OG&E 2013 Annual Report Download - page 72

66 OGE Energy Corp.
The overall expected rate of return on plan assets assumption
remained at 8.00 percent in 2012 and 2013 in determining net periodic
benefit cost due to recent returns on the Company’s long-term investment
portfolio. The rate of return on plan assets assumption is the average
long-term rate of earnings expected on the funds currently invested and
to be invested for the purpose of providing benefits specified by the
Pension Plan or postretirement benefit plans. This assumption is reex-
amined at least annually and updated as necessary. The rate of return
on plan assets assumption reflects a combination of historical return
analysis, forward-looking return expectations and the plans’ current
and expected asset allocation.
Post-Employment Benefit Plan
Disabled employees receiving benefits from the Company’s Group
Long-Term Disability Plan are entitled to continue participating in
the Company’s Medical Plan along with their dependents. The post-
employment benefit obligation represents the actuarial present value
of estimated future medical benefits that are attributed to employee
service rendered prior to the date as of which such information is pre-
sented. The obligation also includes future medical benefits expected
to be paid to current employees participating in the Company’s Group
Long-Term Disability Plan and their dependents, as defined in the
Company’s Medical Plan.
Net Periodic Benefit Cost
Restoration of Postretirement
Pension Plan Retirement Income Plan Benefit Plans
(In millions, year ended December 31) 2013 2012 2011 2013 2012 2011 2013 2012 2011
Service cost $19.0 $«17.9 $«17.6 $1.2 $1.0 $1.0 $÷4.3 $÷«4.1 $÷«3.5
Interest cost 26.7 30.1 33.3 0.5 0.6 0.6 10.3 11.9 12.5
Expected return on plan assets (48.4) (46.0) (45.5) –––(2.5) (3.0) (5.1)
Amortization of transition obligation ––– ––– –2.7 2.7
Amortization of net loss 26.5 23.8 19.2 0.4 0.4 0.4 21.5 20.6 18.3
Amortization of unrecognized
prior service cost(A) 1.8 2.2 2.4 0.3 0.7 0.7 (16.5) (16.5) (16.5)
Settlement 22.4 –– –0.9 – –––
Total net periodic benefit cost 48.0 «28.0 27.0 2.4 3.6 2.7 17.1 «19.8 15.4
Less: Amount paid by
unconsolidated affiliates 5.9 ––0.1 ––1.5 ––
Net periodic benefit cost(B) $42.1 $«28.0 $«27.0 $2.3 $3.6 $2.7 $15.6 $«19.8 $«15.4
(A) Unamortized prior service cost is amortized on a straight-line basis over the average remaining service period to the first eligibility age of participants who are expected to receive a benefit and are
active at the date of the plan amendment.
(B) In addition to the $60.0 million, $51.4 million and $45.1 million and of net periodic benefit cost recognized in 2013, 2012 and 2011, respectively, the Company recognized the following:
• An increase in pension expense in 2013, 2012 and 2011 of $5.8 million, $8.3 million and $10.8 million, respectively, to maintain the allowable amount to be recovered for pension expense in the
Oklahoma jurisdiction, which are included in the Pension tracker regulatory asset or liability (see Note 1); and
• An increase in postretirement medical expense in 2013, 2012 and 2011 of $0.6 million, $0.8 million and $3.5 million, respectively, to maintain the allowable amount to be recovered for postretirement
medical expense in the Oklahoma jurisdiction which are included in the Pension tracker regulatory asset or liability (see Note 1);
• A deferral of pension expense in 2013 of $17.0 million related to the pension settlement charge of $22.4 million, in accordance with the Oklahoma pension tracker.
The capitalized portion of the net periodic pension benefit cost
was $5.7 million, $6.5 million and $6.1 million at December 31, 2013,
2012 and 2011, respectively. The capitalized portion of the net periodic
postretirement benefit cost was $3.5 million, $5.5 million and $3.8 million
at December 31, 2013, 2012 and 2011, respectively.
Rate Assumptions
Pension Plan and
Restoration of Postretirement
Retirement Income Plan Benefit Plans
(Year ended December 31) 2013 2012 2011 2013 2012 2011
Discount rate 4.60% 3.70% 4.50% 4.60% 3.60% 4.50%
Rate of return on plans’ assets 8.00% 8.00% 8.00% 4.00% 4.00% 6.50%
Compensation increases 4.20% 4.20% 4.40% N/A N/A N/A
Assumed health care cost trend:
Initial trend N/A N/A N/A 8.35% 8.55% 8.75%
Ultimate trend rate N/A N/A N/A 4.48% 4.48% 4.48%
Ultimate trend year N/A N/A N/A 2028 2028 2028
N/A – not applicable