Share-based Compensation and Employee Benefits

Share-based Compensation

Class P Shares

Kinder Morgan, Inc. Amended and Restated Stock Compensation Plan for Non-Employee Directors

We have a Kinder Morgan, Inc. Amended and Restated Stock Compensation Plan for Non-Employee Directors, in which our eligible non-employee directors participate. The plan recognizes that the compensation paid to each eligible non-employee director is fixed by our board, generally annually, and that the compensation is payable in cash. Pursuant to the plan, in lieu of receiving some or all of the cash compensation, each eligible non-employee director may elect to receive shares of Class P common stock. Each election will be generally at or around the first board meeting in January of each calendar year and will be effective for the entire calendar year. An eligible director may make a new election each calendar year. The total number of shares of Class P common stock authorized under the plan is 250,000. During 2018, 2017 and 2016, we made restricted Class P common stock grants to our non-employee directors of 25,800, 17,740 and 31,880, respectively. These grants were valued at time of issuance at $500,000, $400,000 and $400,000, respectively. All of the restricted stock awards made to non-employee directors vest during a six-month period.

Kinder Morgan, Inc. 2015 Amended and Restated Stock Incentive Plan

The Kinder Morgan, Inc. 2015 Amended and Restated Stock Incentive Plan is an equity awards plan available to eligible employees. The total number of shares of Class P common stock authorized under the plan is 33,000,000. The following table sets forth a summary of activity and related balances of our restricted stock awards excluding that issued to non-employee directors (in millions, except share and per share amounts):



	Year Ended				Year Ended				Year Ended
	December 31, 2018				December 31, 2017				December 31, 2016
	Shares		Weighted Average Grant Date Fair Value per Share		Shares		Weighted Average Grant Date Fair Value per Share		Shares		Weighted Average Grant Date Fair Value per Share
Outstanding at beginning of period	10,518,344		$	28.21	9,038,137		$	32.72	7,645,105		$	37.91
Granted	5,389,476		17.73		3,221,691		19.52		2,816,599		21.36
Vested	(2,371,193	)	36.34		(1,501,939	)	36.67		(1,226,652	)	38.53
Forfeited	(382,022	)	23.26		(239,545	)	28.34		(196,915	)	35.74
Outstanding at end of period	13,154,605		22.59		10,518,344		28.21		9,038,137		32.72

The intrinsic value of restricted stock awards vested during the years ended December 31, 2018, 2017 and 2016 was $42 million, $30 million and $25 million, respectively. Restricted stock awards made to employees have vesting periods ranging from 1 year with variable vesting dates to 10 years. Following is a summary of the future vesting of our outstanding restricted stock awards:



Year		Vesting of Restricted Shares
2019		4,048,963
2020		3,537,544
2021		4,814,403
2022		152,104
2023		121,093
Thereafter		480,498
Total Outstanding		13,154,605

The related compensation costs less estimated forfeitures is generally recognized ratably over the vesting period of the restricted stock awards. Upon vesting, the grants will be paid in our Class P common shares.

During 2018, 2017 and 2016, we recorded $63 million, $65 million and $66 million, respectively, in expense related to restricted stock awards and capitalized approximately $13 million, $9 million and $9 million, respectively. At December 31, 2018 and 2017, unrecognized restricted stock awards compensation costs, less estimated forfeitures, was approximately $127 million with a weighted average remaining amortization period of 2.32 years.

KML Restricted Shares

KML adopted the 2017 Restricted Share Unit Plan for Employees, an equity awards plan, for its eligible employees, and the 2017 Restricted Share Unit Plan for Non-Employee Directors, in which its eligible non-employee directors participate. During the year ended December 31, 2018 and 2017, we recognized $6 million and $1 million, respectively, of expense and capitalized $2 million and $1 million, respectively, related to these compensation programs. At December 31, 2018, unrecognized compensation costs, less estimated forfeitures associated with KML’s restricted share unit awards, was approximately $3 million, with a weighted average remaining amortization period of 2.1 years.

Pension and Other Postretirement Benefit Plans

Savings Plan

We maintain a defined contribution plan covering eligible U.S. employees. We contribute 5% of eligible compensation for most of the plan participants. Certain collectively bargained participants receive Company contributions in accordance with collective bargaining agreements. The total cost for our savings plan was approximately $48 million, $47 million, and $47 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Pension Plans

Our pension plans are defined benefit plans that cover substantially all of our U.S. employees and provide benefits under a cash balance formula. A participant in the cash balance formula accrues benefits through contribution credits based on a combination of age and years of service, multiplied by eligible compensation. Interest is also credited to the participant’s plan account. A participant becomes fully vested in the plan after three years and may take a lump sum distribution upon termination of employment or retirement. Certain collectively bargained and grandfathered employees accrue benefits through career pay or final pay formulas.

