| Pension Plan and Employee Benefits | Note 11 — Pension Plan and Employee Benefits Pension Plan and Other Benefits Plan Employees hired before August 1, 2007, are covered by a non-contributory, defined benefit pension plan. Benefits under the plan reflect an employee’s years of service, age at retirement, and highest total average compensation for any consecutive five Certain Cleco Cajun employees are eligible to participate as a cash balance participant and are credited with all service that was credited to them under the NRG Pension Plan as of February 4, 2019. Benefits reflect the employee’s years of service, age at retirement, and accrued benefit at retirement. The interest crediting rate on the cash balance plan was 5.56% and 5.07% at December 31, 2023, and 2022, respectively. Cleco’s retirees may be eligible to receive Other Benefits. Dependents of Cleco’s retirees may also be eligible to receive Other Benefits with the exception of life insurance benefits. Cleco recognizes the expected cost of Other Benefits during the periods in which the benefits are earned. The employee pension plan and Other Benefits plan obligation, plan assets, and funded status at December 31, 2023, and 2022 are presented in the following table: PENSION BENEFITS OTHER BENEFITS FOR THE YEAR ENDED DEC. 31, FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 2023 2022 Change in benefit obligation Benefit obligation at beginning of period $ 500,869 $ 680,417 $ 43,306 $ 55,257 Service cost 4,977 8,589 1,472 2,204 Interest cost 26,423 19,841 2,285 1,484 Plan participants’ contributions — — — 1,904 Actuarial loss (gain) 26,300 (174,733) (5,110) (10,289) Expenses paid (3,018) (3,744) — — Benefits paid (30,069) (29,501) (5,117) (7,254) Benefit obligation at end of period 525,482 500,869 47,056 43,306 Change in plan assets Fair value of plan assets at beginning of period 402,285 527,427 — — Actual (loss) gain return on plan assets 38,761 (91,897) — — Employer contributions 200 — — — Expenses paid (3,018) (3,744) — — Benefits paid (30,069) (29,501) — — Fair value of plan assets at end of period 408,159 402,285 — — Unfunded status $ (117,323) $ (98,584) $ (47,056) $ (43,306) The current and non-current portions of the Pension Benefits liability for Cleco and Cleco Power at December 31, 2023, and 2022 are as follows: AT DEC. 31, (THOUSANDS) 2023 2022 Current $ 25,685 $ — Non-current $ 91,638 $ 98,584 The employee pension plan accumulated benefit obligation at December 31, 2023, and 2022 is presented in the following table: PENSION BENEFITS AT DEC. 31, (THOUSANDS) 2023 2022 Accumulated benefit obligation $ 505,508 $ 481,398 The following table presents the net actuarial gains/losses included in other comprehensive income for Other Benefits and in regulatory assets for pension related to current year gains and losses as a result of being included in net periodic benefit costs for the employee pension plan and Other Benefits plan for the years ended December 31, 2023, and 2022: PENSION BENEFITS OTHER BENEFITS FOR THE YEAR ENDED DEC. 31, FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 2023 2022 Net actuarial loss (gain) occurring during period $ 17,082 $ (58,124) $ 5,110 $ (10,289) Net actuarial loss (gain) amortized during period $ — $ 12,332 $ (45) $ 1,207 The pension net actuarial loss was $17.1 million for the year ended December 31, 2023, primarily due to updated demographic assumptions resulting from the completion of an experience study in 2023 and a decrease in the discount rate. This loss was partially offset by higher than expected return on assets. The pension net actuarial gain was $58.1 million for the year ended December 31, 2022, primarily due to an increase in the discount rate, partially offset by lower than expected return on assets. The Other Benefits net actuarial loss was $5.1 million for the year ended December 31, 2023, primarily due to updated demographic assumptions resulting from the completion of an experience study in 2023. The Other Benefits net actuarial gain was $10.3 million for the year ended December 31, 2022, primarily due to an increase in the discount rate. The following table presents net actuarial gains/losses in accumulated other comprehensive income that have not been recognized as components of net periodic benefit costs for the employee pension plan and Other Benefits plans at December 31, 2023, and 2022: PENSION BENEFITS OTHER BENEFITS AT DEC. 31, AT DEC. 31, (THOUSANDS) 2023 2022 2023 2022 