XML 101 R21.htm IDEA: XBRL DOCUMENT
v3.19.3.a.u2

Pension Plans and Other Postretirement Benefits | 12 Months Ended
--- | ---
Dec. 31, 2019
Compensation and Retirement Disclosure [Abstract] |
Pension Plans and Other Postretirement Benefits | Pension Plans and Other Postretirement Benefits - MGE Energy and MGE. MGE maintains qualified and nonqualified pension plans, health care, and life insurance benefits, and defined contribution 401(k) benefit plans for its employees and retirees. MGE's costs for the 401(k) plans were $4.4 million, $3.9 million, and $3.5 million for the years ended December 31, 2019, 2018, and 2017, respectively. A measurement date of December 31 is utilized for all pension and postretirement benefit plans. All employees hired after December 31, 2006, have been enrolled in the defined contribution pension plan rather than the defined benefit pension plan previously in place. a.Benefit Obligations and Plan Assets.
| (In thousands) |  | Pension Benefits |  | Other Postretirement Benefits |
| Change in Benefit Obligations: |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
| Net benefit obligation at beginning of year | $ | 360,288 | $ | 391,269 | $ | 75,161 | $ | 82,290 |
| Service cost |  | 4,692 |  | 5,723 |  | 1,110 |  | 1,283 |
| Interest cost |  | 14,302 |  | 12,859 |  | 2,893 |  | 2,612 |
| Plan participants' contributions |  | - |  | - |  | 969 |  | 950 |
| Actuarial loss (gain)(a) |  | 47,671 |  | (34,439) |  | 5,045 |  | (7,555) |
| Gross benefits paid |  | (16,302) |  | (15,124) |  | (4,497) |  | (4,623) |
| Less: federal subsidy on benefits paid(b) |  | - |  | - |  | 220 |  | 204 |
| Benefit obligation at end of year | $ | 410,651 | $ | 360,288 | $ | 80,901 | $ | 75,161 |
| Change in Plan Assets: |  |  |  |  |  |  |  |  |
| Fair value of plan assets at beginning of year | $ | 323,780 | $ | 361,651 | $ | 42,521 | $ | 48,470 |
| Actual return on plan assets |  | 76,766 |  | (24,485) |  | 9,277 |  | (2,780) |
| Employer contributions |  | 1,789 |  | 1,738 |  | 619 |  | 504 |
| Plan participants' contributions |  | - |  | - |  | 969 |  | 950 |
| Gross benefits paid |  | (16,302) |  | (15,124) |  | (4,497) |  | (4,623) |
| Fair value of plan assets at end of year |  | 386,033 |  | 323,780 |  | 48,889 |  | 42,521 |
| Funded Status as of December 31 | $ | (24,618) | $ | (36,508) | $ | (32,012) | $ | (32,640) |
(a)In 2019, lower discount rates were the main driver of the actuarial loss. However, in 2018, higher discount rates were the main driver of the actuarial gain. (b)In 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was signed into law authorizing Medicare to provide prescription drug benefits to retirees. For the years ended December 31, 2019 and 2018, the subsidy due to MGE was $0.2 million. The accumulated benefit obligation for the defined benefit pension plans as of December 31, 2019 and 2018, was $383.0 million and $335.8 million, respectively. The amounts recognized in the consolidated balance sheets to reflect the funded status of the plans as of December 31 are as follows:
|  |  | Pension Benefits |  | Other Postretirement Benefits |
| (In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
| Long-term asset | $ | 13,630 | $ | - | $ | - | $ | - |
| Current liability |  | (1,688) |  | (1,732) |  | - |  | - |
| Long-term liability |  | (36,560) |  | (34,776) |  | (32,012) |  | (32,640) |
| Net liability | $ | (24,618) | $ | (36,508) | $ | (32,012) | $ | (32,640) |
The following table shows the amounts that have not yet been recognized in our net periodic benefit cost as of December 31 and are recorded as regulatory assets in the consolidated balance sheets:
|  |  | Pension Benefits |  | Other Postretirement Benefits |
| (In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
| Net actuarial loss | $ | 79,290 | $ | 92,978 | $ | 8,659 | $ | 10,569 |
| Prior service benefit |  | (268) |  | (385) |  | (4,484) |  | (7,153) |
| Transition obligation |  | - |  | - |  | 17 |  | 21 |
| Total | $ | 79,022 | $ | 92,593 | $ | 4,192 | $ | 3,437 |
The projected benefit obligation and fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets were as follows:
| (In thousands) |  | Pension Benefits |
| Projected Benefit Obligation in Excess of Plan Assets |  | 2019 |  | 2018 |
| Projected benefit obligation, end of year | $ | 38,247 | $ | 360,288 |
| Fair value of plan assets, end of year |  | - |  | 323,780 |
The accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets were as follows:
| (In thousands) |  | Pension Benefits |
| Accumulated Benefit Obligation in Excess of Plan Assets |  | 2019 |  | 2018 |
| Accumulated benefit obligation, end of year | $ | 35,798 | $ | 31,200 |
| Fair value of plan assets, end of year |  | - |  | - |
b.Net Periodic Benefit Cost.
