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Pension and other post-retirement benefits | 12 Months Ended
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Dec. 31, 2019
Retirement Benefits [Abstract] |
Pension and other post-retirement benefits | Pension and other post-employment benefits The Company provides defined contribution pension plans to substantially all of its employees. The Company’s contributions for 2019 were $8,798 (2018 - $8,446). In conjunction with the utility acquisitions, the Company assumes defined benefit pension, supplemental executive retirement plans and OPEB plans for qualifying employees in the related acquired businesses. The legacy plans of the electricity and gas utilities are non-contributory defined pension plans covering substantially all employees of the acquired businesses. Benefits are based on each employee’s years of service and compensation. The Company also provides a defined benefit cash balance pension plan covering substantially all its new employees and current employees at its water utilities, under which employees are credited with a percentage of base pay plus a prescribed interest rate credit. The OPEB plans provide health care and life insurance coverage to eligible retired employees. Eligibility is based on age and length of service requirements and, in most cases, retirees must cover a portion of the cost of their coverage.
10. | Pension and other post-employment benefits (continued)
(a) | Net pension and OPEB obligation
The following table sets forth the projected benefit obligations, fair value of plan assets, and funded status of the Company’s plans as of December 31:
| Pension benefits |  | OPEB
| 2019 |  | 2018 |  | 2019 |  | 2018
Change in projected benefit obligation |  |  |  |  |  |  |
Projected benefit obligation, beginning of year | $ | 484,707 |  |  | $ | 531,694 |  |  | $ | 168,325 |  |  | $ | 176,975 |
Projected benefit obligation assumed from business combination | 20,196 |  |  | — |  |  | 11,646 |  |  | — |
Modifications to plans | (7,705 | ) |  | — |  |  | — |  |  | — |
Service cost | 12,351 |  |  | 15,481 |  |  | 4,587 |  |  | 5,791 |
Interest cost | 20,222 |  |  | 19,077 |  |  | 7,575 |  |  | 6,727 |
Actuarial (gain) loss | 65,443 |  |  | (29,986 | ) |  | 33,605 |  |  | (14,800 | )
Contributions from retirees | — |  |  | — |  |  | 1,913 |  |  | 1,878 |
Gain on curtailment | — |  |  | (1,875 | ) |  | — |  |  | — |
Medicare Part D | — |  |  | — |  |  | 414 |  |  | 42 |
Benefits paid | (30,244 | ) |  | (49,684 | ) |  | (8,848 | ) |  | (8,288 | )
Projected benefit obligation, end of year | $ | 564,970 |  |  | $ | 484,707 |  |  | $ | 219,217 |  |  | $ | 168,325 |
Change in plan assets |  |  |  |  |  |  |
Fair value of plan assets, beginning of year | 339,099 |  |  | 403,945 |  |  | 115,542 |  |  | 130,487 |
Plan assets acquired in business combination | 8,004 |  |  | — |  |  | 15,688 |  |  | — |
Actual return on plan assets | 68,025 |  |  | (36,987 | ) |  | 25,464 |  |  | (10,603 | )
Employer contributions | 22,190 |  |  | 21,825 |  |  | 8,628 |  |  | 2,026 |
Medicare Part D subsidy receipts | — |  |  | — |  |  | 414 |  |  | 42 |
Benefits paid | (30,244 | ) |  | (49,684 | ) |  | (6,863 | ) |  | (6,410 | )
Fair value of plan assets, end of year | $ | 407,074 |  |  | $ | 339,099 |  |  | $ | 158,873 |  |  | $ | 115,542 |
Unfunded status | $ | (157,896 | ) |  | $ | (145,608 | ) |  | $ | (60,344 | ) |  | $ | (52,783 | )
Amounts recognized in the consolidated balance sheets consist of: |  |  |  |  |  |  |
Non-current assets (note 11) | — |  |  | — |  |  | 8,437 |  |  | 3,161 |
Current liabilities | (1,415 | ) |  | (873 | ) |  | (1,168 | ) |  | (850 | )
Non-current liabilities | (156,481 | ) |  | (144,735 | ) |  | (67,613 | ) |  | (55,094 | )
Net amount recognized | $ | (157,896 | ) |  | $ | (145,608 | ) |  | $ | (60,344 | ) |  | $ | (52,783 | )
The accumulated benefit obligation for the pension plans was $526,517 and $439,458 as of December 31, 2019 and 2018, respectively.
