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Note 9 - Employee Benefit Plans
 12 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Retirement Benefits [Text Block]

9.

EMPLOYEE BENEFIT PLANS

 

The Company sponsors both a noncontributory pension plan and a postretirement plan. The pension plan covers all employees hired prior to January 2017 and benefits fully vest after 5 years of credited service. Benefits paid to retirees are based on age at retirement, years of service and average compensation. Effective January 1, 2017, a "soft freeze" to the pension plan was implemented, and employees hired on or after that date are no longer eligible to participate. Commensurate with the "soft freeze" in the pension plan, the Company amended its 401(k) Plan, allowing management to authorize a discretionary contribution to the 401(k) account for those employees hired on or after January 1, 2017. The amount, if any, of this discretionary contribution would be determined each year and would be applied to the eligible employees in the following calendar year. This Company contribution would be in addition to any employee elected deferrals and employer match as provided for under the 401(k) Plan.

 

The postretirement plan provides certain health care, supplemental retirement and life insurance benefits to retired employees who meet specific age and service requirements. Employees hired prior to January 1, 2000 are eligible to participate in the postretirement plan. Employees must have a minimum of 10 years of service and retire after attaining the age of 55 in order to vest in the postretirement plan. Retiree contributions to the plan are based on the number of years of service to the Company as determined under the pension plan.

 

Employers who sponsor defined benefit plans must recognize the funded status of defined benefit pension and other postretirement plans as an asset or liability in their statements of financial position and recognize changes in that funded status in the year in which the changes occur through comprehensive income. For pension plans, the benefit obligation is the projected benefit obligation, and for other postretirement plans, the benefit obligation is the accumulated benefit obligation. The Company established a regulatory asset for the portion of the obligation expected to be recovered through rates in future periods. The regulatory asset is adjusted for the recognition of actuarial gains and losses. The portion of the obligation attributable to the unregulated operations of the holding company is recognized in other comprehensive income, with actuarial gains and losses recognized using the corridor method.

 

The following table sets forth the benefit obligation, fair value of plan assets, the funded status of the plans, and amounts recognized in the Company’s consolidated financial statements:

 

  

Pension Plan

  

Postretirement Plan

 
  

2023

  

2022

  

2023

  

2022

 

Accumulated benefit obligation

 $24,449,856  $24,776,968  $11,248,448  $12,416,546 

Change in benefit obligation:

                

Benefit obligation at beginning of year

 $27,268,456  $37,654,468  $12,416,546  $16,796,849 

Service cost

  366,537   648,289   45,897   97,802 

Interest cost

  1,372,098   1,013,115   620,622   443,721 

Actuarial gain

  (1,031,160)  (10,862,957)  (1,331,541)  (4,330,387)

Benefit payments, net of retiree contributions

  (1,228,307)  (1,184,459)  (503,076)  (591,439)

Benefit obligation at end of year

 $26,747,624  $27,268,456  $11,248,448  $12,416,546 

Change in fair value of plan assets:

                

Fair value of plan assets at beginning of year

 $28,017,797  $38,914,107  $12,138,119  $15,882,342 

Actual return on plan assets, net of taxes

  89,171   (9,711,851)  1,384,270   (3,152,784)

Employer contributions

  —   —   —   — 

Benefit payments, net of retiree contributions

  (1,228,307)  (1,184,459)  (503,076)  (591,439)

Fair value of plan assets at end of year

 $26,878,661  $28,017,797  $13,019,313  $12,138,119 

Funded status

 $131,037  $749,341  $1,770,865  $(278,427)

Amounts recognized in the consolidated balance sheet consist of:

                

Non-current assets

 $131,037  $749,341  $1,770,865  $— 

Non-current liabilities

  —   —   —   (278,427)
                 

Amounts recognized in accumulated other comprehensive income:

                