| (In thousands) |  | Pension Benefits |  | Other Postretirement Benefits |
| Components of Net Periodic Benefit Cost: |  | 2019(a) |  | 2018 |  | 2017 |  | 2019(a) |  | 2018 |  | 2017 |
| Service cost | $ | 4,692 | $ | 5,723 | $ | 5,383 | $ | 1,110 | $ | 1,283 | $ | 1,231 |
| Interest cost |  | 14,302 |  | 12,859 |  | 12,625 |  | 2,893 |  | 2,612 |  | 2,666 |
| Expected return on assets |  | (22,786) |  | (26,241) |  | (22,963) |  | (2,723) |  | (3,232) |  | (2,887) |
| Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |
| Transition obligation |  | - |  | - |  | - |  | 3 |  | 3 |  | 3 |
| Prior service (credit) cost |  | (117) |  | (44) |  | (17) |  | (2,669) |  | (2,669) |  | (2,669) |
| Actuarial loss |  | 7,379 |  | 5,278 |  | 6,352 |  | 401 |  | 488 |  | 660 |
| Net periodic benefit cost (credit) | $ | 3,470 | $ | (2,425) | $ | 1,380 | $ | (985) | $ | (1,515) | $ | (996) |
(a)MGE has deferred approximately $6.2 million of pension and other postretirement costs. The impact of the deferral has not been reflected in the table above. See Footnote 8 for further information. The components of net periodic benefit cost, other than the service cost component, are recorded in "Other income, net" on the consolidated statements of income. The service cost component is recorded in "Other operations and maintenance" on the consolidated statements of income. Prior to January 1, 2018, a portion of all net periodic benefit cost components were capitalized within the consolidated balance sheets. The FASB issued authoritative guidance within the codification's Compensation-Retirement Benefits topic that, beginning January 1, 2018, only allows the service cost component of net periodic benefit cost to be eligible for capitalization within the consolidated balance sheets. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net periodic benefit costs are recovered and when costs are recognized. c.Plan Assumptions. The weighted-average assumptions used to determine the benefit obligations were as follows for the years ended December 31:
|  |  | Pension Benefits |  | Other Postretirement Benefits |
|  |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
| Discount rate |  | 3.42 | % |  | 4.32 | % |  | 3.30 | % |  | 4.24 | % |
| Rate of compensation increase |  | 3.21 | % |  | 3.20 | % |  | N/A |  |  | N/A |  |
| Assumed health care cost trend rates: |  |  |  |  |  |  |  |  |  |  |  |  |
| Health care cost trend rate assumed for next year |  | N/A |  |  | N/A |  |  | 6.00 | % |  | 6.25 | % |
| Rate to which the cost trend rate is assumed to |  |  |  |  |  |  |  |  |  |  |  |  |
| decline (the ultimate trend rate) |  | N/A |  |  | N/A |  |  | 5.00 | % |  | 5.00 | % |
| Year that the rate reaches the ultimate trend rate |  | N/A |  |  | N/A |  |  | 2024 |  |  | 2024 |  |
MGE uses individual spot rates, instead of a weighted average of the yield curve spot rates, for measuring the service cost and interest cost components of net periodic benefit cost.The weighted-average assumptions used to determine the net periodic cost were as follows for the years ended December 31:
|  |  | Pension Benefits |  | Other Postretirement Benefits |
|  |  | 2019 |  | 2018 |  | 2017 |  | 2019 |  | 2018 |  | 2017 |
| Discount rate |  | 4.32 | % |  | 3.73 | % |  | 4.30 | % |  | 4.24 | % |  | 3.60 | % |  | 4.09 | % |
| Expected rate of return on plan assets |  | 7.20 | % |  | 7.40 | % |  | 7.40 | % |  | 6.72 | % |  | 6.94 | % |  | 6.80 | % |
| Rate of compensation increase |  | 3.25 | % |  | 3.72 | % |  | 3.76 | % |  | N/A |  |  | N/A |  |  | N/A |  |
The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The following table shows how an assumed 1% increase or 1% decrease in health care cost trends could impact postretirement benefits in 2019 dollars:
| (In thousands) |  | 1% Increase |  | 1% Decrease |
| Effect on other postretirement benefit obligation | $ | 674 | $ | (918) |
