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PENSION AND OTHER POST-EMPLOYMENT BENEFITS | 12 Months Ended
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Dec. 31, 2022
Retirement Benefits [Abstract] |
PENSION AND OTHER POST-EMPLOYMENT BENEFITS | PENSION AND OTHER POST-EMPLOYMENT BENEFITS FirstEnergy provides noncontributory qualified defined benefit pension plans that cover substantially all of its employees and non-qualified pension plans that cover certain employees. The plans provide defined benefits based on years of service and compensation levels. Under the cash-balance portion of the pension plan (for employees hired on or after January 1, 2014), FirstEnergy makes contributions to eligible employee retirement accounts based on a pay credit and an interest credit. In addition, FirstEnergy provides a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee contributions, deductibles and co-payments, are also available upon retirement to certain employees, their dependents and, under certain circumstances, their survivors. FirstEnergy recognizes the expected cost of providing pension and OPEB to employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible to receive those benefits. FirstEnergy also has obligations to former or inactive employees after employment, but before retirement, for disability-related benefits. FirstEnergy’s pension and OPEB funding policy is based on actuarial computations using the projected unit credit method. On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which, among other things, extended shortfall amortization periods and modification of the interest rate stabilization rules for single-employer plans thereby impacting funding requirements. As a result, FirstEnergy does not currently expect to have a required contribution to the pension plan until 2025, which, based on various assumptions, including annual expected rate of return on assets of 8.0% in 2023, is expected to be approximately $250 million. However, FirstEnergy may elect to contribute to the pension plan voluntarily. Pension and OPEB costs are affected by employee demographics (including age, compensation levels and employment periods), the level of contributions made to the plans and earnings on plan assets. Pension and OPEB costs may also be affected by changes in key assumptions, including anticipated rates of return on plan assets, the discount rates and health care trend rates used in determining the projected benefit obligations for pension and OPEB costs. FirstEnergy uses a December 31 measurement date for its pension and OPEB plans. The fair value of the plan assets represents the actual market value as of the measurement date.
Actuarial Assumptions |  | Pension |  | OPEB
| 2022 |  | 2021 |  | 2020 (2) |  | 2022 |  | 2021 |  | 2020 (2)
Assumptions Related to Benefit Obligations: |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  | 5.23 | % |  | 3.02 | % |  | 2.67 | % |  | 5.16 | % |  | 2.84 | % |  | 2.45 | %
Rate of compensation increase |  | 4.30 | % |  | 4.10 | % |  | 4.10 | % |  | N/A |  | N/A |  | N/A
Cash balance weighted average interest crediting rate |  | 4.04 | % |  | 2.57 | % |  | 2.57 | % |  | N/A |  | N/A |  | N/A
Assumptions Related to Benefit Costs:(1) |  |  |  |  |  |  |  |  |  |  |  |
Effective rate for interest on benefit obligations |  | 2.44 | % |  | 1.94 | % |  | 2.89%/2.48% |  | 2.18 | % |  | 1.66 | % |  | 2.71%/2.30%
Effective rate for service costs |  | 3.28 | % |  | 3.10 | % |  | 3.60%/3.24% |  | 3.41 | % |  | 3.03 | % |  | 3.63%/3.29%
Effective rate for interest on service costs |  | 2.96 | % |  | 2.58 | % |  | 3.27%/2.90% |  | 3.24 | % |  | 2.83 | % |  | 3.43%/3.06%
Expected return on plan assets |  | 7.50 | % |  | 7.50 | % |  | 7.50 | % |  | 7.50 | % |  | 7.50 | % |  | 7.50 | %
Rate of compensation increase |  | 4.10 | % |  | 4.10 | % |  | 4.10 | % |  | N/A |  | N/A |  | N/A
Assumed Health Care Cost Trend Rates: |  |  |  |  |  |  |  |  |  |  |  |
Health care cost trend rate assumed (pre/post-Medicare) |  | N/A |  | N/A |  | N/A |  | 6.00%- 5.50% |  | 5.75%- 5.25% |  | 6.00%- 5.50%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate) |  | N/A |  | N/A |  | N/A |  | 4.50 | % |  | 4.50 | % |  | 4.50 | %
Year that the rate reaches the ultimate trend rate |  | N/A |  | N/A |  | N/A |  | 2029 |  | 2028 |  | 2028
