| Pension Plans And Other Postretirement Benefits | Note 15 – Pension Plans and Other Post-retirement Benefits
The Company maintains a qualified, defined benefit pension plan that covers its full-time employees who were hired prior to April 1, 2003. Retirement benefits under the plan are generally based on the employee’s total years of service and compensation during the last five years of employment. The Company’s policy is to fund the plan annually at a level which is deductible for income tax purposes and which provides assets sufficient to meet its pension obligations over time. To offset some limitations imposed by the Internal Revenue Code with respect to payments under qualified plans, the Company has a non-qualified Supplemental Pension Benefit Plan for Salaried Employees in order to prevent some employees from being penalized by these limitations, and to provide certain retirement benefits based on employee’s years of service and compensation. The Company also has non-qualified Supplemental Executive Retirement Plans for some current and retired employees. The net pension costs and obligations of the qualified and non-qualified plans are included in the tables which follow. Employees hired after April 1, 2003 may participate in a defined contribution plan that provides a Company matching contribution on amounts contributed by participants and an annual profit-sharing contribution based upon a percentage of the eligible participants’ compensation.
In August 2014, the Company announced changes to the way it will provide future retirement benefits to employees acquired through a prior acquisition. Effective January 1, 2015, the Company began providing future retirement benefits for these employees through its defined contribution plan. As a result, no further service will be considered in future accruals in the qualified defined benefit pension plan after December 31, 2014, and as a result of this change, the Company recognized a curtailment loss of $84 in 2014.
Effective July 1, 2015, the Company added a permanent lump sum option to the form of benefit payments offered to participants of the qualified defined benefit pension plan upon retirement or termination. The plan paid $5,329 during the second half of 2015 to participants who elected this option and $9,990 during 2016.
In addition to providing pension benefits, the Company offers post-retirement benefits other than pensions to employees hired before April 1, 2003 and retiring with a minimum level of service. These benefits include continuation of medical and prescription drug benefits, or a cash contribution toward such benefits, for eligible retirees and life insurance benefits for eligible retirees. The Company funds these benefits through various trust accounts. The benefits of retired officers and other eligible retirees are paid by the Company and not from plan assets due to limitations imposed by the Internal Revenue Code.
In 2016 the Company recognized a settlement loss of $2,895 , which results from lump sum payments from the non-qualified plans exceeding the threshold of service and interest cost for the period. A settlement loss is the recognition of unrecognized pension benefit costs that would have been incurred in subsequent periods. The Company recorded this settlement loss as a regulatory asset, as it is probable of recovery in future rates, which will be amortized into pension benefit costs.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:
Pension Benefits
Other Post-retirement Benefits
Years:
2017
$ 20,791
$ 2,025
2018
20,640
2,296
2019
20,240
2,570
2020
21,369
2,815
2021
20,824
2,974
2022-2026
104,672
17,701
The changes in the benefit obligation and fair value of plan assets, the funded status of the plans and the assumptions used in the measurement of the company’s benefit obligation are as follows:
Pension Benefits
Other Post-retirement Benefits
2016
2015
2016
2015
Change in benefit obligation:
Benefit obligation at January 1,
$ 306,539
$ 311,609
$ 65,137
$ 71,958
Service cost
3,179
3,349
1,014
1,224
Interest cost
13,038
12,955
2,927
2,802
Actuarial (gain) loss
15,321
(7,778)
1,400
(6,527)
Plan participants' contributions
-
-
170
204
Benefits paid
(21,861)
(17,118)
(1,336)
(1,270)
Plan amendments
-
3,220
-
(3,254)
Settlements
(7,742)
-
-
-
Special termination benefits
(302)
302
-
-
Benefit obligation at December 31,
308,172
306,539
69,312
65,137
Change in plan assets:
Fair value of plan assets at January 1,
238,605
244,897
43,704
43,326
Actual return on plan assets
17,375
(3,058)
2,149
(998)
Employer contributions
16,285
13,884
1,360
2,428
Benefits paid
(21,861)
(17,118)
(1,128)
(1,052)
Settlements
(7,742)
-
-
-
Special termination benefits
(302)
-
-
-
Fair value of plan assets at December 31,
242,360
238,605
46,085
43,704
Funded status of plan:
Net amount recognized at December 31,
$ 65,812
$ 67,934
$ 23,227
$ 21,433
The following table provides the net liability recognized on the consolidated balance sheets at December 31,:
Pension Benefits
Other Post-retirement Benefits
2016
2015
2016
2015
Current liability
$ 613
$ 8,370
$
-
$
-