Net actuarial loss $ 64,399 $ 47,317 $ 13,103 $ 13,705 The non-service components of net periodic pension and Other Benefits cost are included in Other income (expense), net within Cleco’s and Cleco Power’s Consolidated Statements of Income. The components of net periodic pension and Other Benefits costs for 2023, 2022, and 2021 are as follows: PENSION BENEFITS OTHER BENEFITS FOR THE YEAR ENDED DEC. 31, FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 2021 2023 2022 2021 Components of periodic benefit costs Service cost $ 4,977 $ 8,589 $ 10,516 $ 1,472 $ 2,204 $ 2,425 Interest cost 26,423 19,841 18,668 2,285 1,484 1,283 Expected return on plan assets (29,544) (24,706) (22,801) — — — Amortizations Net loss (gain) — 12,332 20,738 (45) 1,210 1,523 Net periodic benefit cost $ 1,856 $ 16,056 $ 27,121 $ 3,712 $ 4,898 $ 5,231 Special/contractual termination benefits — — 3,270 — — — Total benefit cost $ 1,856 $ 16,056 $ 30,391 $ 3,712 $ 4,898 $ 5,231 Effective September 30, 2021, the pension plan was amended to offer an enhanced pension benefit to certain employees participating in the plan that elected to retire during a certain retirement window. Those certain employees who elected by September 30, 2021, to receive the enhanced pension benefits received a 10% increase in calculated pension benefits. This resulted in a special termination benefit cost for Cleco Power and Support Group of $2.4 million and $0.9 million, respectively, that was included as an expense of the pension plan. Because Cleco Power is the pension plan sponsor and the related trust holds the assets, the net unfunded status of the pension plan is reflected at Cleco Power. The liability of Cleco’s other subsidiaries is transferred with a like amount of assets to Cleco Power monthly. The expense of the pension plan related to Cleco’s other subsidiaries for the years ended December 31, 2023, 2022, and 2021 was $1.9 million, $3.2 million, and $4.5 million, respectively. Cleco Holdings is the plan sponsor for the other benefit plans. There are no assets set aside in a trust and the liabilities are reported on the individual subsidiaries’ financial statements. The expense related to Other Benefits reflected in Cleco Power’s Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 was $3.5 million, $4.4 million, and $4.7 million, respectively. The current and non-current portions of the Other Benefits liability for Cleco and Cleco Power at December 31, 2023, and 2022 are as follows: Cleco AT DEC. 31, (THOUSANDS) 2023 2022 Current $ 5,241 $ 5,017 Non-current $ 41,815 $ 38,366 Cleco Power AT DEC. 31, (THOUSANDS) 2023 2022 Current $ 4,479 $ 4,310 Non-current $ 32,289 $ 30,082 The measurement date used to determine the pension and other postretirement benefits is December 31. The assumptions used to determine the benefit obligation and the periodic costs are as follows: PENSION BENEFITS OTHER BENEFITS AT DEC. 31, AT DEC. 31, 2023 2022 2023 2022 Weighted-average assumptions used to determine the benefit obligation Discount rate 5.13 % 5.44 % 5.25 % 5.61 % Rate of compensation increase 3.50 % 2.76 % N/A N/A PENSION BENEFITS OTHER BENEFITS FOR THE YEAR ENDED DEC. 31, FOR THE YEAR ENDED DEC. 31, 2023 2022 2021 2023 2022 2021 Weighted-average assumptions used to determine the net benefit cost Discount rate 5.44 % 2.98 % 2.74 % 5.61 % 2.82 % 2.39 % Expected return on plan assets 6.60 % 5.25 % 5.00 % N/A N/A N/A Rate of compensation increase 2.76 % 2.73 % 2.71 % N/A N/A N/A The expected return on plan assets was determined by examining the risk profile of each target category as compared to the expected return on that risk, within the parameters determined by Cleco’s Retirement Committee. In assessing the risk as compared to return profile, historical returns as compared to risk were considered. The historical risk compared to returns was adjusted for the expected future long-term relationship between risk and return. For the calculation of the 2024 periodic expense, Cleco decreased the discount rate to 5.13% and increased the expected long-term return on plan assets to 6.68%. Cleco expects pension expense to decrease in 2024 by approximately $1.3 million due to an increase in expected return on plan assets and a decrease in service costs from increased retirements. Employee pension plan assets are invested in accordance with the Pension Plan’s Investment Policy Statement. At December 31, 2023, allowable investments included U.S. Equity Portfolios, International