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Pension and Other Postretirement Benefit Plans
 12 Months Ended
Dec. 31, 2023
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefit Plans 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 2016. The plans provide defined benefits based on years of service and final average pay. We made $17.3 million in cash contributions to the plan trusts in 2023 (none in 2022; $10.3 million in 2021). We also have a defined contribution RSOP covering substantially all employees. The 2023 plan year employer contributions totaled $13.7 million ($12.0 million for the 2022 plan year; $11.5 million for the 2021 plan year). (See Note 10. Common Stock and Earnings Per Share and Note 13. 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 2011, and the eligibility requirements were amended. The postretirement life plan was amended in 2014 to close the plan to non-union employees retiring after 2015, and in 2018, the plan was amended to limit the benefit level for union employees retiring after 2018. In 2023, the postretirement health care plan was amended to change the company contribution to an annual stipend for certain retirees. 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 2023, no contributions were made to the VEBAs (none in 2022; none in 2021) and no contributions were made to the grantor trusts (none in 2022; none in 2021).

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. On January 12, 2024, we contributed $25.0 million in cash to the defined benefit pension plans, and expect to make $2.0 million in additional cash contributions to the defined benefit pension plans in 2024. We do not expect to make any contributions to the defined benefit postretirement health and life plans in 2024.

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 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Pension Obligation and Funded Status
As of December 3120232022
Millions  
Accumulated Benefit Obligation$729.5 $724.5 
Change in Benefit Obligation  
Obligation, Beginning of Year$739.7 $911.7 
Service Cost6.5 9.3 
Interest Cost40.5 27.2 
Plan Amendments— 0.8 
Actuarial (Gain) Loss (a)
13.9 (160.6)
Benefits Paid(60.9)(58.9)
Participant Contributions6.6 10.2 
Obligation, End of Year$746.3 $739.7 
Change in Plan Assets  
Fair Value, Beginning of Year$568.6 $745.7 
Actual Return on Plan Assets55.1 (130.5)
Employer Contribution (b)
26.2 12.3 
Benefits Paid(60.9)(58.9)
Fair Value, End of Year$589.0 $568.6 
Funded Status, End of Year$(157.3)$(171.1)
Net Pension Amounts Recognized in Consolidated Balance Sheet Consist of:  
Current Liabilities$(2.1)$(2.1)
Non-Current Liabilities $(155.2)$(169.0)
(a)    Actuarial gain in 2022 was primarily the result of increases in discount rates.
(b)    Includes Participant Contributions noted above, any contributions made by the Company to pension plan trusts and any direct benefit payments made under certain plans.

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 $256.9 million as of December 31, 2023 (net loss of $260.2 million and prior service credit of $0.1 million as of December 31, 2022.
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Reconciliation of Net Pension Amounts Recognized in Consolidated Balance Sheet
As of December 3120232022
Millions  
Net Loss$(256.9)$(260.2)
Prior Service Credit—0.1
Accumulated Contributions in Excess of Net Periodic Benefit Cost (Prepaid Pension Asset)99.689.0
Total Net Pension Amounts Recognized in Consolidated Balance Sheet$(157.3)$(171.1)

Components of Net Periodic Pension Cost
Year Ended December 31202320222021
Millions   
Service Cost$6.5 $9.3 $11.0 
Non-Service Cost Components (a)
Interest Cost40.5 27.2 24.6 
Expected Return on Plan Assets(43.8)(41.5)(43.4)
Amortization of Loss5.8 11.4 18.8 
Amortization of Prior Service Credit(0.1)(0.1)(0.2)
Net Pension Cost$8.9 $6.3 $10.8 
(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 3120232022
Millions  
Net Loss$2.5$11.4
Amortization of Prior Service Credit0.1 0.1 
Prior Service Credit Arising During the Period— 0.8 
Amortization of Loss(5.7)(11.4)
Total Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities$(3.1)$0.9

Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets
As of December 3120232022
Millions  
Projected Benefit Obligation$746.3 $739.7 
Accumulated Benefit Obligation$729.5 $724.5 
Fair Value of Plan Assets$589.0 $568.6 
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Postretirement Health and Life Obligation and Funded Status
As of December 3120232022
Millions  
Change in Benefit Obligation  
Obligation, Beginning of Year$110.4 $148.2 
Service Cost2.0 3.0 
Interest Cost5.6 4.4 
Actuarial Gain (a)
(9.3)(38.7)
Benefits Paid(8.1)(9.2)
Participant Contributions2.4 2.7 
Plan Amendments (b)
(29.1)— 
Obligation, End of Year$73.9 $110.4 
Change in Plan Assets  
Fair Value, Beginning of Year$162.6 $201.8 
Actual Return on Plan Assets20.3 (33.0)
Employer Contribution (Withdrawal)(3.4)0.3 
Participant Contributions2.4 2.7 
Benefits Paid(8.1)(9.2)
Fair Value, End of Year$173.8 $162.6 
Funded Status, End of Year$99.9 $52.2 
Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet Consist of:  
Non-Current Assets$106.3$58.8
Current Liabilities$(0.2)$(0.2)
Non-Current Liabilities$(6.2)$(6.4)
(a)Actuarial gain in 2022 was primarily the result of increases in discount rates.
(b)In 2023, the postretirement health care plan was amended to change the company contribution to an annual stipend for certain retirees.

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 $12.8 million in irrevocable grantor trusts included in Other Non-Current Assets on the Consolidated Balance Sheet as of December 31, 2023 ($11.8 million as of December 31, 2022).

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 3120232022
Millions  
Net Gain$(24.8)$(9.2)
Prior Service Credit(33.8)(13.2)
Total Unrecognized Postretirement Health and Life Cost$(58.6)$(22.4)
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Reconciliation of Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet
As of December 3120232022
Millions  
Net Gain (a)
$24.8$9.2
Prior Service Credit33.813.2
Accumulated Net Periodic Benefit Cost in Excess of Contributions (a)
41.329.8
Total Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet$99.9$52.2
(a)Excludes gains, losses and contributions associated with irrevocable grantor trusts.

Components of Net Periodic Postretirement Health and Life Cost
Year Ended December 31202320222021
Millions   
Service Cost$2.0 $3.0 $3.6 
Non-Service Cost Components (a)
Interest Cost5.6 4.4 4.4 
Expected Return on Plan Assets(11.4)(9.6)(9.9)
Amortization of (Gain) Loss(2.7)0.4 3.0 
Amortization of Prior Service Credit(8.5)(7.5)(7.6)
Net Postretirement Health and Life Credit$(15.0)$(9.3)$(6.5)
(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 3120232022
Millions  
Net (Gain) Loss$(18.3)$3.9
Prior Service Credit Arising During the Period(29.1)— 
Amortization of Prior Service Credit8.4 7.5 
Amortization of Gain (Loss)2.7 (0.4)
Total Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities$(36.3)$11.0

Estimated Future Benefit Payments    PensionPostretirement Health and Life
Millions
2024$58.4$6.3 
2025$58.1$6.2 
2026$57.5$6.1 
2027$57.2$6.1 
2028$56.9$6.0 
Years 2029 – 2033$272.6$30.0 
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Weighted Average Assumptions Used to Determine Benefit Obligation
As of December 3120232022
Discount Rate  
Pension5.39%5.70%
Postretirement Health and Life5.42%5.68%
Rate of Compensation Increase3.52%3.58%
Health Care Trend Rates
Trend Rate7.00%6.50%
Ultimate Trend Rate5.00%5.00%
Year Ultimate Trend Rate Effective20382038

