Retirement Plan And Other Post-Retirement Benefits | Retirement Plan and Other Post-Retirement Benefits The Company has a tax-qualified, noncontributory, defined-benefit retirement plan (Retirement Plan). The Retirement Plan covers certain non-collectively bargained employees hired before July 1, 2003 and certain collectively bargained employees hired before November 1, 2003. Certain non-collectively bargained employees hired after June 30, 2003 and certain collectively bargained employees hired after October 31, 2003 are eligible for a Retirement Savings Account benefit provided under the Company’s defined contribution Tax-Deferred Savings Plans. Costs associated with the Retirement Savings Account were $4.2 million, $3.9 million and $3.5 million for the years ended September 30, 2020, 2019 and 2018, respectively. Costs associated with the Company’s contributions to the Tax-Deferred Savings Plans, exclusive of the costs associated with the Retirement Savings Account, were $6.7 million, $6.4 million, and $6.2 million for the years ended September 30, 2020, 2019 and 2018, respectively. The Company provides health care and life insurance benefits (other post-retirement benefits) for a majority of its retired employees. The other post-retirement benefits cover certain non-collectively bargained employees hired before January 1, 2003 and certain collectively bargained employees hired before October 31, 2003. The Company’s policy is to fund the Retirement Plan with at least an amount necessary to satisfy the minimum funding requirements of applicable laws and regulations and not more than the maximum amount deductible for federal income tax purposes. The Company has established VEBA trusts for its other post-retirement benefits. Contributions to the VEBA trusts are tax deductible, subject to limitations contained in the Internal Revenue Code and regulations and are made to fund employees’ other post-retirement benefits, as well as benefits as they are paid to current retirees. In addition, the Company has established 401(h) accounts for its other post-retirement benefits. They are separate accounts within the Retirement Plan trust used to pay retiree medical benefits for the associated participants in the Retirement Plan. Although these accounts are in the Retirement Plan trust, for funding status purposes as shown below, the 401(h) accounts are included in Fair Value of Assets under Other Post-Retirement Benefits. Contributions are tax-deductible when made, subject to limitations contained in the Internal Revenue Code and regulations. The expected return on Retirement Plan assets, a component of net periodic benefit cost shown in the tables below, is applied to the market-related value of plan assets. The market-related value of plan assets is the market value as of the measurement date adjusted for variances between actual returns and expected returns (from previous years) that have not been reflected in net periodic benefit costs. The expected return on other post-retirement benefit assets (i.e. the VEBA trusts and 401(h) accounts), which is a component of net periodic benefit cost shown in the tables below, is applied to the fair value of assets as of the measurement date. Reconciliations of the Benefit Obligations, Plan Assets and Funded Status, as well as the components of Net Periodic Benefit Cost and the Weighted Average Assumptions of the Retirement Plan and other post-retirement benefits are shown in the tables below. The components of net periodic benefit cost other than service cost are presented in Other Income (Deductions) on the Consolidated Statements of Income. The date used to measure the Benefit Obligations, Plan Assets and Funded Status is September 30 for fiscal years 2020, 2019 and 2018. Retirement Plan Other Post-Retirement Benefits Year Ended September 30 Year Ended September 30 2020 2019 2018 2020 2019 2018 (Thousands) Change in Benefit Obligation Benefit Obligation at Beginning of Period $ 1,097,625 $ 985,690 $ 1,054,826 $ 468,163 $ 435,986 $ 462,619 Service Cost 9,318 8,482 9,921 1,609 1,519 1,830 Interest Cost 29,930 38,378 33,006 12,913 17,145 