OG&E 2015 Annual Report Download - page 30

OGE Energy Corp. 57
The฀overall฀expected฀rate฀of฀return฀on฀plan฀assets฀assumption฀was฀
7.5฀percent฀in฀both฀2015฀and฀2014,฀which฀was฀used฀in฀determining฀net฀
periodic฀benefit฀cost฀due฀to฀recent฀retu ns฀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฀ y฀the฀Pension฀Plan฀or฀postretirement฀benefit฀plan .฀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฀ef ect฀
on฀the฀amounts฀reported฀for฀postretirement฀medical฀benefit฀plan .฀
Future฀health฀care฀cost฀trend฀rates฀are฀assumed฀to฀be฀6.1฀percent฀in฀
2016฀with฀the฀rates฀trending฀downward฀to฀4.5฀percent฀by฀2026.฀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)฀2015฀ 2014฀ 2013
Effect฀on฀aggregate฀of฀the฀service฀฀
฀ and฀interest฀cost฀components฀ $ —฀ $฀ —฀ $฀ —
Effect฀on฀accumulated฀postretirement฀฀
฀ benefit฀o ligations฀ 0.2฀ 0.1฀ 0.1
One-Percentage Point Decrease
Year฀ended฀December฀31฀(In฀millions)฀ 2015฀ 2014฀ 2013
Effect฀on฀aggregate฀of฀the฀service฀฀
฀ and฀interest฀cost฀components฀ $0.1฀ $0.1฀ $0.1
Effect฀on฀accumulated฀postretirement฀฀
฀ benefit฀o ligations฀ 0.7฀ 0.7฀ 0.6
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฀fi ed฀
income฀as฀the฀Plan’s฀funded฀status฀increases.฀The฀table฀below฀sets฀
forth฀the฀targeted฀fi ed฀income฀and฀equity฀allocations฀at฀different฀
funded฀status฀levels.
Rate Assumptions
฀ Pension฀Plan฀and฀Restoration฀฀ Postretirement
฀ of฀Retirement฀Income฀Plan฀฀ Benefit฀Plan
Year฀ended฀December฀31฀ 2015฀ 2014฀ 2013฀ 2015฀ 2014฀ 2013
Discount฀rate฀ 4.00%฀ 3.80%฀ 4.60%฀ 4.25%฀ 3.80%฀ 4.60%
Rate฀of฀return฀on฀plans’฀assets฀ 7.50%฀ 7.50%฀ 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฀ 6.10%฀ 7.85%฀ 8.35%
฀ Ultimate฀trend฀rate฀ N/A฀ N/A฀ N/A฀ 4.50%฀ 4.48%฀ 4.48%
฀ Ultimate฀trend฀year฀ N/A฀ N/A฀ N/A฀ 2026฀ 2028฀ 2028
N/A฀–฀not฀applicable฀
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%
5 6 OGE Energy Corp.
the฀projected฀benefit฀o ligation฀in฀that฀the฀former฀includes฀no฀
assumption฀about฀future฀compensation฀levels.฀The฀accumulated฀
postretirement฀benefit฀o ligation฀for฀the฀Pension฀Plan฀and฀the฀
Restoration฀of฀Retirement฀Income฀Plan฀at฀December฀31,฀2015฀was฀
$610.9฀million฀and฀$24.6฀million,฀respectively.฀The฀accumulated฀
postretirement฀benefit฀o ligation฀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฀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:
฀ ฀ Restoration฀of฀Retirement฀ Postretirement
฀ Pension฀Plan฀ Income฀Plan฀ Benefit฀Plan
December฀31฀(In฀millions)฀2015฀ 2014฀ 2015฀ 2014฀ 2015฀ 2014
Change฀in฀Benefit฀O ligation฀ ฀
Beginning฀obligations฀ $725.0฀ $658.1฀ $ 19.7฀ $฀14.0฀ $ 280.9฀ $฀258.2
Service฀cost฀ 16.1฀ 15.3฀ 1.3฀ 1.1฀ 1.5฀ 3.1
Interest฀cost฀ 26.1฀ 28.1฀ 0.7฀ 0.6฀ 10.3฀ 11.4
Plan฀curtailments฀ —฀ (0.7)฀ —฀ —฀ —฀ (0.6)
Plan฀settlements฀ (60.7)฀ —฀ —฀ —฀ —
฀—
Participants’฀contributions฀ —฀ —฀ —฀ —฀ 3.4฀ 3.4
Actuarial฀(gains)฀losses฀ (11.3)฀ 79.3฀ 4.0฀ 4.1฀ (55.1)฀ 19.5
Benefits฀pai ฀ (15.2)฀ (55.1)฀ (0.6)฀ (0.1)฀ (15.7)฀ (14.1)
