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Employee Postretirement Benefits | 12 Months Ended
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Dec. 31, 2021
Retirement Benefits [Abstract] |
Employee Postretirement Benefits | Employee Postretirement Benefits Pension Plan and Other Postretirement Benefits The Company sponsors a noncontributory funded pension plan (the "Pension Plan"), an unfunded, nonqualified Executive Survivor and Supplemental Retirement Plan ("ESSRP"), both accounted for as defined benefit pension plans, and a postretirement healthcare plan accounted for as an other postretirement benefit plan. The Pension Plan, which previously covered substantially all corporate and OTP employees, was closed to new employees in 2013. The plan provides retirement compensation to all covered employees at age 65, with reduced compensation in cases of retirement prior to age 62. Participants are fully vested after completing five years of vesting service. The plan assets consist of equity funds, fixed income funds, cash and cash equivalents and alternative investments. None of the plan assets are invested in common stock or debt securities of the Company. The ESSRP, an unfunded plan, provides for defined benefit payments to executive officers and certain key management employees on their retirement for life, or to their beneficiaries on their death. The ESSRP was amended and restated in 2019 to i) freeze the participation in the restoration retirement benefit component of the plan and ii) freeze benefit accruals under the restoration retirement benefit component of the plan for all participants of the plan, except any participants deemed to be grandfathered participants. The postretirement healthcare plan, closed to new participants in 2010, provides a portion of health insurance benefits for retired and covered corporate and OTP employees. To be eligible for retiree health insurance benefits, the employee must be 55 years of age with a minimum of 10 years of service. The plan is an unfunded plan and accordingly holds no plan assets. Pension Plan Assets. We have established a Retirement Plans Administration Committee to develop and monitor our investment strategy for our Pension Plan assets. Our investment strategy includes the following objectives: •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 of 1974 (ERISA) (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 Pension Plan must be in the best interest of plan participants and their beneficiaries. •The primary objective is to provide a source of retirement income for its participants and beneficiaries. •The near-term primary financial objective is to improve and protect the funded status of the plan. •A secondary financial objective is to minimize pension funding and expense volatility where possible. We have developed an asset allocation target, measured at investment market value, to provide guideline percentages of investment mix. This investment mix is intended to achieve the financial objectives of the plan. The permitted range is a guide and will at times not reflect the actual asset allocation due to market conditions, actions of our investment managers and required cash flows to and from the Pension Plan. The following table presents our target asset allocation permitted range along with the actual asset allocation as of December 31, 2021 and 2020:
| Permitted |  | Actual Allocation
Asset Class | Range |  | 2021 |  | 2020
Return Enhancement | 20 |  | – | 60% |  | 47 | % |  | 58 | %
Risk Management | 40 |  | – | 80% |  | 50 |  |  | 39 |
Alternatives | 0 |  | – | 20% |  | 3 |  |  | 3 |
Total |  |  |  |  | 100 | % |  | 100 | %
Return Enhancement investments are those that seek to provide equity-like, long-term capital appreciation. Examples include equity securities, including dynamic asset allocation funds, and higher yielding fixed income securities, such as high yield bonds and emerging market debt. Risk Management investments seek to decrease downside risk or act as a hedge against plan liabilities. Examples are cash and fixed income instruments. Alternative investments seek to either provide return enhancement through long-term appreciation or risk management through decreased downside risk. The defining characteristic of these asset types is uncorrelated source of returns, less liquidity and private market access. Examples include investments in the SEI Energy Debt Collective Fund. The following presents the fair value inputs classified within the fair value hierarchy used to measure Pension Plan assets at December 31, 2021 and 2020 and assets measured using the net asset value (NAV) practical expedient:
