OG&E 2009 Annual Report Download - page 86

Pension Plan Costs and Assumptions
On August 17, 2006, President Bush signed The Pension Protection Act of 2006 (the “Pension Protection Act”) into
law. The Pension Protection Act makes changes to important aspects of qualified retirement plans. Many of the changes enacted as
part of the Pension Protection Act were required to be implemented as of the first plan year beginning in 2008. In accordance with the
Pension Protection Act, OGE Energy implemented the following changes to its Pension Plan and its 401(k) Plan, as applicable: (i)
effective January 1, 2007, OGE Energy’s Pension Plan and 401(k) Plan were amended to incorporate clarifying provisions and
changes relating to the Pension Protection Act notice requirements, (ii) effective January 1, 2007, OGE Energy Pension Plan and
401(k) Plan were amended to allow a non-spouse beneficiary to directly rollover an eligible distribution to an eligible individual
retirement account, (iii) effective January 1, 2008, OGE Energy’s 401(k) Plan was amended to provide 100 percent vesting after
completing three years of service, (iv) for OGE Energy’s 401(k) Plan, effective January 18, 2008, that plan was amended to
implement an eligible automatic contribution arrangement and provide for a qualified default investment alternative consistent with
the U.S. Department of Labor regulations, (v) effective January 1, 2008, terminated vested benefits, as defined in the Pension Plan, are
payable to participants who, on or after January 1, 2008, leave the Company prior to retirement with at least three years of vesting
service. Participants terminating before completing three years of vesting service and attaining age 65 will not receive a benefit, (vi)
effective January 1, 2008, OGE Energy’s Pension Plan was amended to incorporate funding-based limitations which restrict, among
other things, benefit accruals and the forms in which benefits may be paid if the Pension Plan’s funding level falls below certain levels
set by the Pension Protection Act and (vii) effective January 18, 2008, OGE Energy’s 401(k) Plan was amended so that a participant
may elect, in accordance with the 401(k) Plan procedures, to have his or her salary deferral rate to be made in the future automatically
increased annually on a date and in an amount as specified by the participant in such election. The Company has taken steps to ensure
that its plans, as well as participants and outside administrators, are aware of the changes.
Plan Investments, Policies and Strategies
The Pension Plan assets are held in a trust which follows an investment policy and strategy designed to maximize the long-
term investment returns of the trust at prudent risk levels. Common stocks are used as a hedge against moderate inflationary
conditions, as well as for participation in normal economic times. Fixed income investments are utilized for high current income and
as a hedge against deflation. OGE Energy has retained an investment consultant responsible for the general investment oversight,
analysis, monitoring investment guideline compliance and providing quarterly reports to certain of OGE Energy’s members and OGE
Energy’s Investment Committee (the “Investment Committee”).
The various investment managers used by the trust operate within the general operating objectives as established in the
investment policy and within the specific guidelines established for their respective portfolio. The table below shows the target asset
allocation percentages for each major category of Pension Plan assets:
Asset Class Target Allocation Minimum Maximum
Domestic All-Cap Equity 20 % --- % 25 %
Domestic Equity Passive 10 % --- % 60 %
Domestic Mid-Cap Equity 10 % --- % 10 %
Domestic Small-Cap Equity 10 % --- % 10 %
International Equity 15 % --- % 15 %
Fixed Income Domestic 35 % 30 % 70 %
The portfolio is rebalanced on an annual basis to bring the asset allocations of various managers in line with the target asset
allocation listed above. More frequent rebalancing may occur if there are dramatic price movements in the financial markets which
may cause the trust’s exposure to any asset class to exceed or fall below the established allowable guidelines.
To evaluate the progress of the portfolio, investment performance is reviewed quarterly. It is, however, expected that
performance goals will be met over a full market cycle, normally defined as a three to five year period. Analysis of performance is
within the context of the prevailing investment environment and the advisors’ investment style. The goal of the trust is to provide a
rate of return consistently from three to five percent over the rate of inflation (as measured by the national Consumer Price Index) on a
fee adjusted basis over a typical market cycle of no less than three years and no more than five years. Each investment manager is
expected to outperform its respective benchmark. Below is a list of each asset class utilized with appropriate comparative
benchmark(s) each manager is evaluated against:
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