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Pension Plan and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Pension Plan and Other Postretirement Benefits Pension Plan and Other Postretirement Benefits
Pension Plan
We sponsor a noncontributory funded pension plan which covers substantially all corporate employees and OTP nonunion employees hired prior to September 1, 2006, and all union employees of OTP hired prior to November 1, 2013, excluding Coyote Station employees. Coyote Station employees hired before January 1, 2009 are covered under the plan. The plan provides 100% vesting after five vesting years of service and for retirement compensation at age 65, with reduced compensation in cases of retirement prior to age 62. We reserve the right to discontinue the plan, but no change or discontinuance may affect the pensions theretofore vested.
The pension plan has a trustee who is responsible for pension payments to retirees and a separate pension fund manager responsible for managing the plan's assets. An independent actuary assists us in performing the necessary actuarial valuations for the plan.
The plan assets consist of common stock and bonds of public companies, U.S. government securities, cash and cash equivalents and alternative investments. None of the plan assets are invested in common stock or debt securities of the Company.
The following table lists components of net periodic pension benefit cost for the years ended December 31, 2020, 2019 and 2018:
(in thousands)202020192018
Service Cost–Benefit Earned During the Period$6,621 $5,491 $6,459 
Interest Cost on Projected Benefit Obligation13,053 14,412 13,452 
Expected Return on Assets(22,021)(21,297)(21,199)
Amortization of Prior Service Cost:
From Regulatory Asset— 5 16 
From Other Comprehensive Income1
— 9 — 
Amortization of Net Actuarial Loss:
From Regulatory Asset8,924 4,642 7,135 
From Other Comprehensive Income1
220 114 183 
Net Periodic Pension Cost2
$6,797 $3,376 $6,046 
1Corporate cost included in nonservice cost components of postretirement benefits.
2Allocation of costs:
202020192018
Service costs included in OTP capital expenditures
$1,842 $1,365 $1,542 
Service costs included in electric operation and maintenance expenses4,621 3,994 4,756 
Service costs included in other nonelectric expenses159 132 161 
Nonservice costs capitalized48 (526)(99)
Nonservice costs included in nonservice cost components of postretirement benefits127 (1,589)(314)
Weighted average assumptions used to determine net periodic pension cost for the years ended December 31, 2020, 2019 and 2018:
 202020192018
Discount Rate3.47 %4.50 %3.90 %
Long-Term Rate of Return on Plan Assets6.88 %7.25 %7.50 %
Rate of Increase in Future Compensation Level:
Participants to Age 394.50 %4.50 %4.50 %
Participants Age 40 to Age 493.50 %3.50 %3.50 %
Participants Age 50 and Older2.75 %2.75 %2.75 %
The following table presents amounts recognized in the consolidated balance sheets as of December 31, 2020 and 2019: 
(in thousands)20202019
Regulatory Assets:  
Unrecognized Prior Service Cost$— $— 
Unrecognized Actuarial Loss137,500 120,592 
Total Regulatory Assets$137,500 $120,592 
Accumulated Other Comprehensive Loss:
Unrecognized Prior Service Cost$— $— 
Unrecognized Actuarial (Gain) Loss128 (82)
Total Accumulated Other Comprehensive Loss$128 $(82)
Noncurrent Liability$67,718 $55,004 
Funded status as of December 31, 2020 and 2019:
(in thousands)20202019
Accumulated Benefit Obligation$(385,302)$(346,723)
Projected Benefit Obligation$(428,396)$(384,785)
Fair Value of Plan Assets360,678 329,781 
Funded Status$(67,718)$(55,004)
The following table provides a reconciliation of the changes in the fair value of plan assets and the plan’s benefit obligations for the years ended December 31, 2020 and 2019:
(in thousands)20202019
Reconciliation of Fair Value of Plan Assets:  
Fair Value of Plan Assets at January 1$329,781 $269,783 
Actual Return on Plan Assets35,474 52,640 
Discretionary Company Contributions11,200 22,500 
Benefit Payments(15,777)(15,142)
Fair Value of Plan Assets at December 31$360,678 $329,781 
Estimated Asset Return10.7 %19.3 %
Reconciliation of Projected Benefit Obligation:
Projected Benefit Obligation at January 1$384,785 $328,442 
Service Cost6,621 5,491 
Interest Cost13,053 14,412 
Benefit Payments(15,777)(15,142)
Actuarial Loss39,714 51,582 
Projected Benefit Obligation at December 31$428,396 $384,785 
Weighted average assumptions used to determine benefit obligations at December 31, 2020 and 2019:
 20202019
Discount Rate2.78 %3.47 %
Rate of Increase in Future Compensation Level:
Participants to Age 394.50 %4.50 %
Participants Age 40 to Age 493.50 %3.50 %
Participants Age 50 and Older2.75 %2.75 %
The assumed long-term rate of return on plan assets is based primarily on asset category studies using historical market return and volatility data with forward looking estimates based on existing financial market conditions and forecasts of capital markets. Modest excess return expectations versus some market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically. We review our rate of return on plan asset assumptions annually. The assumptions are largely based on the asset category rate-of-return assumptions developed annually with our pension plan investment advisors, as well as input from actuaries who work with the pension plan and benchmarking to peer companies with similar asset allocation strategies. 
