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Our Executive Voluntary Deferred Compensation Plan, or DCP, provides a means for all NEOs, other than Mr. Abel, to make voluntary deferrals of up to 50% of base salary and 100% of short-term incentive compensation awards. We include the DCP as part of the participating NEO's overall compensation in order to provide a comprehensive, competitive package. The deferrals and any investment returns grow on a tax-deferred basis. Amounts deferred under the DCP receive a rate of return based on the returns of any combination of various investment alternatives offered under the DCP and selected by the participant. The plan allows participants to choose from three forms of distribution. The plan permits us to make discretionary contributions on behalf of participants.
Potential Payments Upon Termination Our NEOs, other than Mr. Abel, are not entitled to severance or enhanced benefits upon termination of employment or change in control. However, upon any termination of employment, our other NEOs would be entitled to the vested balances in the Retirement Plan, SERP, LTIP and the DCP.
Compensation Committee Report
Mr. Abel, our Chairman and CEO and sole member of our compensation committee, has reviewed the Compensation Discussion and Analysis and, based on this review, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
Gregory E. Abel Summary Compensation Table
The following table sets forth information regarding compensation earned by each of our NEOs during the years indicated:
(1) Consists of annual cash incentive awards earned pursuant to the AIP for our NEOs and the vesting of LTIP awards and associated vested earnings.
The breakout for 2013 is as follows:
(a) The LTIP vested awards and vested earnings columns exclude any amounts related to Mr. Dunn's awards granted prior to his transfer to PacifiCorp.
The ultimate payouts of LTIP awards are undeterminable as the amounts to be paid out may increase or decrease depending on investment performance. Net income, the net income target goal and the matrix below were used in determining the gross amount of the LTIP award available to the participants. Net income for determining the award and the award itself are subject to discretionary adjustment by MEHC's Chairman, President and Chief Executive Officer and its compensation committee. In 2013, the gross award and per-point value were determined based on the overall achievement of our financial and non-financial objectives.
Points are allocated among plan participants either as initial points or year-end performance points. A nominating committee recommends the point allocation, subject to approval by MEHC's Chairman, President and Chief Executive Officer, based upon a discretionary evaluation of individual achievement of financial and non-financial goals previously described herein. A participant's award equals the participant's allocated points multiplied by the final per-point value, capped at 1.5 times base salary except in extraordinary circumstances.
(2) Amounts are based upon the aggregate increase in the actuarial present value of all qualified and nonqualified defined benefit plans, which include the SERP and our non-contributory defined benefit pension plan, or the Retirement Plan, as applicable. Refer to the Pension Benefits table below for a discussion of the assumptions used in calculating these amounts. Messrs. Walje and Stuver had decreases in the actuarial present value of their defined benefit plan amounts; therefore no compensation is shown in the table. Mr. Walje’s decrease was $345,678 and Mr. Stuver’s decrease was $8,981. No participant in our nonqualified deferred compensation plans earned "above market" or "preferential" earnings on amounts deferred.
(3) Amounts primarily consist of PacifiCorp K Plus Employee Savings Plan, or 401(k) Plan, contributions we paid on behalf of the NEOs, registrant contributions to the DCP, as noted in the Nonqualified Deferred Compensation table, and the value of personal benefits. Items required to be reported and quantified are as follows: Mr. Walje - 401(k) contributions of $29,070; Mr. Reiten - 401(k) contributions of $25,245; Mr. Dunn k) contributions of $12,495, DCP contributions of $15,647 and home security services of $88,768; and Mr. Stuver - 401(k) contributions of $28,985. Mr. Dunn’s home security services were valued based on the cost paid by the registrant to the security company that provided the services.
(4) Any amounts voluntarily deferred by the NEO, if applicable, are included in the appropriate column in the Summary Compensation Table.
(5) Mr. Abel receives no direct compensation from us. We reimburse MEHC for the cost of Mr. Abel's time spent on matters supporting us, including compensation paid to him by MEHC, pursuant to an intercompany administrative services agreement among MEHC and its subsidiaries. Please refer to MEHC's Annual Report on for the year ended December 31, 2013 (File No. 001-14881) for executive compensation information for Mr. Abel.
Pension Benefits The following table sets forth certain information regarding the defined benefit pension plan accounts held by each of our NEOs
as of December 31, 2013:
(1) Amounts are computed using assumptions, other than the expected retirement age, consistent with those used in preparing the related pension disclosures in our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K and are as of December 31, 2013, which is the measurement date for the plans. The expected retirement age assumption has been determined in accordance with Instruction 2 to Item 402(h)(2) of Regulation S-K. Single life annuities were assumed for the SERP calculations of the present value of accumulated benefits. For the Retirement Plan calculations of the present value of accumulated benefits, the following assumptions were used: 50.0% lump sum; 35.0% joint and 100% survivor annuity and 15.0% single life annuity. The present value assumptions used in calculating the present value of accumulated benefits for the SERP were as follows: a discount rate of 4.80%; an expected retirement age of 60; and postretirement mortality using the tables prescribed by Internal Revenue Code Section 430(h)(3)(A) separated by annuitants and non-annuitants. The present value assumptions used in calculating the present value of accumulated benefits for the Retirement Plan were as follows: a discount rate of 4.80%; an expected retirement age of 65; postretirement mortality using the tables prescribed by Internal Revenue Code Section 430(h)(3)(A) separated by annuitants and non-annuitants; a lump sum interest rate of 4.80%; and lump sum mortality using the Internal Revenue Code Section 417(e)(3) Applicable Mortality Table for 2014.
(2) The number of years of service and the present value of accumulated benefits for Mr. Dunn represents his service as a PacifiCorp employee only and does not include any vested benefits earned under Kern River Gas Transmission Company, an indirect wholly-owned subsidiary of MEHC.