Noncurrent liability
65,199
59,564
23,226
21,433
Net liability recognized
$ 65,812
$ 67,934
$ 23,226
21,433
At December 31, 2016 and 2015, the Company’s pension plans had benefit obligations in excess of its plan assets. The following tables provide the projected benefit obligation, the accumulated benefit obligation and fair market value of the plan assets as of December 31,:
Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
2016
2015
Projected benefit obligation
$ 308,172
$ 306,539
Fair value of plan assets
242,360
238,605
Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets
2016
2015
Accumulated benefit obligation
$ 291,889
$ 291,132
Fair value of plan assets
242,360
238,605
The following table provides the components of net periodic benefit costs for the years ended December 31,:
Pension Benefits
Other Post-retirement Benefits
2016
2015
2014
2016
2015
2014
Service cost
$ 3,179
$ 3,349
$ 4,295
$ 1,014
$ 1,224
$ 1,161
Interest cost
13,038
12,955
14,153
2,927
2,802
2,903
Expected return on plan assets
(16,910)
(18,702)
(17,601)
(2,647)
(2,923)
(2,742)
Amortization of prior service cost (credit)
578
174
277
(549)
(687)
(278)
Amortization of actuarial loss
7,153
5,993
2,256
926
1,282
260
Settlement loss
2,895
-
-
-
-
-
Curtailment loss
-
-
84
-
-
-
Special termination benefits
302
-
-
-
-
-
Net periodic benefit cost
$ 10,235
$ 3,769
$ 3,464
$ 1,671
$ 1,698
$ 1,304
The Company records the underfunded status of its pension and other post-retirement benefit plans on its consolidated balance sheets and records a regulatory asset for these costs that would otherwise be charged to stockholders’ equity, as the Company anticipates recoverability of the costs through customer rates to be probable . The Company’s pension and other post-retirement benefit plans were underfunded at December 31, 2016 and 2015. Changes in the plans’ funded status will affect the assets and liabilities recorded on the balance sheet. Due to the Company’s regulatory treatment, the recognition of the funded status is recorded as a regulatory asset pursuant to the FASB’s accounting guidance for regulated operations.
The following table provides the amounts recognized in regulatory assets that have not been recognized as components of net periodic benefit cost as of December 31,:
Pension Benefits
Other Post-retirement Benefits
2016
2015
2016
2015
Net actuarial loss
$ 92,436
$ 87,930
$
15,441
$
14,469
Prior service cost (credit)
3,841
4,419
(2,378)
(2,926)
Total recognized in regulatory assets
$ 96,277
$ 92,349
$
13,063
$
11,543
The following table provides t he estimated net actuarial loss and prior service cost for the Company’s pension plans that will be amortized from regulatory asset into net periodic benefit cost for the year ended December 31, 2017 :
Pension Benefits
Other Post-retirement Benefits
Net actuarial loss
$ 8,023
$ 1,165
Prior service cost (credit)
579
(509)
Accounting for pensions and other post-retirement benefits requires an extensive use of assumptions about the discount rate, expected return on plan assets, the rate of future compensation increases received by the Company’s employees, mortality, turnover and medical costs. Each assumption is reviewed annually with assistance from the Company’s actuarial consultant who provides guidance in establishing the assumptions. The assumptions are selected to represent the average expected experience over time and may differ in any one year from actual experience due to changes in capital markets and the overall economy. These differences will impact the amount of pension and other post-retirement benefit expense that the Company recognizes.
The significant assumptions related to the Company’s benefit obligations are as follows:
Pension Benefits
Other Post-retirement Benefits
2016
2015
2016
2015
Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31,
Discount rate 4.13%
4.48%
4.25%
4.60%
Rate of compensation increase
3.0 -4.0%
3.0 -4.0%
n/a
n/a
Assumed Health Care Cost Trend Rates Used to Determine Benefit Obligations as of December 31,
Health care cost trend rate
n/a
n/a
6.6%
7.0%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)
n/a
n/a
5.0%
5.0%
Year that the rate reaches the ultimate trend rate
n/a
n/a
2020
2021
n/a – Assumption is not applicable.
The significant assumptions related to the Company’s net periodic benefit costs are as follows:
Pension Benefits
Other Post-retirement Benefits
2016
2015
2014
2016
2015
2014
Weighted Average Assumptions Used to Determine Net Periodic Benefit Costs for Years Ended December 31,
Discount rate 4.48%
4.20%
5.12%
4.60%
4.17%
5.12%
Expected return on plan assets 7.25%
7.50%
7.50%
4.83 -7.25%
5.00 -7.50%
5.00 -7.50%
Rate of compensation increase
3.0 -4.0%
3.0 -4.0%
4.0 -4.5%
n/a
n/a
n/a
Assumed Health Care Cost Trend Rates Used to Determine Net Periodic Benefit Costs for Years Ended December 31,
Health care cost trend rate
n/a
n/a
n/a
7.0%
7.0%
7.5%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)
n/a
n/a
n/a
5.0%
5.0%
5.0%
Year that the rate reaches the ultimate trend rate
n/a
n/a
n/a
2021
2019
2019
n/a – Assumption is not applicable .