(1) Excludes impact of pension and OPEB mark-to-market adjustment. (2) As a result of the interim plan remeasurement during 2020 there were different rates in effect from January 1, 2020, through February 26, 2020 compared to February 27, 2020 through December 31, 2020. Discount Rate - In selecting an assumed discount rate, FirstEnergy considers currently available rates of return on high-quality fixed income investments expected to be available during the period to maturity of the pension and OPEB obligations. The assumed rates of return on plan assets consider historical market returns and economic forecasts for the types of investments held by FirstEnergy’s pension trusts. The long-term rate of return is developed considering the portfolio’s asset allocation strategy. FirstEnergy utilizes a spot rate approach in the estimation of the components of benefit cost by applying specific spot rates along the full yield curve to the relevant projected cash flows. Expected Return on Plan Assets - FirstEnergy’s assumed rate of return on pension plan assets considers historical market returns and economic forecasts for the types of investments held by the pension trusts. In 2022, FirstEnergy’s qualified pension and OPEB plan assets experienced losses of $1,830 million or (19.1)%, compared to gains of $689 million, or 7.9% in 2021, and gains of $1,225 million, or 14.7% in 2020 and assumed a 7.50% rate of return on plan assets in 2022, 2021 and 2020, which generated $696 million, $688 million and $651 million of expected returns on plan assets, respectively. The expected return on pension and OPEB assets is based on input from investment consultants, including the trusts’ asset allocation targets, the historical performance of risk-based and fixed income securities and other factors. The gains or losses generated as a result of the difference between expected and actual returns on plan assets is recognized as a pension and OPEB mark-to-market adjustment in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for remeasurement. Mortality Rates - During 2022, the Society of Actuaries elected not to release a new mortality improvement scale due to data available being severely impacted by COVID-19. It was determined that the Pri-2012 mortality table with projection scale MP-2021, actuarially adjusted to reflect increased mortality due to the ongoing impact of COVID-19 was most appropriate and such was utilized to determine the obligation as of December 31, 2022, for the FirstEnergy pension and OPEB plans. This adjustment acknowledges COVID-19 cannot be eradicated and assumes reductions in other causes will not offset future COVID-19 deaths enough to produce a normal level of improvements. The impact of using the Pri-2012 mortality table with projection scale MP-2021 (adjusted by FirstEnergy's actuary for COVID-19 impacts) resulted in a decrease to the projected benefit obligation of approximately $23 million for the pension plans and was included in the 2022 pension and OPEB mark-to-market adjustment. Net Periodic Benefit Costs (Credits) - In addition to service costs, interest on obligations, expected return on plan assets, and prior service costs, FirstEnergy recognizes in net periodic benefit costs a pension and OPEB mark-to-market adjustment for the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement. Service costs, net of capitalization, are reported within Other operating expenses on FirstEnergy’s Consolidated Statements of Income. Non-service costs, other than the pension and OPEB mark-to-market adjustment, which is separately shown, are reported within Miscellaneous income, net, within Other Income (Expense) on FirstEnergy’s Consolidated Statements of Income.
Components of Net Periodic Benefit Costs (Credits) for the Years Ended December 31, |  | Pension |  | OPEB
| 2022 |  | 2021 |  | 2020 |  | 2022 |  | 2021 |  | 2020
|  | (In millions)
Service cost (1) |  | $ | 184 |  |  | $ | 195 |  |  | $ | 194 |  |  | $ | 3 |  |  | $ | 4 |  |  | $ | 4 |
Interest cost |  | 273 |  |  | 226 |  |  | 287 |  |  | 11 |  |  | 11 |  |  | 15 |
Expected return on plan assets |  | (657) |  |  | (652) |  |  | (618) |  |  | (39) |  |  | (36) |  |  | (33) |
Amortization of prior service costs (credits) (2) |  | 2 |  |  | 3 |  |  | 12 |  |  | (11) |  |  | (17) |  |  | (46) |
One-time termination benefits (3) |  | — |  |  | — |  |  | 8 |  |  | — |  |  | — |  |  | — |
Pension & OPEB mark-to-market |  | (98) |  |  | (253) |  |  | 463 |  |  | 26 |  |  | (129) |  |  | 14 |
Net periodic benefit costs (credits) |  | $ | (296) |  |  | $ | (481) |  |  | $ | 346 |  |  | $ | (10) |  |  | $ | (167) |  |  | $ | (46) |
(1) Includes amounts capitalized. (2) 2020 includes the acceleration of approximately $18 million in net credits as a result of the FES Debtors’ emergence during the first quarter of 2020 and is a component of discontinued operations in FirstEnergy’s Consolidated Statements of Income. (3) Costs represent additional benefits provided to FES and FENOC employees under the approved settlement agreement and are a component of discontinued operations. Approximately $15 million, $(31) million and $40 million of the annual pension and OPEB mark-to-market charges (credits) were allocated to the Regulated Transmission companies under forward-looking formula rates, and expected to be refunded or recovered through formula transmission rates, respectively. The 2022 pension and OPEB mark-to-market adjustment primarily reflects a 221 bps increase in the discount rate used to measure pension benefit obligations partially offset by lower than expected asset returns.