14,801 Plan Participants’ Contributions — — — 3,058 2,930 2,894 Retiree Drug Subsidy Receipts — — — 1,411 1,855 1,545 Actuarial (Gain) Loss 65,908 127,748 (50,218) 16,396 34,401 (21,039) Benefits Paid (63,676) (62,673) (61,845) (26,828) (25,673) (26,664) Benefit Obligation at End of Period $ 1,139,105 $ 1,097,625 $ 985,690 $ 476,722 $ 468,163 $ 435,986 Change in Plan Assets Fair Value of Assets at Beginning of Period $ 968,449 $ 924,506 $ 910,719 $ 524,127 $ 513,800 $ 514,017 Actual Return on Plan Assets 87,402 77,401 42,652 44,448 30,006 20,657 Employer Contributions 24,621 29,215 32,980 3,080 3,064 2,896 Plan Participants’ Contributions — — — 3,058 2,930 2,894 Benefits Paid (63,676) (62,673) (61,845) (26,828) (25,673) (26,664) Fair Value of Assets at End of Period $ 1,016,796 $ 968,449 $ 924,506 $ 547,885 $ 524,127 $ 513,800 Net Amount Recognized at End of Period (Funded Status) $ (122,309) $ (129,176) $ (61,184) $ 71,163 $ 55,964 $ 77,814 Amounts Recognized in the Balance Sheets Consist of: Non-Current Liabilities $ (122,309) $ (129,176) $ (61,184) $ (4,872) $ (4,553) $ (4,919) Non-Current Assets — — — 76,035 60,517 82,733 Net Amount Recognized at End of Period $ (122,309) $ (129,176) $ (61,184) $ 71,163 $ 55,964 $ 77,814 Accumulated Benefit Obligation $ 1,096,427 $ 1,053,914 $ 946,763 N/A N/A N/A Weighted Average Assumptions Used to Determine Benefit Obligation at September 30 Discount Rate 2.66 % 3.15 % 4.30 % 2.71 % 3.17 % 4.31 % Rate of Compensation Increase 4.70 % 4.70 % 4.70 % 4.70 % 4.70 % 4.70 % Retirement Plan Other Post-Retirement Benefits Year Ended September 30 Year Ended September 30 2020 2019 2018 2020 2019 2018 (Thousands) Components of Net Periodic Benefit Cost Service Cost $ 9,318 $ 8,482 $ 9,921 $ 1,609 $ 1,519 $ 1,830 Interest Cost 29,930 38,378 33,006 12,913 17,145 14,801 Expected Return on Plan Assets (60,063) (62,368) (61,715) (29,232) (30,157) (31,482) Amortization of Prior Service Cost (Credit) 729 826 938 (429) (429) (429) Recognition of Actuarial Loss(1) 39,384 32,096 37,205 535 5,962 10,558 Net Amortization and Deferral for Regulatory Purposes 5,359 2,493 9,027 25,596 16,481 15,028 Net Periodic Benefit Cost $ 24,657 $ 19,907 $ 28,382 $ 10,992 $ 10,521 $ 10,306 Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost at September 30 Effective Discount Rate for Benefit Obligations 3.15 % 4.30 % 3.77 % 3.17 % 4.31 % 3.81 % Effective Rate for Interest on Benefit Obligations 2.81 % 4.03 % 3.23 % 2.84 % 4.05 % 3.29 % Effective Discount Rate for Service Cost 3.31 % 4.40 % 4.00 % 3.39 % 4.43 % 4.10 % Effective Rate for Interest on Service Cost 3.12 % 4.29 % 3.73 % 3.30 % 4.39 % 3.98 % Expected Return on Plan Assets 6.40 % 6.75 % 7.00 % 5.70 % 6.00 % 6.25 % Rate of Compensation Increase 4.70 % 4.70 % 4.70 % 4.70 % 4.70 % 4.70 % (1) Distribution Corporation’s New York jurisdiction calculates the amortization of the actuarial loss on a vintage year basis over 10 years, as mandated by the NYPSC. All the other subsidiaries of the Company utilize the corridor approach. The Net Periodic Benefit Cost in the table above includes the effects of regulation. The Company recovers pension and other post-retirement benefit costs in its Utility and Pipeline and Storage segments in accordance with the applicable regulatory commission authorizations. Certain of those commission authorizations established tracking mechanisms which allow the Company to record the difference between the amount of pension and other post-retirement benefit costs recoverable in rates and the amounts of such costs as determined under the existing authoritative guidance as either a regulatory asset or liability, as appropriate. Any activity under the tracking mechanisms (including the amortization of pension and other post-retirement regulatory assets and liabilities) is reflected in the Net Amortization and Deferral for Regulatory Purposes line item above. In addition to the Retirement Plan discussed above, the Company also has Non-Qualified benefit plans that cover a group of management employees designated by the Chief Executive Officer of the Company. These plans provide for defined benefit