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Retirement Benefit Plans
 12 Months Ended
Dec. 31, 2019
Retirement Benefit Plans
Note 10: Retirement Benefit Plans
The Company sponsors the following retirement benefit plans to provide certain pension and post-retirement benefits for its retirees and current employees as follows:
 
•
The Unitil Corporation Retirement Plan (Pension Plan)—The Pension Plan is a defined benefit pension plan. Under the Pension Plan, retirement benefits are based upon an employee’s level of compensation and length of service.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
The Unitil Retiree Health and Welfare Benefits Plan (PBOP Plan)—The PBOP Plan provides health care and life insurance benefits to retirees. The Company has established Voluntary Employee Benefit Trusts, into which it funds contributions to the PBOP Plan.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•
The Unitil Corporation Supplemental Executive Retirement Plan (SERP)—The SERP is a
non-qualified
retirement plan, with participation limited to executives selected by the Board of Directors.
 
 
 
 
 
 
 
The following table includes the key assumptions used in determining the Company’s benefit plan costs and obligations:
 
 
2019
 
 
2018
 
 
2017
 
Used to Determine Plan costs for years ended December 31:
 
 
 
 
 
 
Discount Rate
 
 
4.25
%
 
 
3.60
%
 
 
4.10
%
Rate of Compensation Increase
 
 
3.00
%
 
 
3.00
%
 
 
3.00
%
Expected Long-term rate of return on plan assets
 
 
7.50
%
 
 
7.75
%
 
 
7.75
%
Health Care Cost Trend Rate Assumed for Next Year
 
 
7.00
%
 
 
7.50
%
 
 
8.00
%
Ultimate Health Care Cost Trend Rate
 
 
4.50
%
 
 
4.50
%
 
 
4.00
%
Year that Ultimate Health Care Cost Trend Rate is reached
 
 
2024
 
 
 
2024
 
 
 
2025
 
 
 
 
 
 
 
 
 
 
 
Used to Determine Benefit Obligations at December 31:
 
 
 
 
 
 
Discount Rate
 
 
3.25
%
 
 
4.25
%
 
 
3.60
%
Rate of Compensation Increase
 
 
3.00
%
 
 
3.00
%
 
 
3.00
%
Health Care Cost Trend Rate Assumed for Next Year
 
 
7.00
%
 
 
7.00
%
 
 
7.50
%
Ultimate Health Care Cost Trend Rate
 
 
4.50
%
 
 
4.50
%
 
 
4.50
%
Year that Ultimate Health Care Cost Trend Rate is reached
 
 
2029
 
 
 
2024
 
 
 
2024
 
 
 
 
 
The Discount Rate assumptions used in determining retirement plan costs and retirement plan obligations are based on an assessment of current market conditions using high quality corporate bond interest rate indices and pension yield curves. For 2019, a change in the discount rate of 0.25
% would have resulted in an increase or decrease of approximately $534
,000 in the Net Periodic Benefit Cost (NPBC). The Rate of Compensation Increase assumption used for 2019 was based on the expected long-term increase in compensation costs for personnel covered by the plans.
The following table provides the components of the Company’s Retirement plan costs (000’s):
 
 
Pension Plan
 
 
PBOP Plan
 
 
SERP
 
 
2019
 
 
2018
 
 
2017
 
 
2019
 
 
2018
 
 
2017
 
 
2019
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service Cost
 
$
3,104
 
 
$
3,393
 
 
$
3,295
 
 
$
2,304
 
 
$
2,933
 
 
$
2,974
 
 
$
247
 
 
$
487
 
 
$
460
 
Interest Cost
 
 
6,484
 
 
 
5,878
 
 
 
6,057
 
 
 
3,426
 
 
 
3,404
 
 
 
3,913
 
 
 
567
 
 
 
404
 
 
 
392
 
Expected Return on Plan Assets
 
 
(8,475
)
 
 
(7,785
)
 
 
(7,306
)
 
 
(1,645
)
 
 
(1,635
)
 
 
(1,347
)
 
 
—
 
 
 
—
 
 
 
—
 
Prior Service Cost Amortization
 
 
320
 
 
 
324
 
 
 
263
 
 
 
1,213
 
 
 
1,309
 
 
 
1,399
 
 
 
56
 
 
 
189
 
 
 
189
 
Actuarial Loss Amortization
 
 
4,324
 
 
 
5,786
 
 
 
4,662
 
 
 
227
 
 
 
1,383
 
 
 
2,098
 
 
 
628
 
 
 
486
 
 
 
295
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sub-total
 
 
5,757
 
 
 
7,596
 
 
 
6,971
 
 
 