10. | Pension and other post-employment benefits (continued)
(a) | Net pension and OPEB obligation (continued)
Information for pension and OPEB plans with an accumulated benefit obligation in excess of plan assets:
| Pension |  | OPEB
| 2019 |  | 2018 |  | 2019 |  | 2018
Accumulated benefit obligation | $ | 504,403 |  |  | $ | 439,458 |  |  | $ | 202,422 |  |  | $ | 163,375 |
Fair value of plan assets | $ | 407,074 |  |  | $ | 339,099 |  |  | $ | 133,711 |  |  | $ | 107,430 |
Information for pension and OPEB plans with a projected benefit obligation in excess of plan assets:
| Pension |  | OPEB
| 2019 |  | 2018 |  | 2019 |  | 2018
Projected benefit obligation | $ | 564,971 |  |  | $ | 476,791 |  |  | $ | 202,422 |  |  | $ | 163,375 |
Fair value of plan assets | $ | 407,074 |  |  | $ | 339,099 |  |  | $ | 133,711 |  |  | $ | 107,430 |
In 2019, the Company merged the Empire pension plan into the Company's cash balance plan and defined benefit plans, and changed benefits for certain Empire participants. The total impact of these plan amendments resulted in a decrease to the projected benefit obligation of $7,798, which is recorded as a prior service credit in OCI. In 2018, the Company permanently froze the accrual of benefits for participants in the Park Water System's existing pension plan. Subsequent to the effective date, these employees began accruing benefits under the Company’s cash balance plan. The plan amendments resulted in a decrease to the projected benefit obligation of $1,875, which is recorded as a prior service credit in OCI.
(b) | Pension and post-employment actuarial changes
Change in AOCI (before tax) | Pension |  | OPEB
| Actuarial losses (gains) |  | Past service gains |  | Actuarial losses (gains) |  | Past service gains
Balance, January 1, 2018 | $ | 25,128 |  |  | $ | (4,995 | ) |  | $ | (3,182 | ) |  | $ | (470 | )
Additions to AOCI | 34,916 |  |  | (1,875 | ) |  | 3,254 |  |  | — |
Amortization in current period | (1,074 | ) |  | 649 |  |  | 272 |  |  | 262 |
Loss on plan settlements | $ | (2,547 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |
Reclassification to regulatory accounts (note 7(b)) | (22,166 | ) |  | — |  |  | (14,232 | ) |  | — |
Balance, December 31, 2018 | $ | 34,257 |  |  | $ | (6,221 | ) |  | $ | (13,888 | ) |  | $ | (208 | )
AOCI from business acquisition | — |  |  | (285 | ) |  | — |  |  | — |
Additions to AOCI | 17,905 |  |  | (7,705 | ) |  | 14,871 |  |  | — |
Amortization in current period | (3,530 | ) |  | 784 |  |  | 409 |  |  | 208 |
Reclassification to regulatory accounts (note 7(b)) | (10,122 | ) |  | 7,247 |  |  | (10,538 | ) |  | — |
Balance, December 31, 2019 | $ | 38,510 |  |  | $ | (6,180 | ) |  | $ | (9,146 | ) |  | $ | — |
The movements in AOCI for Empire's and St. Lawrence Gas' pension and OPEB plans are reclassified to regulatory accounts since it is probable the unfunded amount of these plans will be afforded rate recovery (note 7(b)).