payments upon retirement of the management employee, or to the spouse upon death of the management employee. The net periodic benefit costs associated with these plans were $8.9 million, $7.6 million and $6.8 million in 2020, 2019 and 2018, respectively. The components of net periodic benefit cost other than service costs associated with these plans are presented in Other Income (Deductions) on the Consolidated Statements of Income. The accumulated benefit obligations for the plans were $78.7 million, $79.8 million and $70.6 million at September 30, 2020, 2019 and 2018, respectively. The projected benefit obligations for the plans were $98.1 million, $99.5 million and $86.1 million at September 30, 2020, 2019 and 2018, respectively. At September 30, 2020, $14.5 million of the projected benefit obligation is recorded in Other Accruals and Current Liabilities and the remaining $83.6 million is recorded in Other Deferred Credits on the Consolidated Balance Sheets. At September 30, 2019, $13.2 million of the projected benefit obligation was recorded in Other Accruals and Current Liabilities and the remaining $86.3 million was recorded in Other Deferred Credits on the Consolidated Balance Sheets. At September 30, 2018, $11.5 million of the projected benefit obligation was recorded in Other Accruals and Current Liabilities and the remaining $74.6 million was recorded in Other Deferred Credits on the Consolidated Balance Sheets. The weighted average discount rates for these plans were 1.92%, 2.77% and 4.02% as of September 30, 2020, 2019 and 2018, respectively and the weighted average rates of compensation increase for these plans were 8.00%, 8.00% and 7.75% as of September 30, 2020, 2019 and 2018, respectively. The cumulative amounts recognized in accumulated other comprehensive income (loss), regulatory assets, and regulatory liabilities through fiscal 2020, the changes in such amounts during 2020, as well as the amounts expected to be recognized in net periodic benefit cost in fiscal 2021 are presented in the table below: Retirement Other Non-Qualified (Thousands) Amounts Recognized in Accumulated Other Comprehensive Income (Loss), Regulatory Assets and Regulatory Liabilities(1) Net Actuarial Loss $ (215,330) $ (28,044) $ (34,065) Prior Service (Cost) Credit (3,641) 2,401 — Net Amount Recognized $ (218,971) $ (25,643) $ (34,065) Changes to Accumulated Other Comprehensive Income (Loss), Regulatory Assets and Regulatory Liabilities Recognized During Fiscal 2020(1) Increase in Actuarial Loss, excluding amortization(2) $ (38,568) $ (1,180) $ (5,929) Change due to Amortization of Actuarial Loss 39,384 535 5,341 Prior Service (Cost) Credit 729 (429) — Net Change $ 1,545 $ (1,074) $ (588) Amounts Expected to be Recognized in Net Periodic Benefit Cost in the Next Fiscal Year(1) Net Actuarial Loss $ (36,814) $ (849) $ (5,852) Prior Service (Cost) Credit (631) 429 — Net Amount Expected to be Recognized $ (37,445) $ (420) $ (5,852) (1) Amounts presented are shown before recognizing deferred taxes. (2) Amounts presented include the impact of actuarial gains/losses related to return on assets, as well as the Actuarial (Gain) Loss amounts presented in the Change in Benefit Obligation. In order to adjust the funded status of its pension (tax-qualified and non-qualified) and other post-retirement benefit plans at September 30, 2020, the Company recorded a $3.8 million decrease to Other Regulatory Assets in the Company’s Utility and Pipeline and Storage segments and a $3.9 million (pre-tax) decrease to Accumulated Other Comprehensive Income. The effect of the discount rate change for the Retirement Plan in 2020 was to increase the projected benefit obligation of the Retirement Plan by $61.3 million. The mortality improvement projection scale was updated, which decreased the projected benefit obligation of the Retirement Plan in 2020 by $3.3 million. Other actuarial experience increased the projected benefit obligation for the Retirement Plan in 2020 by $7.9 million. The effect of the discount rate change for the Retirement Plan in 2019 was to increase the projected benefit obligation of the