Market-related value of plan assets. Our expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market-related value of plan assets.
We base actuarial determination of pension plan expense or income on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation calculation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the fair value of assets. Since the market-related valuation calculation recognizes gains or losses over a five-year period, the future value of the market-related assets will be impacted as previously deferred gains or losses are recognized. 
Measurement Dates:20202019
Net Periodic Pension Cost2020-01-012019-01-01
End of Year Benefit ObligationsJanuary 1, 2020 projected to December 31, 2020January 1, 2019 projected to December 31, 2019
Market Value of Assets2020-12-312019-12-31
Cash flows. We had no minimum funding requirement as of December 31, 2020 but made discretionary plan contributions of $10.0 million in January 2021.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid out from plan assets:
(in thousands)20212022202320242025Years 2026-2030
Benefit Payments$16,536 $17,050 $17,694 $18,298 $18,856 $100,797 
The following objectives guide the investment strategy of our pension plan (the Plan): 
•The assets of the Plan will be invested in accordance with all applicable laws in a manner consistent with fiduciary standards including Employee Retirement Income Security Act standards (if applicable). Specifically:
◦The safeguards and diversity that a prudent investor would adhere to must be present in the investment program.
◦All transactions undertaken on behalf of the Plan must be in the best interest of plan participants and their beneficiaries.
•The primary objective of the Plan is to provide a source of retirement income for its participants and beneficiaries.
•The near-term primary financial objective of the Plan is to improve the funded status of the Plan.
•A secondary financial objective is to minimize pension funding and expense volatility where possible.
The asset allocation strategy developed by the Company’s Retirement Plans Administration Committee (the Committee) is based on the current needs of the Plan and the objectives listed above. An asset/liability review is conducted annually or as often as necessary to assess the impact of various asset allocations on funded status and other financial variables. The current needs of the Plan, the overall investment objectives above, the investment preferences and risk tolerance of the Committee and the desired degree of diversification suggest the need for an investment allocation including multiple asset classes.
The asset allocation in the table below contains guideline percentages, at market value, of the total Plan invested in various asset classes. The Permitted Range is a guide and will at times not reflect the actual asset allocation as this will be dictated by market conditions, the independent actions of the Committee and/or Investment Managers and required cash flows to and from the Plan. The Permitted Range anticipates this fluctuation and provides flexibility for the Investment Managers’ portfolios to vary around the target without the need for immediate rebalancing. The Investment Manager will proactively monitor the asset allocation and will direct the purchases and sales to remain within the stated ranges.
The policy of the Plan is to invest assets in accordance with the allocations shown below:
 Permitted Range
Asset Class / PBO Funded Status< 85% PBO>=85% PBO>=90% PBO>=95% PBO>=100% PBO
Equity39%—59%34%—54%24%—44%14%—34%0%—20%
Investment Grade Fixed Income22%—42%30%—50%40%—60%53%—73%70%—100%
Below Investment Grade Fixed Income1
0%—15%0%—15%0%—15%0%—10%0%—10%
Other2
5%—20%5%—20%5%—20%0%—15%0%—15%
1Includes (but not limited to) High Yield Bond Fund and Emerging Markets Debt funds.