(in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | NAV |  | Total
December 31, 2021 |  |  |  |  |  |  |  |  |
Equity Funds | $ | 149,479 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 149,479 |
Fixed Income Funds | 184,987 |  |  | — |  |  | — |  |  | — |  |  | 184,987 |
Hybrid Funds | 11,776 |  |  | — |  |  | — |  |  | — |  |  | 11,776 |
U.S. Treasury Securities | 28,173 |  |  | — |  |  | — |  |  | — |  |  | 28,173 |
SEI Energy Debt Collective Fund | — |  |  | — |  |  | — |  |  | 12,797 |  |  | 12,797 |
Total | $ | 374,415 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,797 |  |  | $ | 387,212 |
December 31, 2020 |  |  |  |  |  |  |  |  |
Cash Equivalents | $ | 4 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |
Equity Funds | 180,169 |  |  | — |  |  | — |  |  | — |  |  | 180,169 |
Fixed Income Funds | 159,556 |  |  | — |  |  | — |  |  | — |  |  | 159,556 |
Hybrid Funds | 11,729 |  |  | — |  |  | — |  |  | — |  |  | 11,729 |
SEI Energy Debt Collective Fund | — |  |  | — |  |  | — |  |  | 9,220 |  |  | 9,220 |
Total | $ | 351,458 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,220 |  |  | $ | 360,678 |
The investments held by the SEI Energy Debt Collective Fund on December 31, 2021 and 2020 consist mainly of below investment grade high yield 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. 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. Funded Status. The following table provides a reconciliation of the changes in the fair value of plan assets and the actuarially computed benefit obligation for the years ended December 31, 2021 and 2020 and the funded status of the plans as of December 31, 2021 and 2020:
| Pension Benefits (Pension Plan) |  | Pension Benefits (ESSRP) |  | Postretirement Benefits
(in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Change in Fair Value of Plan Assets: |  |  |  |  |  |  |  |  |  |  |
Fair Value of Plan Assets at January 1 | $ | 360,678 |  |  | $ | 329,781 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Actual Return on Plan Assets | 32,816 |  |  | 35,474 |  |  | — |  |  | — |  |  | — |  |  | — |
Company Contributions | 10,000 |  |  | 11,200 |  |  | 1,562 |  |  | 1,505 |  |  | 2,695 |  |  | 2,662 |
Benefit Payments | (16,282) |  |  | (15,777) |  |  | (1,562) |  |  | (1,505) |  |  | (8,385) |  |  | (6,694) |
Participant Premium Payments | — |  |  | — |  |  | — |  |  | — |  |  | 5,690 |  |  | 4,032 |
Fair Value of Plan Assets at December 31 | 387,212 |  |  | 360,678 |  |  | — |  |  | — |  |  | — |  |  | — |
Change in Benefit Obligation: |  |  |  |  |  |  |  |  |  |  |
Benefit Obligation at January 1 | $ | 428,396 |  |  | $ | 384,785 |  |  | $ | 47,894 |  |  | $ | 43,966 |  |  | $ | 70,185 |  |  | $ | 71,437 |
Service Cost | 7,462 |  |  | 6,621 |  |  | 187 |  |  | 179 |  |  | 1,722 |  |  | 1,847 |
Interest Cost | 11,660 |  |  | 13,053 |  |  | 1,228 |  |  | 1,449 |  |  | 1,891 |  |  | 2,393 |
Benefit Payments | (16,282) |  |  | (15,777) |  |  | (1,562) |  |  | (1,505) |  |  | (8,385) |  |  | (6,694) |
Participant Premium Payments | — |  |  | — |  |  | — |  |  | — |  |  | 5,690 |  |  | 4,032 |
Plan Amendments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,891) |
Actuarial Loss (Gain) | (14,539) |  |  | 39,714 |  |  | (907) |  |  | 3,805 |  |  | (1,792) |  |  | 1,061 |
Benefit Obligation at December 31 | $ | 416,697 |  |  | $ | 428,396 |  |  | $ | 46,840 |  |  | $ | 47,894 |  |  | $ | 69,311 |  |  | $ | 70,185 |
Funded Status | $ | (29,485) |  |  | $ | (67,718) |  |  | $ | (46,840) |  |  | $ | (47,894) |  |  | $ | (69,311) |  |  | $ | (70,185) |
Amounts Recognized in Consolidated Balance Sheet at December 31: |  |  |  |  |  |  |  |
Current Liabilities | $ | — |  |  | $ | — |  |  | $ | (2,352) |  |  | $ | (1,557) |  |  | $ | (2,830) |  |  | $ | (2,826) |