Assumed health-care trend rates have a significant effect on the expense and liabilities for other post-retirement benefit plans. The health care trend rate is based on historical rates and expected market conditions. A one-percentage point change in the assumed health-care cost trend rates would have the following effects:
1-Percentage-Point Increase
1-Percentage-Point Decrease
Effect on the health-care component of the accrued other post-retirement benefit obligation
$ 4,456
$ (3,981)
Effect on aggregate service and interest cost components of net periodic post-retirement health-care benefit cost
$ 267
$ (243)
The Company’s discount rate assumption, which is utilized to calculate the present value of the projected benefit payments of our post-retirement benefits, was determined by selecting a hypothetical portfolio of high quality corporate bonds appropriate to match the projected benefit payments of the plans. The selected bond portfolio was derived from a universe of Aa-graded corporate bonds, all of which were noncallable (or callable with make-whole provisions), and have at least $ 50,000 in outstanding value. The discount rate was then developed as the rate that equates the market value of the bonds purchased to the discounted value of the plan’s benefit payments. The Company’s pension expense and liability (benefit obligations) increases as the discount rate is reduced.
The Company’s expected return on plan assets is determined by evaluating the asset class return expectations with its advisors as well as actual, long-term, historical results of our asset returns. The Company’s market related value of plan assets is equal to the fair value of the plan’s assets as of the last day of its fiscal year, and is a determinant for the expected return on plan assets which is a component of post-retirement benefits expense. The Company’s pension expense increases as the expected return on plan assets decreases. For 2016, the Company used a 7.25 % expected return on plan assets assumption which will decrease to 7.00% for 2017. The Company believes its actual long-term asset allocation on average will approximate the targeted allocation. The Company’s investment strategy is to earn a reasonable rate of return while maintaining risk at acceptable levels through the diversification of investments across and within various asset categories. Investment returns are compared to benchmarks that include the S&P 500 Index, the Barclays Capital Intermediate Government/Credit Index, and a combination of the two indices. The Pension Committee meets semi-annually to review plan investments and management monitors investment performance quarterly through a performance report prepared by an external consulting firm.
The Company’s pension plan asset allocation and the target allocation by asset class are as follows:
Percentage of Plan Assets at December 31,
Target Allocation
2016
2015
Domestic equities
25 to 75%
65%
63%
International equities
0 to 10%
6%
6%
Fixed income
25 to 50%
19%
24%
Alternative investments
0 to 5%
2%
3%
Cash and cash equivalents
0 to 20%
8%
4%
Total 100%
100%
100%
The fair value of the Company’s pension plans’ assets at December 31, 2016 by asset class are as follows:
Level 1
Level 2
Level 3
Total
Domestic equities: (1)
Common stocks
$ 152,740
$
-
$
-
$ 152,740
Mutual funds
3,668
-
-
3,668
International equities (2)
13,813
-
-
13,813
Fixed income: (3)
U.S. Treasury and government agency bonds
-
11,170
-
11,170
Corporate and foreign bonds
-
24,385
-
24,385
Mutual funds
9,752
-
9,752
Alternative investments: (4)
Real estate
2,613
-
-
2,613
Commodity funds
1,279
-
-
1,279
Cash and cash equivalents (5)
348
22,592
-
22,940
Total pension assets
$ 184,213
$ 58,147
$
-
$ 242,360
The fair value of the Company’s pension plans’ assets at December 31, 2015 by asset class are as follows:
Level 1
Level 2
Level 3
Total
Domestic equities: (1)
Common stocks
$ 146,970
$
-
$
-
$ 146,970
Mutual funds
3,605
-
-
3,605
International equities (2)
14,180
-
-
14,180
Fixed income: (3)
U.S. Treasury and government agency bonds
-
22,953
-
22,953
Corporate and foreign bonds
-
13,579
-
13,579
Mutual funds
21,523
-
-
21,523
Alternative investments: (4)
Real estate
5,981
-
-
5,981
Commodity funds
1,169
-
-
1,169
Cash and cash equivalents (5)
50
8,595
-
8,645
Total pension assets
$ 193,478
$ 45,127
$
-
$ 238,605
(1)
Investments in common stocks are valued using unadjusted quoted prices obtained from active markets. Investments in equity mutual funds, which invest in stocks, are valued using the net asset value per unit as obtained from quoted market prices from active markets.