2Other category may include cash, alternatives, and/or other investment strategies that may be classified other than equity or fixed income, such as the Dynamic Asset Allocation fund or the SEI Energy Debt Collective Fund.
Pension plan asset allocations at December 31, 2020 and 2019, by asset category are as follows:
Asset Allocation20202019
Global MGD Volatility Fund (mixed equities fund)
19.3 %20.4 %
Large Capitalization Equity Securities11.8 11.3 
International Equity Securities9.9 9.3 
Emerging Markets Equity Fund4.5 4.2 
Small and Mid-Capitalization Equity Securities4.5 4.1 
SEI Dynamic Asset Allocation Fund3.2 3.1 
Equity Securities53.2 52.4 
Fixed-Income Securities and Cash44.2 44.7 
Other – SEI Energy Debt Collective Fund2.6 2.9 
 100.0 %100.0 %
The following table presents the pension fund assets measured at fair value and included in Level 1 of the fair value hierarchy and assets measured using the NAV practical expedient to fair valuation as of December 31, 2020 and 2019:
(in thousands)20202019
Assets in Level 1 of the Fair Value Hierarchy$351,458 $320,241 
SEI Energy Debt Collective Fund at NAV9,220 9,540 
Total Assets$360,678 $329,781 
Fair Value Measurements of Pension Fund Assets: The following table presents the Company’s pension fund assets measured at fair value and included in Level 1 of the fair value hierarchy as of December 31, 2020 and 2019:
(in thousands)20202019
Global MGD Volatility Fund (mixed equities fund)
$69,607 $67,184 
Large Capitalization Equity Securities Mutual Fund42,697 37,357 
International Equity Securities Mutual Funds35,607 30,653 
Small and Mid-Capitalization Equity Securities Mutual Fund16,111 13,447 
SEI Dynamic Asset Allocation Mutual Fund11,729 10,168 
Emerging Markets Equity Fund16,146 13,792 
Fixed Income Securities Mutual Funds159,192 147,639 
Cash Management – Money Market Fund369 1 
Total Assets$351,458 $320,241 
The investments held by the SEI Energy Debt Collective Fund on December 31, 2020 and 2019 consist mainly of below investment grade high yielding bonds and loans of U.S. energy companies which trade at a discount to fair value. Redemptions are allowed semi-annually with a 95-day notice period, subject to fund director consent and certain gate, holdback and suspension restrictions. Subscriptions are allowed monthly with a three-year lock up on subscriptions. The fund’s assets are valued in accordance with valuations reported by the fund’s sub-advisor or the fund’s underlying investments or other independent third-party sources, although SEI in its discretion may use other valuation methods, subject to compliance with ERISA (as applicable). The fund’s assets are valued as of the close of business on the last business day of each calendar month and are available 30 days after the end of a calendar quarter. On an annual basis, as determined by the investment manager in its sole discretion, an independent valuation agent is retained to provide a valuation of the illiquid assets of the fund and of any other asset of the fund, as determined by the investment manager in its sole discretion. We review and verify the reasonableness of the year-end valuations.
Executive Survivor and Supplemental Retirement Plan (ESSRP)
The ESSRP is an unfunded nonqualified benefit plan for certain executive officers and key management employees that provides for defined benefit payments to these employees on their retirement for life or to their beneficiaries on their death. In addition, the ESSRP provides for survivor benefit payments to beneficiaries of the plan participants. On December 26, 2019, the Company’s Board of Directors amended and restated the ESSRP to provide for (i) the freezing of participation in the restoration retirement benefit component of the ESSRP and (ii) the freezing of benefit accruals under the restoration retirement benefit component of the ESSRP for all participants, except those designated as a grandfathered participant, effective December 31, 2019.
The following table lists components of net periodic pension benefit cost for the years ended December 31, 2020, 2019 and 2018:
(in thousands)202020192018
Service Cost–Benefit Earned During the Period$179 $418 $408 
Interest Cost on Projected Benefit Obligation1,449 1,735 1,589 
Amortization of Prior Service Cost:
From Regulatory Asset— 5 20 
From Other Comprehensive Income1
— 17 34 
Amortization of Net Actuarial Loss:
From Regulatory Asset93 124 206 
From Other Comprehensive Income1
341 348 722 
Net Periodic Pension Cost2
$2,062 $2,647 $2,979 
1Amortization of prior service costs and net actuarial losses from other comprehensive income are included in nonservice cost components of postretirement benefits on the face of the Company’s consolidated statements of income.
