RETIREMENT PLAN AND POST-RETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2011

Compensation and Retirement Disclosure [Abstract]

RETIREMENT PLAN AND POST-RETIREMENT BENEFITS

NOTE 11.       RETIREMENT PLAN AND POST-RETIREMENT BENEFITS

NVE has a single employer defined benefit pension plan covering substantially all employees of NVE and the Utilities. NVE allocates the unfunded liability and the net periodic benefit costs for its pension benefit and other postretirement benefit plans to NPC and SPPC based upon the current, or in the case of the retirees, previous, employment location. Certain grandfathered and union employees are covered under a benefit formula based on years of service and the employee's highest compensation for a period prior to retirement, while most employees are covered under a cash balance formula with vesting after three years of service. NVE also has other postretirement plans, including a defined contribution plan which provides medical and life insurance benefits for certain retired employees.

Plan Changes

During 2011, the sale of California Assets, as discussed in detail in Note 16, Assets Held for Sale, resulted in employees being transferred to CalPeco. Certain employees who did not want to transfer, and who could not obtain comparable positions with NVE, had their service periods bridged to retirement age under the terms of the collective bargaining agreement with IBEW No. 1245. Amounts recorded for this event were not material.

Effective December 2010, under the terms of SPPC's new contract with IBEW No. 1245, as ratified in August 2010, the pension plan for most bargaining unit employees was changed from a traditional defined benefit pension plan to a defined benefit cash balance pension plan. Employees with combined age and service totaling 75 years or more were given the choice of staying with the current pension plan or switch to the new cash balance pension plan. This plan amendment, as indicated in the benefits obligations table below, reduced the 2010 projected benefit obligation for pension plans by $10.4 million.

Additionally during 2010, benefits available to retired MPAT employees for health insurance coverage were amended. Retirees were given a choice between Health Reimbursement Accounts (HRA's) and Health Savings Accounts (HSA's). This plan amendment, as indicated in the benefits obligations table below, reduced the 2010 other postretirement benefit obligation by $0.7 million.

During 2009, in an effort to reduce costs, NVE implemented severance programs, as discussed in Note 17, Severance Programs. Under the terms of the program employees close to retirement age were offered special enhancements to bridge their pension and postretirement benefits. NVE recognized expense of $0.3 million for pension benefits and $2.8 million for other postretirement benefits in 2009, under the special termination provisions of the Compensation Nonretirement Postemployment Benefits Topic of the FASC.

NVE also has a non-qualified Supplemental Executive Retirement Plan and a Restoration Plan for executives. NVE contributed $26.5 million to establish a rabbi trust for these plans in 2009. Assets held in the trust for these non-contributory defined benefit plans consist of a variety of marketable securities and life insurance policies, none of which is NVE stock. At December 31, 2011 trust assets were $29.2 million and are reflected in NVE's consolidated balance sheet within “Investments and other property, net”. NVE's obligation under these supplemental and restoration plans is included in “Accrued retirement benefits” in NVE's consolidated balance sheet, and amounted to $29.3 million at December 31, 2011. NVE is not required to make contributions to the plans.

Plan Obligations, Plan Assets and Funded Status as of December 31, 2011 and 2010

The following tables provide a reconciliation of benefit obligations, plan assets and the funded status of the plans. These reconciliations are based on a December 31 measurement date (dollars in thousands):

						Other Postretirement
	Pension Benefits				Benefits
	2011		2010		2011		2010
Change in Benefit Obligations
Benefit obligation at January 1	$	806,034	$	757,748	$	163,423	$	154,287
Service cost		18,427		18,910		2,611		2,466
Interest cost		40,676		42,872		8,360		8,736
Plan participants' contributions		-		-		2,325		1,924
Actuarial loss (gain)		18,552		54,890		(12,525)		9,166
Benefits paid		(42,507)		(58,002)		(12,255)		(12,495)
Plan amendments		577		(10,384)		-		(661)
Special termination benefits		286		-		100		-
Remeasurement adjustment		-		-		-		-
Benefit obligation at December 31	$	842,045	$	806,034	$	152,039	$	163,423
Change in Plan Assets
Fair value of plan net assets at January 1	$	729,940	$	670,794	$	93,648	$	93,298
Actual return on plan assets		78,104		70,838		8,615		10,627
Employer contributions		41,286		41,698		863		294
Plan participants' contributions		-		-		2,325		1,924
Benefits paid		(37,850)		(53,390)		(12,255)		(12,495)
Fair value of plan net assets at December 31	$	811,480	$	729,940	$	93,196	$	93,648
Funded Status at December 31(1)	$	(30,565)	$	(76,094)	$	(58,843)	$	(69,775)

(1)Amounts recognized as non-current liabilities (accrued retirement benefits) in the consolidated balance sheets as of December 31, 2011 and 2010.