Equity - Developed Markets Portfolios, Emerging Markets Equity Portfolios, Multi-Asset Credits, Treasury Separate Trading of Registered Interest and Principal of Securities (STRIPS), Fixed Income Portfolios - Long Credit and Intermediate Government Credit, and Real Estate Portfolios. Real estate funds and the pooled separate accounts are stated at estimated market value based on appraisal reports prepared annually by independent real estate appraisers (members of the American Institute of Real Estate Appraisers). The estimated market value of recently acquired properties is assumed to approximate cost. Fair Value Disclosures Cleco classifies assets and liabilities measured at their fair value according to three different levels, depending on the inputs used in determining fair value. For more information on the fair value hierarchy, see Note 8 — “Fair Value Accounting Instruments.” There have been no changes in the methodologies for determining fair value at December 31, 2023, and 2022. The following tables disclose the pension plan’s fair value of financial assets measured on a recurring basis: (THOUSANDS) AT DEC. 31, 2023 QUOTED PRICES SIGNIFICANT SIGNIFICANT Asset Description Cash equivalents $ 22,250 $ — $ 22,250 $ — Government securities 14,418 — 14,418 — Mutual funds Domestic 85,821 85,821 — — International 42,083 42,083 — — Real estate funds 35,032 — — 35,032 Corporate debt 94,677 — 94,677 — Total $ 294,281 $ 127,904 $ 131,345 $ 35,032 Investments measured at net asset value* 112,110 Interest accrual 1,768 Total net assets $ 408,159 *Investments measured at net asset value consist of Common/ collective trust. (THOUSANDS) AT DEC. 31, 2022 QUOTED PRICES SIGNIFICANT SIGNIFICANT Asset Description Cash equivalents $ 7,345 $ — $ 7,345 $ — Government securities 33,019 — 33,019 — Mutual funds Domestic 78,349 78,349 — — International 39,722 39,722 — — Real estate funds 39,370 — — 39,370 Corporate debt 103,940 — 103,940 — Total $ 301,745 $ 118,071 $ 144,304 $ 39,370 Investments measured at net asset value* 98,505 Interest accrual 2,035 Total net assets $ 402,285 *Investments measured at net asset value consist of Common/ collective trust. Level 3 valuations are derived from other valuation methodologies including pricing models, discounted cash flow models, and similar techniques. Level 3 valuations incorporate subjective judgments and consider assumptions including capitalization rates, discount rates, cash flows, and other factors that are not observable in the market. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement. The following is a reconciliation of the beginning and ending balances of the pension plan’s real estate funds measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2023, and 2022: (THOUSANDS) Balance, Dec. 31, 2021 $ 39,091 Realized losses (2,451) Unrealized gains 4,112 Purchases 2,027 Sales (3,409) Balance, Dec. 31, 2022 $ 39,370 Realized losses 66 Unrealized losses (5,786) Purchases 2,021 Sales (639) Balance, Dec. 31, 2023 $ 35,032 The market-related value of plan assets differs from the fair value of plan assets by the amount of deferred asset gains or losses. Actual asset returns that differ from the expected return on plan assets are deferred and recognized in the market-related value of assets on a straight-line basis over a five-year period. For 2023, the return on plan assets was 9.23% compared to an expected long-term return of 6.60%. The 2022 return on pension plan assets was (19.94)% compared to an expected long-term return of 5.25%. As of December 31, 2023, none of the pension plan participants’ future annual benefits are covered by insurance contracts. Pension Plan Strategic Asset Allocation In December 2023, Cleco’s Retirement Committee revised the pension plan’s asset allocation with a focus on increasing the funded status of the plan. As the funded ratio of the plan increases, the portfolio allocation to return-seeking assets (equity and equity-like investments) would be reduced and be offset by an increase in fixed income investments (defined in the policy as liability-hedging assets). The purpose is to reduce the funded ratio volatility and reduce risk in the portfolio as the funded ratio improves. If the funded ratio declines significantly, Cleco’s Retirement Committee will provide instructions about re-allocations to return-seeking assets. The general funded status to target portfolio allocations are as follows: FUNDED STATUS RETURN-SEEKING LIABILITY-HEDGING CREDIT