| Pension Plans And Other Post-Retirement 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 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.
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 $14,872 and $8,858 to participants who elected this option during 2018 and 2017.
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 2018 and 2016, the Company recognized settlement losses of $5,931 and $2,895 , respectively, which resulted from lump sum payments from the qualified or 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 these settlement losses as regulatory assets, 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:
2019
$ 19,965
$ 2,326
2020
21,382
2,620
2021
20,331
2,831
2022
21,368
3,043
2023
21,603
3,267
2024-2028
104,822
19,006
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
2018
2017
2018
2017
Change in benefit obligation:
Benefit obligation at January 1,
$ 320,979
$ 308,172
$ 75,960
$ 69,312
Service cost
3,249
3,174
1,049
1,020
Interest cost
11,495
12,434
2,831
2,947
Actuarial (gain)/loss
(23,080)
18,516
(8,970)
4,047
Plan participants' contributions
-
-
127
124
Benefits paid
(30,679)
(21,317)
(1,554)
(1,490)
Plan amendments
-
-
-
-
Benefit obligation at December 31,
281,964
320,979
69,443
75,960
Change in plan assets:
Fair value of plan assets at January 1,
270,353
242,360
47,750
46,085
Actual return on plan assets
(16,852)
33,278
(2,599)
5,188
Employer contributions
16,185
16,032
1,636
500
Benefits paid
(30,679)
(21,317)
(1,365)
(1,323)
Asset transfer
-
-
-
(2,700)
Fair value of plan assets at December 31,
239,007
270,353
45,422
47,750
Funded status of plan:
Net liability recognized at December 31,
$ 42,957
$ 50,626
$ 24,021
$ 28,210
The following table provides the net liability recognized on the consolidated balance sheets at December 31,:
Pension Benefits
Other Post-retirement Benefits
2018
2017
2018
2017
Current liability
$ 267
$ 396
$
-
$
-
Noncurrent liability
42,690
50,230
24,021
28,210
Net liability recognized
$ 42,957
$ 50,626
$ 24,021
$ 28,210
At December 31, 2018 and 2017, 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
2018
2017
Projected benefit obligation
$ 281,964
$ 320,979
Fair value of plan assets
239,007
270,353
Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets
2018
2017
Accumulated benefit obligation
$ 264,876
$ 301,473
Fair value of plan assets
239,007
270,353
The following table provides the components of net periodic benefit costs for the years ended December 31,:
Pension Benefits
Other Post-retirement Benefits
2018
2017
2016
2018
2017
2016
Service cost
$ 3,249
$ 3,174
$ 3,179
$ 1,049
$ 1,020
$ 1,014
Interest cost
11,495
12,434
13,038
2,831
2,947
2,927
Expected return on plan assets
(18,211)
(17,077)
(16,910)
(2,706)
(2,589)
(2,647)
Amortization of prior service cost (credit)
527
579
578
(509)
(509)
(549)
Amortization of actuarial loss
7,291
8,003
7,153
1,182
1,165
926
Settlement loss
5,931
-
2,895
-
-
-
Special termination benefits
-
-
302
-
-
-
Net periodic benefit cost
$ 10,282
$ 7,113
$ 10,235
$ 1,847
$ 2,034
$ 1,671
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, 2018 and 2017. 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
2018
2017
2018
2017
Net actuarial loss
$ 85,510
$ 86,750
$
10,876
$
15,724
Prior service cost (credit)
2,734
3,262
(1,360)
(1,869)
Total recognized in regulatory assets
$ 88,244
$ 90,012
$
9,516
$
13,855
The following table provides the 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 ending December 31, 2018:
Pension Benefits
Other Post-retirement Benefits
Net actuarial loss
$ 7,927
$ 664
Prior service cost (credit)
620
(464)
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
2018
2017
2018
2017
Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31,
Discount rate 4.30%
3.66%
4.34%
3.73%
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
2022
2022
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
2018
2017
2016
2018
2017
2016
Weighted Average Assumptions Used to Determine Net Periodic Benefit Costs for Years Ended December 31,
Discount rate 3.66%
4.13%
4.48%
3.73%
4.25%
4.60%
Expected return on plan assets 6.75%
7.00%
7.25%
4.25 - 6.75%
4.67 -7.00%
4.83 -7.25%
Rate of compensation increase
3.0 - 4.0%
3.0 -4.0%
3.0 -4.0%
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%
6.6%
7.0%
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
2023
2021
2021
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
$ 4,348
$ (3,917)
Effect on aggregate service and interest cost components of net periodic post-retirement health-care benefit cost
$ 255
$ (233)
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 2018, the Company used a 6.75 % expected return on plan assets assumption which will decrease to 6.50% for 2019. 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. Risk is managed through fixed income investments to manage interest rate exposures that impact the valuation of liabilities and through the diversification of investments across and within various asset categories. Investment returns are compared to a total plan benchmark constructed by applying the plan’s asset allocation target weightings to passive index returns representative of the respective asset classes in which the plan invests. The Retirement and Employee Benefits Committee meets quarterly 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
2018
2017
Return seeking assets
50 to 70%
58%
64%
Liability hedging assets
30 to 50%
42%
36%
Total 100%
100%
100%
The fair value of the Company’s pension plans’ assets at December 31, 2018 by asset class are as follows:
Level 1
Level 2
Level 3
Assets measured at NAV (a)
Total
Common stock
$ 12,268
$
-
$
-
$
-
$ 12,268
Return seeking assets:
Global equities
-
-
-
48,040
48,040
Real estate securities
-
-
-
15,766
15,766
Hedge / diversifying strategies
-
-
-
37,591
37,591
Credit
-
-
-
25,772
25,772
Liability hedging assets
-
-
-
97,756
97,756
Cash and cash equivalents
1,814
-
-
-
1,814
Total pension assets
$ 14,082
$
-
$
-
$ 224,925
$ 239,007
(a)
Assets that are measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy.
