Retirement Benefit Plans | Note 9: Retirement Benefit Plans The Company sponsors the following retirement benefit plans to provide certain pension and post-retirement benefits for its retirees and current employees as follows: • The Unitil Corporation Retirement Plan (Pension Plan)—The Pension Plan is a defined benefit pension plan. Under the Pension Plan, retirement benefits are based upon an employee’s level of compensation and length of service. Effective January 1, 2010, the Pension Plan was closed to new non-union employees. For union employees, the Pension Plan was closed on various dates between December 31, 2010 and June 1, 2013, depending on the various Collective Bargaining Agreements of each union. • The Unitil Retiree Health and Welfare Benefits Plan (PBOP Plan)—The PBOP Plan provides health care and life insurance benefits to retirees. The Company has established Voluntary Employee Benefit Trusts, into which it funds contributions to the PBOP Plan. • The Unitil Corporation Supplemental Executive Retirement Plan (SERP)—The SERP is a non-qualified retirement plan, with participation limited to executives selected by the Board of Directors. The following table includes the key assumptions used in determining the Company’s benefit plan costs and obligations: 2021 2020 2019 Used to Determine Plan costs for years ended December 31: Discount Rate 2.50 % 3.25 % 4.25 % Rate of Compensation Increase 3.00 % 3.00 % 3.00 % Expected Long-term rate of return on plan assets 7.50 % 7.40 % 7.50 % Health Care Cost Trend Rate Assumed for Next Year 6.60 % 7.00 % 7.00 % Ultimate Health Care Cost Trend Rate 4.50 % 4.50 % 4.50 % Year that Ultimate Health Care Cost Trend Rate is reached 2029 2029 2024 Used to Determine Benefit Obligations at December 31: Discount Rate 2.85 % 2.50 % 3.25 % Rate of Compensation Increase 3.00 % 3.00 % 3.00 % Health Care Cost Trend Rate Assumed for Next Year 6.20 % 6.60 % 7.00 % Ultimate Health Care Cost Trend Rate 4.50 % 4.50 % 4.50 % Year that Ultimate Health Care Cost Trend Rate is reached 2029 2029 2029 The Discount Rate assumptions used in determining retirement plan costs and retirement plan obligations are based on an assessment of current market conditions using high quality corporate bond interest rate indices and pension yield curves. For 2021, a change in the discount rate of 0.25% would have resulted in an increase or decrease of approximately $679,000 in the Net Periodic Benefit Cost (NPBC). The Rate of Compensation Increase assumption used for 2021 was based on the expected long-term increase in compensation costs for personnel covered by the plans. The following table provides the components of the Company’s Retirement plan costs (000’s): Pension Plan PBOP Plan SERP 2021 2020 2019 2021 2020 2019 2021 2020 2019 Service Cost $ 3,472 $ 3,322 $ 3,104 $ 3,034 $ 2,698 $ 2,304 $ 354 $ 283 $ 247 Interest Cost 5,003 5,776 6,484 2,740 3,121 3,426 458 549 567 Expected Return on Plan Assets (9,693 ) (9,019 ) (8,475 ) (2,508 ) (2,063 ) (1,645 ) — — — Prior Service Cost Amortization 301 320 320 1,208 1,210 1,213 56 57 56 Actuarial Loss Amortization 8,089 6,472 4,324 1,045 744 227 1,489 1,036 628 Sub-total 7,172 6,871 5,757 5,519 5,710 5,525 2,357 1,925 1,498 Amounts Capitalized or Deferred (3,384 ) (3,083 ) (2,227 ) (3,136 ) (2,865 ) (2,317 ) (712 ) (579 ) (430 ) NPBC Recognized $ 3,788 $ 3,788 $ 3,530 $ 2,383 $ 2,845 $ 3,208 $ 1,645 $ 1,346 $ 1,068 The Company bases the actuarial determination of pension expense on a market-related valuation of assets, which reduces year-to-year i The following table represents information on the plans’ assets, projected benefit obligations (PBO), and funded status (000’s): Pension Plan PBOP Plan SERP Change in Plan Assets: 2021 2020 2021 2020 2021 2020 Plan Assets at Beginning of Year $ 137,406 $ 125,755 $ 32,847 $ 27,280 $ — $ — Actual Return on Plan Assets 16,989 