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Pension and Other Postretirement Benefit Plans
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefit Plans [Text Block] PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
We have noncontributory union, non-union and combined retiree defined benefit pension plans covering eligible employees. The combined retiree defined benefit pension plan was created in 2016, to include all union and non-union retirees from the existing plans as of January 1, 2016. The plans provide defined benefits based on years of service and final average pay. We contributed $10.3 million in cash to the plans in 2021 ($10.7 million in 2020; $10.4 million in 2019). We also have a defined contribution RSOP covering substantially all employees. The 2021 plan year employer contributions, which are made through the employee stock ownership plan portion of the RSOP, totaled $11.5 million ($11.2 million for the 2020 plan year; $10.8 million for the 2019 plan year). (See Note 9. Common Stock and Earnings Per Share and Note 12. Employee Stock and Incentive Plans.)

The non-union defined benefit pension plan was frozen in 2018, and does not allow further crediting of service or earnings to the plan. Further, it is closed to new participants. The Minnesota Power union defined benefit pension plan is also closed to new participants, and the SWL&P union defined benefit pension plan was closed to new participants effective February 1, 2022.

We have postretirement health care and life insurance plans covering eligible employees. In 2010, the postretirement health care plan was closed to employees hired after January 31, 2011, and the eligibility requirements were amended. In 2014, the postretirement life plan was amended to close the plan to non-union employees retiring after December 31, 2015, and in 2018, the postretirement life plan was amended to limit the benefit level for union employees retiring after December 31, 2018. The postretirement health and life plans are contributory with participant contributions adjusted annually. Postretirement health and life benefits are funded through a combination of Voluntary Employee Benefit Association trusts (VEBAs), established under section 501(c)(9) of the Internal Revenue Code, and irrevocable grantor trusts. In 2021, no contributions were made to the VEBAs (none in 2020; none in 2019) and no contributions were made to the grantor trusts (none in 2020; none in 2019).

Management considers various factors when making funding decisions such as regulatory requirements, actuarially determined minimum contribution requirements and contributions required to avoid benefit restrictions for the pension plans. Contributions are based on estimates and assumptions which are subject to change. We do not expect to make any contributions to the defined benefit pension plans in 2022, and we do not expect to make any contributions to the defined benefit postretirement health and life plans in 2022.

Accounting for defined benefit pension and other postretirement benefit plans requires that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement plans on their balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost.

The defined benefit pension and postretirement health and life benefit expense (credit) recognized annually by our regulated utilities are expected to be recovered (refunded) through rates filed with our regulatory jurisdictions. As a result, these amounts that are required to otherwise be recognized in accumulated other comprehensive income have been recognized as a long-term regulatory asset (regulatory liability) on the Consolidated Balance Sheet, in accordance with the accounting standards for the effect of certain types of regulation applicable to our Regulated Operations. The defined benefit pension and postretirement health and life benefit expense (credits) associated with our other operations are recognized in accumulated other comprehensive income.
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Pension Obligation and Funded Status
As of December 3120212020
Millions  
Accumulated Benefit Obligation$875.5$931.2
Change in Benefit Obligation  
Obligation, Beginning of Year$965.7$854.0
Service Cost11.010.7
Interest Cost24.627.9
Plan Curtailments(1.4)—
Actuarial (Gain) Loss (a)
(39.0)118.7
Benefits Paid(56.5)(54.4)
Participant Contributions7.38.8
Obligation, End of Year$911.7$965.7
Change in Plan Assets  
Fair Value, Beginning of Year$759.4$699.6
Actual Return on Plan Assets23.193.0
Employer Contribution (b)
19.721.2
Benefits Paid(56.5)(54.4)
Fair Value, End of Year$745.7$759.4
Funded Status, End of Year$(166.0)$(206.3)
Net Pension Amounts Recognized in Consolidated Balance Sheet Consist of:  
Current Liabilities$(2.1)$(2.2)
Non-Current Liabilities$(163.9)$(204.1)
(a)    Actuarial (gain) loss was primarily the result of increases in discount rates in 2021 compared to decreases in 2020.
(b)    Includes Participant Contributions noted above.