|  | Pension |  | OPEB
Obligations/Funded Status - Qualified and Non-Qualified Plans |  | 2022 |  | 2021 |  | 2022 |  | 2021
|  | (In millions)
Change in benefit obligation: |  |  |  |  |  |  |  |
Benefit obligation as of January 1 |  | $ | 11,479 |  |  | $ | 11,935 |  | $ | 549 |  |  | $ | 676
Service cost |  | 184 |  |  | 195 |  | 3 |  |  | 4
Interest cost |  | 273 |  |  | 226 |  | 11 |  |  | 11
Plan participants’ contributions |  | — |  |  | — |  | 3 |  |  | 4
Medicare retiree drug subsidy |  | — |  |  | — |  | 1 |  |  | 1
Actuarial loss (gain) |  | (2,515) |  |  | (280) |  | (83) |  |  | (101)
Benefits paid |  | (593) |  |  | (597) |  | (45) |  |  | (46)
Benefit obligation as of December 31 |  | $ | 8,828 |  |  | $ | 11,479 |  | $ | 439 |  |  | $ | 549
Change in fair value of plan assets: |  |  |  |  |  |  |  |
Fair value of plan assets as of January 1 |  | $ | 9,020 |  |  | $ | 8,968 |  | $ | 548 |  |  | $ | 502
Actual return on plan assets |  | (1,760) |  |  | 625 |  | (70) |  |  | 64
Company contributions |  | 26 |  |  | 24 |  | 24 |  |  | 24
Plan participants’ contributions |  | — |  |  | — |  | 3 |  |  | 4
Benefits paid |  | (593) |  |  | (597) |  | (45) |  |  | (46)
Fair value of plan assets as of December 31 |  | $ | 6,693 |  |  | $ | 9,020 |  | $ | 460 |  |  | $ | 548
Funded Status: |  |  |  |  |  |  |  |
Qualified plan |  | $ | (1,734) |  |  | $ | (1,974) |  | $ | — |  |  | $ | —
Non-qualified plans |  | (401) |  |  | (485) |  | — |  |  | —
Funded Status (Net liability as of December 31) |  | $ | (2,135) |  |  | $ | (2,459) |  | $ | 21 |  |  | $ | (1)
Accumulated benefit obligation |  | $ | 8,500 |  |  | $ | 10,927 |  |  | $ | — |  |  | $ | — |
Amounts Recognized in AOCI: |  |  |  |  |  |  |  |
Prior service cost (credit) |  | $ | 6 |  |  | $ | 9 |  |  | $ | (10) |  |  | $ | (21) |
The following tables set forth pension financial assets that are accounted for at fair value by level within the fair value hierarchy. See Note 9, "Fair Value Measurements," for a description of each level of the fair value hierarchy. There were no significant transfers between levels during 2022 and 2021.
|  | December 31, 2022 |  | Asset Allocation
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
|  | (In millions) |  |
Cash and short-term securities |  | $ | — |  |  | $ | 714 |  |  | $ | — |  |  | $ | 714 |  |  | 11 | %
Public equity |  | 1,871 |  |  | 216 |  |  | — |  |  | 2,087 |  |  | 33 | %
Fixed income |  | — |  |  | 942 |  |  | — |  |  | 942 |  |  | 15 | %
Derivatives |  | (38) |  |  | 2 |  |  | — |  |  | (36) |  |  | (1) | %
Total (1) |  | $ | 1,833 |  |  | $ | 1,874 |  |  | $ | — |  |  | $ | 3,707 |  |  | 58 | %
Private - equity and debt funds (2) |  |  |  |  |  |  |  | 1,061 |  |  | 17 | %
Insurance-linked securities (2) |  |  |  |  |  |  |  | 159 |  |  | 3 | %
Hedge funds (2) |  |  |  |  |  |  |  | 563 |  |  | 9 | %
Real estate funds (2) |  |  |  |  |  |  |  | 853 |  |  | 13 | %
Total Investments |  |  |  |  |  |  |  | $ | 6,343 |  |  | 100 | %
(1) Excludes $350 million as of December 31, 2022, of receivables, payables, taxes, cash collateral for derivatives and accrued income associated with financial instruments reflected within the fair value table. (2) Net Asset Value used as a practical expedient to approximate fair value.
