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Retirement Benefits and Trusteed Assets
 12 Months Ended
Dec. 31, 2011
Pension and Other Postretirement Benefit Expense [Abstract]  
RETIREMENT BENEFITS AND TRUSTEED ASSETS
RETIREMENT BENEFITS AND TRUSTEED ASSETS
Pension Plan Benefits
The Company has qualified defined benefit retirement plans for eligible represented and non-represented employees. The plans are noncontributory and cover substantially all employees. The plans provide traditional retirement benefits based on the employees’ years of benefit service, average final compensation and age at retirement. In addition, certain represented and non-represented employees are covered under cash balance provisions that determine benefits on annual employer contributions and interest credits. The Company also maintains supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. These plans provide for benefits that supplement those provided by DTE Energy’s other retirement plans.
The Company’s policy is to fund pension costs by contributing amounts consistent with the Pension Protection Act of 2006 provisions and additional amounts when it deems appropriate. The Company contributed $200 million to its pension plans in 2011. At the discretion of management, and depending upon financial market conditions, we anticipate making up to a $240 million contribution to the pension plans in 2012.
Net pension cost includes the following components:
 
2011
 
2010
 
2009
 
(In millions)
Service cost
$
69

 
$
64

 
$
52

Interest cost
202

 
202

 
203

Expected return on plan assets
(246
)
 
(258
)
 
(255
)
Amortization of:
 
 
 
 
 
Net actuarial loss
142

 
100

 
52

Prior service cost
3

 
4

 
6

Special termination benefits
2

 
—

 
—

Net pension cost
$
172

 
$
112

 
$
58



 
2011
 
2010
 
(In millions)
Other changes in plan assets and benefit obligations recognized in Regulatory assets and Other comprehensive income
 
 
 
Net actuarial loss
$
619

 
$
166

Amortization of net actuarial loss
(142
)
 
(100
)
Amortization of prior service cost
(3
)
 
(4
)
Total recognized Regulatory assets and Other comprehensive income
$
474

 
$
62

Total recognized in net periodic pension cost, Regulatory assets and Other comprehensive income
$
646

 
$
174

Estimated amounts to be amortized from Regulatory assets and Accumulated other comprehensive income into net periodic benefit cost during next fiscal year
 
 
 
Net actuarial loss
$
171

 
$
133

Prior service cost
—

 
3


The following table reconciles the obligations, assets and funded status of the plans as well as the amounts recognized as prepaid pension cost or pension liability in the Consolidated Statements of Financial Position at December 31:
 
2011
 
2010
 
(In millions)
Accumulated benefit obligation, end of year
$
3,881

 
$
3,521

Change in projected benefit obligation
 
 
 
Projected benefit obligation, beginning of year
$
3,785

 
$
3,436

Consolidation of VIEs
—

 
82

Service cost
69

 
64

Interest cost
202

 
202

Actuarial loss
355

 
216

Special termination benefits
2

 
—

Benefits paid
(218
)
 
(215
)
Projected benefit obligation, end of year
$
4,195

 
$
3,785

Change in plan assets
 
 
 
Plan assets at fair value, beginning of year
$
2,913

 
$
2,549

Consolidation of VIEs
—

 
64

Actual return on plan assets
(18
)
 
309

Company contributions
209

 
206

Benefits paid
(218
)
 
(215
)
Plan assets at fair value, end of year
$
2,886

 
$
2,913

Funded status of the plans
$
(1,309
)
 
$
(872
)
Amount recorded as:
 
 
 
Current liabilities
$
(11
)
 
$
(6
)
Noncurrent liabilities
(1,298
)
 
(866
)
 
$
(1,309
)
 
$
(872
)
Amounts recognized in Accumulated other comprehensive loss, pre-tax
 
 
 
Net actuarial loss
$
202

 
$
195

Prior service (credit)
(3
)
 
(4
)
 
$
199

 
$
191

Amounts recognized in Regulatory assets (see Note 11)
 
 
 
Net actuarial loss
$
2,201

 
$
1,730

Prior service cost
7

 
12

 
$
2,208

 
$
1,742


Assumptions used in determining the projected benefit obligation and net pension costs are listed below:
 