13,024 3,586 3,739 — — Employer Contributions 4,100 4,665 8,903 4,156 637 654 Participant Contributions — — 220 240 — — Benefits Paid (6,489 ) (6,038 ) (2,905 ) (2,568 ) (637 ) (654 ) Plan Assets at End of Year $ 152,006 $ 137,406 $ 42,651 $ 32,847 $ — $ — Change in PBO: PBO at Beginning of Year $ 206,092 $ 182,135 $ 106,831 $ 95,657 $ 20,225 $ 17,759 Service Cost 3,472 3,322 3,034 2,698 354 283 Interest Cost 5,003 5,776 2,740 3,121 458 549 Participant Contributions — — 220 240 — — Plan Amendments 674 732 — — — — Benefits Paid (6,489 ) (6,038 ) (2,905 ) (2,568 ) (637 ) (654 ) Actuarial (Gain) or Loss (9,334 ) 20,165 2,167 7,683 (2,686 ) 2,288 PBO at End of Year $ 199,418 $ 206,092 $ 112,087 $ 106,831 $ 17,714 $ 20,225 Funded Status: Assets vs PBO $ (47,412 ) $ (68,686 ) $ (69,436 ) $ (73,984 ) $ (17,714 ) $ (20,225 ) The decrease in the PBO for the Pension plan as of Dece m The funded status of the Pension, PBOP and SERP Plans is calculated based on the difference between the benefit obligation and the fair value of plan assets and is recorded on the balance sheets as an asset or a liability. Because the Company recovers the retiree benefit costs from customers through rates, regulatory assets are recorded in lieu of an adjustment to Accumulated Other Comprehensive Income/(Loss). The Company has recorded on its consolidated balance sheets as a liability the underfunded status of its and its subsidiaries’ retirement benefit obligations based on the projected benefit obligation. The Company has recognized Regulatory Assets, net of deferred tax benefits, of $86.4 million and $103.7 million at December 31, 2021 and 2020, respectively, to account for the future collection of these plan obligations in electric and gas rates. The Accumulated Benefit Obligation (ABO) is required to be disclosed for all plans where the ABO is in excess of plan assets. The difference between the PBO and the ABO is that the PBO includes projected compensation increases. The ABO for the Pension Plan was $185.1 million and $189.4 million as of December 31, 2021 and 2020, respectively. The ABO for the SERP was $17.5 million and $16.7 million as of December 31, 2021 and 2020, respectively. For the PBOP Plan, the ABO and PBO are the same. (See Note 1 (Summary of Significant Accounting Policies) for further discussion of SERP funding.) The Company, along with its subsidiaries, expects to continue to make contributions to its Pension Plan in 2022 and future years at minimum required and discretionary funding levels consistent with the amounts recovered in the distribution utilities’ rates for these Pension Plan costs. The following table represents employer contributions, participant contributions and benefit payments ( 000 . Pension Plan PBOP Plan SERP 2021 2020 2019 2021 2020 2019 2021 2020 2019 Employer Contributions $ 4,100 $ 4,665 $ 6,916 $ 8,903 $ 4,156 $ 4,000 $ 637 $ 654 $ 610 Participant Contributions $ — $ — $ — $ 220 $ 240 $ 121 $ — $ — $ — Benefit Payments $ 6,489 $ 6,038 $ 6,877 $ 2,905 $ 2,568 $ 1,758 $ 637 $ 654 $ 610 The following table represents estimated future Estimated Future Benefit Payments Pension PBOP SERP 2022 $ 7,040 $ 3,151 $ 637 2023 8,046 3,448 636 2024 8,497 3,559 635 2025 8,702 3,862 1,090 2026 9,804 4,158 1,144 2027—2031 54,565 23,853 5,583 The Expected Long-Term Rate of Return on Pension Plan assets assumption used by the Company is developed based on input from actuaries and investment managers. The Company’s Expected Long-Term Rate of Return on Pension Plan assets is based on target investment allocation of 56% in common stock equities, 39% in fixed income securities and 5% in real estate securities. The Company’s Expected Long-Term Rate of Return on PBOP Plan assets is based on target investment allocation of 55% in common stock equities and 45% in fixed income securities. The actual investment allocations are shown in