| Effect on total service and interest cost components |  | 25 |  | (34) |
MGE employs a building-block approach in determining the expected long-term rate of return for asset classes. Historical markets are studied and long-term historical relationships among asset classes are analyzed, consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors, such as interest rates and dividend yields, are evaluated before long-term capital market assumptions are determined. The expected long-term nominal rate of return for plan assets is primarily a function of expected long-term real rates of return for component asset classes and the plan's target asset allocation in conjunction with an inflation assumption. Peer data and historical returns are reviewed to check for appropriateness. d.Investment Strategy. MGE employs a total return investment approach whereby a mix of equities, fixed income, and real estate investments are used to maximize the expected long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan-funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity, fixed income, and real estate investments. Investment risk is measured and monitored on an ongoing basis through periodic investment portfolio reviews and liability measurements. The asset allocation for MGE's pension plans as of December 31, 2019 and 2018, and the target allocation for 2020, by asset category, follows:
|  | Target Allocation |  | Percentage of Plan Assets at Year End |
|  |  | 2019 |  | 2018 |
| Equity securities(a) | 63.0 | % |  | 64.0 | % |  | 60.0 | % |
| Fixed income securities | 30.0 | % |  | 29.0 | % |  | 33.0 | % |
| Real estate | 7.0 | % |  | 7.0 | % |  | 7.0 | % |
| Total | 100.0 | % |  | 100.0 | % |  | 100.0 | % |
(a) Target allocations for equity securities are broken out as follows: 45.5% United States equity and 17.5% non-United States equity. The fair value of plan assets for the postretirement benefit plans is $48.9 million and $42.5 million as of December 31, 2019 and 2018, respectively. Of this amount, $42.8 million and $37.5 million as of December 31, 2019 and 2018, respectively, were held in the master pension trust and are allocable to postretirement health expenses. The target asset allocation and investment strategy for the portion of assets held in the master pension trust are the same as that explained for MGE's pension plans. The remainder of postretirement benefit assets are held either in an insurance continuance fund for the payment of retiree life benefits or health benefit trusts for payment of retiree health premiums. The asset allocation for the insurance continuance fund is determined by the life insurer. The target asset allocation for the health benefit trusts are established based on a similar investment strategy as assets held in the master pension trust, with consideration for liquidity needs in the health benefit trusts. e.Concentrations of Credit Risk. MGE evaluated its pension and other postretirement benefit plans' asset portfolios for the existence of significant concentrations of credit risk as of December 31, 2019. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, and foreign country. As of December 31, 2019, there were no significant concentrations (defined as greater than 10 percent of plan assets) of risk in MGE pension and postretirement benefit plan assets. f. Fair Value Measurements of Plan Assets. Pension and other postretirement benefit plan investments are recorded at fair value. See Footnote 19 for more information regarding the fair value hierarchy. The following descriptions are the categories of underlying plan assets held within the pension and other postretirement benefit plans as of December 31, 2019: Cash and Cash Equivalents – This category includes highly liquid investments with maturities of less than three months which are traded in active markets. Equity Securities – These securities consist of U.S. and international stock funds. The