2011
 
2010
 
2009
Projected benefit obligation
 
 
 
 
 
Discount rate
5.00
%
 
5.50
%
 
5.90
%
Rate of compensation increase
4.20
%
 
4.00
%
 
4.00
%
Net pension costs
 
 
 
 
 
Discount rate
5.50
%
 
5.90
%
 
6.90
%
Rate of compensation increase
4.00
%
 
4.00
%
 
4.00
%
Expected long-term rate of return on plan assets
8.50
%
 
8.75
%
 
8.75
%

The Company employs a formal process in determining the long-term rate of return for various asset classes. Management reviews historic financial market risks and returns and long-term historic relationships between the asset classes of equities, fixed income and other assets, consistent with the widely accepted capital market principle that asset classes with higher volatility generate a greater return over the long-term. Current market factors such as inflation, interest rates, asset class risks and asset class returns are evaluated and considered before long-term capital market assumptions are determined. The long-term portfolio return is also established employing a consistent formal process, with due consideration of diversification, active investment management and rebalancing. Peer data is reviewed to check for reasonableness. As a result of this process, the Company is lowering its long-term rate of return assumptions for its pension and OPEB plans to 8.25% for 2012. The Company believes this rate is a reasonable assumption for the long-term rate of return on its plan assets for 2012 given its investment strategy.
At December 31, 2011, the benefits related to the Company’s qualified and nonqualified pension plans expected to be paid in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows:
 
(In millions)
2012
$
240

2013
239

2014
244

2015
253

2016
260

2017-2021
1,439

 
$
2,675


The Company employs a total return investment approach whereby a mix of equities, fixed income and other investments are used to maximize the long-term return on plan assets consistent with prudent levels of risk, with consideration given to the liquidity needs of the plan. Risk tolerance is established through consideration of future plan cash flows, plan funded status, and corporate financial considerations. The investment portfolio contains a diversified blend of equity, fixed income and other investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, growth and value investment styles, and large and small market capitalizations. Fixed income securities generally include corporate bonds of companies from diversified industries, mortgage-backed securities, and U.S. Treasuries. Other assets such as private equity and hedge funds are used to enhance long-term returns while improving portfolio diversification. Derivatives may be utilized in a risk controlled manner, to potentially increase the portfolio beyond the market value of invested assets and/or reduce portfolio investment risk. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.
Target allocations for plan assets as of December 31, 2011 are listed below:
U.S. Large Cap Equity Securities
22
%
U.S. Small Cap and Mid Cap Equity Securities
5

Non U.S. Equity Securities
20

Fixed Income Securities
25

Hedge Funds and Similar Investments
20

Private Equity and Other
8

 
100
%

Fair Value Measurements at December 31, 2011(a)
 
Level 1
 
Level 2
 
Level 3
 
Balance at
December 31,
2011
 
(In millions)
Asset Category:
 
 
 
 
 
 
 
Short-term investments (b)
$
—

 
$
33

 
$
—

 
$
33

Equity securities
 
 
 
 
 
 
 
U.S. Large Cap (c)
640

 
40

 
—

 
680

U.S. Small/Mid Cap (d)
159

 
5

 
—

 
164

Non U.S (e)
392

 
114

 
—

 
506

Fixed income securities (f)
88

 
703

 
—

 
791

Hedge Funds and Similar Investments (g)
190

 
58

 
296

 
544

Private Equity and Other (h)
—

 
—

 
168

 
168

Total
$
1,469

 
$
953

 
$
464

 
$
2,886

Fair Value Measurements at December 31, 2010(a)
 
Level 1
 
Level 2
 
Level 3
 
Balance at
December 31,
2010
 
(In millions)
Asset Category:
 
 
 
 
 
 
 
Short-term investments (b)
$
—

 
$
34

 
$
—

 
$
34

Equity securities
 
 
 
 
 
 
 