Retirement Plan by $128.4 million. The effect of the discount rate change for the Retirement Plan in 2018 was to decrease the projected benefit obligation of the Retirement Plan by $58.1 million. The Company made cash contributions totaling $24.6 million to the Retirement Plan during the year ended September 30, 2020. The Company expects that the annual contribution to the Retirement Plan in 2021 will be in the range of $15.0 million to $25.0 million. The following Retirement Plan benefit payments, which reflect expected future service, are expected to be paid by the Retirement Plan during the next five years and the five years thereafter: $66.8 million in 2021; $67.2 million in 2022; $67.4 million in 2023; $67.4 million in 2024; $67.1 million in 2025; and $326.8 million in the five years thereafter. The effect of the discount rate change in 2020 was to increase the other post-retirement benefit obligation by $25.4 million. The mortality improvement projection scale was updated, which decreased the other post-retirement benefit obligation in 2020 by $2.5 million. Other actuarial experience decreased the other post-retirement benefit obligation in 2020 by $6.5 million, the majority of which was attributable to a revision in assumed per-capita claims cost, premiums, retiree contributions and retiree drug subsidy assumptions based on actual experience. The effect of the discount rate change in 2019 was to increase the other post-retirement benefit obligation by $57.2 million. The mortality improvement projection scale was updated, which decreased the other post-retirement benefit obligation in 2019 by $3.9 million. Other actuarial experience decreased the other post-retirement benefit obligation in 2019 by $18.9 million, the majority of which was attributable to a revision in assumed per-capita claims cost, premiums, retiree contributions and retiree drug subsidy assumptions based on actual experience. The effect of the discount rate change in 2018 was to decrease the other post-retirement benefit obligation by $25.8 million. The mortality improvement projection scale was updated, which decreased the other post-retirement benefit obligation in 2018 by $2.4 million. Other actuarial experience increased the other post-retirement benefit obligation in 2018 by $7.3 million primarily attributable to a revision in assumed per-capita claims cost, premiums, retiree contributions and drug subsidy assumptions based on actual experience. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provides for a prescription drug benefit under Medicare (Medicare Part D), as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The estimated gross other post-retirement benefit payments and gross amount of Medicare Part D prescription drug subsidy receipts are as follows (dollars in thousands): Benefit Payments Subsidy Receipts 2021 $ 28,361 $ (1,950) 2022 $ 28,820 $ (2,064) 2023 $ 29,085 $ (2,172) 2024 $ 29,192 $ (2,273) 2025 $ 29,231 $ (2,356) 2026 through 2030 $ 143,696 $ (12,763) Assumed health care cost trend rates as of September 30 were: 2020 2019 2018 Rate of Medical Cost Increase for Pre Age 65 Participants 5.42 % (1) 5.50 % (1) 5.59 % (1) Rate of Medical Cost Increase for Post Age 65 Participants 4.75 % (1) 4.75 % (1) 4.75 % (1) Annual Rate of Increase in the Per Capita Cost of Covered Prescription Drug Benefits 6.80 % (1) 7.35 % (1) 7.89 % (1) Annual Rate of Increase in the Per Capita Medicare Part B Reimbursement 4.75 % (1) 4.75 % (1) 4.75 % (1) Annual Rate of Increase in the Per Capita Medicare Part D Subsidy 6.20 % (1) 6.84 % (1) 7.18 % (1) (1) It was assumed that this rate would gradually decline to 4.5% by 2039. The health care cost trend rate assumptions used to calculate the per capita cost of covered medical care benefits have a significant effect on the amounts reported. If the health care cost trend rates were increased by 1% in each year, the other post-retirement benefit obligation as of October 1, 2020 would increase by $61.7 million. This 1% change would also have increased the aggregate of the service and interest cost components of net periodic post-retirement benefit cost