Noncurrent Liabilities and Deferred Credits | (29,485) |  |  | (67,718) |  |  | (44,488) |  |  | (46,337) |  |  | (66,481) |  |  | (67,359) |
Total Liabilities | $ | (29,485) |  |  | $ | (67,718) |  |  | $ | (46,840) |  |  | $ | (47,894) |  |  | $ | (69,311) |  |  | $ | (70,185) |
The accumulated benefit obligation of our Pension Plan was $378.3 million and $385.3 million as of December 31, 2021 and 2020. The accumulated benefit obligation of our ESSRP was $46.8 million and $47.7 million as of December 31, 2021 and 2020. The following assumptions were used to determine benefit obligations as of December 31, 2021 and 2020:
| Pension Benefits (Pension Plan) |  | Pension Benefits (ESSRP) |  | Postretirement Benefits
| 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Discount Rate | 3.03 | % |  | 2.78 | % |  | 2.93 | % |  | 2.61 | % |  | 3.01 | % |  | 2.75 | %
Rate of Increase in Future Compensation | n/a |  | n/a |  | 3.00 | % |  | 3.00 | % |  | n/a |  | n/a
Participants to Age 39 | 4.50 | % |  | 4.50 | % |  | n/a |  | n/a |  | n/a |  | n/a
Participants Ages 40 to 49 | 3.50 | % |  | 3.50 | % |  | n/a |  | n/a |  | n/a |  | n/a
Participants Age 50 and Older | 2.75 | % |  | 2.75 | % |  | n/a |  | n/a |  | n/a |  | n/a
Healthcare Cost Immediate Trend Rate | n/a |  | n/a |  | n/a |  | n/a |  | 6.16 | % |  | 6.44 | %
Healthcare Cost Ultimate Trend Rate | n/a |  | n/a |  | n/a |  | n/a |  | 4.50 | % |  | 4.50 | %
Year the Rate Reaches the Ultimate Trend Rate | n/a |  | n/a |  | n/a |  | n/a |  | 2038 |  | 2038
The pension benefit liability of our Pension Plan decreased $38.2 million from December 31, 2020 to December 31, 2021 primarily due to an increase in the discount rate used to measure the obligation, from 2.78% to 3.03%, respectively, and from actual returns on Pension Plan investments in 2021 exceeding the expected return for the year. Net Periodic Benefit Cost. A portion of service cost may be capitalized as a cost of self-constructed property, plant and equipment. When recognized in the consolidated statements of income, service cost is recognized within one of the components of operating expenses. Nonservice cost components of net periodic benefit cost may be deferred and recognized as a regulatory asset under the accounting guidance for regulated operations. When recognized in the consolidated statements of income, nonservice cost components are recognized as nonservice cost components of postretirement benefits. The following table lists the components of net periodic benefit cost of our defined benefit pension plans and other postretirement benefits for the years ended December 31, 2021, 2020 and 2019:
| Pension Benefits (Pension Plan) |  | Pension Benefits (ESSRP) |  | Postretirement Benefits
(in thousands) | 2021 |  | 2020 |  | 2019 |  | 2021 |  | 2020 |  | 2019 |  | 2021 |  | 2020 |  | 2019
Service Cost | $ | 7,462 |  |  | $ | 6,621 |  |  | $ | 5,491 |  |  | $ | 187 |  |  | $ | 179 |  |  | $ | 418 |  |  | $ | 1,722 |  |  | $ | 1,847 |  |  | $ | 1,286 |
Interest Cost | 11,660 |  |  | 13,053 |  |  | 14,412 |  |  | 1,228 |  |  | 1,449 |  |  | 1,735 |  |  | 1,891 |  |  | 2,393 |  |  | 3,083 |
Expected Return on Assets | (22,359) |  |  | (22,021) |  |  | (21,297) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of Prior Service Cost | — |  |  | — |  |  | 14 |  |  | — |  |  | — |  |  | 22 |  |  | (5,733) |  |  | (4,792) |  |  | — |
Amortization of Net Actuarial Loss | 10,914 |  |  | 9,144 |  |  | 4,756 |  |  | 620 |  |  | 434 |  |  | 472 |  |  | 3,774 |  |  | 4,310 |  |  | 1,609 |
Net Periodic Benefit Cost | $ | 7,677 |  |  | $ | 6,797 |  |  | $ | 3,376 |  |  | $ | 2,035 |  |  | $ | 2,062 |  |  | $ | 2,647 |  |  | $ | 1,654 |  |  | $ | 3,758 |  |  | $ | 5,978 |
The following table includes the impact of regulation on the recognition of periodic benefit cost arising from pension and other postretirement benefits for the years ended December 31, 2021, 2020, 2019:
(in thousands) | 2021 |  | 2020 |  | 2019
Net Periodic Benefit Cost | $ | 11,366 |  |  | $ | 12,617 |  |  | $ | 12,001 |
Net Amount Amortized (Deferred) Due to the Effect of Regulation | 21 |  |  | (533) |  |  | (513) |