|  | December 31, 2021 |  | Asset Allocation
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
|  | (In millions) |  |
Cash and short-term securities |  | $ | — |  |  | $ | 746 |  |  | $ | — |  |  | $ | 746 |  |  | 8 | %
Public equity |  | 2,867 |  |  | 286 |  |  | — |  |  | 3,153 |  |  | 35 | %
Fixed income |  | — |  |  | 2,453 |  |  | — |  |  | 2,453 |  |  | 27 | %
Derivatives |  | 20 |  |  | — |  |  | — |  |  | 20 |  |  | — | %
Total (1) |  | $ | 2,887 |  |  | $ | 3,485 |  |  | $ | — |  |  | $ | 6,372 |  |  | 70 | %
Private - equity and debt funds (2) |  |  |  |  |  |  |  | 811 |  |  | 9 | %
Insurance-linked securities (2) |  |  |  |  |  |  |  | 320 |  |  | 4 | %
Hedge funds (3) |  |  |  |  |  |  |  | 678 |  |  | 7 | %
Real estate funds (2) |  |  |  |  |  |  |  | 886 |  |  | 10 | %
Total Investments |  |  |  |  |  |  |  | $ | 9,067 |  |  | 100 | %
(1) Excludes $(47) million as of December 31, 2021, of receivables, payables, taxes and accrued income associated with financial instruments reflected within the fair value table. (2) Net Asset Value used as a practical expedient to approximate fair value. As of December 31, 2022, and 2021, the OPEB trust investments measured at fair value were as follows:
|  | December 31, 2022 |  | Asset Allocation
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
|  | (In millions) |  |
Cash and short-term securities |  | $ | — |  |  | $ | 87 |  |  | $ | — |  |  | $ | 87 |  |  | 19 | %
Public equity |  | 217 |  |  | — |  |  | — |  |  | 217 |  |  | 47 | %
Fixed income |  | — |  |  | 157 |  |  | — |  |  | 157 |  |  | 34 | %
Total (1) |  | $ | 217 |  |  | $ | 244 |  |  | $ | — |  |  | $ | 461 |  |  | 100 | %
(1) Excludes $(1) million as of December 31, 2022, of receivables, payables, taxes and accrued income associated with financial instruments reflected within the fair value table.
|  | December 31, 2021 |  | Asset Allocation
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
|  | (In millions) |  |
Cash and short-term securities |  | $ | — |  |  | $ | 95 |  |  | $ | — |  |  | $ | 95 |  |  | 17 | %
Public equity |  | 278 |  |  | — |  |  | — |  |  | 278 |  |  | 51 | %
Fixed income: |  | — |  |  | 175 |  |  | — |  |  | 175 |  |  | 32 | %
Total |  | $ | 278 |  |  | $ | 270 |  |  | $ | — |  |  | $ | 548 |  |  | 100 | %
FirstEnergy’s target asset allocations for its pension and OPEB trust portfolios for 2022 were as follows:
Target Asset Allocations
|  | Pension |  | OPEB
Equities |  | 36 | % |  | 50 | %
Fixed income |  | 22.5 | % |  | 50 | %
Alternative investments |  | 5 | % |  | — | %
Real estate |  | 10 | % |  | — | %
Private - equity and debt funds |  | 20 | % |  | — | %
Cash and derivatives |  | 6.5 | % |  | — | %
|  | 100 | % |  | 100 | %
FirstEnergy follows a total return investment approach using a mix of equities, fixed income and other available investments while taking into account the pension plan liabilities to optimize the long-term return on plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalization funds. Other assets such as real estate and private equity are used to enhance long-term returns while improving portfolio diversification. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives are not used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on a continuing basis through periodic investment portfolio reviews, annual liability measurements and periodic asset/liability studies. Taking into account estimated employee future service, FirstEnergy expects to make the following benefit payments from plan assets and other payments, net of participant contributions:
|  |  |  | OPEB
|  | Pension |  | Benefit Payments |  | Subsidy Receipts
|  | (In millions)
2023 |  | $ | 583 |  |  | $ | 44 |  |  | $ | (1) |
2024 |  | 587 |  |  | 42 |  |  | (1) |
2025 |  | 597 |  |  | 40 |  |  | (1) |
2026 |  | 605 |  |  | 39 |  |  | — |
2027 |  | 612 |  |  | 37 |  |  | — |
Years 2028-2031 |  | 3,120 |  |  | 167 |  |  | (2) |

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