Vectren 2012 Annual Report Download - page 92

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Postretirement Benefit Change
Effective September 1, 2012, the Company no longer offers postretirement health coverage for participants 65 and older.
Rather, the Company provides a subsidy to plan participants to purchase health coverage through a private Medicare exchange.
This change in benefits provides a comparable benefit at a reduced cost made possible by current market pricing. Since this
change in benefits was a significant event pursuant to GAAP, the Company remeasured its postretirement benefit obligations as
of June 1, 2012, consistent with the notification date to participants. The change in benefits, net of the impacts associated with
remeasuring the benefit obligations using a lower discount rate, resulted in a $23 million reduction in the postretirement liability.
Substantially all of the amount was recorded as a reduction to Regulatory Assets, as the Company's retirement costs primarily
relate to its regulated utilities. The discount rate used to remeasure the postretirement benefit obligation was 3.93 percent.
The benefit obligation as of December 31, 2012 and 2011 was calculated using the following weighted average assumptions:
Pension Benefits Other Benefits
2012 2011 2012 2011
Discount rate 4.03% 4.82% 3.91% 4.78%
Rate of compensation increase 3.50% 3.50% N/A N/A
Expected increase in Consumer Price Index N/A N/A 2.75% 2.75%
To calculate the 2012 ending postretirement benefit obligation, medical claims costs in 2013 were assumed to be 7.50 percent
higher than those incurred in 2012. That trend was assumed to reach its ultimate trending increase of 5 percent by 2018 and
remain level thereafter. A one-percentage point change in assumed health care cost trend rates would have changed the
benefit obligation by approximately $0.7 million.
Plan Assets
A reconciliation of the Company’s plan assets at December 31, 2012 and 2011 follows:
Pension Benefits Other Benefits
(In millions) 2012 2011 2012 2011
Plan assets at fair value, beginning of period $ 261.0 $ 237.2 $ — $ 3.1
Actual return on plan assets 33.8 2.1 — 0.1
Employer contributions 15.7 35.7 5.3 3.1
Plan participants' contributions — — 1.6 1.9
Benefit payments (14.8) (14.0) (6.9) (8.2)
Fair value of plan assets, end of period $ 295.7 $ 261.0 $ — $ —
The Company’s overall investment strategy for its retirement plan trusts is to maintain investments in a diversified portfolio,
comprised of primarily equity and fixed income investments, which are further diversified among various asset classes. The
diversification is designed to minimize the risk of large losses while maximizing total return within reasonable and prudent levels
of risk. The investment objectives specify a targeted investment allocation for the pension plans of 60 percent equities, 35
percent debt, and 5 percent for other investments, including real estate. Both the equity and debt securities have a blend of
domestic and international exposures. Objectives do not target a specific return by asset class. The portfolios’ return is
monitored in total. Following is a description of the valuation methodologies used for trust assets measured at fair value.
Mutual Funds
The fair values of mutual funds are derived from quoted market prices or net asset values as these instruments have active
markets (Level 1 inputs).
Common Collective Trust Funds (CTF’s)
The Company’s plans have investments in trust funds similar to mutual funds in that they are created by pooling of funds from
investors into a common trust and such funds are managed by a third party investment manager. These trust funds typically
give investors a wider range of investment options through this pooling of funds than that generally available to investors on an
individual basis. However, unlike mutual funds, these trusts are not publicly traded in an active market. The fair values of these
trusts are derived from Level 2 market inputs based on a daily calculated unit value as determined by the issuer. This daily