Other Postretirement Benefit Plans

We and certain of our subsidiaries provide other postretirement benefits (OPEB), including medical benefits for closed groups of retired employees and certain grandfathered employees and their dependents, and limited postretirement life insurance benefits for retired employees. These plans provide a fixed subsidy to post-age 65 Medicare eligible participants to purchase coverage through a retiree Medicare exchange. Medical benefits under these OPEB plans may be subject to deductibles, co-payment provisions, dollar caps and other limitations on the amount of employer costs, and we reserve the right to change these benefits.

Additionally, our subsidiary SFPP has incurred certain liabilities for postretirement benefits to certain current and former employees, their covered dependents, and their beneficiaries. However, the net periodic benefit costs, contributions and liability amounts associated with the SFPP postretirement benefit plan are not material to our consolidated income statements or balance sheets.

Plans Associated with Foreign Operations

Two of our former subsidiaries, Kinder Morgan Canada Inc. and Trans Mountain Pipeline ULC (as general partner of Trans Mountain Pipeline L.P.), were sponsors of pension and OPEB plans for eligible Canadian and Trans Mountain pipeline employees. These subsidiaries, along with the plan assets of the Canadian pension and OPEB plans, were sold on August 31, 2018 (see Note 3). Prior to 2018, we included the net periodic benefit costs, contributions and liability amounts associated with our Canadian pension plans within our consolidated financial statements. In conjunction with the sale, Kinder Morgan Canada Services was formed and became the Canadian employer of the staff that operates our remaining Canadian assets. Kinder Morgan Canada Services subsequently established a defined contribution pension plan and an OPEB plan for eligible Canadian employees which are not material to our consolidated income statements and balance sheets, and therefore are excluded from the following disclosures.

Benefit Obligation, Plan Assets and Funded Status. The following table provides information about our pension and OPEB plans as of and for each of the years ended December 31, 2018 and 2017 (in millions):



	Pension Benefits						OPEB
	2018			2017			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of period	$	2,982		$	2,884		$	425		$	473
Service cost	52			40			1			1
Interest cost	84			88			12			13
Actuarial (gain) loss	(172		)	155			(53		)	(16		)
Benefits paid	(175		)	(180		)	(33		)	(38		)
Participant contributions	—			3			1			2
Medicare Part D subsidy receipts	—			—			1			1
Exchange rate changes	—			13			—			1
Settlements	—			(21		)	—			—
Other(a)	(205		)	—			(15		)	(12		)
Benefit obligation at end of period	2,566			2,982			339			425



Change in plan assets:
Fair value of plan assets at beginning of period	2,296			2,160			335			332
Actual return on plan assets	(128		)	292			(5		)	29
Employer contributions	30			32			7			9
Participant contributions	—			3			1			2
Medicare Part D subsidy receipts	—			—			1			1
Benefits paid	(175		)	(180		)	(33		)	(38		)
Exchange rate changes	—			10			—			—
Settlements	—			(21		)	—			—
Other(a)	(159		)	—			—			—
Fair value of plan assets at end of period	1,864			2,296			306			335
Funded status - net liability at December 31,	$	(702	)	$	(686	)	$	(33	)	$	(90	)

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(a)	2018 amounts represent December 31, 2017 balances associated with Canadian pension and OPEB plans that were included in the TMPL Sale. 2017 amounts represent December 31, 2016 balances associated with our Plantation Pipeline OPEB plan that are no longer included in these disclosures.

Components of Funded Status. The following table details the amounts recognized in our balance sheets at December 31, 2018 and 2017 related to our pension and OPEB plans (in millions):



	Pension Benefits						OPEB
	2018			2017			2018			2017
Non-current benefit asset(a)	$	—		$	—		$	190		$	198
Current benefit liability	—			—			(13		)	(15		)
Non-current benefit liability	(702		)	(686		)	(210		)	(273		)
Funded status - net liability at December 31,	$	(702	)	$	(686	)	$	(33	)	$	(90	)

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(a)	2018 and 2017 OPEB amounts include $32 million and $33 million, respectively, of non-current benefit assets related to a plan we sponsor which is associated with employee services provided to an unconsolidated joint venture, and for which we have recorded an offsetting related party deferred credit.

