Pension And Other Postretirement Benefits

12 Months Ended

Dec. 31, 2012

Pension And Other Postretirement Benefits

11. PENSION AND OTHER POSTRETIREMENT BENEFITS

Approximately 85% of IPL's active employees are covered by the Employees' Retirement Plan of Indianapolis Power & Light Company ("Defined Benefit Pension Plan") as well as the Employees' Thrift Plan of Indianapolis Power & Light Company ("Thrift Plan"). The Defined Benefit Pension Plan is a qualified defined benefit plan, while the Thrift Plan is a qualified defined contribution plan. The remaining 15% of active employees are covered by the AES Retirement Savings Plan. The AES Retirement Savings Plan ("RSP") is a qualified defined contribution plan containing a profit sharing component. All non-union new hires are covered under the RSP, while International Brotherhood of Electrical Workers ("IBEW") physical unit union new hires are covered under the Defined Benefit Pension Plan and Thrift Plan. Beginning in 2007, IBEW clerical-technical unit new hires are no longer covered under the Defined Benefit Pension Plan but do receive an annual lump sum company contribution into the Thrift Plan. This lump sum is in addition to the IPL match of participant contributions up to 5% of base compensation. The Defined Benefit Pension Plan is noncontributory and is funded through a trust. Benefits are based on each individual employee's pension band and years of service as opposed to their compensation. Pension bands are based primarily on job duties and responsibilities.

Additionally, a small group of former officers and their surviving spouses are covered under a funded non-qualified Supplemental Retirement Plan of Indianapolis Power & Light Company ("Supplemental Retirement Plan"). The total number of participants in the plan as of December 31, 2012 was 26. The plan is closed to new participants.

In addition, IPL provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. Approximately 183 active employees and 71 retirees (including spouses) were receiving such benefits or entitled to future benefits as of January 1, 2012. The plan is unfunded. These postretirement health care benefits and the related obligation were not material to the consolidated financial statements in the periods covered by this report.

The following table presents information relating to the Pension Plans:                   

	Pension benefits as of December 31,
	2012		2011
	(In Thousands)
Change in benefit obligation:
Projected benefit obligation at beginning Measurement Date (see below)	$	679,261	$	607,408
Service cost		7,986		7,234
Interest cost		30,232		31,828
Actuarial (gain) loss		69,099		62,587
Amendments (primarily increases in pension bands)		7,349		82
Benefits paid		(30,327)		(29,878)
Projected benefit obligation at ending Measurement Date		763,600		679,261
Change in plan assets:
Fair value of plan assets at beginning Measurement Date		426,384		412,611
Actual return on plan assets		50,713		6,305
Employer contributions		48,312		37,345
Benefits paid		(30,327)		(29,877)
Fair value of plan assets at ending Measurement Date		495,082		426,384
Funded status	$	(268,518)	$	(252,877)
Amounts recognized in the statement of financial position under ASC 715:
Current liabilities	$	-	$	-
Noncurrent liabilities		(268,518)		(252,877)
Net amount recognized	$	(268,518)	$	(252,877)
Sources of change in regulatory assets(1):
Prior service cost (credit) arising during period	$	7,350	$	82
Net loss (gain) arising during period		50,938		88,450
Amortization of prior service (cost) credit		(4,246)		(4,346)
Amortization of gain (loss)		(19,471)		(13,306)
Total recognized in regulatory assets(1)	$	34,571	$	70,880
Total amounts included in accumulated other comprehensive income (loss)		NA(1)		NA(1)
Amounts included in regulatory assets and liabilities(1)
Net loss (gain)	$	314,557	$	283,089
Prior service cost (credit)		33,836		30,732
Total amounts included in regulatory assets (liabilities)	$	348,393	$	313,821
(1)Represents amounts included in regulatory assets (liabilities) yet to be recognized as components of net prepaid (accrued) benefit costs.

Effect of ASC 715

ASC 715 requires a portion of pension and other postretirement liabilities to be classified as current liabilities to the extent the following year's expected benefit payments are in excess of the fair value of plan assets. As each Pension Plan has assets with fair values in excess of the following year's expected benefit payments, no amounts have been classified as current. Therefore, the entire net amount recognized in IPALCO's Consolidated Balance Sheets of $268.5 million is classified as a long-term liability.

Information for Pension Plans with a benefit obligation in excess of plan assets

	Pension benefits as of December 31,
	2012		2011
	(In Thousands)
Benefit obligation	$	763,600	$	679,261
Plan assets		495,082		426,384
Benefit obligation in excess of plan assets	$	268,518	$	252,877

IPL's total accumulated benefit obligation in excess of plan assets was $251.5 million as of December 31, 2012 ($250.0 million Defined Benefit Pension Plan and $1.5 million Supplemental Retirement Plan).