the following tables. Pension Plan Target Actual Allocation at 2021 2020 2019 Equity Funds 56 % 57 % 58 % 54 % Debt Funds 39 % 38 % 37 % 36 % Real Estate Fund 5 % 4 % 4 % 9 % Other (1) — 1 % 1 % 1 % Total 100 % 100 % 100 % (1) Represents investments being held in cash equivalents as of December 31, 2021, December 31, 2020 and December 31, 2019 pending payment of benefits. PBOP Plan Target Actual Allocation at 2021 2020 2019 Equity Funds 55 % 56 % 55 % 56 % Debt Funds 45 % 44 % 45 % 44 % Total 100 % 100 % 100 % The combination of these target allocations and expected returns resulted in the overall assumed long-term rate of return of 7.50% for 2021. The Company evaluates the actuarial assumptions, including the expected rate of return, at least annually. The desired investment objective is a long-term rate of return on assets that is approximately 5 – 6% greater than the assumed rate of inflation as measured by the Consumer Price Index. The target rate of return for the Plans has been based upon an analysis of historical returns supplemented with an economic and structural review for each asset class. Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2021 and 2020. Please also see Note 1 (Summary of Significant Accounting Policies) for a discussion of the Company’s fair value accounting policy. Equity, Fixed Income, Index and Asset Allocation Funds These investments are valued based on quoted prices from active markets. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied. Cash Equivalents These investments are valued at cost, which approximates fair value, and are categorized in Level 1. Real Estate Fund These investments are valued at net asset value per unit based on a combination of market- and income-based models utilizing market discount rates, projected cash flows and the estimated value into perpetuity. In accordance with FASB Codification Topic 820, “Fair Value Measurement”, these investments have not been classified in the fair value hierarchy. The fair value amounts presented in the tables below for the Real Estate Fund are intended to permit reconciliation of the fair value hierarchy to Assets measured at fair value on a recurring basis for the Pension Plan as of December 31, 2021 and 2020 are as follows (000’s): Fair Value Measurements at Reporting Date Using Description Balance as of Quoted Significant Significant 2021 Pension Plan Assets: Mutual Funds: Equity Funds $ 86,356 $ 86,356 $ — $ — Fixed Income Funds 57,883 57,883 — — Total Mutual Funds 144,239 144,239 — — Cash Equivalents 912 912 Total Assets in the Fair Value Hierarchy $ 145,151 $ 145,151 $ — $ — Real Estate Fund–Measured at Net Asset Value 6,855 Total Assets $ 152,006 2020 Pension Plan Assets: Mutual Funds: Equity Funds $ 79,690 $ 79,690 $ — $ — Fixed Income Funds 50,622 50,622 — — Total Mutual Funds 130,312 130,312 — — Cash Equivalents 1,277 1,277 Total Assets in the Fair Value Hierarchy $ 131,589 $ 131,589 $ — $ — Real Estate Fund–Measured at Net Asset Value 5,817 Total Assets $ 137,406 Redemptions of the Real Estate Fund are subject to a sixty-five day notice period and the fund is valued quarterly. There are no unfunded commitments. Assets measured at fair value on a recurring basis for the PBOP Plan as of December 31, 2021 and 2020 are as follows (000’s): Fair Value Measurements at Reporting Date Using Description Balance as of Quoted Significant Significant 2021 PBOP Plan Assets: Mutual Funds: Fixed Income Funds $ 18,882 $ 18,882 $ — $ — Equity Funds 23,769 23,769 — — Total Assets $ 42,651 $ 42,651 $ — $ — 2020 PBOP Plan Assets: Mutual Funds: Fixed Income Funds $ 14,716 $ 14,716 $ — $ — Equity Funds 18,131 18,131 — — Total Assets $ 32,847 $ 32,847 $ — $ — Employee 401(k) Tax Deferred Savings Plan— The Company’s contributions to the 401(k) Plan were $3.3 million, $3.0 million and $2.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. |