U.S. Large Cap (c)
686

 
38

 
—

 
724

U.S. Small/Mid Cap (d)
181

 
8

 
—

 
189

Non U.S (e)
285

 
222

 
—

 
507

Fixed income securities (f)
61

 
658

 
—

 
719

Hedge Funds and Similar Investments (g)
189

 
73

 
304

 
566

Private Equity and Other (h)
—

 
—

 
174

 
174

Total
$
1,402

 
$
1,033

 
$
478

 
$
2,913


_______________________________________
(a)
See Note 3 — Fair Value for a description of levels within the fair value hierarchy.
(b)
This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets or valuations from brokers or pricing services.
(c)
This category comprises both actively and not actively managed portfolios that track the S&P 500 low cost equity index funds. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.
(d)
This category represents portfolios of small and medium capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.
(e)
This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.
(f)
This category includes corporate bonds from diversified industries, U.S. Treasuries, and mortgage-backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services. Non-exchange traded securities and exchange-traded securities held in commingled funds are classified as Level 2 assets.
(g)
This category utilizes a diversified group of strategies that attempt to capture financial market inefficiencies and includes publicly traded debt and equity, publicly traded mutual funds, commingled and limited partnership funds and non-exchange traded securities. Pricing for Level 1 and level 2 assets in this category is obtained from quoted prices in actively traded markets and quoted prices from broker or pricing services. Non-exchange traded securities held in commingled funds are classified as Level 2 assets. Valuations for some Level 3 assets in this category may be based on limited observable inputs as there may be little, if any, publicly available pricing.
(h)
This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in timber and private mezzanine debt. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on discounted cash flow analyses, relevant publicly-traded comparables and comparable transactions.
The pension trust holds debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on underlying securities, using quoted prices in actively traded markets. Non-exchange traded fixed income securities are valued by the trustee based upon quotations available from brokers or pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable. DTE Energy has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, DTE Energy selectively corroborates the fair values of securities by comparison of market-based price sources.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3):
 
Hedge Funds
and Similar
Investments
 
Private Equity
and Other
 
Total
 
(In millions)
Beginning Balance at January 1, 2011
$
304

 
$
174

 
$
478

Total realized/unrealized gains (losses):
 
 
 
 
 
Realized gains (losses)
(4
)
 
6

 
2

Unrealized gains (losses)
1

 
(30
)
 
(29
)
Purchases, sales and settlements:
 
 
 
 
 
Purchases
64

 
23

 
87

Sales
(69
)
 
(5
)
 
(74
)
Ending Balance at December 31, 2011
$
296

 
$
168

 
$
464

The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period
$
4

 
$
(28
)
 
$
(24
)

 
Hedge Funds
and Similar
Investments
 
Private Equity
and Other
 
Total
 
(In millions)
Beginning Balance at January 1, 2010
$
484

 
$
160

 
$
644

Total realized/unrealized gains (losses)
51

 
23

 
74

Purchases, sales and settlements
(231
)
 
(9
)
 
(240
)
Ending Balance at December 31, 2010
$
304

 
$
174

 
$
478

The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period
$
29

 
$
13

 
$
42




There were no transfers between Level 3 and Level 2 and there were no significant transfers between Level 2 and Level 1 in the years ended December 31, 2011 and 2010.
The Company also sponsors defined contribution retirement savings plans. Participation in one of these plans is available to substantially all represented and non-represented employees. The Company matches employee contributions up to certain predefined limits based upon eligible compensation, the employee’s contribution rate and, in some cases, years of credited service. The cost of these plans was $35 million, $34 million, and $33 million in each of the years 2011, 2010, and 2009, respectively.
Other Postretirement Benefits
The Company provides certain postretirement health care and life insurance benefits for employees who are eligible for these benefits. The Company’s policy is to fund certain trusts to meet its postretirement benefit obligations. Separate qualified Voluntary Employees Beneficiary Association (VEBA) and 401(h) trusts exist for represented and non-represented employees. The Company contributed $111 million to its postretirement medical and life insurance benefit plans during 2011.
In January 2012, the Company contributed $140 million to its other postretirement benefit plans. At the discretion of management, the Company may make up to an additional $120 million contribution to its VEBA trusts in 2012.
Net postretirement cost includes the following components:
 
2011
 
2010
 
2009
 
(In millions)
Service cost
$
64

 
$
61

 
$
59

Interest cost
121

 
125

 
133

Expected return on plan assets
(94
)
 
(74
)
 