The expected long-term rate of return for both the pension and other postretirement benefit plan assets is 6.75%, 6.75% and 7.10%, and 6.75-7.10%, 6.75-7.10%, and 7.10%, respectively, in 2011, 2010 and 2009, respectively.

The following amounts would have been recognized in Accumulated Other Comprehensive Income, net of taxes, according to the provisions of the Compensation Retirement Benefits Topic of the FASC. Since NVE is able to recover expenses through rates, the amounts noted below will be recorded as Regulatory Assets for pension plans under the provisions of the Regulated Operations Topic of the FASC. Amounts recognized as of December 31, consist of (dollars in thousands):

						Other Postretirement
	Pension Benefits				Benefits
	2011		2010		2011		2010
Net actuarial loss	$	238,672	$	263,015	$	34,501	$	71,650
Prior service credit		(34,730)		(24,343)		(15,141)		(37,149)
Accumulated other comprehensive income, pre-tax		203,942		238,672		19,360		34,501
Regulatory asset for pension plans		(194,936)		(232,717)		(19,360)		(34,501)
Accumulated other comprehensive income, pre-tax, at December 31	$	9,006	$	5,955	$	-	$	-

The estimated amounts that will be amortized from the regulatory assets for pension plans and accumulated other comprehensive income into net periodic cost in 2012 are as follows (dollars in thousands):

			Other
	Pension		Postretirement
	Benefits		Benefits
Actuarial loss	$	13,891	$	2,924
Prior service credit	$	(2,897)	$	(3,947)

As of December 31, 2011 and 2010, the projected benefit obligation, accumulated benefit obligation, and fair value of plan net assets for pension plans with a projected benefit obligation in excess of plan net assets, and pension plans with an accumulated benefit obligation in excess of plan assets, were as follows (dollars in thousands):

	2011		2010
Projected benefit obligation, end of year	$	842,045	$	806,034
Accumulated benefit obligation, end of year	$	813,101	$	772,846
Fair value of plan net assets, end of year	$	811,480	$	729,940

Plan Assets

NVE's investment strategy is to ensure the safety of the principal of the assets and obtain asset performance to meet the continuing obligations of the plan. NVE contributed a total of $40.6 million in 2011 towards the qualified pension and other postretirement benefit plans.

NVE strives to maintain a reasonable and prudent amount of risk, and seeks to limit risk through diversification of assets. Also, NVE considers the ability of the plan to pay all benefit and expense obligations when due, and to control the costs of administering and managing the plan. NVE's investment guidelines prohibit investing the plan assets in real estate and NVE's stock.

NVE's long term strategy for the pension plan assets is to maximize risk adjusted returns while maintaining adequate liquidity to pay plan benefits. NVE is committed to prudent investments with ample diversification in terms of asset types, fund strategies, and investment managers. As such, NVE has elected to include an appropriate mix of indexed and actively managed investments to accomplish its strategy. The current allocation for pension plan net assets at December 31, 2011 is 61% fixed income, 19% domestic equity, 14% international equity, 5% cash, and 1% other. The long-term target allocation for pension plan net assets is 65% fixed income, 20% U.S. equity, and 15% international equity. The fixed income investments are benchmarked against government and corporate credit bond indices. U.S. equity investments include large cap, mid-cap, and small-cap companies with an emphasis towards small and mid-cap investments relative to the Russell 3000 Index. International equity is currently actively managed and includes investments in both established and emerging markets.

The current allocation for the other post-retirement benefit plan net assets at December 31, 2011 is 51% equity securities, 46% fixed income and 3% cash. The long-term strategy for the other post-retirement benefit plan net assets is similar to the pension plan net assets strategy as described above. The target allocation for other postretirement benefit assets is 60% equity and 40% fixed income. The equity is invested in indexed securities that track the S&P 500 Index. The fixed income is indexed and benchmarked against government and corporate credit bond indices.