Information for Pension Plans with an accumulated benefit obligation in excess of plan assets

	Pension benefits as of December 31,
	2012		2011
	(In Thousands)
Accumulated benefit obligation	$	746,542	$	664,212
Plan assets		495,082		426,384
Accumulated benefit obligation in excess of plan assets	$	251,460	$	237,828

IPL's total accumulated benefit obligation in excess of plan assets was $251.5 million as of December 31, 2012 ($250.0 million Defined Benefit Pension Plan and $1.5 million Supplemental Retirement Plan).

Pension Benefits and Expense

The Pension Plans incurred a net actuarial loss in 2012 of $50.9 million, comprised of two parts (net): (1) $18.2 million of pension asset actuarial gain, which is primarily due to the higher than expected return on assets in 2012, and (2) $69.1 million of pension liability actuarial loss, which is primarily due to a decrease in the discount rate that is used to value pension liabilities. The Pension Plans have a cumulative unrecognized net loss of $314.6 million, which has accumulated over time primarily due to the long-term declining trend in corporate bond rates, the lower than expected return on assets during the year 2008, and the adoption of new mortality tables which increased the expected benefit obligation due to the longer expected lives of participants, since ASC 715 was adopted. The unrecognized net loss, to the extent that it exceeds 10% of the greater of the benefit obligation or the assets, will be amortized and included as a component of net periodic benefit cost in future years. The amortization period is approximately 10.4 years based on estimated demographic data as of December 31, 2012. The projected benefit obligation of $763.6 million, less the fair value of assets of $495.1 million results in a funded status of ($268.5 million) at December 31, 2012.

	Pension benefits for years ended December 31,
	2012		2011		2010
	(In Thousands)
Components of net periodic benefit cost:
Service cost	$	7,986	$	7,234	$	6,590
Interest cost		30,232		31,828		31,577
Plan settlements		-		-		204
Expected return on plan assets		(32,554)		(32,168)		(29,250)
Amortization of prior service cost		4,246		4,346		3,476
Recognized actuarial loss		19,471		13,306		11,838
Total pension cost		29,381		24,546		24,435
Less: amounts capitalized		2,497		2,258		2,321
Amount charged to expense	$	26,884	$	22,288	$	22,114
Rates relevant to each year's expense calculations:
Discount rate - defined benefit pension plan		4.56%		5.38%		5.93%
Discount rate - supplemental retirement plan		4.37%		5.09%		5.27%/5.08% (1)
Expected return on defined benefit pension plan assets		7.50%		7.75%		8.00%
Expected return on supplemental retirement plan assets		7.50%		7.75%		8.00%
(1)   5.27% for the period January 1, 2010 thru May 31, 2010, 5.08% for the settlement on May 31, 2010 and the period June 1, 2010 through December 31, 2010.

Pension expense for the following year is determined as of the December 31st measurement date based on the fair value of the Pension Plans' assets, the expected long-term rate of return on plan assets and a discount rate used to determine the projected benefit obligation. In establishing our expected long-term rate of return assumption, we consider historical returns, as well as, the expected future weighted-average returns for each asset class based on the target asset allocation. For 2012, pension expense was determined using an assumed long-term rate of return on plan assets of 7.50%. As of the December 31, 2012 measurement date, IPL decreased the discount rate from 4.56% to 3.80% for the Defined Benefit Pension Plan and decreased the discount rate from 4.37% to 3.41% for the Supplemental Retirement Plan. The discount rate assumption affects the pension expense determined for 2013. In addition, IPL decreased the expected long-term rate of return on plan assets from 7.50% to 7.25% effective January 1, 2013. The expected long-term rate of return assumption affects the pension expense determined for 2013. The effect on 2013 total pension expense of a 25 basis point increase and decrease in the assumed discount rate is ($1.7 million) and $1.8 million, respectively. The effect on 2013 total pension expense of a 100 basis point increase and decrease in the expected long-term rate of return on plan assets is ($5.3 million) and $5.3 million, respectively.

Expected amortization

The estimated net loss and prior service cost for the Pension Plans that will be amortized from the regulatory asset into net periodic benefit cost over the 2013 plan year are $22.7 million and $4.9 million, respectively (Defined Benefit Pension Plan of $22.6 million and $4.9 million, respectively; and the Supplemental Retirement Plan of $0.1 million and $0.0 million, respectively).