(55
)
Amortization of:
 

 
 

 
 

Net loss
55

 
54

 
72

Prior service (credit)
(26
)
 
(4
)
 
(6
)
Net transition obligation
2

 
2

 
2

Net postretirement cost
$
122

 
$
164

 
$
205



 
2011
 
2010
 
(In millions)
Other changes in plan assets and APBO recognized in Regulatory assets and Other comprehensive income
 
 
 
Net actuarial loss
$
195

 
$
93

Amortization of net actuarial loss
(55
)
 
(54
)
Prior service credit
(4
)
 
(79
)
Amortization of prior service credit
26

 
4

Amortization of transition asset
(2
)
 
(2
)
Total recognized in Regulatory assets and Other comprehensive income
$
160

 
$
(38
)
Total recognized in net periodic pension cost, Regulatory assets and Other comprehensive income
$
282

 
$
126

Estimated amounts to be amortized from Regulatory assets and Accumulated other comprehensive income into net periodic benefit cost during next fiscal year
 
 
 
Net actuarial loss
$
78

 
$
59

Prior service credit
$
(27
)
 
$
(26
)
Net transition obligation
$
2

 
$
2


The following table reconciles the obligations, assets and funded status of the plans including amounts recorded as accrued postretirement cost in the Consolidated Statements of Financial Position at December 31:
 
2011
 
2010
 
(In millions)
Change in accumulated postretirement benefit obligation
 
 
 
Accumulated postretirement benefit obligation, beginning of year
$
2,305

 
$
2,151

Consolidation of VIEs
—

 
21

Service cost
64

 
61

Interest cost
121

 
125

Plan amendments
(4
)
 
(79
)
Actuarial loss
80

 
127

Medicare Part D subsidy
6

 
7

Benefits paid
(102
)
 
(108
)
Accumulated postretirement benefit obligation, end of year
$
2,470

 
$
2,305

Change in plan assets
 
 
 
Plan assets at fair value, beginning of year
$
1,029

 
$
864

Actual return on plan assets
(22
)
 
108

Company contributions
111

 
160

Benefits paid
(133
)
 
(103
)
Plan assets at fair value, end of year
$
985

 
$
1,029

Funded status, end of year
$
(1,485
)
 
$
(1,276
)
Amount recorded as:
 
 
 
Current liabilities
$
(1
)
 
$
(1
)
Noncurrent liabilities
$
(1,484
)
 
$
(1,275
)
 
$
(1,485
)
 
$
(1,276
)
Amounts recognized in Accumulated other comprehensive loss, pre-tax
 
 
 
Net actuarial loss
$
47

 
$
46

Prior service credit
(20
)
 
(28
)
Net transition asset
(1
)
 
(2
)
 
$
26

 
$
16

Amounts recognized in Regulatory assets (See Note 11)
 
 
 
Net actuarial loss
$
835

 
$
692

Prior service cost
(60
)
 
(74
)
Net transition obligation
3

 
6

 
$
778

 
$
624

 
 
 
 

Assumptions used in determining the projected benefit obligation and net benefit costs are listed below:
 
2011
 
2010
 
2009
Projected benefit obligation
 
 
 
 
 
Discount rate
5.00
%
 
5.50
%
 
5.90
%
Net benefit costs
 
 
 
 
 
Discount rate
5.50
%
 
5.90
%
 
6.90
%
Expected long-term rate of return on plan assets
8.75
%
 
8.75
%
 
8.75
%
Health care trend rate pre- and post- 65
7.00
%
 
7.00
%
 
7.00
%
Ultimate health care trend rate
5.00
%
 
5.00
%
 
5.00
%
Year in which ultimate reached
2019

 
2016

 
2016


A one percentage point increase in health care cost trend rates would have increased the total service cost and interest cost components of benefit costs by $35 million and increased the accumulated benefit obligation by $306 million at December 31, 2011. A one percentage point decrease in the health care cost trend rates would have decreased the total service and interest cost components of benefit costs by $23 million and would have decreased the accumulated benefit obligation by $297 million at December 31, 2011.
At December 31, 2011, the benefits expected to be paid, including prescription drug benefits, in each of the next five years and in the aggregate for the five fiscal years thereafter are as follows:
 