The fair values of NVE's pension plan and other postretirement benefits assets at December 31, 2011 and 2010, within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the FASC, by asset category are as follows (dollars in thousands):

2011 Pension Plan Assets

Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents(1)			$	4,795	$	39,431	$	-	$	44,226
Equity:
	U.S. Equity Securities(2)			52,204		101,231		-		153,435
	International Equity Securities			110,837		-		-		110,837
Fixed Income:
	U.S. Preferred Securities			64		-		-		64
	International Preferred Securities			842		-		-		842
	U.S. Fixed Income Securities(4)			98,311		339,816		-		438,127
	International Fixed Income Securities			3,135		51,902		-		55,037
Other:
	U.S. Future Contracts			(92)		-		-		(92)
	International Future Contracts			-		-		-		-
	U.S. Convertible Securities			-		-		-		-
	Administrative Trust Net Assets(5)			9,004		-		-		9,004
		Total Pension Plan Assets	$	279,100	$	532,380	$	-	$	811,480

2011 Other Postretirement Benefit Assets
Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents(1)			$	105	$	2,756	$	-	$	2,861
Equity:
	U.S. Equity Securities(2)			42,848		2,200		-		45,048
	International Equity Securities			2,409		-		-		2,409
Fixed Income:
	U.S. Preferred Securities			1		-		-		1
	International Preferred Securities			18		-		-		18
	U.S. Fixed Income Securities(4)			10,168		31,301		-		41,469
	International Fixed Income Securities			68		1,128		-		1,196
Other:
	U.S. Future Contracts			(2)		-		-		(2)
	International Future Contracts			-		-		-		-
	U.S. Convertible Securities			-		-		-		-
	Administrative Trust Net Assets(5)			196		-		-		196
		Total Other Postretirement Benefit Assets	$	55,811	$	37,385	$	-	$	93,196

2010 Pension Plan Assets
Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents (1)			$	-	$	29,698	$	-	$	29,698
Equity:										-
	U.S. Equity Securities (3)			141,917		(23)		-		141,894
	International Equity Securities			91,631		-		-		91,631
Fixed Income:										-
	U.S. Preferred Securities			59		-		-		59
	International Preferred Securities			-		-		-		-
	U.S. Fixed Income Securities (4)			111,866		326,642		-		438,508
	International Fixed Income Securities			2,784		38,208		-		40,992
Other:										-
	U.S. Future Contracts			35		-		-		35
	International Future Contracts			-		-		-		-
	U.S. Convertible Securities			-		573		-		573
	Administrative Trust Net Liabilities (5)			(13,450)		-		-		(13,450)
		Total Pension Plan Assets	$	334,842	$	395,098	$	-	$	729,940

2010 Other Postretirement Benefit Assets
Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents (1)			$	-	$	2,678	$	-	$	2,678
Equity:
	U.S. Equity Securities (3)			50,235		-		-		50,235
	International Equity Securities			2,397		-		-		2,397
Fixed Income:
	U.S. Preferred Securities			2		-		-		2
	International Preferred Securities			-		-		-		-
	U.S. Fixed Income Securities (4)			9,506		28,094		-		37,600
	International Fixed Income Securities			73		999		-		1,072
Other:
	U.S. Future Contracts			1		-		-		1
	International Future Contracts			-		-		-		-
	U.S. Convertible Securities			-		15		-		15
	Administrative Trust Net Liabilities(5)			(352)		-		-		(352)
		Total Other Postretirement Benefit Assets	$	61,862	$	31,786	$	-	$	93,648

(1)Cash and cash equivalents consist of investment in commingled funds that are primarily comprised of money market holdings and marketable securities, U.S. Treasury bills and commercial paper valued and redeemable at cost.

(2)This category includes approximately 26% small and mid-cap and 74% broad market domestic equity investments.

(3)This category includes approximately 44% large-cap, 31% small and mid-cap, and 25% broad market domestic equity investments.

(4)Level 1 investments are comprised of fixed income securities that primarily invest in U.S. Treasury bonds. Level 2 investments consist of commingled funds that track the Barclays Capital Long Government and Corporate Credit Index and the Barclays Capital Aggregate US Fixed Income Index.

(5)The administrative trust net assets/liabilities are primarily comprised of amounts payable to and from brokers for sold and purchased securities.

The actuarial assumptions used to determine December 31 benefit obligations and net periodic benefit costs were as follows:

	Benefit Obligations			Net Periodic Benefit Costs
	2011		2010	2011	2010
Discount rate-pension	4.91	%	5.09%	5.09%	5.79%
Discount rate-other benefits	5.09	%	5.20%	5.20%	5.75%
Rate of compensation increase	4.00	%	4.00%	4.00%	4.50%
Expected long-term return on plan assets-pension	N/A		N/A	6.75%	6.75%
Expected long-term return on plan assets-other benefits	N/A		N/A	6.75-7.1%	6.75-7.1%
Initial health care cost trend rate	8.00	%	8.00%	8.00%	8.00%
Ultimate health care cost trend rate	4.75	%	4.75%	4.75%	5.00%
Number of years to ultimate trend rate	7		8	8	7

The discount rate for 2011 disclosures was determined by identifying a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for the plans projected benefit payments. In selecting an assumed discount rate for fiscal year 2010 disclosures, and for fiscal years 2011, 2010 and 2009 pension cost, NVE's projected benefit payments were matched to the yield curve derived from a portfolio of over 300 high quality Aa bonds with yields within the 10th to 90th percentiles of these bond yields.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect (dollars in thousands):

	1-Percentage		1-Percentage
	Point Increase		Point Decrease
Effect on the postretirement benefit obligation	$	6,446	$	(5,251)
Effect on total of service and interest cost components	$	696	$	(542)

The expected ROR on plan assets was determined by considering a realistic projection of what assets can earn, given existing capital market conditions, historical equity and bond premiums over inflation, the effect of “normative” economic conditions that may differ from existing conditions, and projected ROR on reinvested assets.