5,525
 
 
 
7,394
 
 
 
9,037
 
 
 
1,498
 
 
 
1,566
 
 
 
1,336
 
Amounts Capitalized or Deferred
 
 
(2,227
)
 
 
(3,465
)
 
 
(3,122
)
 
 
(2,317
)
 
 
(3,416
)
 
 
(4,515
)
 
 
(430
)
 
 
(451
)
 
 
(397
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NPBC Recognized
 
$
3,530
 
 
$
4,131
 
 
$
3,849
 
 
$
3,208
 
 
$
3,978
 
 
$
4,522
 
 
$
1,068
 
 
$
1,115
 
 
$
939
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company bases the actuarial determination of pension expense on a market-related valuation of assets, which reduces
year-to-year
volatility. This market-related valuation recognizes investment gains or losses over a three-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 value of assets recognizes gains or losses over a three-year period, the future value of the market-related assets will be impacted as previously deferred gains or losses are recognized. The Company’s pension expense for the years 2019,
 
2018 and 2017 before capitalization and deferral was $
5.8
 million, $
7.6
 million and $
7.0
 million,
respectively. Had the Company used the fair value of assets instead of the market-related value, pension expense for the years 2019, 2018 and 2017 would have been $
7.3
 million, $
7.2
 million and $
7.6
 million respectively, prior to amounts capitalized or deferred.
The following table represents information on the plans’ assets, projected benefit obligations (PBO), and funded status (000’s)
:
 
Pension Plan
 
 
PBOP Plan
 
 
SERP
 
Change in Plan Assets:
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plan Assets at Beginning of Year
 
$
107,808
 
 
$
102,315
 
 
$
21,109
 
 
$
20,234
 
 
$
 
—
 
 
$
 —
 
Actual Return on Plan Assets
 
 
17,908
 
 
 
(6,149
)
 
 
3,808
 
 
 
(1,085
)
 
 
—
 
 
 
—
 
Employer Contributions
 
 
6,916
 
 
 
16,628
 
 
 
4,000
 
 
 
4,000
 
 
 
610
 
 
 
401
 
Participant Contributions
 
 
—
 
 
 
—  
 
 
 
121
 
 
 
153
 
 
 
—
 
 
 
—
 
Benefits Paid
 
 
(6,877
)
 
 
(4,986
)
 
 
(1,758
)
 
 
(2,193
)
 
 
(610
)
 
 
 
(401
)
Plan Assets at End of Year
 
$
125,755
 
 
$
107,808
 
 
$
27,280
 
 
$
21,109
 
 
$
 
—
 
 
$
 —
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in PBO:
 
 
 
 
 
 
 
 
 
 
 
 
PBO at Beginning of Year
 
$
156,197
 
 
$
166,921
 
 
$
81,005
 
 
$
94,122
 
 
$
13,754
 
 
$
11,723
 
Service Cost
 
 
3,104
 
 
 
3,393
 
 
 
2,304
 
 
 
2,933
 
 
 
247
 
 
 
487
 
Interest Cost
 
 
6,484
 
 
 
5,878
 
 
 
3,426
 
 
 
3,404
 
 
 
567
 
 
 
404
 
Participant Contributions
 
 
—
 
 
 
—
 
 
 
121
 
 
 
153
 
 
 
—
 
 
 
—
 
Plan Amendments
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
225
 
 
 
—
 
Benefits Paid
 
 
(6,877
)
 
 
(4,986
)
 
 
(1,758
)
 
 
(2,193
)
 
 
(610
)
 
 
(401
)
Actuarial (Gain) or Loss
 
 
23,227
 
 
 
(15,009
)
 
 
10,559
 
 
 
(17,414
)
 
 
3,576
 
 
 
1,541
 
PBO at End of Year
 
$
182,135
 
 
$
156,197
 
 
$
95,657
 
 
$
81,005
 
 
$
17,759
 
 
$
13,754
 
Funded Status: Assets vs PBO
 
$
(56,380
)
 
$
(48,389
)
 
$
(68,377
)
 
$
(59,896
)
 
$
 (17,759
)
 
$
 
(13,754
)
 
 
 
 
 
 
 
 
 
 
The increase in the PBO for the Pension plan as of December 31, 2019 compared to December 31, 2018 reflects a decrease in the assumed discount rate as of December 31, 2019. The increase in the PBO for the PBOP plan as of December 31, 2019 compared to December 31, 2018 reflects a decrease in the assumed discount rate as of December 31, 2019.
The funded status of the Pension, PBOP and SERP Plans is calculated based on the difference between the benefit obligation and the fair value of plan assets and is recorded on the balance sheets as an asset or a liability. Because the Company recovers the retiree benefit costs from customers through rates, regulatory assets are recorded in lieu of an adjustment to Accumulated Other Comprehensive Income/(Loss).
The Company has recorded on its consolidated balance sheets as a liability the underfunded status of its and its subsidiaries’ retirement benefit obligations based on the projected benefit obligation. The Company has recognized Regulatory Assets, net of deferred tax benefits, of $88.9 million and $72.0 million at December 31, 2019 and 2018, respectively, to account for the future collection of these plan obligations in electric and gas rates.
 