Net actuarial loss, net of tax

 $1,168,687  $1,243,889  $6,946  $355,088 

Total amounts included in accumulated other comprehensive income, net of tax

 $1,168,687  $1,243,889  $6,946  $355,088 

Amounts deferred to a regulatory asset (liability):

                

Net actuarial loss (gain)

 $4,029,282  $4,132,472  $(1,813,071) $(30,118)

Amounts recognized as regulatory assets (liabilities)

 $4,029,282  $4,132,472  $(1,813,071) $(30,118)

 

The Company expects that approximately $64,000, before tax, of AOCI will be recognized in net periodic benefit costs in fiscal 2024 and approximately $243,000 of amounts deferred as regulatory assets and approximately $31,000 of amounts deferred as regulatory liabilities will be amortized and recognized in net periodic benefit costs in fiscal 2024.

 

The reduction in the benefit obligations for both the pension plan and postretirement plan was primarily attributed to actuarial gains resulting from the increase in the discount rate used to calculate the benefit obligations.

 

The following table details the actuarial assumptions used in determining the projected benefit obligations and net benefit cost of the pension plan and the accumulated benefit obligations and net benefit cost of the postretirement plan:

 

  

Pension Plan

  

Postretirement Plan

 
  

2023

  

2022

  

2023

  

2022

 

Assumptions used to determine benefit obligations:

                

Discount rate

  5.63%  5.15%  5.63%  5.16%

Expected rate of compensation increase

  4.00%  4.00%  N/A   N/A 

Assumptions used to determine benefit costs:

                

Discount rate

  5.15%  2.73%  5.16%  2.70%

Expected long-term rate of return on plan assets

  4.50%  4.75%  3.95%  4.24%

Expected rate of compensation increase

  4.00%  4.00%  N/A   N/A 

 

To develop the expected long-term rate of return on plan assets assumption, the Company, with input from the Plans' actuaries and investment advisors, considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of each plan’s portfolio.

 

Components of net periodic benefit cost are as follows:

 

  

Pension Plan

  

Postretirement Plan

 
  

2023

  

2022

  

2023

  

2022

 

Service cost

 $366,537  $648,289  $45,897  $97,802 

Interest cost

  1,372,098   1,013,115   620,622   443,721 

Expected return on plan assets

  (1,232,597)  (1,831,550)  (464,046)  (666,167)

Recognized loss

  316,724   146,402   —   — 

Net periodic benefit cost

 $822,762  $(23,744) $202,473  $(124,644)

 

Service cost is included in operations and maintenance expense in the consolidated statements of income. All other components of net periodic benefit costs are included in other income, net in the consolidated statements of income.

 

The assumed health care cost trend rates used in measuring the accumulated benefit obligation for the postretirement plan are presented below:

 

  

Pre 65

  

Post 65

 
  

2023

  

2022

  

2023

  

2022

 

Health care cost trend rate assumed for next year

  6.30%  6.00%  5.20%  5.20%

Rate to which the cost trend is assumed to decline (the ultimate trend rate)

  3.94%  5.20%  3.94%  5.20%

Year that the rate reaches the ultimate trend rate

 

2075

  

2025

  

2075

  

2022

 

 

The health care cost trend rate assumptions could have a significant effect on the amounts reported. A change of 1% would have the following effects: 

 

  

1% Increase

  

1% Decrease

 

Effect on total service and interest cost components

 $89,000  $(74,000)

Effect on accumulated postretirement benefit obligation

  1,317,000   (1,117,000)

 

The primary objectives of both plans' investment policies are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the corresponding actuarial assumptions and will provide for future benefits. The Company's pension plan allocation approach seeks to match the duration of the fixed income portion of the portfolio with the duration of the plan's liabilities. Such allocation is designed to reduce the overall volatility in the pension plan relative to the funded status. In fiscal 2023, the Company increased the targeted fixed income allocation for the pension investments from 70% to 75% and decreased the equity allocation from 30% to 25% to better align the assets with the duration of plan liabilities.  The Company also reduced the targeted equity investment allocation in postretirement plan from 50% to 30% and increased the fixed income allocation from 50% to 70%.  The investment advisor is transitioning each of the investment portfolios to the updated targets as market conditions warrant. The equity allocations in both plans provide for potential returns to offset growth in the corresponding liabilities.

