SEC Filings

10-K
NRG ENERGY, INC. filed this Form 10-K on 02/29/2016
Entire Document
 
                

The following table presents the significant assumptions used to calculate NRG's benefit expense:
 
As of December 31,
 
Pension Benefits
 
Other Postretirement Benefits
Weighted-Average Assumptions
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Discount rate
4.16
%
 
4.99
%
 
4.16
%
 
4.20
%
 
5.06
%
 
4.31
%
Expected return on plan assets
6.36
%
 
6.81
%
 
7.12
%
 

 

 

Rate of compensation increase
3.45
%
 
3.65
%
 
3.57
%
 

 

 

Health care trend rate

 

 

 
8.6% grading to 5.0% in 2023

 
8.5% grading to 5.5% in 2019

 
8.3% grading to
5.3% in 2019

NRG uses December 31 of each respective year as the measurement date for the Company's pension and other postretirement benefit plans. The Company sets the discount rate assumptions on an annual basis for each of NRG's defined benefit retirement plans as of December 31. The discount rate assumptions represent the current rate at which the associated liabilities could be effectively settled at December 31. The Company utilizes the Aon Hewitt AA Above Median, or AA-AM, yield curve to select the appropriate discount rate assumption for each retirement plan. The AA-AM yield curve is a hypothetical AA yield curve represented by a series of annualized individual spot discount rates from 6 months to 99 years. Each bond issue used to build this yield curve must be non-callable, and have an average rating of AA when averaging available Moody's Investor Services, Standard & Poor's and Fitch ratings.
NRG employs a total return investment approach, whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The Investment Committee reviews the asset mix periodically and as the plan assets increase in future years, the Investment Committee may examine other asset classes such as real estate or private equity. NRG employs a building block approach to determining the long-term rate of return assumption for plan assets, with proper consideration given to diversification and rebalancing. Historical markets are studied and long-term historical relationships between equities and fixed income are preserved, consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonableness and appropriateness.
In 2016, NRG will change the approach utilized to estimate the service cost and interest cost components of net periodic benefit cost for pension and postretirement benefit plans. Historically, the Company estimated these components by using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation. The Company will elect to use a spot rate approach in the estimation of the components of benefit cost by applying specific spot rates along the yield curve to the relevant projected cash flows, as this provides a better estimate of service and interest costs. This is considered a change in estimate and, accordingly, will account for it prospectively starting in 2016. This change does not affect the measurement of NRG's total benefit obligation.

The target allocations of NRG's pension plan assets were as follows for the year ended December 31, 2015:
U.S. equity
27
%
Non-U.S. equity
15
%
Global equity
10
%
Emerging market equity
3
%
U.S. fixed income
45
%
Plan assets are currently invested in a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S., non-U.S., global, and emerging market equities, as well as among growth, value, small and large capitalization stocks.

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