OG&E 2012 Annual Report Download - page 71

OGE Energy Corp. 69
The following table presents the status of the Company’s Pension
Plan and Restoration of Retirement Income Plan at December 31, 2012
and 2011. 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) 2012 2011 2012 2011
Benefit obligations $(747.1) $(697.7) $(14.5) $(13.3)
Fair value of plan assets 626.0 589.8 – –
Funded status at end of year $(121.1) $(107.9) $(14.5) $(13.3)
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 assump-
tions 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
2013 $÷75.1
2014 94.5
2015 84.7
2016 77.2
2017 71.5
After 2017 295.3
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 allo-
cated 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
general 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 prevailing
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 bench-
mark. Below is a list of each asset class utilized with appropriate
comparative benchmark(s) each manager is evaluated against:
Asset Class Comparative Benchmark(s)
Core Fixed Income Barclays Capital Aggregate Index
Interest Rate Sensitive Fixed Income Barclays Capital Aggregate Index
Long Duration Fixed Income Barclays Long Government/Credit
Equity Index Standard & Poor’s 500 Index
All-Cap Equity Russell 3000 Index
Russell 3000 Value Index
Mid-Cap Equity Russell Midcap Index
Russell Midcap Value Index
Small-Cap Equity Russell 2000 Index
Russell 2000 Value Index
International Equity Morgan Stanley Capital International ACWI ex-US