 

Based on its most recent evaluation of returns for the asset classes within each plan's investment portfolio, the Company set the expected long-term rate of return for the pension plan and the postretirement plan for fiscal 2024 at 4.50% and 4.24%, respectively.

 

The Company’s target and actual asset allocation in the pension and postretirement plans as of September 30, 2023 and 2022 were: 

 

  

Pension Plan

  

Postretirement Plan

 
  

Target

  

2023

  

2022

  

Target

  

2023

  

2022

 

Asset category:

                        

Equity securities

  25%  27%  13%  30%  43%  48%

Debt securities

  75%  72%  —%  70%  37%  51%

Cash

  —%  1%  87%  —%  20%  1%

 

The plans assets are invested in mutual funds and common and collective investment trust ("CIT") funds that function like mutual funds. On September 30, 2022, the Company was in the process of transitioning to new investment advisors for the pension plan.  The mutual funds in the pension plan were unaffected by this change; however, the CITs were required to be re-registered and assigned new account numbers.  As a result, the CIT funds were liquidated on September 30, 2022 and reinvested in the same investments on October 3, 2022.  Absent the re-registration process, the investment allocation would have been 29% equity, 70% fixed income and 1% cash on September 30, 2022. 

 

The Company uses the fair value hierarchy described in Note 1 to classify these assets. The mutual funds are included under Level 1 in the fair value hierarchy as their fair values are based on quoted net asset values of the shares held in the investments in the plans.  The CIT funds are included under Level 2 as these investments have observable Level 2 pricing inputs, including quoted prices for similar assets in active or non-active markets. While the underlying asset values are quoted prices, the net asset value of a unit in these funds is not publicly quoted.  The following tables contain the fair value classifications of the plans' assets:

 

      

Pension Plan

 
      

Fair Value Measurements - September 30, 2023

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 

Asset Class:

                

Cash

 $202,218  $202,218  $—  $— 

Common and Collective Trust and Pooled Funds:

                

Bonds

                

Liability Driven Investment

  16,446,813   —   16,446,813   — 

Mutual Funds:

                

Domestic Fixed Income

  3,000,525   3,000,525   —   — 

Equities

                

Domestic Large Cap Growth

  2,256,767   2,256,767   —   — 

Domestic Large Cap Value

  2,222,733   2,222,733   —   — 

Domestic Small/Mid Cap Core

  1,082,801   1,082,801   —   — 

Foreign Large Cap Growth

  481,309   481,309   —   — 

Foreign Large Cap Value

  463,907   463,907   —   — 

Foreign Large Cap Core

  721,588   721,588   —   — 

Total

 $26,878,661  $10,431,848  $16,446,813  $— 

 

      

Pension Plan

 
      

Fair Value Measurements - September 30, 2022

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 

Asset Class:

                

Cash

 $24,312,969  $24,312,969  $—  $— 

Mutual Funds:

                

Equities

                

Domestic Large Cap Growth

  1,172,296   1,172,296   —   — 

Domestic Large Cap Value

  1,172,714   1,172,714   —   — 

Foreign Large Cap Growth

  486,184   486,184   —   — 

Foreign Large Cap Core

  873,634   873,634   —   — 

Total

 $28,017,797  $28,017,797  $—  $— 

 

      

Postretirement Plan

 
      

Fair Value Measurements - September 30, 2023

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 

Asset Class:

                

Cash

 $2,640,622  $2,640,622  $—  $— 

Mutual Funds:

                

Bonds

                

Domestic Fixed Income

  4,841,048   4,841,048   —   — 

Equities

                

