DTE Energy 2012 Annual Report Download - page 44

Table of Contents
management of 47% in equity markets, 25% in fixed income markets, and 28% invested in other assets. Because of market volatility, we periodically review
our asset allocation and rebalance our portfolio when considered appropriate. Given market conditions, we are maintaining our long-term rate of return
assumption for our pension plans and our postretirement health and life plans at 8.25% for 2013. We believe this rate is a reasonable assumption for the long-
term rate of return on our plan assets for 2013 given our investment strategy. We will continue to evaluate our actuarial assumptions, including our expected
rate of return, at least annually.
We calculate the expected return on pension and other postretirement benefit plan assets by multiplying the expected return on plan assets by the market-
related value (MRV) of plan assets at the beginning of the year, taking into consideration anticipated contributions and benefit payments that are to be made
during the year. Current accounting rules provide that the MRV of plan assets can be either fair value or a calculated value that recognizes changes in fair value
in a systematic and rational manner over not more than five years. For our pension plans, we use a calculated value when determining the MRV of the pension
plan assets and recognize changes in fair value over a three-year period. Accordingly, the future value of assets will be impacted as previously deferred gains or
losses are recognized. Financial markets in 2012 contributed to our investment performance resulting in unrecognized net gains. As of December 31, 2012, we
had $81 million of cumulative losses that remain to be recognized in the calculation of the MRV of pension assets related to investment performance in 2012,
2011 and 2010. For our postretirement benefit plans, we use fair value when determining the MRV of postretirement benefit plan assets, therefore all
investment losses and gains have been recognized in the calculation of MRV for these plans.
The discount rate that we utilize for determining future pension and postretirement benefit obligations is based on a yield curve approach and a review of
bonds that receive one of the two highest ratings given by a recognized rating agency. The yield curve approach matches projected pension plan and
postretirement benefit payment streams with bond portfolios reflecting actual liability duration unique to our plans. The discount rate determined on this basis
decreased to 4.15% at December 31, 2012 from 5.0% at December 31, 2011. We estimate that our 2013 total pension costs will approximate $226 million
compared to $220 million in 2012 primarily due to a lower discount rate and higher amortization of net actuarial losses, partially offset by 2013 contributions.
Our 2013 postretirement benefit costs will approximate $30 million compared to $151 million in 2012 primarily due to plan design changes and favorable
retiree medical utilization, partially offset by a lower discount rate, higher amortization of net actuarial losses and updated assumed long-term retiree medical
inflation. Our health care trend rate assumes 7.00% for 2013 through 2017, 6.50% in 2018, 6.00% in 2019, 5.50% in 2020 and 5.00% in 2021 and beyond.
Future actual pension and postretirement benefit costs will depend on future investment performance, changes in future discount rates and various other
factors related to plan design. The MPSC approved the deferral of the non-capitalized portion of DTE Gas' negative pension expense. DTE Gas records a
regulatory liability for any negative pension costs, as determined under generally accepted accounting principles.
Lowering the expected long-term rate of return on our plan assets by one percentage point would have increased our 2012 pension costs by approximately
$32 million. Lowering the discount rate and the salary increase assumptions by one percentage point would have increased our 2012 pension costs by
approximately $14 million. Lowering the expected long-term rate of return on our plan assets by one percentage point would have increased our 2012
postretirement costs by approximately $10 million. Lowering the discount rate assumption by one percentage point would have increased our 2012
postretirement costs by approximately $46 million. Lowering the health care cost trend assumptions by one percentage point would have decreased our
postretirement benefit service and interest costs for 2012 by approximately $26 million.
The value of our qualified pension and postretirement benefit plan assets was $4.4 billion at December 31, 2012 and $3.9 billion at December 31, 2011.
At December 31, 2012, our qualified pension plans were underfunded by $1.4 billion and our other postretirement benefit plans were underfunded by
$1.2 billion. The 2012 and 2011 funding levels were generally similar due to plan sponsor contributions in 2012 and 2011, largely offset by the impact of
decreased discount rates.
Pension and postretirement costs and pension cash funding requirements may increase in future years without typical returns in the financial markets.
We made contributions to our qualified pension plans of $229 million in 2012 and $200 million in 2011. At the discretion of management, consistent with the
Pension Protection Act of 2006, and depending upon financial market conditions, we anticipate making contributions to our qualified pension plans of $315
million in 2013 and up to $1.3 billion over the next five years. We made postretirement benefit plan contributions of $140 million and $111 million in 2012
and 2011, respectively. We are required by orders issued by the MPSC to make postretirement benefit contributions at least equal to the amounts included in
our utilities' base rates. As a result, we contributed $145 million to our postretirement plans in January 2013 and expect to make up to an additional
$120 million contribution to our postretirement plans in 2013 and, subject to MPSC funding requirements, up to $622 million over the next five years. The
planned contributions will be made in cash, DTE Energy common stock or a combination of cash and stock.
See Note 20 of the Notes to Consolidated Financial Statements in Item 8 of this Report.
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