Pension Assets

Fair Value Measurements

Fair value is defined under ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3) as discussed in Note 2. IPL had a transfer of pension assets with a fair value of $20.6 million from Level 1 to Level 2 in January 2011. There were no transfers of pension assets between Level 1 and Level 2 in 2012. IPL's policy regarding asset transfers is to record the transfer on the transfer date.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation includes the Plan's gains and losses on investments bought and sold, as well as held, during the year.

Following is a description of the valuation methodologies used for each major class of assets and liabilities measured at fair value:

• Other than common/collective trust funds, hedge funds and non U.S. government fixed income securities, all the Plan's investments are actively traded on an open market and are categorized as Level 1 in the fair value hierarchy.
• All of the Plan's hedge funds report the net asset value (NAV) from the funds audited financial statements of the Plan's interest based on the fair value of the hedge funds' underlying investments as determined in accordance with the American Institute of Certified Public Accountants' Accounting and Auditing Guide for Investment Companies.
• Investments in hedge funds are valued using the observable NAV of the Plan's interest as of December 31, 2012, provided by the underlying hedge fund. The Plan may redeem its ownership interests in hedge funds at NAV, with 60 days' notice, on either quarterly or semiannual terms.
• The Plan's investments in common/collective trust funds are valued at the NAV of the units of the common/collective trust funds held by the Plan at year-end. The Plan may redeem its units of the common/collective trust funds at NAV daily. These NAVs have been determined based on the market value of the underlying equity securities held by the common/collective trust funds.
• The Plan's investments in corporate bonds are valued from third-party pricing sources but they generally do not represent transaction prices for the identical security in an active market nor does it represent data obtained from an exchange.
• The Fund's investments in hedge funds, common/collective trust funds and non U.S. government  fixed income securities have been recorded at fair value and are all categorized as Level 2 investments in the fair value hierarchy.

The primary long-term investment objective of managing pension assets is to achieve a total return equal to or greater than the weighted average targeted rate of return (see table below). Additional objectives include maintenance of sufficient income and liquidity to pay retirement benefits, as well as, a long-term annualized rate of return (net of relevant fees) that meets or exceeds the assumed targeted rate. In order to achieve these objectives, the plan seeks to achieve a long-term above-average total return consisting of capital appreciation and income. Though it is the intent to achieve an above-average return, that intent does not include taking extraordinary risks or engaging in investment activities not commonly considered prudent. In times when the securities markets demonstrate uncommon volatility and instability, it is the intent to place more emphasis on the preservation of principal. Please refer to the table below for more detailed information concerning the target allocations, allocation ranges, expected annual return, and expected standard deviation of the applicable pension asset categories. The expected long-term rate of return on pension assets is based on the assumptions in the table below.

The investment management of the pension assets are managed with the following asset allocation guidelines:

	Lower Limit		Target Allocation	Upper Limit	Return(2)	Risk(3)
Liability Hedging Portfolio (1)
Liability Manager Fixed Income		10.0%	16.0%	40.0%	5.3%	3.6%
Core Fixed Income		10.0%	16.0%	22.0%	5.4%	3.8%
Growth Portfolio
High Yield Fixed Income		3.0%	8.0%	13.0%	8.9%	9.5%
U.S. Large Cap Equity		20.0%	30.0%	40.0%	10.4%	15.4%
U.S. Mid Cap Equity		2.5%	5.0%	7.5%	11.2%	17.1%
U.S. Small Cap Equity		2.5%	5.0%	7.5%	12.0%	19.9%
International Equity		5.0%	10.0%	15.0%	10.3%	17.7%
REIT		0.0%	5.0%	10.0%	10.4%	18.8%
Hedge Funds (4)		0.0%	5.0%	10.0%	9.3%	8.4%
(1) Upper limit for all assets held in the Liability Hedging Portfolio is 40%
(2) Expected long-term annual return
(3) Expected standard deviation
(4) Alternative investments (combined) not to exceed 10%

The fair values of the pension plan assets at December 31, 2012, by asset category are as follows:

		Fair Value Measurements at December 31, 2012 (in thousands)
				Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs
Asset Category		Total		(Level 1)		(Level 2)	%
Cash and cash equivalents	$	42,139	$	42,139	$	-	9%
Equity Securities:
Common stock		96,347		96,347		-	19%
REIT		22,330		22,330		-	5%
Fixed Income Securities:
Government debt securities		25,170		25,170		-	5%
Corporate debt securities		148,553		-		148,553	30%
Other types of investments:
Mutual fund - Equities		51,154		51,154		-	10%
Mutual fund - Debt		3,626		3,626		-	1%
Mutual fund - REIT		174		174		-	0%
Hedge fund - Equity		35,498		-		35,498	7%
Common/collective trust funds		70,091		-		70,091	14%
Total	$	495,082	$	240,940	$	254,142	100%