(2)
Investments in international equities are valued using unadjusted quoted prices obtained from active markets.
(3)
Investments in U.S. Treasury and government agency bonds and corporate and foreign bonds are valued by a pricing service which utilizes pricing models that incorporate available trade, bid, and other market information to value the fixed income securities. Investments in fixed income mutual funds, which invest in bonds, are valued using the net asset value per unit as obtained from quoted market prices in active markets.
(4)
Alternative investments are comprised of real estate funds, real estate inve stment trusts, and commodity funds, and are valued using unadjusted quoted prices obtained from active markets.
(5)
Cash and cash equivalents are comprised of both uninvested cash and money market funds. The uninvested cash is valued based on its carrying value, and the money market funds are valued utilizing the net asset value per unit based on the fair value of the underlying assets as determined by the fund’s investment managers.
Equity securities include our common stock in the amounts of $20,632 or 8.5% and $19,958 o r 8.4% of t otal pension plans’ assets as of December 31, 2016 and 2015, respectively.
The asset allocation for the Company’s other post-retirement benefit plans and the target allocation by asset class are as follows:
Percentage of Plan Assets at December 31,
Target Allocation
2016
2015
Domestic equities
25 to 75%
52%
54%
International equities
0 to 10%
3%
2%
Fixed income
25 to 50%
25%
26%
Alternative investments
0 to 5%
0%
0%
Cash and cash equivalents
0 to 20%
20%
18%
Total 100%
100%
100%
The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 2016 by asset class are as follows:
Level 1
Level 2
Level 3
Total
Domestic equities: (1)
Common stocks
$ 10,667
$
-
$
-
$
10,667
Mutual funds
13,464
-
-
13,464
International equities (2)
1,242
-
-
1,242
Fixed income: (3)
U.S. Treasury and government agency bonds
-
4,968
-
4,968
Corporate and foreign bonds
-
6,347
-
6,347
Alternative investments (4)
172
-
-
172
Cash and cash equivalents (5)
-
9,225
-
9,225
Total other post-retirement assets
$ 25,545
$ 20,540
$
-
$ 46,085
The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 2015 by asset class are as follows:
Level 1
Level 2
Level 3
Total
Domestic equities: (1)
Common stocks
$ 11,772
$
-
$
-
$ 11,772
Mutual funds
12,030
-
-
12,030
International equities (2)
1,078
-
-
1,078
Fixed income: (3)
U.S. Treasury and government agency bonds
-
4,551
-
4,551
Corporate and foreign bonds
-
4,476
-
4,476
Mutual funds
2,177
-
-
2,177
Cash and cash equivalents (5)
-
7,620
-
7,620
Total other post-retirement assets
$ 27,057
$ 16,647
$
-
$ 43,704
(1)
Investments in common stocks are valued using unadjusted quoted prices obtained from active markets. Investments in equity mutual funds, which invest in stocks, are valued using the net asset value per unit as obtained from quoted market prices from active markets.
(2)
Investments in international equities are valued using unadjusted quoted prices obtained from active markets.
(3)
Investments in U.S. Treasury and government agency bonds and corporate and foreign bonds are valued by a pricing service which utilizes pricing models that incorporate available trade, bid, and other market information to value the fixed income securities. Investments in fixed income mutual funds, which invest in bonds, are valued using the net asset value per unit as obtained from quoted market prices in active markets.
(4)
In vestments in alternative investments are comprised of investments in real estate funds and real estate investment trusts and are valued using unadjusted quoted prices obtained from active markets.
(5)
Cash and cash equivalents is comprised of money market funds, which are valued utilizing the net asset value per unit based on the fair value of the underlying assets as determined by the fund’s investment managers.
Funding requirements for qualified defined benefit pension plans are determined by government regulations and not by accounting pronouncements. In accordance with funding rules and the Company’s funding policy, during 2017 our pension contribution is expected to be $ 15,421 .
The Company has a 401( k) savings plan, which is a defined contribution plan and covers substantially all employees. The Company makes matching contributions that are initially invested in our common stock based on a percentage of an employee’s contribution, subject to specific limitations. Participants may diversify their Company matching account balances into other investments offered under the 401(k) savings plan. The Company’s contributions, which are recorded as comp ensation expense, were $4,988 , $5,001 , and $3,051 , f or the years ended December 31, 2016, 2015, and 2014, respectively. |