(In millions)
2012
$
109

2013
116

2014
124

2015
132

2016
142

2017 — 2021
839

 
$
1,462


The process used in determining the long-term rate of return for assets and the investment approach for the Company’s other postretirement benefits plans is similar to those previously described for its pension plans.
Target allocations for plan assets as of December 31, 2011 are listed below:
U.S. Large Cap Equity Securities
22
%
Non U.S. Equity Securities
20

Fixed Income Securities
25

Hedge Funds and Similar Investments
20

Private Equity and Other
13

 
100
%

Fair Value Measurements at December 31, 2011(a)
 
Level 1
 
Level 2
 
Level 3
 
Balance at
December 31,
2011
 
(In millions)
Asset Category:
 
 
 
 
 
 
 
Short-term investments (b)
$
—

 
$
13

 
$
—

 
$
13

Equity securities:
 
 
 
 
 
 
 
U.S. Large Cap (c)
175

 
15

 
—

 
190

U.S. Small/Mid Cap (d)
70

 
6

 
—

 
76

Non U.S (e)
176

 
14

 
—

 
190

Fixed income securities (f)
24

 
236

 
—

 
260

Hedge Funds and Similar Investments (g)
80

 
21

 
95

 
196

Private Equity and Other (h)
—

 
—

 
60

 
60

Total
$
525

 
$
305

 
$
155

 
$
985

Fair Value Measurements at December 31, 2010(a)
 
Level 1
 
Level 2
 
Level 3
 
Balance at
December 31,
2010
 
(In millions)
Asset Category:
 
 
 
 
 
 
 
Short-term investments (b)
$
—

 
$
8

 
$
—

 
$
8

Equity securities
 
 
 
 
 
 
 
U.S. Large Cap (c)
126

 
62

 
—

 
188

U.S. Small/Mid Cap (d)
60

 
58

 
—

 
118

Non U.S (e)
79

 
122

 
—

 
201

Fixed income securities (f)
4

 
252

 
—

 
256

Hedge Funds and Similar Investments (g)
76

 
48

 
79

 
203

Private Equity and Other (h)
—

 
—

 
55

 
55

Total
$
345

 
$
550

 
$
134

 
$
1,029


_______________________________________
(a)
See Note 3 — Fair Value for a description of levels within the fair value hierarchy.
(b)
This category predominantly represents certain short-term fixed income securities and money market investments that are managed in separate accounts or commingled funds. Pricing for investments in this category are obtained from quoted prices in actively traded markets or valuations from brokers or pricing services.
(c)
This category comprises both actively and not actively managed portfolios that track the S&P 500 low cost equity index funds. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.
(d)
This category represents portfolios of small and medium capitalization domestic equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.
(e)
This category primarily consists of portfolios of non-U.S. developed and emerging market equities. Investments in this category are exchange-traded securities whereby unadjusted quote prices can be obtained. Exchange-traded securities held in a commingled fund are classified as Level 2 assets.
(f)
This category includes corporate bonds from diversified industries, U.S. Treasuries, and mortgage backed securities. Pricing for investments in this category is obtained from quoted prices in actively traded markets and quotations from broker or pricing services. Non-exchange traded securities and exchange-traded securities held in commingled funds are classified as Level 2 assets.


(g)
This category utilizes a diversified group of strategies that attempt to capture financial market inefficiencies and includes publicly traded debt and equity, publicly traded mutual funds, commingled and limited partnership funds and non-exchange traded securities. Pricing for Level 1 and level 2 assets in this category is obtained from quoted prices in actively traded markets and quoted prices from broker or pricing services. Non-exchange traded securities held in commingled funds are classified as Level 2 assets. Valuations for some Level 3 assets in this category may be based on limited observable inputs as there may be little, if any, publicly available pricing.
(h)
This category includes a diversified group of funds and strategies that primarily invests in private equity partnerships. This category also includes investments in timber and private mezzanine debt. Pricing for investments in this category is based on limited observable inputs as there is little, if any, publicly available pricing. Valuations for assets in this category may be based on discounted cash flow analyses, relevant publicly-traded comparables and comparable transactions.
The VEBA trusts hold debt and equity securities directly and indirectly through commingled funds and institutional mutual funds. Exchange-traded debt and equity securities held directly are valued using quoted market prices in actively traded markets. The commingled funds and institutional mutual funds which hold exchange-traded equity or debt securities are valued based on underlying securities, using quoted prices in actively traded markets. Non-exchange traded fixed income securities are valued by the trustee based upon quotations available from brokers or pricing services. A primary price source is identified by asset type, class or issue for each security. The trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the trustees challenge an assigned price and determine that another price source is considered to be preferable. DTE Energy has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, DTE Energy selectively corroborates the fair values of securities by comparison of market-based price sources.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3):
 