The fair values of the pension plan assets at December 31, 2011, by asset category are as follows:

		Fair Value Measurements at December 31, 2011 (in thousands)
				Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs
Asset Category		Total		(Level 1)		(Level 2)	%
Cash and cash equivalents	$	14,984	$	14,984	$	-	4%
Equity Securities:
Common stock		99,152		99,152		-	23%
Preferred stock		718		718		-	0%
REIT		20,340		20,340		-	5%
Fixed Income Securities:
Government debt securities		30,542		30,542		-	7%
Corporate debt securities		77,838		-		77,838	18%
Other debt securities		49,650		-		49,650	12%
Other types of investments:
Mutual fund - Equities		38,054		38,054		-	9%
Mutual fund - Debt		1,748		1,748		-	0%
Mutual fund - REIT		149		149		-	0%
Hedge fund - Equity		32,432		-		32,432	8%
Common/collective trust funds (1)		60,777		-		60,777	14%
Total	$	426,384	$	205,687	$	220,697	100%
(1) On January 26, 2011, we transferred Level 1 securities with a fair value of $20.6 million to a common/collective trust fund. This resulted in a transfer of $20.6 million from Level 1 to Level 2 because the fair value of the interest in the common/collective fund is classified as Level 2 within the fair value hierarchy.

Pension Funding  

We contributed $48.3 million, $37.3 million, and $28.7 million to the Pension Plans in 2012, 2011, and 2010, respectively. Funding for the qualified Defined Benefit Pension Plan is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, as well as targeted funding levels necessary to meet certain thresholds. Management does not currently expect any of the pension assets to revert back to IPL during 2013.

From an ERISA funding perspective, IPL's funding target liability shortfall is estimated to be approximately $104 million as of January 1, 2013. The shortfall must be funded over seven years. In addition, IPL must also contribute the normal service cost earned by active participants during the plan year. The funding normal cost is expected to be about $8.1 million in 2013, which includes $3.1 million for plan expenses.   Each year thereafter, if the plan's underfunding increases to more than the present value of the remaining annual installments, the excess is separately amortized over a new seven year period.  IPL elected to fund $49.6 million in January, 2013 which satisfies all funding requirements for the calendar year 2013.  IPL's funding policy for the Pension Plans is to contribute annually no less than the minimum required by applicable law, and no more than the maximum amount that can be deducted for federal income tax purposes.  

Benefit payments made from the Pension Plans for the years ended December 31, 2012 and 2011 were $30.3 million and $29.9 million respectively. Projected benefit payments are expected to be paid out of the Pension Plans as follows:

Year	Pension Benefits
	(In Thousands)
2013	$	51,238
2014		34,665
2015		36,274
2016		37,557
2017		38,962
2018 through 2022 (in total)		216,051

Defined Contribution Plans

All of IPL's employees are covered by one of two defined contribution plans, the Thrift Plan or the RSP:

The Thrift Plan

Approximately 85% of IPL's active employees are covered by the Thrift Plan, a qualified defined contribution plan. All union new hires are covered under the Thrift Plan, while non-union new hires are covered by the RSP.

Participants elect to make contributions to the Thrift Plan based on a percentage of their base compensation. Each participant's contribution is matched up to certain thresholds. The IBEW clerical-technical union new hires receive an annual lump sum company contribution into the Thrift Plan in addition to the IPL match. Employer contributions to the Thrift Plan were $2.9 million, $2.9 million and $2.9 million for 2012, 2011 and 2010, respectively.

The AES Retirement Savings Plan

Approximately 15% of IPL's active employees are covered by the RSP, a qualified defined contribution plan containing a profit sharing component. Participants elect to make contributions to the RSP based on a percentage of their taxable compensation. Each participant's contribution is matched in amounts up to, but not exceeding, 5% of the participant's taxable compensation. In addition, the RSP has a profit sharing component whereby IPL contributes a percentage of each employee's annual salary into the plan on a pre-tax basis. The profit sharing percentage is determined by the AES Board of Directors on an annual basis. Employer payroll-matching and profit sharing contributions (by IPL) relating to the RSP were $2.2 million, $2.2 million and $1.1 million for 2012, 2011 and 2010, respectively.

