Vectren 2012 Annual Report Download - page 91

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Net Periodic Benefit Costs
A summary of the components of net periodic benefit cost for the three years ended December 31, 2012 follows:
Pension Benefits Other Benefits
(In millions) 2012 2011 2010 2012 2011 2010
Service cost $ 7.7 $ 6.9 $ 6.3 $ 0.5 $ 0.5 $ 0.5
Interest cost 15.5 15.9 15.9 2.8 4.3 4.6
Expected return on plan assets (21.2) (21.2) (18.4) — — (0.4)
Amortization of prior service cost (benefit) 1.6 1.7 1.6 (2.5) (0.8) (0.8)
Amortization of actuarial loss (gain) 6.8 3.8 3.2 0.7 0.6 0.5
Amortization of transitional obligation — — — 0.5 1.1 1.2
Net periodic benefit cost $ 10.4 $ 7.1 $ 8.6 $ 2.0 $ 5.7 $ 5.6
A portion of the net periodic benefit cost disclosed in the table above is capitalized as Utility plant. Costs capitalized in 2012,
2011, and 2010 are estimated at $3.7 million, $3.9 million, and $4.3 million, respectively.
The Company lowered the discount rate used to measure periodic cost from 5.50 percent in 2011 to 4.82 percent in 2012 due to
lower benchmark interest rates that approximate the expected duration of the Company’s benefit obligations. For fiscal year
2013, the weighted average discount rate will be 4.03 percent for the defined benefit pension plans. Over the periods presented
other assumptions have also declined reflecting the lower interest rate environment.
The weighted averages of significant assumptions used to determine net periodic benefit costs follow:
Pension Benefits Other Benefits
2012 2011 2010 2012 2011 2010
Discount rate 4.82% 5.50% 6.00% 4.75% 5.50% 6.00%
Rate of compensation increase 3.50% 3.50% 3.50% N/A N/A N/A
Expected return on plan assets 7.75% 8.00% 8.00% N/A 8.00% 8.00%
Expected increase in Consumer Price Index N/A N/A N/A 2.75% 3.00% 3.00%
Health care cost trend rate assumptions do not have a material effect on the service and interest cost components of benefit
costs. The Company’s plans limit its exposure to increases in health care costs to annual changes in the Consumer Price Index
(CPI). Any increase in health care costs in excess of the CPI increase is the responsibility of the plan participants.
Benefit Obligations
A reconciliation of the Company’s benefit obligations at December 31, 2012 and 2011 follows:
Pension Benefits Other Benefits
(In millions) 2012 2011 2012 2011
Benefit obligation, beginning of period $ 329.2 $ 297.3 $ 79.7 $ 80.7
Service cost – benefits earned during the period 7.7 6.9 0.5 0.5
Interest cost on projected benefit obligation 15.5 15.9 2.8 4.3
Plan participants' contributions — — 1.6 1.9
Plan amendments 0.7 — (26.6) —
Actuarial loss (gain) 39.0 23.1 2.8 (0.5)
Medicare subsidy receipts — — 0.5 1.0
Benefit payments (14.8) (14.0) (6.9) (8.2)
Benefit obligation, end of period $ 377.3 $ 329.2 $ 54.4 $ 79.7
The accumulated benefit obligation for all defined benefit pension plans was $354.5 million and $310.9 million at December 31,
2012 and 2011, respectively.