10. | Pension and other post-employment benefits (continued)
(c) | Assumptions
Weighted average assumptions used to determine net benefit obligation for 2019 and 2018 were as follows:
| Pension benefits |  | OPEB
| 2019 |  | 2018 |  | 2019 |  | 2018
Discount rate | 3.19 | % |  | 4.19 | % |  | 3.29 | % |  | 4.26 | %
Interest crediting rate (for cash balance plans) | 4.48 | % |  | 4.43 | % |  | N/A |  |  | N/A |
Rate of compensation increase | 4.00 | % |  | 4.00 | % |  | N/A |  |  | N/A |
Health care cost trend rate |  |  |  |  |  |  |
Before age 65 |  |  |  |  | 6.125 | % |  | 6.25 | %
Age 65 and after |  |  |  |  | 6.125 | % |  | 6.25 | %
Assumed ultimate medical inflation rate |  |  |  |  | 4.75 | % |  | 4.75 | %
Year in which ultimate rate is reached |  |  |  |  | 2031 |  |  | 2031 |
The mortality assumption for December 31, 2019 was updated to Pri-2012 mortality table and to the projected generationally scale MP-2019, adjusted to reflect the ultimate improvement rates in the 2019 Social Security Administration intermediate assumptions. In selecting an assumed discount rate, the Company uses a modeling process that involves selecting a portfolio of high-quality corporate debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of the Company’s expected future benefit payments. The Company considers the results of this modeling process, as well as overall rates of return on high-quality corporate bonds and changes in such rates over time, to determine its assumed discount rate. The rate of return assumptions are based on projected long-term market returns for the various asset classes in which the plans are invested, weighted by the target asset allocations. Weighted average assumptions used to determine net benefit cost for 2019 and 2018 were as follows:
| Pension benefits |  | OPEB
| 2019 |  | 2018 |  | 2019 |  | 2018
Discount rate | 4.19 | % |  | 3.57 | % |  | 4.25 | % |  | 3.60 | %
Expected return on assets | 6.87 | % |  | 7.13 | % |  | 6.51 | % |  | 6.52 | %
Rate of compensation increase | 4.00 | % |  | 3.00 | % |  | N/A |  |  | N/A |
Health care cost trend rate |  |  |  |  |  |  |
Before Age 65 |  |  |  |  | 6.25 | % |  | 6.25 | %
Age 65 and after |  |  |  |  | 6.25 | % |  | 6.25 | %
Assumed ultimate medical inflation rate |  |  |  |  | 4.75 | % |  | 4.75 | %
Year in which ultimate rate is reached |  |  |  |  | 2031 |  |  | 2024 |
10. | Pension and other post-employment benefits (continued)
(d) | Benefit costs
The following table lists the components of net benefit cost for the pension and OPEB plans. Service cost is recorded as part of operating expenses and non-service costs are recorded as part of other net losses in the consolidated statements of operations. The employee benefit costs related to businesses acquired are recorded in the consolidated statements of operations from the date of acquisition.
| Pension benefits |  | OPEB
| 2019 |  | 2018 |  | 2019 |  | 2018
Service cost | $ | 12,351 |  |  | $ | 15,481 |  |  | $ | 4,587 |  |  | $ | 5,791 |
Non-service costs |  |  |  |  |  |  |
Interest cost | 20,222 |  |  | 19,077 |  |  | 7,575 |  |  | 6,727 |
Expected return on plan assets | (20,485 | ) |  | (27,820 | ) |  | (6,725 | ) |  | (7,451 | )
Amortization of net actuarial loss (gain) | 3,530 |  |  | 1,074 |  |  | (409 | ) |  | (272 | )
Amortization of prior service credits | (784 | ) |  | (649 | ) |  | (208 | ) |  | (262 | )
Amortization of regulatory assets/liabilities | 12,082 |  |  | 10,584 |  |  | 2,534 |  |  | 3,982 |
| $ | 14,565 |  |  | $ | 2,266 |  |  | $ | 2,767 |  |  | $ | 2,724 |
Net benefit cost | $ | 26,916 |  |  | $ | 17,747 |  |  | $ | 7,354 |  |  | $ | 8,515 |
(e) | Plan assets
The Company’s investment strategy for its pension and post-employment plan assets is to maintain a diversified portfolio of assets with the primary goal of meeting long-term cash requirements as they become due. The Company’s target asset allocation is as follows:
Asset class |  | Target (%) |  | Range (%)
Equity securities |  | 68 | % |  | 50% - 78%
Debt securities |  | 32 | % |  | 22% - 50%
|  | 100 | % |  |
The fair values of investments as of December 31, 2019, by asset category, are as follows:
Asset class |  | Level 1 |  | Percentage
Equity securities |  | $ | 414,985 |  |  | 73 | %
Debt securities |  | 141,229 |  |  | 25 | %
Other |  | 9,732 |  |  | 2 | %
|  | $ | 565,946 |  |  | 100 | %
As of December 31, 2019, the funds do not hold any material investments in APUC.
(f) | Cash flows
The Company expects to contribute $24,140 to its pension plans and $5,736 to its post-employment benefit plans in 2020. The expected benefit payments over the next ten years are as follows:
| 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025—2029
Pension plan | $ | 34,461 |  |  | $ | 34,385 |  |  | $ | 35,383 |  |  | $ | 36,897 |  |  | $ | 37,848 |  |  | $ | 192,648 |
OPEB | 7,469 |  |  | 7,867 |  |  | 8,379 |  |  | 8,903 |  |  | 9,361 |  |  | 52,864 |

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