Hedge Funds
and Similar
Investments
 
Private Equity
and Other
 
Total
 
(In millions)
Beginning Balance at January 1, 2011
$
79

 
$
55

 
$
134

Total realized/unrealized gains (losses):
 
 
 
 
 
  Realized gains (losses)
(1
)
 
2

 
1

  Unrealized gains (losses)
2

 
(22
)
 
(20
)
Purchases, sales and settlements:
 
 
 
 
 
  Purchases
68

 
48

 
116

  Sales
(53
)
 
(23
)
 
(76
)
Ending Balance at December 31, 2011
$
95

 
$
60

 
$
155

The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period
$
5

 
$
(16
)
 
$
(11
)

 
Hedge Funds
and Similar
Investments
 
Private Equity
and Other
 
Total
 
(In millions)
Beginning Balance at January 1, 2010
$
92

 
$
46

 
$
138

Total realized/unrealized gains
10

 
8

 
18

Purchases, sales and settlements
(23
)
 
1

 
(22
)
Ending Balance at December 31, 2010
$
79

 
$
55

 
$
134

The amount of total gains (losses) for the period attributable to the change in unrealized gains or losses related to assets still held at the end of the period
$
6

 
$
7

 
$
13



There were no transfers between Level 3 and Level 2 and there were no significant transfers between Level 2 and Level 1 in the years ended December 31, 2011 and 2010.
Healthcare Legislation
In March 2010, the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 were enacted into law (collectively, the “Act”). The Act is a comprehensive health care reform bill. A provision of the Act repeals the current rule permitting deduction of the portion of the drug coverage expense that is offset by the Medicare Part D subsidy, effective for taxable years beginning after December 31, 2012.
DTE Energy’s retiree healthcare plan includes the provision of postretirement prescription drug coverage (“coverage”) which is included in the calculation of the recorded other postemployment benefit (OPEB) obligation. Because the Company’s coverage meets certain criteria, DTE Energy is eligible to receive the Medicare Part D subsidy. With the enactment of the Act, the subsidy will continue to not be subject to tax, but an equal amount of prescription drug coverage expenditures will not be deductible. Income tax accounting rules require the impact of a change in tax law be recognized in continuing operations in the Consolidated Statements of Operations in the period that the tax law change is enacted.
This change in tax law required a remeasurement of the Deferred tax asset related to the OPEB obligation and the Deferred tax liability related to the OPEB Regulatory Asset in 2010. The net impact of the remeasurement was $22 million, $18 million and $3 million for DTE Energy, Detroit Edison and MichCon, respectively. The Detroit Edison and MichCon amounts have been deferred as Regulatory Assets as the traditional rate setting process allows for the recovery of income tax costs.
In December 2003, the Medicare Act was signed into law which provides for a non-taxable federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least “actuarially equivalent” to the benefit established by law. The effects of the subsidy reduced net periodic postretirement benefit costs by $6 million in 2011, $7 million in 2010 and $20 million in 2009. At December 31, 2011, the gross amount of federal subsidies expected to be received in 2012 is estimated to be $6 million.
Grantor Trust
MichCon maintains a Grantor Trust to fund other postretirement benefit obligations that invests in life insurance contracts and income securities. Employees and retirees have no right, title or interest in the assets of the Grantor Trust, and MichCon can revoke the trust subject to providing the MPSC with prior notification. The Company accounts for its investment at fair value, approximately $13 million at December 31, 2011, with unrealized gains and losses recorded to earnings.