The SERP provides monthly retirement benefits of 50% of final average pay plus 1% of final average pay for each fiscal year that we meet certain performance goals set for such fiscal year. The maximum benefit is 65% of final average pay, plus amounts due to Retention Agreements entered into in 2000. A participant's final average pay equals the 60 consecutive months of highest pay out of the last 120 months, and pay for this purpose includes salary and annual incentive plan payments reflected in the Summary Compensation Table above. Mr. Walje has met the five-year participation requirement under the plan for early retirement eligibility and has reached age 60. Mr. Walje's SERP benefit will be reduced by a portion of his Social Security benefits, his regular retirement benefit under the Retirement Plan and his benefit based on a hypothetical account balance assuming Mr. Walje continues to receive interest credits under the Retirement Plan.
We have adopted the Retirement Plan for the majority of our employees, other than employees subject to collective bargaining agreements that do not provide for coverage. Through May 31, 2007, participants earned benefits at retirement payable for life based on length of service through May 31, 2007 and average pay in the 60 consecutive months of highest pay out of the 120 months prior to May 31, 2007, and pay for this purpose included salary and annual incentive plan payments up to 10% of base salary, but were limited to the Internal Revenue Code amounts specified in Section 401(a)(17). Benefits were based on 1.3% of final average pay plus 0.65% of final average pay in excess of covered compensation (as defined in Internal Revenue Code Section 401 (1)(5)(E)) times years of service.
The Retirement Plan was restated effective June 1, 2007 to change from a traditional final-average-pay formula as described above to a cash balance formula for non-union participants. Benefits under the final-average-pay formula were frozen as of May 31, 2007, and no future benefits will accrue under that formula for non-union participants. Under the cash balance formula, benefits are based on pay credits to each participant's account of 6.5% (5.0% for employees hired after June 30, 2006 and before January 1, 2008) of eligible compensation. Interest is also credited to each participant's account. Employees who were age 40 or older as of May 31, 2007 received certain additional transition pay credits for five years from the effective date of the plan restatement.
Participants in the Retirement Plan are entitled to receive full benefits upon retirement on or after age 65. Such participants are also entitled to receive reduced benefits upon early retirement after age 55 with at least five years of service or when age plus years of service equals 75. Participants in the SERP are entitled to receive full benefits upon retirement on or after age 60. Such participants are also entitled to receive reduced benefits upon early retirement after age 55 with at least five years of SERP participation or after age 50 with at least 15 years of service and five years of SERP participation.
In 2008, non-union employee participants in the Retirement Plan were offered the option to continue to receive pay credits in the Retirement Plan or receive equivalent fixed contributions to the 401(k) Plan, with any such election becoming effective January 1, 2009. Messrs. Walje, Reiten and Stuver elected the equivalent fixed 401(k) contribution option and, therefore, no longer receive pay credits in the Retirement Plan; however, they each continue to receive interest credits.
Nonqualified Deferred Compensation The following table sets forth certain information regarding the nonqualified deferred compensation plan accounts held by each
of our NEOs as of December 31, 2013:
(1) The executive contribution amount shown for Mr. Dunn is included in the 2013 total compensation reported for him in the Summary Compensation Table and is not additional earned compensation. In addition, the executive contribution amount shown for Mr. Walje represents a portion of his 2009 LTIP award which was deferred in 2013. Of this amount, $30,879 is included in the 2013 total compensation reported for him in the Summary Compensation Table and is not additional compensation. The remaining amount was earned prior to 2013.
(2) The registrant contribution amount shown for Mr. Dunn is included in the 2013 total compensation reported for him in the Summary Compensation Table and is not additional earned compensation. The amount was earned in 2013 but not contributed into the DCP until 2014.
(3) The aggregate balance as of December 31, 2013 shown for Messrs. Walje and Dunn includes $163,340 and $46,382, respectively, of compensation previously reported in 2012 in the Summary Compensation Table and $42,124 and $28,857, respectively, of compensation previously reported in 2011 in the Summary Compensation Table.
Eligibility for our DCP is restricted to select management and highly compensated employees. The plan provides tax benefits to eligible participants by allowing them to defer compensation on a pretax basis, thus reducing their current taxable income. Deferrals and any investment returns grow on a tax-deferred basis, thus participants pay no income tax until they receive distributions. The DCP permits participants to make a voluntary deferral of up to 50% of base salary and 100% of short-term incentive compensation awards. All deferrals are net of social security taxes. Amounts deferred under the DCP receive a rate of return based on the returns of any combination of various investment alternatives offered by the plan and selected by the participant. Gains or losses are calculated daily, and returns are posted to accounts based on participants' fund allocation elections. Participants can change their fund allocations as of the end of any day on which the market is open.
The DCP allows participants to maintain three accounts based upon when they want to receive payments: retirement account, inservice account and education account. Both the retirement and in-service accounts can be distributed as lump sums or in up to 10 annual installments, except in the case of the four DCP transition accounts that allow for a grandfathered payout based on the previous deferred compensation plan distribution elections of lump sum, 5, 10 or 15 annual installments. Effective December 31, 2006, no new money may be deferred into the DCP transition accounts. The education account is distributed in four annual installments. If a participant leaves employment prior to retirement (age 55), all amounts in the participant's account will be paid out in a lump sum as soon as administratively practicable. Participants are 100% vested in their deferrals and any investment gains or losses recorded in their accounts.
Participants in our LTIP also have the option of deferring all or a part of those awards after the five-year mandatory deferral and vesting period. The provisions governing the deferral of LTIP awards are similar to those described for the DCP above.