U.S. stock funds are primarily invested in domestic equities. Securities in these funds are typically priced using the closing price from the applicable exchange, NYSE, Nasdaq, etc. The international funds are composed of international equities. Securities are priced using the closing price from the appropriate local stock exchange. Fixed Income Securities – These securities consist of U.S. bond funds and short-term funds. U.S. bond funds are priced by a pricing agent using inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. The short-term funds are valued initially at cost and adjusted for amortization of any discount or premium. Real Estate – Real estate funds are funds with a direct investment in pools of real estate properties. These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals. The fair value of real estate investments is determined using net asset value. Insurance Continuance Fund (ICF) – The ICF is a supplemental retirement plan that includes assets that have been segregated and restricted to pay retiree term life insurance premiums. Fixed Rate Fund – The Fixed Rate fund is supported by an underlying portfolio of fixed income securities, including public bonds, commercial mortgages, and private placement bonds. Public market data and GAAP reported market values are used when available to determine fair value. All of the fair values of MGE's plan assets are measured using net asset value, except for cash and cash equivalents which are considered level 1 investments. The fair values of MGE's plan assets by asset category as of December 31 are as follows:
| (In thousands) |  | 2019 |  | 2018 |
| Cash and Cash Equivalents | $ | 964 | $ | 701 |
| Equity Securities: |  |  |  |  |
| U.S. Large Cap |  | 134,458 |  | 102,984 |
| U.S. Mid Cap |  | 31,288 |  | 23,683 |
| U.S. Small Cap |  | 36,495 |  | 28,573 |
| International Blend |  | 76,293 |  | 61,299 |
| Fixed Income Securities: |  |  |  |  |
| Short-Term Fund |  | 7,449 |  | 4,053 |
| High Yield Bond |  | 21,276 |  | 19,437 |
| Long Duration Bond |  | 92,642 |  | 93,216 |
| Real Estate |  | 29,671 |  | 27,923 |
| Insurance Continuance Fund |  | 1,530 |  | 1,491 |
| Fixed Rate Fund |  | 2,856 |  | 2,941 |
| Total | $ | 434,922 | $ | 366,301 |
g.Expected Cash Flows. MGE does not expect to need to make any required contributions to the qualified plans for 2020. The contributions for years after 2020 are not yet currently estimated. MGE has adopted the asset smoothing as permitted in accordance with the Pension Protection Act of 2006, including modifications made by WRERA. Due to uncertainties in the future economic performance of plan assets, discount rates, and other key assumptions, estimated contributions are subject to change. MGE may also elect to make additional discretionary contributions. In 2019, MGE made $5.7 million in employer contributions to its pension and postretirement plans. h.Benefit Payments. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
|  |  | Pension |  | Other Postretirement Benefits |
| (In thousands) |  | Pension Benefits |  | Gross Postretirement Benefits |  | Expected Medicare Part D Subsidy |  | Net Postretirement Benefits |
| 2020 | $ | 17,111 | $ | 4,580 | $ | (233) | $ | 4,347 |
| 2021 |  | 17,859 |  | 4,947 |  | (255) |  | 4,692 |
| 2022 |  | 19,029 |  | 5,161 |  | (283) |  | 4,878 |
| 2023 |  | 19,942 |  | 5,458 |  | (307) |  | 5,151 |
| 2024 |  | 20,768 |  | 5,676 |  | (330) |  | 5,346 |
| 2025 - 2029 |  | 113,044 |  | 28,054 |  | (2,060) |  | 25,994 |

X
- References No definition available. + Details
Name: | us-gaap_CompensationAndRetirementDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for pension and other postretirement benefits. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 715 -URI http://asc.fasb.org/topic&trid=2235017 + Details
Name: | us-gaap_PensionAndOtherPostretirementBenefitsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration