| Retirement and Post-Retirement Employee Benefit Plans | Retirement and Post-Retirement Employee Benefit Plans We have both funded and unfunded noncontributory defined benefit plans that together cover most of our employees. We also maintain post-retirement plans that provide health care benefits to retired employees. Finally, we sponsor a defined contribution plan that covers substantially all employees. These plans are discussed in further detail below. As a rate regulated entity, most of our net periodic pension and other postretirement benefits costs are recoverable through our rates over a period of up to 15 years. A portion of these costs is capitalized into our rate base or deferred as a regulatory asset or liability. The remaining costs are recorded as a component of operation and maintenance expense or other non-operating expense. Additionally, the amounts that have not yet been recognized in net periodic pension cost that have been recorded as regulatory assets or liabilities are as follows: Defined Benefit Plan Supplemental Executive Retirement Plans Postretirement Plans Total (In thousands) September 30, 2020 Unrecognized prior service (credit) cost $ (584 ) $ — $ 951 $ 367 Unrecognized actuarial loss 78,082 51,045 9,110 138,237 $ 77,498 $ 51,045 $ 10,061 $ 138,604 September 30, 2019 Unrecognized prior service (credit) cost $ (815 ) $ — $ 1,125 $ 310 Unrecognized actuarial (gain) loss 67,191 56,784 (43,782 ) 80,193 $ 66,376 $ 56,784 $ (42,657 ) $ 80,503 Defined Benefit Plans Employee Pension Plan As of September 30, 2020 , we maintained one cash balance defined benefit plan, the Atmos Energy Corporation Pension Account Plan (the Plan). The Plan was established effective January 1999 and covers most of the employees of Atmos Energy that were hired on or before September 30, 2010. Effective October 1, 2010, the plan was closed to new participants. The assets of the Plan are held within the Atmos Energy Corporation Master Retirement Trust (the Master Trust). Opening account balances were established for participants as of January 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Plan credits an allocation to each participant’s account at the end of each year according to a formula based on the participant’s age, service and total pay (excluding incentive pay). In addition, at the end of each year, a participant’s account is credited with interest on the employee’s prior year account balance. Participants are fully vested in their account balances after three years of service and may choose to receive their account balances as a lump sum or an annuity. Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974, including the funding requirements under the Pension Protection Act of 2006 (PPA). However, additional voluntary contributions are made from time to time as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. During fiscal 2020 , we did no t make a contribution to the Plan. During fiscal 2019 we contributed $8.5 million in cash to the Plan to achieve a desired level of funding while maximizing the tax deductibility of this payment. Based upon market conditions at September 30, 2020 , the current funded position of the Plan and the funding requirements under the PPA, we do not anticipate a minimum required contribution for fiscal 2021 . However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels. We make investment decisions and evaluate performance of the assets in the Master Trust on a medium-term horizon of at least three to five years . We also consider our current financial status when making recommendations and decisions regarding the Master Trust’s assets. Finally, we strive to ensure the Master Trust’s assets are appropriately invested to maintain an acceptable level of risk and meet the Master Trust’s long-term asset investment policy adopted by the Board of Directors. To achieve these objectives, we invest the Master Trust’s assets in equity securities, fixed income securities, interests in commingled pension trust funds, other investment assets and cash and cash equivalents. Investments in equity securities are diversified among the market’s various subsectors in an effort to diversify risk and maximize returns. Fixed income securities are invested in investment grade securities. Cash equivalents are invested in securities that either are short term (less than 180 days) or readily convertible to cash with modest risk. The following table presents asset allocation information for the Master Trust as of September 30, 2020 and 2019 . Targeted Allocation Range Actual Allocation September 30 Security Class 2020 2019 Domestic equities 35%-55% 45.3% 40.6% International equities 10%-20% 15.6% 14.5% Fixed income 5%-30% 17.0% 18.8% Company stock 0%-15% 13.0% 15.4% Other assets 0%-20% 9.1% 10.7% At September 30, 2020 and 2019 , the Plan held 716,700 shares of our common stock which represented 13.0 percent and 15.4 percent of total Plan assets. These shares generated dividend income for the Plan of approximately $1.6 million and $1.5 million during fiscal 2020 and 2019 . Our employee pension plan expenses and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data. We review the estimates and assumptions underlying our employee pension plans annually based upon a September 30 measurement date. The development of our assumptions is fully described in our significant accounting policies in Note 2 . The actuarial assumptions used to determine the pension liability for the Plan was determined as of September 30, 2020 and 2019 and the actuarial assumptions used to determine the net periodic pension cost for the Plan was determined as of September 30, 2019 , 2018 and 2017 . On October 21, 2020 , the Society of Actuaries released its annually-updated mortality improvement scale for pension plans incorporating new assumptions surrounding life expectancies in the United States. As of September 30, 2020 , we updated our assumed mortality rates to incorporate the updated mortality table. Additional assumptions are presented in the following table: Pension Liability Pension Cost 2020 2019 2020 2019 2018 Discount rate 2.80 % 3.29 % 3.29 % 4.38 % 3.89 % Rate of compensation increase 3.50 % 3.50 % 3.50 % 3.50 % 3.50 % Expected return on plan assets 6.25 % 6.50 % 6.50 % 6.75 % 6.75 % Interest crediting rate 4.69 % 4.69 % 4.69 % 4.69 % 4.69 % The following table presents the Plan’s accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2020 and 2019 : 2020 2019 (In thousands) Accumulated benefit obligation $ 565,755 $ 541,287 Change in projected benefit obligation: Benefit obligation at beginning of year $ 577,270 $ 504,719 Service cost 17,551 15,311 Interest cost 19,028 22,071 Actuarial (gain) loss 22,898 71,139 Benefits paid (32,526 ) (35,970 ) Benefit obligation at end of year 604,221 577,270 Change in plan assets: Fair value of plan assets at beginning of year 530,109 531,691 Actual return on plan assets 31,298 25,888 Employer contributions — 8,500 Benefits paid (32,526 ) (35,970 ) Fair value of plan assets at end of year 528,881 530,109 Reconciliation: Funded status (75,340 ) (47,161 ) Unrecognized prior service cost — — Unrecognized net loss — — Net amount recognized $ (75,340 ) $ (47,161 ) Net periodic pension cost for the Plan for fiscal 2020 , 2019 and 2018 is presented in the following table. Fiscal Year Ended September 30 2020 2019 2018 (In thousands) Components of net periodic pension cost: Service cost $ 17,551 $ 15,311 $ 17,264 Interest cost (1) 19,028 22,071 20,803 Expected return on assets (1) (28,316 ) (28,451 ) (27,666 ) Amortization of prior service credit (1) (231 ) (232 ) (231 ) Recognized actuarial loss (1) 9,025 4,201 9,114 Net periodic pension cost $ 17,057 $ 12,900 $ 19,284 (1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2. The following tables set forth by level, within the fair value hierarchy, the Plan's assets at fair value as of September 30, 2020 and 2019 . As required by authoritative accounting literature, assets are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The methods used to determine fair value for the assets held by the Plan are fully described in Note 2 . Investments in our common/collective trusts and limited partnerships that are measured at net asset value per share equivalent are not classified in the fair value hierarchy. The net asset value amounts presented are intended to reconcile the fair value hierarchy to the total investments. In addition to the assets shown below, the Plan had net accounts receivable of $0.7 million and $1.3 million at September 30, 2020 and 2019 , which materially approximates fair value due to the short-term nature of these assets. Assets at Fair Value as of September 30, 2020 Level 1 Level 2 Level 3 Total (In thousands) Investments: Common stocks $ 211,244 $ — $ — $ 211,244 Money market funds — 6,096 — 6,096 Registered investment companies 29,762 — — 29,762 Government securities: Mortgage-backed securities — 15,230 — 15,230 U.S. treasuries 21,755 36 — 21,791 Corporate bonds — 52,648 — 52,648 Total investments measured at fair value $ 262,761 $ 74,010 $ — 336,771 Investments measured at net asset value: Common/collective trusts (1) 122,207 Limited partnerships (1) 69,176 Total investments $ 528,154 Assets at Fair Value as of September 30, 2019 Level 1 Level 2 Level 3 Total (In thousands) Investments: Common stocks $ 212,785 $ — $ — $ 212,785 Money market funds — 16,419 — 16,419 Registered investment companies 26,326 — — 26,326 Government securities: Mortgage-backed securities — 19,986 — 19,986 U.S. treasuries 22,930 885 — 23,815 Corporate bonds — 55,774 — 55,774 Total investments measured at fair value $ 262,041 $ 93,064 $ — 355,105 Investments measured at net asset value: Common/collective trusts (1) 108,975 Limited partnerships (1) 64,718 Total investments $ 528,798 (1) The fair value of our common/collective trusts and limited partnerships are measured using the net asset value per share practical expedient. There are no redemption restrictions, redemption notice periods or unfunded commitments for these investments. The redemption frequency is daily. Supplemental Executive Retirement Plans We have three nonqualified supplemental plans which provide additional pension, disability and death benefits to our officers, division presidents and certain other employees of the Company. The first plan is referred to as the Supplemental Executive Benefits Plan (SEBP) and covers our corporate officers and certain other employees of the Company who were employed on or before August 12, 1998. The SEBP is a defined benefit arrangement which provides a benefit equal to 75 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SEBP. In August 1998, we adopted the Supplemental Executive Retirement Plan (SERP) (formerly known as the Performance-Based Supplemental Executive Benefits Plan), which covers all corporate officers selected to participate in the plan between August 12, 1998 and August 5, 2009. The SERP is a defined benefit arrangement which provides a benefit equal to 60 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SERP. Effective August 5, 2009, we adopted a new defined benefit Supplemental Executive Retirement Plan (the 2009 SERP), for corporate officers or any other employees selected at the discretion of the Board. Under the 2009 SERP, a nominal account has been established for each participant, to which the Company contributes at the end of each calendar year an amount equal to ten percent ( 25 percent for members of the Management Committee appointed on or after January 1, 2016) of the total of each participant’s base salary and cash incentive compensation earned during each prior calendar year, beginning December 31, 2009. The benefits vest after three years of service and attainment of age 55 and earn interest credits at the same annual rate as the Company’s Pension Account Plan. Due to the retirement of an executive of the company during fiscal 2020, we recognized a one-time settlement charge of $9.2 million and paid a $22.7 million lump sum in relation to the retirement. Similar to our employee pension plans, we review the estimates and assumptions underlying our supplemental plans annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for the supplemental plans were determined as of September 30, 2020 and 2019 and the actuarial assumptions used to determine the net periodic pension cost for the supplemental plans were determined as of September 30, 2019 , 2018 and 2017 . These assumptions are presented in the following table: Pension Liability Pension Cost 2020 2019 2020 2019 2018 Discount rate (1) 2.80 % 3.29 % 3.19 % 4.38 % 4.08 % Rate of compensation increase 3.50 % 3.50 % 3.50 % 3.50 % 3.50 % Interest crediting rate 4.69 % 4.69 % 4.69 % 4.69 % 4.69 % ( 1 ) Reflects a weighted average discount rate for pension cost for fiscal 2020 and 2018 due to the settlements during the year. The following table presents the supplemental plans’ accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2020 and 2019 : 2020 2019 (In thousands) Accumulated benefit obligation $ 122,207 $ 138,772 Change in projected benefit obligation: Benefit obligation at beginning of year $ 143,987 $ 121,370 Service cost 1,074 869 Interest cost 4,188 5,127 Actuarial (gain) loss 7,386 25,099 Benefits paid (4,766 ) (8,478 ) Settlements (22,729 ) — Benefit obligation at end of year 129,140 143,987 Change in plan assets: Fair value of plan assets at beginning of year — — Employer contribution 27,495 8,478 Benefits paid (4,766 ) (8,478 ) Settlements (22,729 ) — Fair value of plan assets at end of year — — Reconciliation: Funded status (129,140 ) (143,987 ) Unrecognized prior service cost — — Unrecognized net loss — — Accrued pension cost $ (129,140 ) $ (143,987 ) Assets for the supplemental plans are held in separate rabbi trusts. At September 30, 2020 and 2019 , assets held in the rabbi trusts consisted of equity securities of $41.9 million and $44.0 million , which are included in our fair value disclosures in Note 15 . Net periodic pension cost for the supplemental plans for fiscal 2020 , 2019 and 2018 is presented in the following table. Fiscal Year Ended September 30 2020 2019 2018 (In thousands) Components of net periodic pension cost: Service cost $ 1,074 $ 869 $ 1,332 Interest cost (1) 4,188 5,127 4,988 Recognized actuarial loss (1) 3,945 2,227 3,079 Settlements (1) 9,180 — 4,159 Net periodic pension cost $ 18,387 $ 8,223 $ 13,558 (1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2. Estimated Future Benefit Payments The following benefit payments for our defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years: Pension Plan Supplemental Plans (In thousands) 2021 $ 37,523 $ 30,021 2022 37,804 17,117 2023 39,053 5,124 2024 40,036 4,472 2025 41,016 32,550 2026-2030 204,582 22,308 Postretirement Benefits We sponsor the Retiree Medical Plan for Retirees and Disabled Employees of Atmos Energy Corporation (the Atmos Retiree Medical Plan). This plan provides medical and prescription drug protection to all qualified participants based on their date of retirement. The Atmos Retiree Medical Plan provides different levels of benefits depending on the level of coverage chosen by the participants and the terms of predecessor plans; however, we generally pay 80 percent of the projected net claims and administrative costs and participants pay the remaining 20 percent. Effective January 1, 2015, for employees who had not met the participation requirements by September 30, 2009, the contribution rates for the Company are limited to a three percent cost increase in claims and administrative costs each year, with the participant responsible for the additional costs. Generally, our funding policy is to contribute annually an amount in accordance with the requirements of ERISA. However, additional voluntary contributions are made annually as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We expect to contribute between $15 million and $25 million to our postretirement benefits plan during fiscal 2021 . We maintain a formal investment policy with respect to the assets in our postretirement benefits plan to ensure the assets funding the postretirement benefit plan are appropriately invested to maintain an acceptable level of risk. We also consider our current financial status when making recommendations and decisions regarding the postretirement benefits plan. We currently invest the assets funding our postretirement benefit plan in diversified investment funds which consist of common stocks, preferred stocks and fixed income securities. The diversified investment funds may invest up to 75 percent of assets in common stocks and convertible securities. The following table presents asset allocation information for the postretirement benefit plan assets as of September 30, 2020 and 2019 . Actual Allocation September 30 Security Class 2020 2019 Diversified investment funds 97.4% 97.1% Cash and cash equivalents 2.6% 2.9% Similar to our employee pension and supplemental plans, we review the estimates and assumptions underlying our postretirement benefit plan annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for our postretirement plan were determined as of September 30, 2020 and 2019 and the actuarial assumptions used to determine the net periodic pension cost for the postretirement plan were determined as of September 30, 2019 , 2018 and 2017 . The assumptions are presented in the following table: Postretirement Liability Postretirement Cost 2020 2019 2020 2019 2018 Discount rate 2.80 % 3.29 % 3.29 % 4.38 % 3.89 % Expected return on plan assets 4.94 % 5.14 % 5.14 % 5.33 % 4.29 % Initial trend rate 6.25 % 6.25 % 6.25 % 6.50 % 7.00 % Ultimate trend rate 5.00 % 5.00 % 5.00 % 5.00 % 5.00 % Ultimate trend reached in 2026 2025 2025 2022 2022 The following table presents the postretirement plan’s benefit obligation and funded status as of September 30, 2020 and 2019 : 2020 2019 (In thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 316,033 $ 265,986 Service cost 13,466 10,810 Interest cost 10,612 11,839 Plan participants’ contributions 5,849 5,901 Actuarial (gain) loss 43,412 39,472 Benefits paid (18,694 ) (17,975 ) Benefit obligation at end of year 370,678 316,033 Change in plan assets: Fair value of plan assets at beginning of year 201,901 199,361 Actual return on plan assets 2,356 1,125 Employer contributions 16,833 13,489 Plan participants’ contributions 5,849 5,901 Benefits paid (18,694 ) (17,975 ) Fair value of plan assets at end of year 208,245 201,901 Reconciliation: Funded status (162,433 ) (114,132 ) Unrecognized transition obligation — — Unrecognized prior service cost — — Unrecognized net loss — — Accrued postretirement cost $ (162,433 ) $ (114,132 ) Net periodic postretirement cost for fiscal 2020 , 2019 and 2018 is presented in the following table. Fiscal Year Ended September 30 2020 2019 2018 (In thousands) Components of net periodic postretirement cost: Service cost $ 13,466 $ 10,810 $ 12,078 Interest cost (1) 10,612 11,839 10,907 Expected return on assets (1) (10,499 ) (10,659 ) (8,006 ) Amortization of transition obligation (1) — — — Amortization of prior service cost (credit) (1) 173 173 11 Recognized actuarial gain (1) (1,337 ) (8,178 ) (6,473 ) Net periodic postretirement cost $ 12,415 $ 3,985 $ 8,517 (1) The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2. We are currently recovering other postretirement benefits costs through our regulated rates in substantially all of our service areas under accrual accounting as prescribed by accounting principles generally accepted in the United States. Other postretirement benefits costs have been specifically addressed in rate orders in each jurisdiction served by our Kentucky/Mid-States, West Texas, Mid-Tex and Mississippi Divisions as well as our Kansas jurisdiction and APT or have been included in a rate case and not disallowed. Management believes that this accounting method is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses. The following tables set forth by level, within the fair value hierarchy, the Retiree Medical Plan’s assets at fair value as of September 30, 2020 and 2019 . The methods used to determine fair value for the assets held by the Retiree Medical Plan are fully described in Note 2 . Assets at Fair Value as of September 30, 2020 Level 1 Level 2 Level 3 Total (In thousands) Investments: Money market funds $ — $ 5,525 $ — $ 5,525 Registered investment companies 202,720 — — 202,720 Total investments measured at fair value $ 202,720 $ 5,525 $ — $ 208,245 Assets at Fair Value as of September 30, 2019 Level 1 Level 2 Level 3 Total (In thousands) Investments: Money market funds $ — $ 5,972 $ — $ 5,972 Registered investment companies 195,929 — — 195,929 Total investments measured at fair value $ 195,929 $ 5,972 $ — $ 201,901 Estimated Future Benefit Payments The following benefit payments paid by us, retirees and prescription drug subsidy payments for our postretirement benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years. Company payments for fiscal 2020 include contributions to our postretirement plan trusts. Company Payments Retiree Payments Subsidy Payments Total Postretirement Benefits (In thousands) 2021 $ 22,632 $ 4,368 $ — $ 27,000 2022 16,263 4,772 — 21,035 2023 16,590 5,144 — 21,734 2024 17,517 5,651 — 23,168 2025 18,353 6,104 — 24,457 2026-2030 101,158 35,039 — 136,197 Defined Contribution Plan The Atmos Energy Corporation Retirement Savings Plan and Trust (the Retirement Savings Plan) covers substantially all employees and is subject to the provisions of Section 401(k) of the Internal Revenue Code. Effective January 1, 2007, employees automatically become participants of the Retirement Savings Plan on the date of employment. Participants may elect a salary reduction up to a maximum of 65 percent of eligible compensation, as defined by the Plan, not to exceed the maximum allowed by the Internal Revenue Service. New participants are automatically enrolled in the Plan at a contribution rate of four percent of eligible compensation, from which they may opt out. We match 100 percent of a participant’s contributions, limited to four percent of the participant’s salary. Participants are eligible to receive matching contributions after completing one year of service, in which they are immediately vested. Effective January 1, 2021, participants are eligible to receive matching contributions immediately upon enrollment in the Retirement Savings Plan. This matching contribution vests after completing one year of service. Participants are also permitted to take out a loan against their accounts subject to certain restrictions. Employees hired on or after October 1, 2010 participate in the enhanced plan in which participants receive a fixed annual contribution of four percent of eligible earnings to their Retirement Savings Plan account. Participants will continue to be eligible for company matching contributions of up to four percent of their eligible earnings and will be fully vested in the fixed annual contribution after three years of service. Matching and fixed annual contributions to the Retirement Savings Plan are expensed as incurred and amounted to $17.9 million , $16.7 million and $16.2 million for fiscal years 2020 , 2019 and 2018 . At September 30, 2020 and 2019 , the Retirement Savings Plan held 2.2 percent and 2.6 percent of our outstanding common stock. |
