Progress Energy 2004 Annual Report Download - page 92

The asset allocation for the Company’s plans at the end of
2004 and 2003 and the target allocation for the plans, by
asset category, are as follows:
90
Notes to Consolidated Financial Statements
Pension Benefits Other Postretirement Benefits
Target
Allocations
Percentage of Plan
Assets at Year End
Target
Allocations
Percentage of Plan
Assets at Year End
Asset Category 2005 2004 2003 2005 2004 2003
Equity – domestic 48% 47% 49% 34% 34% 35%
Equity – international 15% 21% 22% 11% 15% 16%
Debt – domestic 12% 9% 11% 37% 35% 37%
Debt – international 10% 11% 11% 7% 8% 7%
Other 15% 12% 7% 11% 8% 5%
Total 100% 100% 100% 100% 100% 100%
The Company sets target allocations among asset
classes to provide broad diversification to protect against
large investment losses and excessive volatility, while
recognizing the importance of offsetting the impacts of
benefit cost escalation. In addition, the Company
employs external investment managers who have
complementary investment philosophies and
approaches. Tactical shifts (plus or minus 5%) in asset
allocation from the target allocations are made based on
the near-term view of the risk and return tradeoffs of the
asset classes.
In 2005, the Company expects to make no required
contributions directly to pension plan assets and
$1 million of discretionary contributions directly to the
OPEB plan assets. The expected benefit payments for the
pension benefit plan for 2005 through 2009 and in total for
2010-2014, in millions, are approximately $113, $110, $115,
$124, $131 and $794, respectively. The expected benefit
payments for the OPEB plan for 2005 through 2009 and in
total for 2010-2014, in millions, are approximately $32, $34,
$37, $39, $41 and $230, respectively. The expected benefit
payments include benefit payments directly from plan
assets and benefit payments directly from Company
assets. The benefit payment amounts reflect the net cost
to the Company after any participant contributions. The
Company expects to begin receiving prescription drug-
related federal subsidies in 2006 (See Note 2), and the
expected subsidies for 2006 through 2009 and in total for
2010-2014, in millions, are approximately $3, $3, $3, $4 and
$24, respectively. The expected benefit payments above
do not reflect the potential effects of a 2005 voluntary
enhanced retirement program (See Note 24).
The following weighted-average actuarial assumptions
were used in the calculation of the year-end obligation:
The Company’s primary defined benefit retirement plan
for nonbargaining employees is a “cash balance”
pension plan as defined in EITF Issue No. 03-4. Therefore,
effective December 31, 2003, the Company began to use
the traditional unit credit method for purposes of
measuring the benefit obligation of this plan. Under the
traditional unit credit method, no assumptions are
included about future changes in compensation, and the
accumulated benefit obligation and projected benefit
obligation are the same.
Pension
Benefits
Other
Postretirement
Benefits
(in millions) 2004 2003 2004 2003
Discount rate 5.90% 6.30% 5.9% 6.30%
Rate of increase in
future compensation
Bargaining 3.50% 3.50% ––
Supplementary plans 5.25% 5.00% ––
Initial medical cost trend rate for
pre-Medicare benefits – – 7.25% 7.25%
Initial medical cost trend rate for
post-Medicare benefits – – 7.25% 7.25%
Ultimate medical cost trend rate – – 5.00% 5.25%
Year ultimate medical cost trend
rate is achieved – – 2008 2009