Ending฀obligations฀ $680.0฀ $725.0฀ $ 25.1฀ $฀19.7฀ $ 225.3฀ $฀280.9
฀ ฀
Change฀in฀Plans’฀Assets฀ ฀
Beginning฀fair฀value฀ $679.8฀ $654.9฀ $ —฀ $฀ ฀ —฀ $ 59.6฀ $฀ ฀61.4
Actual฀return฀on฀plans’฀assets฀ (22.2)฀ 80.0฀ —฀ —฀ (0.5)฀ 1.8
Employer฀contributions฀ —฀ —฀ 0.6฀ 0.1฀ 8.5฀ 7.1
Plan฀settlements฀ (60.7)฀ —฀ —฀ —฀ —
฀—
Participants’฀contributions฀ —฀ —฀ —฀ —฀ 3.4฀ 3.4
Benefits฀pai ฀ (15.2)฀ (55.1)฀ (0.6)฀ (0.1)฀ (15.7)฀ (14.1)
Ending฀fair฀value฀ $581.7฀ $679.8฀ $ —฀ $฀ ฀ —฀ $ 55.3฀ $฀ ฀59.6
Funded฀status฀at฀end฀of฀year฀ $ (98.3) $฀(45.2) $(25.1) $(19.7) $(170.0) $(221.3)
Net Periodic Benefit Cost
฀ ฀ Restoration฀of฀
฀฀ Pension฀Plan฀ Retirement฀Income฀Plan฀ Postretirement฀Benefit฀Plan
Year฀ended฀December฀31฀(In฀millions)฀2015฀ 2014฀ 2013฀ 2015฀ 2014฀ 2013฀ 2015฀ 2014฀ 2013
Service฀cost฀ $ 16.1฀ $฀15.3฀ $฀19.0฀ $1.3฀ $1.1฀ $1.2฀ $ 1.5฀ $฀฀ 3.1฀ $฀฀ 4.3
Interest฀cost฀ 26.1฀ 28.1฀ 26.7฀ 0.7฀ 0.6฀ 0.5฀ 10.3฀ 11.4฀ 10.3
Expected฀return฀on฀plan฀assets฀ (46.0)฀ (45.3)฀ (48.4)฀ —฀ —฀ —฀ (2.4)฀ (2.4)฀ (2.5)
Amortization฀of฀net฀loss฀ 18.0฀ 14.3฀ 26.5฀ 0.6฀ 0.2฀ 0.4฀ 13.9฀ 12.3฀ 21.5
Amortization฀of฀unrecognized฀prior฀service฀cost฀(A)฀0.4฀ 1.7฀ 1.8฀ 0.1฀ 0.2฀ 0.3฀ (16.5)฀ (16.5)฀ (16.5)
Curtailment฀ —฀ (0.2)฀ —฀ —฀ —฀ —฀ —
฀—฀—
Settlement฀ 21.7฀ —฀ 22.4฀ —฀ —฀ —฀ —
฀—฀—
Total฀net฀periodic฀benefit฀cos ฀ 36.3฀ 13.9฀ 48.0฀ 2.7฀ 2.1฀ 2.4฀ 6.8฀ 7.9฀ 17.1
Less:฀Amount฀paid฀by฀unconsolidated฀affiliate ฀ 4.2฀ 3.2฀ 5.9฀ 0.1฀ 0.1฀ 0.1฀ 1.3฀ 1.3฀ 1.5
Net฀periodic฀benefit฀cos ฀(B)฀$ 32.1฀ $฀10.7฀ $฀42.1฀ $2.6฀ $2.0฀ $2.3฀ $ 5.5฀ $฀฀ 6.6฀ $฀15.6
(A)฀ ฀
Unamortized฀prior฀service฀cost฀is฀amortized฀on฀a฀straight-line฀basis฀over฀the฀average฀remaining฀service฀period฀to฀the฀first฀eligibility฀age฀of฀pa ticipants฀who฀are฀expected฀to฀receive฀a฀
benefit฀and฀are฀acti e฀at฀the฀date฀of฀the฀plan฀amendment.฀
(B)฀ ฀
In฀addition฀to฀the฀$40.2฀million,฀$19.3฀million฀and฀$60.0฀million฀of฀net฀periodic฀benefit฀cost฀recogni ed฀in฀2015,฀2014฀and฀2013,฀respectively,฀the฀Company฀recognized฀the฀following:฀
•฀ ฀an฀increase฀in฀pension฀expense฀in฀2015,฀2014฀and฀2013฀of฀$12.8฀million,฀$11.2฀million฀and฀$5.8฀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);฀
•฀ ฀an฀increase฀in฀postretirement฀medical฀expense฀in฀2015,฀2014฀and฀2013฀of฀$5.8฀million,฀$5.2฀million฀and฀$0.6฀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฀2015฀and฀2013฀of฀$14.0฀million฀and฀$17.0฀million฀related฀to฀pension฀settlement฀charges฀of฀$21.7฀million฀and฀$22.4฀million,฀respectively,฀in฀
accordance฀with฀the฀Oklahoma฀pension฀tracker฀regulatory฀liability฀(see฀Note฀1);฀and฀
•฀ ฀a฀deferral฀of฀pension฀expense฀in฀2015฀of฀$1.9฀million฀related฀to฀the฀Arkansas฀jurisdictional฀portion฀of฀the฀pension฀settlement฀charge฀of฀$21.7฀million.
(In฀millions)฀2015฀ 2014฀ 2013
Capitalized฀portion฀of฀net฀periodic฀pension฀benefit฀cos ฀ $5.0฀ $3.4฀ $6.4
Capitalized฀portion฀of฀net฀periodic฀postretirement฀benefit฀cos ฀ 1.9฀ 2.0฀ 4.5