension and PBOP
Life and Non-Taxable Health
PBOP
(Taxable Health) Pension PBOP (Health and Life)
2010 2010 2009 2009
Target
Asset
Allocation
Assumed
Rate
of Return
Target
Asset
Allocation
Assumed
Rate
of Return
Target
Asset
Allocation
Assumed
Rate
of Return
Target
Asset
Allocation
Assumed
Rate
of Return
Equity Securities:
United States 24% 9% 55% 9% 24% 9.25% 55% 9.25%
International 13% 9% 15% 9% 13% 9.25% 11% 9.25%
Emerging Markets 3% 10% - - 3% 10.25% 2% 10.25%
Private Equity 12% 13% - - 12% 14.25% - -
Debt Securities:
Fixed Income 20% 5% 30% 5% 20% 5.7% 27% 5.7%
High Yield Fixed Income 3.5% 7.5% - - 3.5% 7.7% 5% 7.7%
Emerging Markets Debt 3.5% 7.5% - - 3.5% 7.7% - -
Real Estate And Other Assets 8% 7.5% - - 8% 7.5% - -
Hedge Funds 13% 7% - - 13% 8% - -