Mirant (MIR)

Pension and Other Postretirement Benefits

Pension Plan Assets Values

Mirant uses a mix of equities and fixed income investments with the objective of maximizing the long-term return of pension plan assets at a prudent level of risk. The Company’s risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. Primarily as a result of declines in the overall market of equity securities during the first nine months of 2008, the fair value of Mirant’s pension plan assets has declined to $166 million at September 30, 2008, from $205 million at the Company’s most recent measurement date of September 30, 2007. The Company currently expects to contribute $50 million to $60 million to its pension plans in the fourth quarter of 2008.

Curtailments

During the fourth quarter of 2006, Mirant amended its postretirement benefit plan covering non-union employees to eliminate all employer-provided subsidies through a gradual phase-out by 2011. This action occurred after the Company’s September 30 annual measurement date for actuarial purposes used for measuring its December 31, 2006, obligation. The Company recognized a curtailment gain of approximately $32 million in the first quarter of 2007. This gain is included as a reduction of operations and maintenance expense on the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2007.

During the second quarter of 2008, Mirant severed certain employees as a result of the shutdown of the Lovett facility. As a result, the Company recognized a curtailment gain on pension and postretirement benefits of approximately $5 million. This gain is included as a reduction of operations and maintenance expense on the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2008.

Pension and Other Postretirement Benefits

Curtailments

During the fourth quarter of 2006, Mirant amended its postretirement benefit plan covering non-union employees to eliminate all employer-provided subsidies through a gradual phase-out by 2011. This action occurred after the Company’s September 30 annual measurement date for actuarial purposes used for measuring its December 31, 2006, obligation. The Company recognized a curtailment gain of approximately $32 million in the first quarter of 2007. This gain is included as a reduction of operations and maintenance expense on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2007.

During the second quarter of 2008, Mirant severed certain employees as a result of the shutdown of the Lovett facility. As a result, the Company recognized a curtailment gain on pension and postretirement benefits of approximately $5 million. This gain is included as a reduction of operations and maintenance expense on the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2008.

Pension Plan Asset Value

Mirant uses a mix of equities and fixed income investments with the objective of maximizing the long-term return of pension plan assets for a prudent level of risk. The Company’s risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. Primarily as a result of declines in the overall market of equity securities during the first six months of 2008, the fair value of Mirant’s pension plan assets has declined to $182 million at June 30, 2008, from $205 million at the Company’s most recent measurement date of September 30, 2007.

Pension and Other Postretirement Benefits

The Company accounts for its pension benefits and its postretirement healthcare benefits using actuarial models. The assumptions used in these models impact the expense and liabilities associated with our pension and postretirement healthcare plans.

One of the principal components of the net periodic pension calculation is the expected long-term rate of return on plan assets. The required use of expected long-term rate of return on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and therefore result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. In determining the long-term rate of return

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for plan assets, historical markets and current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined and consideration of diversification and portfolio rebalancing is given.

The discount rate assumptions used for pension benefits and postretirement healthcare benefits accounting reflects the prevailing market rates for high-quality fixed-income debt instruments that, if the pension benefit obligation was settled at the measurement date would provide the necessary future cash flows to pay the benefit obligation when due.

The medical care cost trend rate used for postretirement healthcare benefits assumed that the long-term rate of increase for medical costs slows from the trend of actual costs observed in the past few years. A 1% annual increase or decrease in the assumed medical care cost trend rate would correspondingly increase or decrease total annual expense by approximately $1.5 million.

Estimates used to calculate expenses and liabilities related to these plans may differ significantly from actual results resulting in unrecognized actuarial gains or losses. When the accumulation of such gains or losses exceed 10% of the greater of plan obligations or plan assets, a portion of the unrecognized amount is recognized in retirement plan expense through a straight-line amortization.

See Note 14 to our consolidated financial statements for further information on employee benefit plan obligations.