Components of Accumulated Other Comprehensive (Loss) Income. The following table details the amounts of pre-tax accumulated other comprehensive (loss) income at December 31, 2018 and 2017 related to our pension and OPEB plans which are included on our accompanying consolidated balance sheets, including the portion attributable to our noncontrolling interests, (in millions):



	Pension Benefits						OPEB
	2018			2017			2018		2017
Unrecognized net actuarial (loss) gain	$	(653	)	$	(635	)	$	117	$	88
Unrecognized prior service (cost) credit	(3		)	(4		)	14		17
Accumulated other comprehensive (loss) income	$	(656	)	$	(639	)	$	131	$	105

We anticipate that approximately $40 million of pre-tax accumulated other comprehensive loss, inclusive of amounts reported as noncontrolling interests, will be recognized as part of our net periodic benefit cost in 2019, including approximately $42 million of unrecognized net actuarial loss and approximately $2 million of unrecognized prior service credit.

Our accumulated benefit obligation for our pension plans was $2,535 million and $2,840 million at December 31, 2018 and 2017, respectively.

Our accumulated postretirement benefit obligation for our OPEB plans, whose accumulated postretirement benefit obligations exceeded the fair value of plan assets, was $293 million and $373 million at December 31, 2018 and 2017, respectively. The fair value of these plans’ assets was approximately $70 million and $84 million at December 31, 2018 and 2017, respectively.

Plan Assets. The investment policies and strategies are established by the Fiduciary Committee for the assets of each of the pension and OPEB plans, which are responsible for investment decisions and management oversight of the plans. The stated philosophy of the Fiduciary Committee is to manage these assets in a manner consistent with the purpose for which the plans were established and the time frame over which the plans’ obligations need to be met. The objectives of the investment management program are to (1) meet or exceed plan actuarial earnings assumptions over the long term and (2) provide a reasonable return on assets within established risk tolerance guidelines and to maintain the liquidity needs of the plans with the goal of paying benefit and expense obligations when due. In seeking to meet these objectives, the Fiduciary Committee recognizes that prudent investing requires taking reasonable risks in order to raise the likelihood of achieving the targeted investment returns. In order to reduce portfolio risk and volatility, the Fiduciary Committee has adopted a strategy of using multiple asset classes.

As of December 31, 2018, the allowable range for asset allocations in effect for our pension plan were 34% to 59% equity, 37% to 57% fixed income, 0% to 5% cash, 0% to 2% alternative investments and 0% to 10% company securities (KMI Class P common stock and/or debt securities). As of December 31, 2018, the allowable range for asset allocations in effect for our OPEB plans were 42% to 67% equity, 25% to 51% fixed income and 0% to 20% cash.

Below are the details of our pension and OPEB plan assets by class and a description of the valuation methodologies used for assets measured at fair value.


•	Level 1 assets’ fair values are based on quoted market prices for the instruments in actively traded markets. Included in this level are cash, equities, exchange traded mutual funds and MLPs. These investments are valued at the closing price reported on the active market on which the individual securities are traded.

•

Level 2 assets’ fair values are primarily based on pricing data representative of quoted prices for similar assets in active markets (or identical assets in less active markets). Included in this level are short-term investment funds, fixed income securities and derivatives. Short-term investment funds are valued at amortized cost, which approximates fair value. The fixed income securities’ fair values are primarily based on an evaluated price which is based on a compilation of primarily observable market information or a broker quote in a non-active market. Derivatives are exchange-traded through clearinghouses and are valued based on these prices.


•	Level 3 assets’ fair values are calculated using valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable, or are similar to Level 2 assets. Included in this level are guaranteed insurance contracts and immediate participation guarantee contracts. These contracts are valued at contract value, which approximates fair value.

•

Plan assets with fair values that are based on the net asset value per share, or its equivalent (NAV), as reported by the issuers are determined based on the fair value of the underlying securities as of the valuation date and include common/collective trust funds, private investment funds, limited partnerships, and fixed income trusts. The plan assets measured at NAV are not categorized within the fair value hierarchy described above, but are separately identified in the following tables.