The pension costs that are reported as a component within the Consolidated Balance Sheet, reflected in long-term regulatory assets or liabilities and accumulated other comprehensive income, consist of a net loss of $260.2 million and prior service credit of $1.0 million as of December 31, 2021 (net loss of $299.0 million and prior service credit of $1.1 million as of December 31, 2020).
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Reconciliation of Net Pension Amounts Recognized in Consolidated Balance Sheet
As of December 3120212020
Millions  
Net Loss$(260.2)$(299.0)
Prior Service Credit1.01.1
Accumulated Contributions in Excess of Net Periodic Benefit Cost (Prepaid Pension Asset)93.291.6
Total Net Pension Amounts Recognized in Consolidated Balance Sheet$(166.0)$(206.3)

Components of Net Periodic Pension Cost
Year Ended December 31202120202019
Millions   
Service Cost$11.0$10.7$9.3
Non-Service Cost Components (a)
Interest Cost24.627.931.9
Expected Return on Plan Assets(43.4)(42.7)(44.2)
Amortization of Loss18.812.87.5
Amortization of Prior Service Credit(0.2)(0.2)(0.1)
Net Pension Cost$10.8$8.5$4.4
(a)These components of net periodic pension cost are included in the line item “Other” under Other Income (Expense) on the Consolidated Statement of Income.

Other Changes in Pension Plan Assets and Benefit Obligations Recognized in
Other Comprehensive Income and Regulatory Assets or Liabilities
Year Ended December 3120212020
Millions  
Net (Gain) Loss$(20.1)$68.4
Amortization of Prior Service Credit0.2 0.2 
Amortization of Loss(18.8)(12.8)
Total Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities$(38.7)$55.8

Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets
As of December 3120212020
Millions  
Projected Benefit Obligation$911.7 $965.7 
Accumulated Benefit Obligation$875.5 $931.2 
Fair Value of Plan Assets$745.7 $759.4 
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Postretirement Health and Life Obligation and Funded Status
As of December 3120212020
Millions  
Change in Benefit Obligation  
Obligation, Beginning of Year$167.6$149.8
Service Cost3.63.3
Interest Cost4.45.0
Actuarial (Gain) Loss (a)
(19.7)19.2
Benefits Paid(10.6)(12.6)
Participant Contributions2.93.2
Plan Curtailments—(0.3)
Obligation, End of Year$148.2$167.6
Change in Plan Assets  
Fair Value, Beginning of Year$186.0$173.7
Actual Return on Plan Assets22.820.9
Employer Contribution0.70.8
Participant Contributions2.93.2
Benefits Paid(10.6)(12.6)
Fair Value, End of Year$201.8$186.0
Funded Status, End of Year$53.6$18.4
Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet Consist of:  
Non-Current Assets$64.8$34.2
Current Liabilities$(1.4)$(0.6)
Non-Current Liabilities$(9.8)$(15.2)
(a)Actuarial (gain) loss was primarily the result of increases in discount rates in 2021 compared to decreases in 2020.

According to the accounting standards for retirement benefits, only assets in the VEBAs are treated as plan assets in the preceding table for the purpose of determining funded status. In addition to the postretirement health and life assets reported in the previous table, we had $13.2 million in irrevocable grantor trusts included in Other Investments on the Consolidated Balance Sheet as of December 31, 2021 ($20.4 million as of December 31, 2020).

The postretirement health and life costs that are reported as a component within the Consolidated Balance Sheet, reflected in regulatory long-term assets or liabilities and accumulated other comprehensive income, consist of the following:

Unrecognized Postretirement Health and Life Costs
As of December 3120212020
Millions  
Net (Gain) Loss$(12.7)$23.0
Prior Service Credit(20.7)(28.3)
Total Unrecognized Postretirement Health and Life Cost$(33.4)$(5.3)
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Reconciliation of Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet
As of December 3120212020
Millions  
Net Gain (Loss) (a)
$12.7$(23.0)
Prior Service Credit20.728.3
Accumulated Net Periodic Benefit Cost in Excess of Contributions (a)
20.213.1
Total Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet$53.6$18.4
(a)Excludes gains, losses and contributions associated with irrevocable grantor trusts.