2Allocation of costs:
202020192018
Service costs included in electric operation and maintenance expenses$— $104 $99 
Service costs included in other nonelectric expenses179 314 309 
Nonservice costs included in nonservice cost components of postretirement benefits1,883 2,229 2,571 
Weighted average assumptions used to determine net periodic pension cost for the years ended December 31, 2020, 2019 and 2018: 
 202020192018
Discount Rate3.36 %4.46 %3.85 %
Rate of Increase in Future Compensation Level3.50 %3.40 %2.92 %
The following table presents amounts recognized in the consolidated balance sheets as of December 31, 2020 and 2019: 
(in thousands)20202019
Regulatory Assets:  
Unrecognized Prior Service Cost$— $— 
Unrecognized Actuarial Loss2,681 2,170 
Total Regulatory Assets$2,681 $2,170 
Projected Benefit Obligation Liability – Net Amount Recognized$(47,894)$(43,966)
Accumulated Other Comprehensive Loss:
Unrecognized Prior Service Cost$1 $1 
Unrecognized Actuarial Loss12,030 9,170 
Total Accumulated Other Comprehensive Loss$12,031 $9,171 
The following table provides a reconciliation of the changes in the fair value of plan assets and the plan’s projected benefit obligations for the years ended December 31, 2020 and 2019 and a statement of the funded status as of December 31 of both years: 
(in thousands)20202019
Reconciliation of Fair Value of Plan Assets:  
Fair Value of Plan Assets at January 1$— $— 
Actual Return on Plan Assets— — 
Employer Contributions1,505 1,475 
Benefit Payments(1,505)(1,475)
Fair Value of Plan Assets at December 31$— $— 
Reconciliation of Projected Benefit Obligation:
Projected Benefit Obligation at January 143,966 39,699 
Service Cost179 418 
Interest Cost1,449 1,735 
Benefit Payments(1,505)(1,475)
Curtailments— (1,671)
Actuarial Loss3,805 5,260 
Projected Benefit Obligation at December 31$47,894 $43,966 
Weighted average assumptions used to determine benefit obligations at December 31, 2020 and 2019:
 20202019
Discount Rate2.61 %3.36 %
Rate of Increase in Future Compensation Level:3.00 %3.50 %
Cash flows: The ESSRP is unfunded and has no assets; contributions are equal to the benefits paid to plan participants. The following benefit payments, which reflect future service, as appropriate, are expected to be paid: 
(in thousands)20212022202320242025Years 2026-2030
Benefit Payments$1,575 $2,049 $2,723 $2,707 $2,645 $14,348 
Other Postretirement Benefits
We provide a portion of health insurance benefits for retired OTP and corporate employees. The retiree health insurance benefits will be available for all corporate employees and OTP nonunion employees hired prior to September 1, 2006, and all union employees of OTP hired prior to November 1, 2010, excluding Coyote Station employees. Coyote Station employees hired before January 1, 2009 are covered under the plan. To be eligible for retiree health insurance benefits the employee must be 55 years of age with a minimum of 10 years of service. There are no plan assets. 
We elected to obtain post-65 prescription drug subsidies for our non-union plan participants beginning in 2020 and for our union plan participants beginning in 2021 from an employer group waiver plan. As a result, we will no longer apply for prescription drug subsidies for these participants. The net effect of these plan amendments reduced the projected benefit obligation for the plan by $20.9 million as of December 31, 2019 and $3.9 million as of December 31, 2020, respectively. The net savings from these changes will be recognized as reduction to expense over the expected remaining service period to retirement-age eligibility for active participants.
The following table lists components of net periodic postretirement benefit cost for the years ended December 31, 2020, 2019 and 2018: 
(in thousands)202020192018
Service Cost–Benefit Earned During the Period$1,847 $1,286 $1,526 
Interest Cost on Projected Benefit Obligation2,393 3,083 2,583 
Amortization of Prior Service Cost
From Regulatory Asset(4,677)— — 
From Other Comprehensive Income1
(115)— — 
Amortization of Net Actuarial Loss
From Regulatory Asset4,206 1,571 1,648 
From Other Comprehensive Income1
104 38 42 
Net Periodic Postretirement Benefit Cost2
$3,758 $5,978 $5,799 
Effect of Medicare Part D Subsidy$1,123 $(179)$(470)
1Corporate cost included in nonservice cost components of postretirement benefits.
