OG&E 2014 Annual Report Download - page 29

54 OGE Energy Corp. OGE Energy Corp. 55
Company and did not increase the Company’s total pension expense
over time, as the charges were an acceleration of costs that otherwise
would be recognized as pension expense in future periods.
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 of the Code. Participants in the
Restoration of Retirement Income Plan receive the same benefits
that they would have received under the Company’s Pension Plan
in the absence of limitations imposed by the Federal tax laws.
The Restoration of Retirement Income Plan is intended to be an
unfunded plan.
Obligations and Funded Status
The following table presents the status of the Company’s Pension Plan,
the Restoration of Retirement Income Plan and the postretirement
benefit plans for 2014 and 2013. 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 discussed 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 recognized in the
Consolidated Statements of Income in future periods. The benefit
obligation for the Company’s Pension Plan and the Restoration of
Retirement Income Plan represents the projected benefit obligation,
while the benefit obligation for the postretirement benefit plans
represents the accumulated postretirement benefit obligation. The
accumulated postretirement benefit obligation for the Company’s
Pension Plan and Restoration of Retirement Income Plan differs from
the projected benefit obligation in that the former includes no
assumption about future compensation levels. The accumulated
postretirement benefit obligation for the Pension Plan and the
Restoration of Retirement Income Plan at December 31, 2014 was
$688.4 million and $18.7 million, respectively. The accumulated
postretirement benefit obligation for the Pension Plan and the
Restoration of Retirement Income Plan at December 31, 2013 was
$623.4 million and $12.9 million, respectively. The details of the funded
status of the Pension Plan, the Restoration of Retirement Income Plan
and the postretirement benefit plans and the amounts included in the
Consolidated Balance Sheets are as follows:
The overall expected rate of return on plan assets assumption
was 7.50 percent and 8.00 percent in 2014 and 2013, respectively,
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 reexamined 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.
The assumed health care cost trend rates have a significant effect
on the amounts reported for postretirement medical benefit plans.
Future health care cost trend rates are assumed to be 7.85 percent
in 2015 with the rates trending downward to 4.48 percent by 2028. A
one-percentage point change in the assumed health care cost trend
rate would have the following effects:
One-Percentage Point Increase
Year ended December 31 (In millions) 2014 2013 2012
Effect on aggregate of the service
and interest cost components $ — $ — $ —
Effect on accumulated postretirement
benefit obligations 0.1 0.1 0.1
One-Percentage Point Decrease
Year ended December 31 (In millions) 2014 2013 2012
Effect on aggregate of the service
and interest cost components $0.1 $0.1 $0.1
Effect on accumulated postretirement
benefit obligations 0.7 0.6 0.9
Restoration of Retirement Postretirement
Pension Plan Income Plan Benefit Plans
December 31 (In millions) 2014 2013 2014 2013 2014 2013
Change in Benefit Obligation
Beginning obligations $658.1 $747.1 $ 14.0 $ 14.5 $ 258.2 $ 301.0
Service cost 15.3 19.0 1.1 1.2 3.1 4.3
Interest cost 28.1 26.7 0.6 0.5 11.4 10.3
Plan curtailments (0.7) — — — (0.6) —
Plan settlements — (67.5) — — — —
Participants’ contributions — — — — 3.4 3.4
Actuarial (gains) losses 79.3 (53.0) 4.1 (2.0) 19.5 (46.7)
Benefits paid (55.1) (14.2) (0.1) (0.2) (14.1) (14.1)
Ending obligations $725.0 $658.1 $ 19.7 $ 14.0 $ 280.9 $ 258.2
Change in Plans’ Assets
Beginning fair value $654.9 $626.0 $ — $ — $ 61.4 $ 59.6
Actual return on plans’ assets 80.0 75.6 — — 1.8 3.7
Employer contributions — 35.0 0.1 0.2 7.1 8.8
Plan settlements — (67.5) — — — —
Participants’ contributions — — — — 3.4 3.4
Benefits paid (55.1) (14.2) (0.1) (0.2) (14.1) (14.1)
Ending fair value $679.8 $654.9 $ — $ — $ 59.6 $ 61.4
Funded status at end of year $ (45.2) $ (3.2) $(19.7) $(14.0) $(221.3) $(196.8)
Net Periodic Benefit Cost
Restoration of
Year ended December 31 Pension Plan Retirement Income Plan Postretirement Benefit Plans
(In millions) 2014 2013 2012 2014 2013 2012 2014 2013 2012
Service cost $ 15.3 $ 19.0 $ 17.9 $1.1 $1.2 $1.0 $ 3.1 $ 4.3 $ 4.1
Interest cost 28.1 26.7 30.1 0.6 0.5 0.6 11.4 10.3 11.9
Expected return on plan assets (45.3) (48.4) (46.0) — — — (2.4) (2.5) (3.0)
Amortization of transition obligation — — — — — — — — 2.7
Amortization of net loss 14.3 26.5 23.8 0.2 0.4 0.4 12.3 21.5 20.6
Amortization of unrecognized prior service cost (A) 1.7 1.8 2.2 0.2 0.3 0.7 (16.5) (16.5) (16.5)
Curtailment (0.2) — — — — — — — —
Settlement — 22.4 — — — 0.9 — — —
Total net periodic benefit cost 13.9 48.0 28.0 2.1 2.4 3.6 7.9 17.1 19.8
Less: Amount paid by unconsolidated affiliates 3.2 5.9 — 0.1 0.1 — 1.3 1.5 —
Net periodic benefit cost (B) $ 10.7 $ 42.1 $ 28.0 $2.0 $2.3 $3.6 $ 6.6 $ 15.6 $ 19.8
(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 $19.3 million, $60.0 million and $51.4 million of net periodic benefit cost recognized in 2014, 2013 and 2012, respectively, the Company recognized the following:
• an increase in pension expense in 2014, 2013 and 2012 of $11.2 million, $5.8 million and $8.3 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);
• an increase in postretirement medical expense in 2014, 2013 and 2012 of $5.2 million, $0.6 million and $0.8 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); and
• 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.
(In millions) 2014 2013 2012
Capitalized portion of net periodic pension cost $3.4 $6.4 $7.5
Capitalized portion of net periodic postretirement benefit cost 2.0 4.5 5.6
Rate Assumptions
Pension Plan and Restoration Postretirement
of Retirement Income Plan Benefit Plans
Year ended December 31 2014 2013 2012 2014 2013 2012
Discount rate 3.80% 4.60% 3.70% 3.80% 4.60% 3.60%
Rate of return on plans’ assets 7.50% 8.00% 8.00% 4.00% 4.00% 4.00%
Compensation increases 4.20% 4.20% 4.20% N/A N/A N/A
Assumed health care cost trend:
Initial trend N/A N/A N/A 7.85% 8.35% 8.55%
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