Weighted Average Assumptions Used to Determine Net Periodic Benefit Costs
Year Ended December 31202320222021
Discount Rate
Pension5.70%3.28%2.87%
Postretirement Health and Life5.89%3.09%2.70%
Expected Long-Term Return on Plan Assets   
Pension6.83%6.00%6.50%
Postretirement Health and Life6.33%5.41%5.85%
Rate of Compensation Increase3.58%3.58%3.62%

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, 2023, considered a modified PRI-2012 mortality table and MP-2021 mortality projection scale.
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)

Actual Plan Asset AllocationsPension
Postretirement
Health and Life (a)
 2023202220232022
Equity Securities57%46%67%66%
Fixed Income Securities40%50%33%34%
Real Estate3%4%——
 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, 2023 (no shares as of December 31, 2022).

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 capitalization, 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, 2023:

Plan Asset Target Allocations    Pension
Postretirement
Health and Life (a)
Equity Securities55 %65 %
Fixed Income Securities41 %35 %
Real Estate4 %— 
 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 7. Fair Value.)
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)

Pension Fair Value
 Fair Value as of December 31, 2023
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities:    
U.S. Large-cap (a)
—$83.7—$83.7
U.S. Mid-cap Growth (a)
—69.9—69.9
U.S. Small-cap (a)
—46.5—46.5
International$134.6——134.6
Fixed Income Securities (a)
—215.0—215.0
Cash and Cash Equivalents20.4——20.4
Real Estate——$18.918.9
Total Fair Value of Assets$155.0$415.1$18.9$589.0
(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 3    Real Estate
Millions 
Balance as of December 31, 2022$22.4 
Actual Return on Plan Assets(3.1)
Purchases, Sales, and Settlements – Net(0.4)
Balance as of December 31, 2023$18.9

 Fair Value as of December 31, 2022
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities:    
U.S. Large-cap (a)
— $61.2 — $61.2 
U.S. Mid-cap Growth (a)
— 40.0 — 40.0 
U.S. Small-cap (a)
— 35.4 — 35.4 
International$127.0 — — 127.0 
Fixed Income Securities (a)
— 275.3 — 275.3 
Cash and Cash Equivalents7.3 — — 7.3 
Real Estate— — $22.4 22.4 
Total Fair Value of Assets$134.3 $411.9 $22.4 $568.6 
(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 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)

Recurring Fair Value Measures 
Activity in Level 3   Real Estate
Millions  
Balance as of December 31, 2021$21.6 
Actual Return on Plan Assets1.0 
Purchases, Sales, and Settlements – Net(0.2)
Balance as of December 31, 2022$22.4 

Postretirement Health and Life Fair Value
 Fair Value as of December 31, 2023
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities: (a)
    
U.S. Large-cap $30.0 — — $30.0 
U.S. Mid-cap Growth 28.7 — — 28.7 
U.S. Small-cap 14.9 — — 14.9 
International41.9 — — 41.9 
Fixed Income Securities:    
Mutual Funds55.1 — — 55.1 
Cash and Cash Equivalents3.2 — — 3.2 
Total Fair Value of Assets$173.8 — — $173.8 
(a)The underlying investments consist of mutual funds (Level 1). 

 Fair Value as of December 31, 2022
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Millions    
Assets:    
Equity Securities: (a)
    
U.S. Large-cap $26.7 — — $26.7 
U.S. Mid-cap Growth 25.5 — — 25.5 
U.S. Small-cap 12.7 — — 12.7 
International41.5 — — 41.5 
Fixed Income Securities:    
Mutual Funds55.5 — — 55.5 
Cash and Cash Equivalents0.7 — — 0.7 
Total Fair Value of Assets$162.6 — — $162.6 
(a)The underlying investments consist of mutual funds (Level 1). 
NOTE 12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)

Recurring Fair Value Measures
Activity in Level 3Private Equity Funds
Millions 
Balance as of December 31, 2021$2.0 
Actual Return on Plan Assets(1.5)
Purchases, Sales, and Settlements – Net(0.5)
Balance as of December 31, 2022— 

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.