LIABILITY-HEDGING GOVERNMENT ≤ 80% 60% 20% 20% 80% to 100% 60% to 47% 20% to 37% 20% to 16% 100% to 115% 47% to 10% 37% to 83% 16% to 7% ≥ 115% 10% 83% 7% In order to meet these objectives and to control risk, Cleco’s Retirement Committee has established the following guidelines that the investment managers must follow in the management of the pension fund assets: Liability-Hedging Assets The pension plan investments may include the following liability-hedging assets: • High-quality credit-oriented investment grade bonds, • U.S. Treasuries and other U.S. Government-related securities, • Mortgage securities issues, • Real estate debt, • Private placement credit, and • Securitized assets. Cash equivalents are held to meet the benefit obligations of the pension plan and to pay fees. The primary objective of holding liability-hedging assets is to reduce the pension plan’s surplus volatility. Return-Seeking Assets The pension plan investments may include the following return-seeking assets: • Public equity, • Multi-asset credit, and • Open-ended real assets. The use of futures and options positions that leverage portfolio positions through borrowing, short sales, or other encumbrances of the pension plan’s assets is prohibited. Certain liability-hedging managers are exempt from the prohibition on derivatives use due to the nature of long duration fixed income management. The investment manager shall not purchase any securities of its organization or affiliated entities. Other Pension Plan Disclosures The assumed health care cost trend rates used to measure the expected cost of Other Benefits is 5.0% for 2024 and remains at 5.0% thereafter. The rate used for 2023 was also 5.0%. Assumed health care cost trend rates have a limited effect on the amount reported for Cleco’s health care plans. The projected benefit payments for the employee pension plan and Other Benefits plan for each year through 2028 and the next five years thereafter are listed in the following table: (THOUSANDS) PENSION BENEFITS OTHER For the year ending Dec. 31, 2024 $ 31,857 $ 5,241 2025 $ 32,793 $ 5,182 2026 $ 33,268 $ 5,167 2027 $ 33,760 $ 5,130 2028 $ 34,355 $ 5,049 Five years thereafter $ 176,293 $ 23,443 SERP Certain Cleco officers are covered by SERP. In 2014, SERP was closed to new participants; however, with regard to current SERP participants, including former employees or their beneficiaries, all terms of SERP will continue, other than as described below. SERP is a non-qualified, non-contributory, defined benefit pension plan. Generally, benefits under the plan reflect an employee’s years of service, age at retirement, and the sum of (a) the highest base salary paid out over the last five Cleco does not fund the SERP liability, but instead pays for current benefits out of the cash available of the respective company of the employed officer. Because the SERP is a non-qualified plan, Cleco has purchased life insurance policies on certain SERP participants as a mechanism to provide a source of funding. These polices are held in a rabbi trust formed by Cleco Power. The rabbi trust is the named beneficiary of the life insurance policies and, therefore, receives the proceeds upon death of the insured participants. The life insurance policies may be used to reimburse Cleco for benefits paid from general funds, pay the SERP participants’ death benefits, or pay future SERP payments. Market conditions could have a significant impact on the cash surrender value of the life insurance policies. Because SERP is a non-qualified plan, the assets of the trust could be used to satisfy general creditors of Cleco Power in the event of insolvency. Cleco Power is the plan sponsor and Support Group is the plan administrator. SERP’s funded status at December 31, 2023, and 2022 is presented in the following table: SERP BENEFITS FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 Change in benefit obligation Benefit obligation at beginning of period $ 68,427 $ 93,179 Service cost 142 227 Interest cost 3,604 2,679 Actuarial gain (345) (22,097) Benefits paid (4,366) (5,561) Benefit obligation at end of period $ 67,462 $ 68,427 SERP’s accumulated benefit obligation at December 31, 2023, and 2022 is presented in the following table: SERP BENEFITS AT DEC. 31, (THOUSANDS) 2023 2022 Accumulated benefit obligation $ 67,462 $ 68,427 The following table presents net actuarial gains/losses and prior service credits included in other comprehensive income or regulatory