Net Periodic Benefit Cost Recognized | $ | 11,387 |  |  | $ | 12,084 |  |  | $ | 11,488 |
The following assumptions were used to determine net periodic benefit cost for the years ended December 31, 2021, 2020 and 2019:
| Pension Benefits (Pension Plan) |  | Pension Benefits (ESSRP) |  | Postretirement Benefits
| 2021 |  | 2020 |  | 2019 |  | 2021 |  | 2020 |  | 2019 |  | 2021 |  | 2020 |  | 2019
Discount Rate | 2.78 | % |  | 3.47 | % |  | 4.50 | % |  | 2.61 | % |  | 3.36 | % |  | 4.46 | % |  | 2.75 | % |  | 3.43 | % |  | 4.44 | %
Long-Term Rate of Return on Plan Assets | 6.51 | % |  | 6.88 | % |  | 7.25 | % |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a
Rate of Increase in Future Compensation | n/a |  | n/a |  | n/a |  | 3.00 | % |  | 3.50 | % |  | 3.40 | % |  | n/a |  | n/a |  | n/a
Participants to Age 39 | 4.50 | % |  | 4.50 | % |  | 4.50 | % |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a
Participants Ages 40 to 49 | 3.50 | % |  | 3.50 | % |  | 3.50 | % |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a
Participants Age 50 and Older | 2.75 | % |  | 2.75 | % |  | 2.75 | % |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a |  | n/a
We develop our estimated discount rate through the use of a hypothetical bond portfolio method. This method derives the discount rate from the average yield of a collection of high credit quality bonds which produce cash flows similar to our anticipated future benefit payments. We estimate the assumed long-term rate of return on plan assets 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. The following table presents the amounts not yet recognized as components of net periodic benefit cost as of December 31, 2021 and 2020:
| Pension Benefits (Pension Plan) |  | Pension Benefits (ESSRP) |  | Postretirement Benefits
(in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Regulatory Assets: |  |  |  |  |  |  |  |  |  |  |
Unrecognized Prior Service Cost | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (13,989) |  |  | $ | (19,579) |
Unrecognized Actuarial Loss | 102,737 |  |  | 137,500 |  |  | 2,525 |  |  | 2,681 |  |  | 26,852 |  |  | 32,238 |
Total Regulatory Assets | $ | 102,737 |  |  | $ | 137,500 |  |  | $ | 2,525 |  |  | $ | 2,681 |  |  | $ | 12,863 |  |  | $ | 12,659 |
Accumulated Other Comprehensive Loss: |  |  |  |  |  |  |  |  |  |  |
Unrecognized Prior Service Cost | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | (242) |  |  | $ | (386) |
Unrecognized Actuarial (Gain) Loss | (1,020) |  |  | 128 |  |  | 10,660 |  |  | 12,030 |  |  | (160) |  |  | 21 |
Total Accumulated Other Comprehensive Loss | $ | (1,020) |  |  | $ | 128 |  |  | $ | 10,660 |  |  | $ | 12,031 |  |  | $ | (402) |  |  | $ | (365) |
Cash Flows. We made discretionary contributions to our Pension Plan of $10.0 million, $11.2 million and $22.5 million in 2021, 2020 and 2019, respectively. As of December 31, 2021, we had no minimum funding requirements for our Pension Plan, but made a discretionary contribution of $20.0 million in February 2022. Contributions to our ESSRP and postretirement healthcare plan are equal to the benefits paid to plan participants. The following reflects anticipated benefit payments to be paid in each of the next five years and in the aggregate for the five year period thereafter under our pension plans and postretirement healthcare plan:
(in thousands) | 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027-2032
Projected Pension Plan Benefit Payments | $ | 17,200 |  |  | $ | 17,860 |  |  | $ | 18,428 |  |  | $ | 18,947 |  |  | $ | 19,427 |  |  | $ | 102,905 |
Projected ESSRP Benefit Payments | 1,981 |  |  | 2,570 |  |  | 2,781 |  |  | 2,715 |  |  | 2,828 |  |  | 14,941 |
Projected Postretirement Benefit Payments | 3,001 |  |  | 3,126 |  |  | 3,209 |  |  | 3,324 |  |  | 3,432 |  |  | 17,225 |
Total | $ | 22,182 |  |  | $ | 23,556 |  |  | $ | 24,418 |  |  | $ | 24,986 |  |  | $ | 25,687 |  |  | $ | 135,071 |
401K Plan We sponsor a 401K plan for the benefit of all corporate and subsidiary company employees. Contributions made to these plans totaled $6.5 million for 2021, $5.3 million for 2020 and $5.3 million for 2019.

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