2Allocation of costs:
202020192018
Service costs included in OTP capital expenditures$514 $320 $364 
Service costs included in electric operation and maintenance expenses1,289 935 1,124 
Service costs included in other nonelectric expenses44 31 38 
Nonservice costs capitalized532 1,167 1,020 
Nonservice costs included in nonservice cost components of postretirement benefits1,379 3,525 3,253 
Weighted average assumptions used to determine net periodic postretirement benefit cost for the years ended December 31, 2020, 2019 and 2018: 
 202020192018
Discount Rate3.43 %4.44 %3.81 %
The following table presents amounts recognized in the consolidated balance sheets as of December 31, 2020 and 2019: 
(in thousands)20202019
Regulatory Asset:  
Unrecognized Prior Service Credit$(19,579)(20,363)
Unrecognized Net Actuarial Loss (Gain)32,238 $35,322 
Net Regulatory Asset$12,659 $14,959 
Projected Benefit Obligation Liability – Net Amount Recognized$(70,185)$(71,437)
Accumulated Other Comprehensive (Income) Loss:
Unrecognized Prior Service Credit$(386)(501)
Unrecognized Net Actuarial Loss (Gain)21 184 
Accumulated Other Comprehensive (Income) Loss:$(365)$(317)
The following table provides a reconciliation of the changes in the fair value of plan assets and the plan’s projected benefit obligations and accrued postretirement benefit cost for the years ended December 31, 2020 and 2019: 
(in thousands)20202019
Reconciliation of Fair Value of Plan Assets:  
Fair Value of Plan Assets at January 1$— $— 
Actual Return on Plan Assets— — 
Company Contributions2,662 2,757 
Benefit Payments (Net of Medicare Part D Subsidy)(6,694)(7,164)
Participant Premium Payments4,032 4,407 
Fair Value of Plan Assets at December 31$— $— 
Reconciliation of Projected Benefit Obligation:
Projected Benefit Obligation at January 1$71,437 $71,561 
Service Cost (Net of Medicare Part D Subsidy)1,847 1,286 
Interest Cost (Net of Medicare Part D Subsidy)2,393 3,083 
Benefit Payments (Net of Medicare Part D Subsidy)(6,694)(7,164)
Participant Premium Payments4,032 4,407 
Plan Amendments(3,891)(20,864)
Actuarial Loss1,061 19,128 
Projected Benefit Obligation at December 31$70,185 $71,437 
Reconciliation of Accrued Postretirement Cost:
Accrued Postretirement Cost at January 1$(56,795)$(53,574)
Expense(3,758)(5,978)
Net Company Contribution2,662 2,757 
Accrued Postretirement Cost at December 31$(57,891)$(56,795)
Weighted average assumptions used to determine benefit obligations at December 31, 2020 and 2019:
 20202019
Discount Rate2.75 %3.43 %
Assumed healthcare cost-trend rates as of December 31, 2020 and 2019:
 20202019
Healthcare Cost-Trend Rate Assumed for Next Year6.44 %6.72 %
Rate to Which the Cost-Trend Rate is Assumed to Decline4.50 %4.50 %
Year the Rate Reaches the Ultimate Trend Rate20382038
Measurement Dates:20202019
Net Periodic Postretirement Benefit Cost2020-01-012019-01-01
End of Year Benefit ObligationsJanuary 1, 2020 projected to December 31, 2020January 1, 2019 projected to December 31, 2019
Cash flows: The following benefit payments, which reflect expected future service, as appropriate, net of participant premium payments, are expected to be paid:
(in thousands)20212022202320242025Years 2026-2030
Benefit Payments$2,825 $2,955 $3,079 $3,199 $3,295 $16,893 
401K Plan
We sponsor a 401K plan for the benefit of all corporate and subsidiary company employees. Contributions made to these plans totaled $5.3 million for 2020, $5.3 million for 2019 and $4.5 million for 2018.