Components of Net Periodic Postretirement Health and Life Cost
Year Ended December 31202120202019
Millions   
Service Cost$3.6 $3.3 $3.9 
Non-Service Cost Components (a)
Interest Cost4.4 5.0 7.3 
Expected Return on Plan Assets(9.9)(9.7)(10.5)
Amortization of Loss3.0 1.0 0.5 
Amortization of Prior Service Credit(7.6)(8.0)(2.8)
Effect of Plan Curtailment— (0.3)(2.1)
Net Postretirement Health and Life Credit$(6.5)$(8.7)$(3.7)
(a)These components of net periodic postretirement health and life cost are included in the line item “Other” under Other Income (Expense) on the Consolidated Statement of Income.

Other Changes in Postretirement Benefit Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities
Year Ended December 3120212020
Millions  
Net (Gain) Loss$(32.7)$8.1
Amortization of Prior Service Credit7.6 8.0 
Amortization of Loss(3.0)(1.0)
Total Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities$(28.1)$15.1

Estimated Future Benefit Payments    PensionPostretirement Health and Life
Millions
2022$54.6$8.4 
2023$54.4$8.4 
2024$54.4$8.4 
2025$53.8$8.2 
2026$53.1$8.1 
Years 2027 – 2031$257.2$41.6 
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Weighted Average Assumptions Used to Determine Benefit Obligation
As of December 3120212020
Discount Rate  
Pension3.05%2.62%
Postretirement Health and Life3.09%2.70%
Rate of Compensation Increase3.58%3.61%
Health Care Trend Rates
Trend Rate5.66%5.81%
Ultimate Trend Rate4.50%4.50%
Year Ultimate Trend Rate Effective20382038

Weighted Average Assumptions Used to Determine Net Periodic Benefit Costs
Year Ended December 31202120202019
Discount Rate
Pension2.87%3.52%4.67%
Postretirement Health and Life2.70%3.45%4.47%
Expected Long-Term Return on Plan Assets (a)
   
Pension6.50%6.75%7.25%
Postretirement Health and Life5.85%6.08%6.51%
Rate of Compensation Increase3.62%4.06%4.04%
(a)The expected long-term rates of return used to determine net periodic benefit expense for 2022 have been reduced to 6.00 percent for pension expense and 4.80 percent to 6.00 percent for postretirement health and life expense.

In establishing the expected long-term rate of return on plan assets, we determine the long-term historical performance of each asset class, adjust these for current economic conditions, and utilizing the target allocation of our plan assets, forecast the expected long-term rate of return.

The discount rate is computed using a bond matching study which utilizes a portfolio of high quality bonds that produce cash flows similar to the projected costs of our pension and other postretirement plans.

The Company utilizes actuarial assumptions about mortality to calculate the pension and postretirement health and life benefit obligations. The mortality assumptions used to calculate our pension and other postretirement benefit obligations as of December 31, 2021, considered a modified PRI-2012 mortality table and MP-2021 mortality projection scale.
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Actual Plan Asset AllocationsPension
Postretirement
Health and Life (a)
 2021202020212020
Equity Securities49%36%70%67%
Fixed Income Securities48%61%29%32%
Private Equity—11%1%
Real Estate3%2%——
 100%100%100%100%
(a)Includes VEBAs and irrevocable grantor trusts.

There were no shares of ALLETE common stock included in pension plan equity securities as of December 31, 2021 (no shares as of December 31, 2020).

The defined benefit pension plans have adopted a dynamic asset allocation strategy (glide path) that increases the invested allocation to fixed income assets as the funding level of the plan increases to better match the sensitivity of the plan’s assets and liabilities to changes in interest rates. This is expected to reduce the volatility of reported pension plan expenses. The postretirement health and life plans’ assets are diversified to achieve strong returns within managed risk. Equity securities are diversified among domestic companies with large, mid and small market capitalizations, as well as investments in international companies. The majority of debt securities are made up of investment grade bonds.

Following are the current targeted allocations as of December 31, 2021:

Plan Asset Target Allocations    Pension
Postretirement
Health and Life (a)
Equity Securities49 %60 %
Fixed Income Securities49 %37 %
Private Equity1 %— 
Real Estate1 %3 %
 100 %100 %
(a)Includes VEBAs and irrevocable grantor trusts.