Indianapolis Power And Light Company [Member]

Pension And Other Postretirement Benefits

11. PENSION AND OTHER POSTRETIREMENT BENEFITS

Approximately 85% of IPL's active employees are covered by the Employees' Retirement Plan of Indianapolis Power & Light Company ("Defined Benefit Pension Plan") as well as the Employees' Thrift Plan of Indianapolis Power & Light Company ("Thrift Plan"). The Defined Benefit Pension Plan is a qualified defined benefit plan, while the Thrift Plan is a qualified defined contribution plan. The remaining 15% of active employees are covered by the AES Retirement Savings Plan. The AES Retirement Savings Plan ("RSP") is a qualified defined contribution plan containing a profit sharing component. All non-union new hires are covered under the RSP, while International Brotherhood of Electrical Workers ("IBEW") physical unit union new hires are covered under the Defined Benefit Pension Plan and Thrift Plan. Beginning in 2007, IBEW clerical-technical unit new hires are no longer covered under the Defined Benefit Pension Plan but do receive an annual lump sum company contribution into the Thrift Plan. This lump sum is in addition to the IPL match of participant contributions up to 5% of base compensation. The Defined Benefit Pension Plan is noncontributory and is funded through a trust. Benefits are based on each individual employee's pension band and years of service as opposed to their compensation. Pension bands are based primarily on job duties and responsibilities.

Additionally, a small group of former officers and their surviving spouses are covered under a funded non-qualified Supplemental Retirement Plan of Indianapolis Power & Light Company ("Supplemental Retirement Plan"). The total number of participants in the plan as of December 31, 2012 was 26. The plan is closed to new participants.

In addition, IPL provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. Approximately 183 active employees and 71 retirees (including spouses) were receiving such benefits or entitled to future benefits as of January 1, 2012. The plan is unfunded. These postretirement health care benefits and the related obligation were not material to the consolidated financial statements in the periods covered by this report.

The following table presents information relating to the Pension Plans:                   

	Pension benefits as of December 31,
	2012		2011
	(In Thousands)
Change in benefit obligation:
Projected benefit obligation at beginning Measurement Date (see below)	$	679,261	$	607,408
Service cost		7,986		7,234
Interest cost		30,232		31,828
Actuarial (gain) loss		69,099		62,587
Amendments (primarily increases in pension bands)		7,349		82
Benefits paid		(30,327)		(29,878)
Projected benefit obligation at ending Measurement Date		763,600		679,261
Change in plan assets:
Fair value of plan assets at beginning Measurement Date		426,384		412,611
Actual return on plan assets		50,713		6,305
Employer contributions		48,312		37,345
Benefits paid		(30,327)		(29,877)
Fair value of plan assets at ending Measurement Date		495,082		426,384
Funded status	$	(268,518)	$	(252,877)
Amounts recognized in the statement of financial position under ASC 715:
Current liabilities	$	-	$	-
Noncurrent liabilities		(268,518)		(252,877)
Net amount recognized	$	(268,518)	$	(252,877)
Sources of change in regulatory assets(1):
Prior service cost (credit) arising during period	$	7,350	$	82
Net loss (gain) arising during period		50,938		88,450
Amortization of prior service (cost) credit		(4,246)		(4,346)
Amortization of gain (loss)		(19,471)		(13,306)
Total recognized in regulatory assets(1)	$	34,571	$	70,880
Total amounts included in accumulated other comprehensive income (loss)		NA(1)		NA(1)
Amounts included in regulatory assets and liabilities(1)
Net loss (gain)	$	314,557	$	283,089
Prior service cost (credit)		33,836		30,732
Total amounts included in regulatory assets (liabilities)	$	348,393	$	313,821
(1)Represents amounts included in regulatory assets (liabilities) yet to be recognized as components of net prepaid (accrued) benefit costs.

Effect of ASC 715

ASC 715 requires a portion of pension and other postretirement liabilities to be classified as current liabilities to the extent the following year's expected benefit payments are in excess of the fair value of plan assets. As each Pension Plan has assets with fair values in excess of the following year's expected benefit payments, no amounts have been classified as current. Therefore, the entire net amount recognized in IPALCO's Consolidated Balance Sheets of $268.5 million is classified as a long-term liability.

Information for Pension Plans with a benefit obligation in excess of plan assets

	Pension benefits as of December 31,
	2012		2011
	(In Thousands)
Benefit obligation	$	763,600	$	679,261
Plan assets		495,082		426,384
Benefit obligation in excess of plan assets	$	268,518	$	252,877

IPL's total accumulated benefit obligation in excess of plan assets was $251.5 million as of December 31, 2012 ($250.0 million Defined Benefit Pension Plan and $1.5 million Supplemental Retirement Plan).