 
The Accumulated Benefit Obligation (ABO) is required to be disclosed for all plans where the ABO is in excess of plan assets. The difference between the PBO and the ABO is that the PBO includes projected compensation increases. The ABO for the Pension Plan was $166.5
 million and $142.8
 million as of
 
December 31, 2019 and 2018, respectively. The ABO for the SERP was $
13.6
 million and $10.8
 million as of December 31, 2019 and 2018, respectively. For the PBOP Plan, the ABO and PBO are the
same. (See Note 1 for further discussion of SERP funding.)
The Company, along with its subsidiaries, expects to continue to make contributions to its Pension Plan in 2020 and future years at minimum required and discretionary funding levels consistent with the amounts recovered in the distribution utilities’ rates for these Pension Plan costs.
The following table represents employer contributions, participant contributions and benefit payments (000’s).
 
 
Pension Plan
 
 
PBOP Plan
 
 
SERP
 
 
2019
 
 
2018
 
 
2017
 
 
2019
 
 
2018
 
 
2017
 
 
2019
 
 
2018
 
 
2017
 
Employer Contributions
 
$
6,916
 
 
$
16,628
 
 
$
4,100
 
 
$
4,000
 
 
$
4,000
 
 
$
4,000
 
 
$
610
 
 
$
401
 
 
$
34
 
Participant Contributions
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
121
 
 
$
153
 
 
$
126
 
 
$
—  
 
 
$
—  
 
 
$
 —  
 
Benefit Payments
 
$
6,877
 
 
$
4,986
 
 
$
5,574
 
 
$
1,758
 
 
$
2,193
 
 
$
2,405
 
 
$
610
 
 
$
401
 
 
$
34
 
 
 
 
 
 
 
 
 
 
 
The following table represents estimated future benefit payments (000’s).
 
Estimated Future Benefit Payments
 
 
Pension
 
 
PBOP
 
 
SERP
 
2020
 
$
6,706
 
 
$
2,774
 
 
$
653
  
2021
 
 
7,192
 
 
 
3,035
 
 
 
653
  
2022
 
 
6,903
 
 
 
3,167
 
 
 
651
  
2023
 
 
7,687
 
 
 
3,341
 
 
 
650
  
2024
 
 
8,622
 
 
 
3,622
 
 
 
648
  
2025 - 2029
 
 
49,511
 
 
 
21,761
 
 
 
6,037
  
 
 
 
 
 
 
 
 
 
 
The Expected Long-Term Rate of Return on Pension Plan assets assumption used by the Company is developed based on input from actuaries and investment managers. The Company’s Expected Long-Term Rate of Return on Pension Plan assets is based on target investment allocation of 53
% in common stock equities, 37
% in fixed income securities and 10
% in real estate securities. The Company’s Expected Long-Term Rate of Return on PBOP Plan assets is based on target investment allocation of 55
% in common stock equities and 45
% in fixed income securities. The actual investment allocations are shown in the tables below.
                                 
Pension Plan
 
Target
Allocation
2020
 
 
Actual Allocation at
December 31,
 
2019
 
 
2018
 
 
2017
 
Equity Funds
 
 
53
%
 
 
54
%
 
 
49
%
 
 
49
%
Debt Funds
 
 
37
%
 
 
36
%
 
 
40
%
 
 
34
%
Real Estate Fund
 
 
10
%
 
 
9
%
 
 
10
%
 
 
10
%
Asset Allocation Fund
(1)
 
 
—
 
 
 
—
 
 
 
—
  
 
 
6
%
Other
(2)
 
 
—
 
 
 
1
%
 
 
1
%
 
 
1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
100
%
 
 
100
%
 
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Represents investments in an asset allocation fund. This fund invests in both equity and debt securities.
 
 
 
 
 
 
 
 
 
(2)
Represents investments being held in cash equivalents as of December 31, 2019, December 31, 2018 and December 31, 2017 pending payment of benefits.
 
