OG&E 2011 Annual Report Download - page 74

It is the Company’s policy to fund the Pension Plan on a current
basis based on the net periodic pension expense as determined by
the Company’s actuarial consultants. During each of 2011 and 2010,
OGE Energy made contributions to its Pension Plan of $50 million to
help ensure that the Pension Plan maintains an adequate funded status.
Such contributions are intended to provide not only for benefits attrib-
uted to service to date, but also for those expected to be earned in the
future. During 2012, OGE Energy may contribute up to $35 million to its
Pension Plan. The expected contribution to the Pension Plan during 2012
would be a discretionary contribution, anticipated to be in the form of
cash, and is not required to satisfy the minimum regulatory funding
requirement specified by the Employee Retirement Income Security Act
of 1974, as amended. OGE Energy could be required to make additional
contributions if the value of its pension trust and postretirement benefit
plan trust assets are adversely impacted by a major market disruption
in the future.
The Company provides a Restoration of Retirement Income Plan to
those participants in the Company’s Pension Plan whose benefits are
subject to certain limitations under the Internal Revenue Code of 1986
(the “Code”). The benefits payable under this Restoration of Retirement
Income Plan are equivalent to the amounts that would have been payable
under the Pension Plan but for these limitations. The Restoration of
Retirement Income Plan is intended to be an unfunded plan.
The following table presents the status of the Company’s Pension
Plan and Restoration of Retirement Income Plan at December 31, 2011
and 2010. These amounts have been recorded in Accrued Benefit
Obligations with the offset in Accumulated Other Comprehensive Loss
(except OG&E’s portion which is recorded as a regulatory asset as dis-
cussed in Note 1) in the Company’s Consolidated Balance Sheet. The
amounts in Accumulated Other Comprehensive Loss and those recorded
as a regulatory asset represent a net periodic benefit cost to be recog-
nized in the Consolidated Statements of Income in future periods.
Restoration of
Pension Plan Retirement Income Plan
(In millions, December 31) 2011 2010 2011 2010
Benefit obligations $(697.7) $(640.9) $(13.3) $(10.8)
Fair value of plan assets 589.8 574.0 ––
Funded status at end of year $(107.9) $÷(66.9) $(13.3) $(10.8)
The following table summarizes the benefit payments the Company
expects to pay related to its Pension Plan and Restoration of Retirement
Income Plan. These expected benefits are based on the same assumptions
used to measure the Company’s benefit obligation at the end of the year
and include benefits attributable to estimated future employee service.
(In millions) Projected Benefit Payments
2012 $÷68.2
2013 69.2
2014 87.0
2015 78.3
2016 71.1
2017 and beyond 303.3
Plan Investments, Policies and Strategies
The Pension Plan assets are held in a trust which follows an investment
policy and strategy designed to reduce the funded status volatility of the
Plan by utilizing liability driven investing. The purpose of liability driven
investing is to structure the asset portfolio to more closely resemble the
pension liability and thereby more effectively hedge against changes in
the liability. The investment policy follows a glide path approach that
shifts a higher portfolio weighting to fixed income as the Plan’s funded
status increases. The table below sets forth the targeted fixed income
and equity allocations at different funded status levels.
Projected Benefit Obligation
Funded Status Thresholds <90% 95% 100% 105% 110% 115% 120%
Fixed income 50% 58% 65% 73% 80% 85% 90%
Equity 50% 42% 35% 27% 20% 15% 10%
Total 100% 100% 100% 100% 100% 100% 100%
Within the portfolio’s overall allocation to equities, the funds are
allocated according to the guidelines in the table below.
Asset Class Target Allocation Minimum Maximum
Domestic all-cap/large cap equity 50% 50% 60%
Domestic mid-cap equity 15% 5% 25%
Domestic small-cap equity 15% 5% 25%
International equity 20% 10% 30%
The Company has retained an investment consultant responsible
for the general investment oversight, analysis, monitoring investment
guideline compliance and providing quarterly reports to certain of the
Company’s members and the Company’s Investment Committee. The
various investment managers used by the trust operate within the gen-
eral operating objectives as established in the investment policy and
within the specific guidelines established for each investment manager’s
respective portfolio.
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 pre-
vailing investment environment and the advisors’ investment style. The
goal of the trust is to provide a rate of return consistently from three
percent 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:
72 OGE Energy Corp.