Information for Pension Plans with an accumulated benefit obligation in excess of plan assets

	Pension benefits as of December 31,
	2012		2011
	(In Thousands)
Accumulated benefit obligation	$	746,542	$	664,212
Plan assets		495,082		426,384
Accumulated benefit obligation in excess of plan assets	$	251,460	$	237,828

IPL's total accumulated benefit obligation in excess of plan assets was $251.5 million as of December 31, 2012 ($250.0 million Defined Benefit Pension Plan and $1.5 million Supplemental Retirement Plan).

Pension Benefits and Expense

The Pension Plans incurred a net actuarial loss in 2012 of $50.9 million, comprised of two parts (net): (1) $18.2 million of pension asset actuarial gain, which is primarily due to the higher than expected return on assets in 2012, and (2) $69.1 million of pension liability actuarial loss, which is primarily due to a decrease in the discount rate that is used to value pension liabilities. The Pension Plans have a cumulative unrecognized net loss of $314.6 million, which has accumulated over time primarily due to the long-term declining trend in corporate bond rates, the lower than expected return on assets during the year 2008, and the adoption of new mortality tables which increased the expected benefit obligation due to the longer expected lives of participants, since ASC 715 was adopted. The unrecognized net loss, to the extent that it exceeds 10% of the greater of the benefit obligation or the assets, will be amortized and included as a component of net periodic benefit cost in future years. The amortization period is approximately 10.4 years based on estimated demographic data as of December 31, 2012. The projected benefit obligation of $763.6 million, less the fair value of assets of $495.1 million results in a funded status of ($268.5 million) at December 31, 2012.

	Pension benefits for years ended December 31,
	2012		2011		2010
	(In Thousands)
Components of net periodic benefit cost:
Service cost	$	7,986	$	7,234	$	6,590
Interest cost		30,232		31,828		31,577
Plan settlements		-		-		204
Expected return on plan assets		(32,554)		(32,168)		(29,250)
Amortization of prior service cost		4,246		4,346		3,476
Recognized actuarial loss		19,471		13,306		11,838
Total pension cost		29,381		24,546		24,435
Less: amounts capitalized		2,497		2,258		2,321
Amount charged to expense	$	26,884	$	22,288	$	22,114
Rates relevant to each year's expense calculations:
Discount rate - defined benefit pension plan		4.56%		5.38%		5.93%
Discount rate - supplemental retirement plan		4.37%		5.09%		5.27%/5.08% (1)
Expected return on defined benefit pension plan assets		7.50%		7.75%		8.00%
Expected return on supplemental retirement plan assets		7.50%		7.75%		8.00%
(1)   5.27% for the period January 1, 2010 thru May 31, 2010, 5.08% for the settlement on May 31, 2010 and the period June 1, 2010 through December 31, 2010.

Pension expense for the following year is determined as of the December 31st measurement date based on the fair value of the Pension Plans' assets, the expected long-term rate of return on plan assets and a discount rate used to determine the projected benefit obligation. In establishing our expected long-term rate of return assumption, we consider historical returns, as well as, the expected future weighted-average returns for each asset class based on the target asset allocation. For 2012, pension expense was determined using an assumed long-term rate of return on plan assets of 7.50%. As of the December 31, 2012 measurement date, IPL decreased the discount rate from 4.56% to 3.80% for the Defined Benefit Pension Plan and decreased the discount rate from 4.37% to 3.41% for the Supplemental Retirement Plan. The discount rate assumption affects the pension expense determined for 2013. In addition, IPL decreased the expected long-term rate of return on plan assets from 7.50% to 7.25% effective January 1, 2013. The expected long-term rate of return assumption affects the pension expense determined for 2013. The effect on 2013 total pension expense of a 25 basis point increase and decrease in the assumed discount rate is ($1.7 million) and $1.8 million, respectively. The effect on 2013 total pension expense of a 100 basis point increase and decrease in the expected long-term rate of return on plan assets is ($5.3 million) and $5.3 million, respectively.

Expected amortization

The estimated net loss and prior service cost for the Pension Plans that will be amortized from the regulatory asset into net periodic benefit cost over the 2013 plan year are $22.7 million and $4.9 million, respectively (Defined Benefit Pension Plan of $22.6 million and $4.9 million, respectively; and the Supplemental Retirement Plan of $0.1 million and $0.0 million, respectively).