Domestic Large Cap Growth

  1,693,422   1,693,422   —   — 

Domestic Large Cap Value

  1,570,538   1,570,538   —   — 

Domestic Small/Mid Cap Core

  588,898   588,898   —   — 

Foreign Large Cap Growth

  433,886   433,886   —   — 

Foreign Large Cap Value

  526,364   526,364   —   — 

Foreign Large Cap Core

  724,535   724,535   —   — 

Total

 $13,019,313  $13,019,313  $—  $— 

 

      

Postretirement Plan

 
      

Fair Value Measurements - September 30, 2022

 
  

Fair Value

  

Level 1

  

Level 2

  

Level 3

 

Asset Class:

                

Cash

 $75,219  $75,219  $—  $— 

Mutual Funds:

                

Bonds

                

Domestic Fixed Income

  5,644,954   5,644,954   —   — 

Foreign Fixed Income

  589,284   589,284   —   — 

Equities

                

Domestic Large Cap Growth

  1,698,421   1,698,421   —   — 

Domestic Large Cap Value

  1,793,746   1,793,746   —   — 

Domestic Small/Mid Cap Growth

  182,823   182,823   —   — 

Domestic Small/Mid Cap Value

  202,921   202,921   —   — 

Domestic Small/Mid Cap Core

  443,900   443,900   —   — 

Foreign Large Cap Growth

  469,659   469,659   —   — 

Foreign Large Cap Value

  462,196   462,196   —   — 

Foreign Large Cap Core

  574,996   574,996   —   — 

Total

 $12,138,119  $12,138,119  $—  $— 

 

Each mutual fund or common collective trust fund has been categorized based on its primary investment strategy.

 

Annual funding contributions to the pension plan and postretirement plan are made under advisement from the Company's actuaries and investment advisor based upon ERISA funding requirements. For the years ended September 30, 2023 and 2022, no contributions were made to the pension plan or postretirement plan.  At this time, the Company is not currently anticipating making any funding contributions to the pension plan or postretirement plan in fiscal 2024.

 

The following table reflects expected future benefit payments:

 

  

Pension

  

Postretirement

 

Fiscal year ending September 30

 

Plan

  

Plan

 

2024

 $1,335,133  $713,518 

2025

  1,400,453   707,987 

2026

  1,486,089   710,935 

2027

  1,591,928   724,277 

2028

  1,665,580   721,402 

2029 - 2033

  9,316,587   3,957,815 

 

The Company established an NQDC Plan in fiscal 2021. The NQDC Plan is an unfunded, nonqualified benefit plan offered to select members of senior management not eligible to participate in the pension plan.  Under the NQDC Plan, participants have the right to defer a percentage of base salary as well as receive discretionary credits from the Company. The Company's discretionary credits vest over time.  Any benefits distributed from the NQDC Plan are paid from the general assets of the Company.  As the plan is unfunded, the balance reflected in the table below is a noncurrent liability included in benefit plan liabilities on the consolidated balance sheet. 

 

  

2023

  

2022

 

Beginning deferred compensation balance

 $59,108  $35,344 

Employer contributions

  —   33,280 

Earnings (loss)

  6,787   (9,516)

Forfeitures

  (18,221)  — 

Ending deferred compensation balance

 $47,674  $59,108 

 

The Company sponsors a 401(k) Plan covering all eligible employees who elect to participate. Employees may contribute from 1% to 50% of their annual compensation to the 401(k) Plan, limited to a maximum annual amount as set periodically by the IRS. The Company matches 100% of the participant’s first 4% of contributions and 50% of the next 2% of contributions. The 401(k) Plan also provides for discretionary contributions for employees hired on or after January 1, 2017. The following table reflects the Company's contributions:

 

  

Years Ended September 30

 
  

2023

  

2022

 

Matching contribution

 $388,616  $357,293 

Discretionary contribution

  75,899   47,429