 
 
                                 
PBOP Plan
 
Target
Allocation
2020
 
 
Actual Allocation at
December 31,
 
2019
 
 
2018
 
 
2017
 
Equity Funds
 
 
55
%
 
 
56
%
 
 
53
%
 
 
56
%
Debt Funds
 
 
45
%
 
 
44
%
 
 
47
%
 
 
42
%
Other
(1)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
100
%
 
 
100
%
 
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Represents investments being held in cash equivalents as of December 31, 2017 pending transfer into debt and equity funds.
 
 
 
The combination of these target allocations and expected returns resulted in the overall assumed long-term rate of return of 7.50
% for 2019. The Company evaluates the actuarial assumptions, including the expected rate of return, at least annually. The desired investment objective is a long-term rate of return on assets that is approximately 5 – 6% greater than the assumed rate of inflation as measured by the Consumer Price Index.
The target rate of return for the Plans has been based upon an analysis of historical returns supplemented with an economic and structural review for each asset class.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2019 and 2018. Please also see Note 1 for a discussion of the Company’s fair value accounting policy.
Equity, Fixed Income, Index and Asset Allocation Funds
These investments are valued based on quoted prices from active markets. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
Cash Equivalents
These investments are valued at cost, which approximates fair value, and are categorized in Level 1.
Real Estate Fund
These investments are valued at net asset value per unit based on a combination of market- and income-based models utilizing market discount rates, projected cash flows and the estimated value into perpetuity. In accordance with FASB Codification Topic 820, “Fair Value Measurement”, these investments have not been classified in the fair value hierarchy. The fair value amounts presented in the tables below for the Real Estate Fund are intended to permit reconciliation of the fair value hierarchy to the “Plan Assets at End of Year” line item shown in the “Change in Plan Assets” table above.
 
Assets measured at fair value on a recurring basis for the Pension Plan as of December 31, 2019 and 2018 are as follows (000’s):
 
  
Fair Value Measurements at Reporting Date Using
  
Description
 
Balance as of
December 31,
 
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
Pension Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
 
 
Equity Funds
 
$
68,848
 
 
$
68,848
 
 
$
—
 
 
$
—
 
Fixed Income Funds
 
 
44,980
 
 
 
44,980
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Mutual Funds
 
 
113,828
 
 
 
113,828
 
 
 
—
 
 
 
—
 
Cash Equivalents
 
 
750
 
 
 
750
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets in the Fair Value Hierarchy
 
$
114,578
 
 
$
114,578
 
 
$
—
 
 
$
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real Estate Fund–Measured at Net Asset Value
 
 
11,177
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
$
 125,755
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Pension Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
 
 
Equity Funds
 
$
52,884
 
 
$
52,884
 
 
$
—
 
 
$
—
 
Fixed Income Funds
 
 
43,281
 
 
 
43,281
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Mutual Funds
 
 
96,165
 
 
 
96,165
 
 
 
—
 
 
 
—
 
Cash Equivalents
 
 
1,202
 
 
 
1,202
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets in the Fair Value Hierarchy
 
$
97,367
 
 
$
97,367
 
 
$
—
 
 
$
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real Estate Fund–Measured at Net Asset Value
 
 
10,441
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
$
 107,808
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redemptions of the Real Estate Fund are subject to a sixty-five day notice period and the fund is valued quarterly. There are no unfunded commitments.
Assets measured at fair value on a recurring basis for the PBOP Plan as of December 31, 2019 and 2018 are as follows (000’s):
 
 
Fair Value Measurements at Reporting Date Using
 
Description
 
Balance as of
December 31,
 
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
PBOP Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income Funds
 
$
11,888
 
 
$
11,888
 
 
$
 —
 
 
$
 —
 
Equity Funds
 
 
15,392
 
 
 
15,392
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
$
27,280
 
 
$
27,280
 
 
$
—
 
 
$
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
PBOP Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Income Funds
 
$
9,905
 
 
$
9,905
 
 
$
—
 
 
$
—
 
Equity Funds
 
 
11,204
 
 
 
11,204
 
 
 
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
$
21,109
 
 
$
21,109
 
 
$
—
 
 
$
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee 401(k) Tax Deferred Savings Plan—
The Company sponsors the Unitil Corporation Tax Deferred Savings and Investment Plan (the 401(k) Plan) under Section 401(k) of the Internal Revenue Code and covering substantially all of the Company’s employees. Participants may elect to defer current compensation by contributing to the plan. Employees may direct, at their sole discretion, the investment of their savings plan balances (both the employer and employee portions) into a variety of investment options, including a Company common stock fund.
The Company’s contributions to the 401(k) Plan were $2.8
 million, $2.7
 million and $2.4
 million for the years ended December 31, 2019, 2018 and 2017, respectively.