Eversource 2015 Annual Report Download - page 95

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Fair Value of Pension and PBOP Plan Assets: Pension and PBOP funds are held in external trusts. Trust assets, including accumulated earnings,
must be used exclusively for Pension and PBOP payments. Eversource’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 strategies and fund managers and it establishes target asset allocations that are routinely reviewed and periodically
rebalanced. PBOP assets are comprised of assets held in the PBOP Plan as well as specific assets within the defined benefit pension plan trust
(401(h) assets). The investment policy and strategy of the 401(h) assets is consistent with that of the defined benefit pension plan. Eversource’s
expected long-term rates of return on Pension and PBOP Plan assets are based on 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, Eversource evaluated input from
consultants, as well as long-term inflation assumptions and historical returns. For the year ended December 31, 2015, management has assumed
long-term rates of return of 8.25 percent for the Pension and PBOP Plan 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, 2015
As of December 31, 2014
Pension Plan and Tax-Exempt Assets Within PBOP Plan Pension Plan and Tax-Exempt Assets Within PBOP Plan
Target Asset Allocation Assumed Rate of Return Target Asset Allocation Assumed Rate of Return
Equity Securities:
United States 22% 8.5% 24% 9%
International 13% 8.5% 10% 9%
Emerging Markets 5% 10% 6% 10%
Private Equity 12% 12% 10% 13%
Debt Securities:
Fixed Income 12% 4.5% 15% 5%
High Yield Fixed Income 13% 8.5% 9% 7.5%
Emerging Markets Debt 5% 7.5% 6% 7.5%
Real Estate and Other Assets 10% 7.5% 9% 7.5%
Hedge Funds 8% 7% 11% 7%
The taxable assets within the PBOP Plan have a target asset allocation of 70 percent equity securities and 30 percent fixed income securities.
The following table presents, by asset category, the Pension and PBOP Plan assets recorded at fair value on a recurring basis by the level in which
they are classified within the fair value hierarchy:
Pension Plan
Fair Value Measurements as of December 31,
(Millions of Dollars)
2015 2014
Asset Category: Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Equity Securities
(1)
$ 396.5 $ 985.7 $ 305.2 $ 1,687.4 $ 414.7 $ 1,035.0 $ 292.2 $ 1,741.9
Private Equity 7.6 - 464.7 472.3 18.8 - 367.9 386.7
Fixed Income
(2)
- 432.0 784.8 1,216.8 10.2 561.4 722.0 1,293.6
Real Estate and Other Assets - 117.5 260.3 377.8 - 132.0 265.8 397.8
Hedge Funds - 49.7 290.8 340.5 - 20.0 475.0 495.0
Total $ 404.1 $ 1,584.9 $ 2,105.8 $ 4,094.8 $ 443.7 $ 1,748.4 $ 2,122.9 $ 4,315.0
Less: 401(h) PBOP Assets
(3)
(189.4)
(188.5)
Total Pension Assets $ 3,905.4 $ 4,126.5
PBOP Plan
Fair Value Measurements as of December 31,
(Millions of Dollars)
2015 2014
Asset Category: Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Equity Securities
(1)
$ 109.7 $ 121.6 $ 77.8 $ 309.1 $ 104.1 $ 172.8 $ 75.1 $ 352.0
Private Equity - - 32.9 32.9 - - 24.9 24.9
Fixed Income
(2)
9.7 99.9 81.6 191.2 16.1 110.0 78.3 204.4
Real Estate and Other Assets - 17.0 20.4 37.4 - 19.4 15.0 34.4
Hedge Funds - - 52.2 52.2 - - 58.4 58.4
Total $ 119.4 $ 238.5 $ 264.9 $ 622.8 $ 120.2 $ 302.2 $ 251.7 $ 674.1
Add: 401(h) PBOP Assets
(3)
189.4 188.5
Total PBOP Assets $ 812.2 $ 862.6
(1)
United States, International and Emerging Markets equity securities classified as Level 2 include investments in commingled funds. Level 3
investments include hedge funds that are overlayed with equity index swaps and futures contracts and funds invested in equities that have
redemption restrictions.
(2)
Fixed Income investments classified as Level 3 investments include fixed income funds that invest in a variety of opportunistic fixed income
strategies, and hedge funds that are overlayed with fixed income futures.
(3)
The assets of the Pension Plan include a 401(h) account that has been allocated to provide health and welfare postretirement benefits under the
PBOP Plan.
The Company values assets based on observable inputs when available. Equity securities, exchange traded funds and futures contracts classified as
Level 1 in the fair value hierarchy are priced based on the closing price on the primary exchange as of the balance sheet date. Commingled funds
included in Level 2 equity securities are recorded at the net asset value provided by the asset manager, which is based on the market prices of the
underlying equity securities. Swaps are valued using pricing models that incorporate interest rates and equity and fixed income index closing prices