There were no significant transactions between the plan and the employer or related parties during 2011, 2010, or 2009.

Net Periodic Cost

The components of net periodic pension and other postretirement benefit costs for NVE, NPC and SPPC for the years ended December 31, are presented below (dollars in thousands):

NVE
		Pension Benefits						Other Postretirement Benefits
		2011		2010		2009		2011		2010		2009
Service cost		$	18,427	$	18,910	$	18,837	$	2,611	$	2,466	$	2,421
Interest cost			40,676		42,872		44,145		8,360		8,736		10,072
Expected return on plan assets			(48,767)		(44,275)		(37,159)		(6,386)		(6,223)		(6,048)
Amortization of:
	Prior service (credit)/cost		(2,952)		(1,794)		(1,794)		(3,947)		(3,890)		(1,466)
	Actuarial (gain)/loss		16,620		15,106		27,575		4,333		4,342		5,296
Remeasurement adjustment			-		-		-		-		-		336
Total net benefit cost		$	24,004	$	30,819	$	51,604	$	4,971	$	5,431	$	10,611

The NVE total 2009 net periodic cost excludes special termination benefits of $0.3 million for pension and $2.8 million for other postretirement benefits, related to severance programs implemented in 2009. See Note 17, Severance Programs, of the Notes to Financial Statements for further discussion.

The average percentage of NVE net periodic costs capitalized during 2011, 2010 and 2009 was 33.4%, 34.0% and 36.6%, respectively.

NPC
		Pension Benefits						Other Postretirement Benefits
		2011		2010		2009		2011		2010		2009
Service cost		$	9,781	$	9,567	$	9,572	$	1,454	$	1,413	$	1,325
Interest cost			19,521		20,092		21,079		2,459		2,474		2,437
Expected return on plan assets			(24,677)		(21,447)		(17,847)		(2,360)		(2,270)		(2,067)
Amortization of:
	Prior service (credit)/cost		(1,879)		(1,733)		(1,733)		916		946		1,104
	Actuarial (gain)/loss		6,758		7,056		13,192		1,208		1,199		1,272
Remeasurement adjustment			-		-		-		-		-		57
Total net benefit cost		$	9,504	$	13,535	$	24,263	$	3,677	$	3,762	$	4,128

The average percentage of NPC net periodic costs capitalized during 2011, 2010 and 2009 was 36.9%, 37.0% and 39.4%, respectively.

SPPC
		Pension Benefits						Other Postretirement Benefits
		2011		2010		2009		2011		2010		2009
Service cost		$	7,361	$	8,016	$	8,245	$	1,086	$	977	$	1,028
Interest cost			20,050		21,557		21,885		5,830		6,187		7,567
Expected return on plan assets			(22,964)		(21,723)		(18,321)		(3,905)		(3,844)		(3,894)
Amortization of:
	Prior service (credit)/cost		(1,108)		(104)		(104)		(4,878)		(4,851)		(2,586)
	Actuarial (gain)/loss		9,647		7,876		13,701		3,092		3,109		3,990
Remeasurement adjustment			-		-		-		-		-		277
Total net benefit cost		$	12,986	$	15,622	$	25,406	$	1,225	$	1,578	$	6,382

The average percentage of SPPC net periodic costs capitalized during 2011, 2010 and 2009 was 31.7%, 34.2% and 36.4%, respectively.

The expected cash flows for the plans, including trust accounts, are as follows (dollars in thousands):

			Other			Expected
	Pension Benefit		Postretirement			Federal
	Payments		Benefit Payments			Subsidy
2012	$	53,237	$	9,569	$	-
2013		57,364		9,736		-
2014		57,264		9,984		-
2015		56,548		10,070		-
2016		63,314		10,173		-
2017-2021		302,569		50,756		-

The above benefit payments are obligations of the indicated plan, and reflect payments which do not include employee contributions. The expected benefit payment information that reflects the employee obligation is almost exclusively paid from plan assets. A small portion of the pension benefit obligation is paid from the plansponsor's assets.