The fair value of the Company’s pension plans’ assets at December 31, 2017 by asset class are as follows:
Level 1
Level 2
Level 3
Assets measured at NAV (a)
Total
Common stock
$ 26,902
$
-
$
-
$
-
$ 26,902
Return seeking assets:
Global equities
-
-
-
66,281
66,281
Real estate securities
-
-
-
14,110
14,110
Hedge / diversifying strategies
-
-
-
38,143
38,143
Credit
-
-
-
28,395
28,395
Liability hedging assets
-
-
-
91,872
91,872
Cash and cash equivalents
4,650
-
-
4,650
Total pension assets
$ 31,552
$
-
$
-
$ 238,801
$ 270,353
Equity securities include our common stock in the amount s of $12,393 or 5.1% and 16,471 or 6.1% of total pension plans’ assets as of December 31, 2018 and 2017, 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
2018
2017
Return seeking assets
50 to 70%
60%
62%
Liability hedging assets
30 to 50%
40%
38%
Total 100%
100%
100%
The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 2018 by asset class are as follows:
Level 1
Level 2
Level 3
Assets measured at NAV (a)
Total
Return seeking assets:
Global equities
$ 8,411
$
-
$
-
$ 13,882
$ 22,293
Real estate securities
1,967
-
-
3,065
5,032
Liability hedging assets
5,075
-
-
8,806
13,881
Cash and cash equivalents
4,216
-
-
-
4,216
Total other post-retirement assets
$ 19,669
$
-
$
-
$ 25,753
$ 45,422
(a)
Assets that are measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy.
The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 2017 by asset class are as follows:
Level 1
Level 2
Level 3
Assets measured at NAV (a)
Total
Return seeking assets:
Global equities
$ 9,477
$
-
$
-
$ 15,158
$ 24,635
Real estate securities
1,731
-
-
3,211
4,942
Liability hedging assets
5,265
-
-
8,961
14,226
Cash and cash equivalents
3,947
-
-
-
3,947
Total other post-retirement assets
$ 20,420
$
-
$
-
$ 27,330
$ 47,750
Valuation Techniques Used to Determine Fair Value
·
Common Stocks - Investments in common stocks are valued using unadjusted quoted prices obtained from active markets.
·
Return Seeking Assets – Investments in return seeking assets consists of the following:
o
Global equities, which consist of common and preferred shares of stock, traded on U.S. or foreign exchanges that are valued using unadjusted quoted prices obtained from active markets, or commingled fund vehicles, consisting of such securities valued using NAV, which are not classified within the fair value hierarchy.
o
Real estate securities, which consist of securities, traded on U.S. or foreign exchanges that are valued using unadjusted quoted prices obtained from active markets, or for real estate commingle fund vehicles that are not publicly quoted, the fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy.
o
Hedge / diversifying strategies, which consist of a multi-manager fund vehicle having underlying exposures that collectively seek to provide low correlation of return to equity and fixed income markets, thereby offering diversification. As a multi-manager fund investment, NAV is derived from underlying manager NAVs, which are derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy.
o
Credit, which consist of certain opportunistic, return-oriented credits which primarily include below investment grade bonds (i.e. high yield bonds), bank loans, and securitized debt. Credits are valued using the NAV per fund share, derived from either quoted prices in active markets of the underlying securities, or less active markets, or quotes of similar assets, and are not classified within the fair value hierarchy.
·
Liability Hedging Assets – Investments in liability hedging assets consist of funds investing in high-quality fixed income (i.e. U.S. Treasury securities and government bonds), and for funds for which market quotations are readily available, are valued at the last reported closing price on the primary market or exchange on which they are traded. Funds for which market quotations are not readily available, are valued using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy.
·
Cash and Cash Equivalents – Investments in 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 obtained from published market prices.
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 2019 our pension contribution is expected to be $ 8,222 .
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 based on a percentage of an employee’s contribution, subject to specific limitations, as well as, non-discretionary contributions based on eligible hourly wages for certain union employees, discretionary year-end contributions based on an employee’s eligible compensation, and employer profit sharing contributions. 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 compensation expense, were $6,096 , $5,374 , and $4,988 , for the years ended December 31, 2018, 2017, and 2016, respectively. |