assets related to current year gains and losses as a result of being amortized as a component of net periodic benefit costs for SERP for December 31, 2023, and 2022: SERP BENEFITS FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 Net actuarial gain occurring during year $ (345) $ (22,097) Net actuarial loss amortized during year $ (63) $ 1,049 Prior service credit amortized during year $ (215) $ (215) The SERP net actuarial gain was $0.3 million for the year ended December 31, 2023, primarily due to new census data partially offset by a decrease in the discount rate. The following table presents net actuarial losses and prior service credit in accumulated other comprehensive income and regulatory assets that have not been recognized as components of net periodic benefit costs for SERP at December 31, 2023, and 2022: SERP BENEFITS AT DEC. 31 (THOUSANDS) 2023 2022 Net actuarial loss $ 7,819 $ 8,241 Prior service credit $ (1,085) $ (1,299) The non-service components of net periodic benefit cost related to SERP are included in Other income (expense), net within Cleco’s and Cleco Power’s Consolidated Statements of Income. The components of the net SERP costs for 2023, 2022, and 2021 are as follows: SERP BENEFITS FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 2021 Components of periodic benefit costs Service cost $ 142 $ 227 $ 232 Interest cost 3,604 2,679 2,538 Amortizations Prior service credit (215) (215) (215) Net loss (63) 1,049 1,228 Net periodic benefit cost $ 3,468 $ 3,740 $ 3,783 The measurement date used to determine the SERP benefits is December 31. The assumptions used to determine the benefit obligation and the periodic costs are as follows: SERP BENEFITS AT DEC. 31, 2023 2022 Weighted-average assumptions used to determine the benefit obligation Discount rate 5.13 % 5.46 % Rate of compensation increase N/A N/A SERP BENEFITS FOR THE YEAR ENDED DEC. 31, 2023 2022 2021 Weighted-average assumptions used to determine the net benefit cost Discount rate 5.46 % 2.95 % 2.64 % Rate of compensation increase N/A N/A N/A The expense related to SERP reflected on Cleco Power’s Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 was $0.5 million , $0.6 million, and $0.6 million, respectively. Liabilities relating to SERP are reported on the individual subsidiaries’ financial statements. The current and non-current portions of the SERP liability for Cleco and Cleco Power at December 31, 2023, and 2022 are as follows: Cleco AT DEC. 31, (THOUSANDS) 2023 2022 Current $ 4,593 $ 4,713 Non-current $ 62,868 $ 63,714 Cleco Power AT DEC. 31, (THOUSANDS) 2023 2022 Current $ 613 $ 672 Non-current $ 8,394 $ 9,087 The projected benefit payments for SERP for each year through 2028 and the next five years thereafter are shown in the following table: (THOUSANDS) 2024 2025 2026 2027 2028 FIVE SERP $ 4,593 $ 4,748 $ 4,883 $ 4,852 $ 4,847 $ 23,601 401(k) Cleco’s 401(k) Plan is intended to provide active, eligible employees with voluntary, long-term savings and investment opportunities. The 401(k) Plan is a defined contribution plan and is subject to the applicable provisions of the Employee Retirement Income Security Act of 1974. In accordance with the 401(k) Plan, employer contributions are made in the form of cash. Cash contributions are invested in proportion to the participant’s voluntary contribution investment choices. Participation in the Plan is voluntary and active Cleco employees are eligible to participate. Cleco’s 401(k) Plan expense for the years ended December 31, 2023, 2022, and 2021 was as follows: FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 2021 401(k) Plan expense $ 7,770 $ 7,310 $ 7,780 Cleco Power is the plan sponsor for the 401(k) Plan. The expense of the 401(k) Plan related to Cleco’s other subsidiaries for the years ended December 31, 2023, 2022, and 2021 was as follows: FOR THE YEAR ENDED DEC. 31, (THOUSANDS) 2023 2022 2021 401(k) Plan expense $ 2,859 $ 2,685 $ 2,765 Effective September 30, 2021, the 401(k) plan was amended to offer an enhanced 401(k) benefit to certain employees participating in the plan that elected to retire during a certain retirement window. Those certain employees who elected by September 30, 2021, to receive the enhanced 401(k) benefits received a one-time contribution up to 30% of the employee’s 2021 base salary in accordance with IRS contribution limits. This resulted in a one-time benefit cost of $0.2 million that was included as an expense of the 401(k) plan. |