Pension Assets

Fair Value Measurements

Fair value is defined under ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3) as discussed in Note 2. IPL had a transfer of pension assets with a fair value of $20.6 million from Level 1 to Level 2 in January 2011. There were no transfers of pension assets between Level 1 and Level 2 in 2012. IPL's policy regarding asset transfers is to record the transfer on the transfer date.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation includes the Plan's gains and losses on investments bought and sold, as well as held, during the year.

Following is a description of the valuation methodologies used for each major class of assets and liabilities measured at fair value:

• Other than common/collective trust funds, hedge funds and non U.S. government fixed income securities, all the Plan's investments are actively traded on an open market and are categorized as Level 1 in the fair value hierarchy.
• All of the Plan's hedge funds report the net asset value (NAV) from the funds audited financial statements of the Plan's interest based on the fair value of the hedge funds' underlying investments as determined in accordance with the American Institute of Certified Public Accountants' Accounting and Auditing Guide for Investment Companies.
• Investments in hedge funds are valued using the observable NAV of the Plan's interest as of December 31, 2012, provided by the underlying hedge fund. The Plan may redeem its ownership interests in hedge funds at NAV, with 60 days' notice, on either quarterly or semiannual terms.
• The Plan's investments in common/collective trust funds are valued at the NAV of the units of the common/collective trust funds held by the Plan at year-end. The Plan may redeem its units of the common/collective trust funds at NAV daily. These NAVs have been determined based on the market value of the underlying equity securities held by the common/collective trust funds.
• The Plan's investments in corporate bonds are valued from third-party pricing sources but they generally do not represent transaction prices for the identical security in an active market nor does it represent data obtained from an exchange.
• The Fund's investments in hedge funds, common/collective trust funds and non U.S. government  fixed income securities have been recorded at fair value and are all categorized as Level 2 investments in the fair value hierarchy.

The primary long-term investment objective of managing pension assets is to achieve a total return equal to or greater than the weighted average targeted rate of return (see table below). Additional objectives include maintenance of sufficient income and liquidity to pay retirement benefits, as well as, a long-term annualized rate of return (net of relevant fees) that meets or exceeds the assumed targeted rate. In order to achieve these objectives, the plan seeks to achieve a long-term above-average total return consisting of capital appreciation and income. Though it is the intent to achieve an above-average return, that intent does not include taking extraordinary risks or engaging in investment activities not commonly considered prudent. In times when the securities markets demonstrate uncommon volatility and instability, it is the intent to place more emphasis on the preservation of principal. Please refer to the table below for more detailed information concerning the target allocations, allocation ranges, expected annual return, and expected standard deviation of the applicable pension asset categories. The expected long-term rate of return on pension assets is based on the assumptions in the table below.

The investment management of the pension assets are managed with the following asset allocation guidelines:

	Lower Limit		Target Allocation	Upper Limit	Return(2)	Risk(3)
Liability Hedging Portfolio (1)
Liability Manager Fixed Income		10.0%	16.0%	40.0%	5.3%	3.6%
Core Fixed Income		10.0%	16.0%	22.0%	5.4%	3.8%
Growth Portfolio
High Yield Fixed Income		3.0%	8.0%	13.0%	8.9%	9.5%
U.S. Large Cap Equity		20.0%	30.0%	40.0%	10.4%	15.4%
U.S. Mid Cap Equity		2.5%	5.0%	7.5%	11.2%	17.1%
U.S. Small Cap Equity		2.5%	5.0%	7.5%	12.0%	19.9%
International Equity		5.0%	10.0%	15.0%	10.3%	17.7%
REIT		0.0%	5.0%	10.0%	10.4%	18.8%
Hedge Funds (4)		0.0%	5.0%	10.0%	9.3%	8.4%
(1) Upper limit for all assets held in the Liability Hedging Portfolio is 40%
(2) Expected long-term annual return
(3) Expected standard deviation
(4) Alternative investments (combined) not to exceed 10%

The fair values of the pension plan assets at December 31, 2012, by asset category are as follows:

		Fair Value Measurements at December 31, 2012 (in thousands)
				Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs
Asset Category		Total		(Level 1)		(Level 2)	%
Cash and cash equivalents	$	42,139	$	42,139	$	-	9%
Equity Securities:
Common stock		96,347		96,347		-	19%
REIT		22,330		22,330		-	5%
Fixed Income Securities:
Government debt securities		25,170		25,170		-	5%
Corporate debt securities		148,553		-		148,553	30%
Other types of investments:
Mutual fund - Equities		51,154		51,154		-	10%
Mutual fund - Debt		3,626		3,626		-	1%
Mutual fund - REIT		174		174		-	0%
Hedge fund - Equity		35,498		-		35,498	7%
Common/collective trust funds		70,091		-		70,091	14%
Total	$	495,082	$	240,940	$	254,142	100%