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs, which are used to measure fair value, are prioritized through the fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). (See Note 6. Fair Value.)
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)

Pension Fair Value
 Fair Value as of December 31, 2021
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities:    
U.S. Large-cap (a)
—$113.8—$113.8
U.S. Mid-cap Growth (a)
—47.6—47.6
U.S. Small-cap (a)
—46.2—46.2
International—158.2—158.2
Fixed Income Securities (a)
—346.1—346.1
Cash and Cash Equivalents$12.2——12.2
Private Equity Funds————
Real Estate——$21.621.6
Total Fair Value of Assets$12.2$711.9$21.6$745.7
(a)The underlying investments consist of actively-managed funds managed to achieve the returns of certain U.S. equity and fixed income securities indexes.
Recurring Fair Value Measures  
Activity in Level 3Private Equity Funds    Real Estate
Millions  
Balance as of December 31, 2020$7.0$18.0
Actual Return on Plan Assets(3.5)3.6
Purchases, Sales, and Settlements – Net(3.5)—
Balance as of December 31, 2021—$21.6

 Fair Value as of December 31, 2020
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities:    
U.S. Large-cap (a)
— $91.7 — $91.7 
U.S. Mid-cap Growth (a)
— 40.0 — 40.0 
U.S. Small-cap (a)
— 40.7 — 40.7 
International— 97.1 — 97.1 
Fixed Income Securities (a)
— 461.7 — 461.7 
Cash and Cash Equivalents$3.2 — — 3.2 
Private Equity Funds— — $7.0 7.0 
Real Estate— — 18.0 18.0 
Total Fair Value of Assets$3.2 $731.2 $25.0 $759.4 
(a)The underlying investments consist of actively-managed funds managed to achieve the returns of certain U.S. equity and fixed income securities indexes.
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)

Recurring Fair Value Measures  
Activity in Level 3Private Equity Funds   Real Estate
Millions   
Balance as of December 31, 2019$8.0 $18.0 
Actual Return on Plan Assets0.1 — 
Purchases, Sales, and Settlements – Net(1.1)— 
Balance as of December 31, 2020$7.0 $18.0 

Postretirement Health and Life Fair Value
 Fair Value as of December 31, 2021
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities: (a)
    
U.S. Large-cap $40.1 — — $40.1 
U.S. Mid-cap Growth 37.3 — — 37.3 
U.S. Small-cap 19.3 — — 19.3 
International43.7 — — 43.7 
Fixed Income Securities:    
Mutual Funds56.7 — — 56.7 
Debt Securities— $1.8 — 1.8 
Cash and Cash Equivalents0.9 — — 0.9 
Private Equity Funds— — $2.0 2.0 
Total Fair Value of Assets$198.0 $1.8 $2.0 $201.8 
(a)The underlying investments consist of mutual funds (Level 1). 

Recurring Fair Value Measures
Activity in Level 3Private Equity Funds
Millions 
Balance as of December 31, 2020$1.7 
Actual Return on Plan Assets0.8 
Purchases, Sales, and Settlements – Net(0.5)
Balance as of December 31, 2021$2.0 
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)

 Fair Value as of December 31, 2020
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities: (a)
    
U.S. Large-cap $34.2 — — $34.2 
U.S. Mid-cap Growth 31.4 — — 31.4 
U.S. Small-cap 16.6 — — 16.6 
International41.5 — — 41.5 
Fixed Income Securities:    
Mutual Funds57.3 — — 57.3 
Debt Securities— $2.2 — 2.2 
Cash and Cash Equivalents1.1 — — 1.1 
Private Equity Funds— — $1.7 1.7 
Total Fair Value of Assets$182.1 $2.2 $1.7 $186.0 
(a)The underlying investments consist of mutual funds (Level 1). 

Recurring Fair Value Measures
Activity in Level 3Private Equity Funds
Millions 
Balance as of December 31, 2019$1.7 
Actual Return on Plan Assets— 
Purchases, Sales, and Settlements – Net— 
Balance as of December 31, 2020$1.7 

Accounting and disclosure requirements for the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) provide guidance for employers that sponsor postretirement health care plans that provide prescription drug benefits. We provide a fully insured postretirement health benefit, including a prescription drug benefit, which qualifies us for a federal subsidy under the Act. The federal subsidy is reflected in the premiums charged to us by the insurance company.