Listed below are the fair values of our pension and OPEB plans’ assets that are recorded at fair value by class and categorized by fair value measurement used at December 31, 2018 and 2017 (in millions):



	Pension Assets
	2018								2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Measured within fair value hierarchy
Cash	$	—	$	—	$	—	$	—	$	6	$	—	$	—	$	6
Short-term investment funds	—		7		—		7		—		65		—		65
Mutual funds(a)	81		—		—		81		245		—		—		245
Equities(b)	227		—		—		227		278		—		—		278
Fixed income securities	—		422		—		422		—		416		—		416
Derivatives	—		6		—		6		—		5		—		5
Subtotal	$	308	$	435	$	—	$	743	$	529	$	486	$	—	$	1,015
Measured at NAV(c)
Common/collective trusts(d)							857								895
Private investment funds(e)							215								337
Private limited partnerships(f)							49								49
Subtotal							1,121								1,281
Total plan assets fair value							$	1,864							$	2,296

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(a)	Includes mutual funds which are invested in equity.


(b)	Plan assets include $94 million and $110 million of KMI Class P common stock for 2018 and 2017, respectively.


(c)	Plan assets for which fair value was measured using NAV as a practical expedient.


(d)	Common/collective trust funds were invested in approximately 37% fixed income and 63% equity in 2018 and 36% fixed income and 64% equity in 2017.


(e)	Private investment funds were invested in approximately 71% fixed income and 29% equity in 2018 and 52% fixed income and 48% equity in 2017.


(f)	Includes assets invested in real estate, venture and buyout funds.



	OPEB Assets
	2018								2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Measured within fair value hierarchy
Short-term investment funds	$	—	$	4	$	—	$	4	$	—	$	7	$	—	$	7
Equities(a)	—		—		—		—		16		—		—		16
MLPs	—		—		—		—		50		—		—		50
Guaranteed insurance contracts	—		—		51		51		—		—		49		49
Mutual funds	1		—		—		1		1		—		—		1
Subtotal	$	1	$	4	$	51	$	56	$	67	$	7	$	49	$	123
Measured at NAV(b)
Common/collective trusts(c)							250								68
Fixed income trusts							—								66
Limited partnerships(d)							—								78
Subtotal							250								212
Total plan assets fair value							$	306							$	335

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(a)	Plan assets include $2 million of KMI Class P common stock for 2017.


(b)	Plan assets for which fair value was measured using NAV as a practical expedient.


(c)	Common/collective trust funds were invested in approximately 60% equity and 40% fixed income securities for 2018 and 71% equity and 29% fixed income securities for 2017.


(d)	Limited partnerships were invested in global equity securities.

The following tables present the changes in our pension and OPEB plans’ assets included in Level 3 for the years ended December 31, 2018 and 2017 (in millions):



	Pension Assets
	Balance at Beginning of Period		Transfers In (Out)		Realized and Unrealized Gains (Losses), net		Purchases (Sales), net			Balance at End of Period
2017
Insurance contracts	$	16	$	—	$	—	$	(16	)	$	—



	OPEB Assets
	Balance at Beginning of Period		Transfers In (Out)		Realized and Unrealized Gains (Losses), net		Purchases (Sales), net			Balance at End of Period
2018
Insurance contracts	$	49	$	—	$	4	$	(2	)	$	51

2017
Insurance contracts	$	47	$	—	$	5	$	(3	)	$	49

Changes in the underlying value of Level 3 assets due to the effect of changes of fair value were immaterial for the years ended December 31, 2018 and 2017.

Expected Payment of Future Benefits and Employer Contributions. As of December 31, 2018, we expect to make the following benefit payments under our plans (in millions):



Fiscal year	Pension Benefits		OPEB(a)
2019	$	234	$	33
2020	233		32
2021	225		32
2022	223		31
2023	214		29
2024 - 2028	969		127

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(a)	Includes a reduction of approximately $2 million in each of the years 2019 - 2023 and approximately $13 million in aggregate for 2024 - 2028 for an expected subsidy related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

In 2019, we expect to contribute approximately $60 million to our pension plans and $7 million, net of anticipated subsidies, to our OPEB plans.

Actuarial Assumptions and Sensitivity Analysis. Benefit obligations and net benefit cost are based on actuarial estimates and assumptions. The following table details the weighted-average actuarial assumptions used in determining our benefit obligation and net benefit costs of our pension and OPEB plans for 2018, 2017 and 2016:



	Pension Benefits						OPEB
	2018		2017		2016		2018		2017		2016
Assumptions related to benefit obligations:
Discount rate	4.26	%	3.56	%	3.83	%	4.16	%	3.48	%	3.69	%
Rate of compensation increase	3.50	%	3.53	%	3.52	%	n/a		n/a		n/a
Assumptions related to benefit costs:
Discount rate for benefit obligations	3.56	%	3.83	%	4.05	%	3.48	%	3.69	%	3.91	%
Discount rate for interest on benefit obligations	3.13	%	3.09	%	3.24	%	3.08	%	3.05	%	3.18	%
Discount rate for service cost	3.56	%	3.88	%	4.15	%	3.82	%	4.15	%	4.36	%
Discount rate for interest on service cost	3.14	%	3.24	%	3.50	%	3.76	%	3.95	%	4.17	%
Expected return on plan assets(a)	7.25	%	7.07	%	7.31	%	7.08	%	6.84	%	7.07	%
Rate of compensation increase	3.50	%	3.52	%	3.51	%	n/a		n/a		n/a

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(a)	The expected return on plan assets listed in the table above is a pre-tax rate of return based on our targeted portfolio of investments. For the OPEB assets subject to unrelated business income taxes (UBIT), we utilize an after-tax expected return on plan assets to determine our benefit costs, which is based on a UBIT rate of 21% for 2018, 2017 and 2016.

We utilize a full yield curve approach in the estimation of the service and interest cost components of net periodic benefit cost (credit) for our retirement benefit plans by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows. The expected long-term rates of return on plan assets were determined by combining a review of the historical returns realized within the portfolio, the investment strategy included in the plans’ investment policy, and capital market projections for the asset classes in which the portfolio is invested and the target weightings of each asset class.

Actuarial estimates for our OPEB plans assumed a weighted-average annual rate of increase in the per capita cost of covered health care benefits of 7.26%, gradually decreasing to 4.54% by the year 2038. Assumed health care cost trends have a significant effect on the amounts reported for OPEB plans. A one-percentage point change in assumed health care cost trends would have the following effects as of December 31, 2018 and 2017 (in millions):



	2018			2017
One-percentage point increase:
Aggregate of service cost and interest cost	$	1		$	1
Accumulated postretirement benefit obligation	16			22
One-percentage point decrease:
Aggregate of service cost and interest cost	$	(1	)	$	(1	)
Accumulated postretirement benefit obligation	(14		)	(19		)

Components of Net Benefit Cost and Other Amounts Recognized in Other Comprehensive Income. For each of the years ended December 31, the components of net benefit cost and other amounts recognized in pre-tax other comprehensive income related to our pension and OPEB plans are as follows (in millions):



	Pension Benefits									OPEB
	2018			2017			2016			2018			2017			2016
Components of net benefit cost:
Service cost	$	52		$	40		$	36		$	1		$	1		$	1
Interest cost	84			88			89			12			13			16
Expected return on assets	(149		)	(147		)	(151		)	(20		)	(19		)	(19		)
Amortization of prior service cost (credit)	—			1			1			(4		)	(3		)	(3		)
Amortization of net actuarial loss (gain)	40			52			35			(6		)	(6		)	—
Curtailment and settlement loss	—			5			—			—			—			—
Net benefit (credit) cost(a)	27			39			10			(17		)	(14		)	(5		)

Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
Net loss (gain) arising during period	105			17			116			(32		)	(25		)	(48		)
Prior service cost (credit) arising during period	—			—			—			—			—			—
Amortization or settlement recognition of net actuarial (loss) gain	(87		)	(64		)	(34		)	3			6			—
Amortization of prior service (cost) credit	(1		)	(1		)	—			3			1			1
Exchange rate changes	—			—			1			—			—			—
Total recognized in total other comprehensive (income) loss	17			(48		)	83			(26		)	(18		)	(47		)
Total recognized in net benefit cost (credit) and other comprehensive (income) loss	$	44		$	(9	)	$	93		$	(43	)	$	(32	)	$	(52	)

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(a)

2018 and 2017 OPEB amounts each include $4 million of net benefit credits related to a plan that we sponsor that is associated with employee services provided to an unconsolidated joint venture. We charge or refund these costs or credits associated with this plan to the joint venture as an offset to our net benefit cost or credit and receive our proportionate share of these costs or credits through our share of the equity investee’s earnings.

Multiemployer Plans

We participate in several multi-employer pension plans for the benefit of employees who are union members. We do not administer these plans and contribute to them in accordance with the provisions of negotiated labor contracts. Other benefits include a self-insured health and welfare insurance plan and an employee health plan where employees may contribute for their dependents’ health care costs. Amounts charged to expense for these plans were approximately $8 million for each of the years ended December 31, 2018, 2017 and 2016. We consider the overall multi-employer pension plan liability exposure to be minimal in relation to the value of its total consolidated assets and net income.