The fair values of the pension plan assets at December 31, 2011, by asset category are as follows:

		Fair Value Measurements at December 31, 2011 (in thousands)
				Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs
Asset Category		Total		(Level 1)		(Level 2)	%
Cash and cash equivalents	$	14,984	$	14,984	$	-	4%
Equity Securities:
Common stock		99,152		99,152		-	23%
Preferred stock		718		718		-	0%
REIT		20,340		20,340		-	5%
Fixed Income Securities:
Government debt securities		30,542		30,542		-	7%
Corporate debt securities		77,838		-		77,838	18%
Other debt securities		49,650		-		49,650	12%
Other types of investments:
Mutual fund - Equities		38,054		38,054		-	9%
Mutual fund - Debt		1,748		1,748		-	0%
Mutual fund - REIT		149		149		-	0%
Hedge fund - Equity		32,432		-		32,432	8%
Common/collective trust funds (1)		60,777		-		60,777	14%
Total	$	426,384	$	205,687	$	220,697	100%
(1) On January 26, 2011, we transferred Level 1 securities with a fair value of $20.6 million to a common/collective trust fund. This resulted in a transfer of $20.6 million from Level 1 to Level 2 because the fair value of the interest in the common/collective fund is classified as Level 2 within the fair value hierarchy.

Pension Funding  

We contributed $48.3 million, $37.3 million, and $28.7 million to the Pension Plans in 2012, 2011, and 2010, respectively. Funding for the qualified Defined Benefit Pension Plan is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, as well as targeted funding levels necessary to meet certain thresholds. Management does not currently expect any of the pension assets to revert back to IPL during 2013.

From an ERISA funding perspective, IPL's funding target liability shortfall is estimated to be approximately $104 million as of January 1, 2013. The shortfall must be funded over seven years. In addition, IPL must also contribute the normal service cost earned by active participants during the plan year. The funding normal cost is expected to be about $8.1 million in 2013, which includes $3.1 million for plan expenses.   Each year thereafter, if the plan's underfunding increases to more than the present value of the remaining annual installments, the excess is separately amortized over a new seven year period.  IPL elected to fund $49.6 million in January, 2013 which satisfies all funding requirements for the calendar year 2013.  IPL's funding policy for the Pension Plans is to contribute annually no less than the minimum required by applicable law, and no more than the maximum amount that can be deducted for federal income tax purposes.  

Benefit payments made from the Pension Plans for the years ended December 31, 2012 and 2011 were $30.3 million and $29.9 million respectively. Projected benefit payments are expected to be paid out of the Pension Plans as follows:

Year	Pension Benefits
	(In Thousands)
2013	$	51,238
2014		34,665
2015		36,274
2016		37,557
2017		38,962
2018 through 2022 (in total)		216,051

Defined Contribution Plans

All of IPL's employees are covered by one of two defined contribution plans, the Thrift Plan or the RSP:

The Thrift Plan

Approximately 85% of IPL's active employees are covered by the Thrift Plan, a qualified defined contribution plan. All union new hires are covered under the Thrift Plan, while non-union new hires are covered by the RSP.

Participants elect to make contributions to the Thrift Plan based on a percentage of their base compensation. Each participant's contribution is matched up to certain thresholds. The IBEW clerical-technical union new hires receive an annual lump sum company contribution into the Thrift Plan in addition to the IPL match. Employer contributions to the Thrift Plan were $2.9 million, $2.9 million and $2.9 million for 2012, 2011 and 2010, respectively.

The AES Retirement Savings Plan

Approximately 15% of IPL's active employees are covered by the RSP, a qualified defined contribution plan containing a profit sharing component. Participants elect to make contributions to the RSP based on a percentage of their taxable compensation. Each participant's contribution is matched in amounts up to, but not exceeding, 5% of the participant's taxable compensation. In addition, the RSP has a profit sharing component whereby IPL contributes a percentage of each employee's annual salary into the plan on a pre-tax basis. The profit sharing percentage is determined by the AES Board of Directors on an annual basis. Employer payroll-matching and profit sharing contributions (by IPL) relating to the RSP were $2.2 million, $2.2 million and $1.1 million for 2012, 2011 and 2010, respectively.