for 2020 by $2.5 million. If the health care cost trend rates were decreased by 1% in each year, the other post-retirement benefit obligation as of October 1, 2020 would decrease by $51.5 million. This 1% change would also have decreased the aggregate of the service and interest cost components of net periodic post-retirement benefit cost for 2020 by $1.8 million. The Company made cash contributions totaling $2.8 million to its VEBA trusts during the year ended September 30, 2020. In addition, the Company made direct payments of $0.3 million to retirees not covered by the VEBA trusts and 401(h) accounts during the year ended September 30, 2020. The Company expects that the annual contribution to its VEBA trusts in 2021 will be in the range of $2.5 million to $3.0 million. Investment Valuation The Retirement Plan assets and other post-retirement benefit assets are valued under the current fair value framework. See Note I — Fair Value Measurements for further discussion regarding the definition and levels of fair value hierarchy established by the authoritative guidance. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Below is a listing of the major categories of plan assets held as of September 30, 2020 and 2019, as well as the associated level within the fair value hierarchy in which the fair value measurements in their entirety fall, based on the lowest level input that is significant to the fair value measurement in its entirety (dollars in thousands): At September 30, 2020 Total Level 1 Level 2 Level 3 Measured Retirement Plan Investments Domestic Equities(1) $ 188,939 $ 118,124 $ — $ — $ 70,815 International Equities(2) 94,603 — — — 94,603 Global Equities(3) 77,736 — — — 77,736 Domestic Fixed Income(4) 512,693 2,000 457,381 — 53,312 International Fixed Income(5) 20,201 — 20,201 — — Global Fixed Income(6) 79,595 — — — 79,595 Real Estate 106,167 — — 471 105,696 Cash Held in Collective Trust Funds 18,023 — — — 18,023 Total Retirement Plan Investments 1,097,957 120,124 477,582 471 499,780 401(h) Investments (80,511) (8,809) (35,021) (35) (36,646) Total Retirement Plan Investments (excluding 401(h) Investments) $ 1,017,446 $ 111,315 $ 442,561 $ 436 $ 463,134 Miscellaneous Accruals, Interest Receivables, and Non-Interest Cash (650) Total Retirement Plan Assets $ 1,016,796 At September 30, 2019 Total Level 1 Level 2 Level 3 Measured Retirement Plan Investments Domestic Equities(1) $ 175,812 $ 114,324 $ — $ — $ 61,488 International Equities(2) 81,631 — — — 81,631 Global Equities(3) 70,095 — — — 70,095 Domestic Fixed Income(4) 493,839 1,784 439,255 — 52,800 International Fixed Income(5) 17,744 — 17,744 — — Global Fixed Income(6) 75,329 — — — 75,329 Real Estate 107,764 — — 3,154 104,610 Cash Held in Collective Trust Funds 18,310 — — — 18,310 Total Retirement Plan Investments 1,040,524 116,108 456,999 3,154 464,263 401(h) Investments (73,688) (8,205) (32,295) (223) (32,965) Total Retirement Plan Investments (excluding 401(h) Investments) $ 966,836 $ 107,903 $ 424,704 $ 2,931 $ 431,298 Miscellaneous Accruals, Interest Receivables, and Non-Interest Cash 1,613 Total Retirement Plan Assets $ 968,449 (1) Domestic Equities include mostly collective trust funds, common stock, and exchange traded funds. (2) International Equities are comprised of collective trust funds. (3) Global Equities are comprised of collective trust funds. (4) Domestic Fixed Income securities include mostly collective trust funds, corporate/government bonds and mortgages, and exchange traded funds. (5) International Fixed Income securities are comprised mostly of corporate/government bonds. (6) Global Fixed Income securities are comprised of a collective trust fund. (7) Reflects the authoritative guidance related to investments measured at net asset value (NAV). At September 30, 2020 Total Level 1 Level 2 Level 3 Measured Other Post-Retirement Benefit Assets held in VEBA Trusts Collective Trust Funds — Global Equities $ 153,923 $ — $ — $ — $ 153,923 Exchange Traded Funds — Fixed Income 301,290 301,290 — — — Cash Held in Collective Trust Funds 13,841 — — — 13,841 Total VEBA Trust Investments 469,054 301,290 — — 167,764 401(h) Investments 80,511 8,809 35,021 35 36,646 Total Investments (including 401(h) Investments) $ 549,565 $ 310,099 $ 35,021 $ 35 $ 204,410 Miscellaneous Accruals (Including Current and Deferred Taxes, Claims Incurred But Not Reported, Administrative) (1,680) Total Other Post-Retirement Benefit Assets $ 547,885 At September 30, 2019 Total Level 1 Level 2 Level 3 Measured Other Post-Retirement Benefit Assets held in VEBA Trusts Collective Trust Funds — Global Equities $ 167,966 $ — $ — $ — $ 167,966 Exchange Traded Funds — Fixed Income 275,296 275,296 — — — Cash Held in Collective Trust Funds 8,229 — — — 8,229 Total VEBA Trust Investments 451,491 275,296 — — 176,195 401(h) Investments 73,688 8,205 32,295 223 32,965 Total Investments (including 401(h) Investments) $ 525,179 $ 283,501 $ 32,295 $ 223 $ 209,160 Miscellaneous Accruals (Including Current and Deferred Taxes, Claims Incurred But Not Reported, Administrative) (1,052) Total Other Post-Retirement Benefit Assets $ 524,127 (1) Reflects the authoritative guidance related to investments measured at net asset value (NAV). The fair values disclosed in the above tables may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables provide a reconciliation of the beginning and ending balances of the Retirement Plan and other post-retirement benefit assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3). For the years ended September 30, 2020 and September 30, 2019, there were no transfers from Level 1 to Level 2. In addition, as shown in the following tables, there were no transfers in or out of Level 3. Retirement Plan Level 3 Assets Real Excluding Total Balance at September 30, 2018 $ 3,194 $ (218) $ 2,976 Unrealized Gains/(Losses) (37) (5) (42) Sales (3) — (3) Balance at September 30, 2019 3,154 (223) 2,931 Unrealized Gains/(Losses) (2,683) 188 (2,495) Sales — — — Balance at September 30, 2020 $ 471 $ (35) $ 436 Other Post-Retirement Benefit Level 3 Assets 401(h) Balance at September 30, 2018 $ 218 Unrealized Gains/(Losses) 5 Sales — Balance at September 30, 2019 223 Unrealized Gains/(Losses) (188) Sales — Balance at September 30, 2020 $ 35 The Company’s assumption regarding the expected long-term rate of return on plan assets is 6.00% (Retirement Plan) and 5.40% (other post-retirement benefits), effective for fiscal 2021. The return assumption reflects the anticipated long-term rate of return on the plan’s current and future assets. The Company utilizes projected capital market conditions and the plan’s target asset class and investment manager allocations to set the assumption regarding the expected return on plan assets. The long-term investment objective of the Retirement Plan trust, the VEBA trusts and the 401(h) accounts is to achieve the target total return in accordance with the Company’s risk tolerance. Assets are diversified utilizing a mix of equities, fixed income and other securities (including real estate). The target allocation for the Retirement Plan and the VEBA trusts (including 401(h) accounts) is 30-50% equity securities, 50-70% fixed income securities (including return-seeking investments) and 0-15% other (including return-seeking investments). Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. The assets of the Retirement Plan trusts, VEBA trusts and the 401(h) accounts have no significant concentrations of risk in any one country (other than the United States), industry or entity. Investment managers are retained to manage separate pools of assets. Comparative market and peer group performance of individual managers and the total fund are monitored on a regular basis, and reviewed by the Company’s Retirement Committee on at least a quarterly basis. The Company determines the service and interest cost components of net periodic benefit cost using the spot rate approach, which uses individual spot rates along the yield curve that correspond to the timing of each benefit payment in order to determine the discount rate. The individual spot rates along the yield curve are determined by an above mean methodology in that the coupon interest rates that are in the lower 50th percentile |