Pension and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2020

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefits

Pension and Other Postretirement Benefits

PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. The periodic costs or income of the PNM Plans and TNMP Plans are included in regulated rates to the extent attributable to regulated operations. PNM and TNMP receive a regulated return on the amounts funded for pension and OPEB plans in excess of the periodic cost or income to the extent included in retail rates (a “prepaid pension asset”).

Participants in the PNM Plans include eligible employees and retirees of PNMR and PNM. Participants in the TNMP Plans include eligible employees and retirees of TNMP. The PNM pension plan was frozen at the end of 1997 with regard to new participants, salary levels, and benefits. Through December 31, 2007, additional credited service could be accrued under the PNM pension plan up to a limit determined by age and service. The TNMP pension plan was frozen at December 31, 2005 with regard to new participants, salary levels, and benefits.

A plan sponsor is required to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur.

Unrecognized prior service costs and unrecognized gains or losses are required to be recorded in AOCI and subsequently amortized. To the extent the amortization of these items will ultimately be recovered or returned through future rates, PNM and TNMP record the costs as a regulatory asset or regulatory liability. The amortization of these incurred costs is included as pension and postretirement benefit periodic cost or income in subsequent years.

The Company maintains trust funds for the pension and OPEB plans from which benefits are paid to eligible employees and retirees. The Company’s funding policy is to make contributions to the trusts, as determined by an independent actuary, that comply with minimum guidelines of the Employee Retirement Income Security Act and the IRC. Information concerning the investments is contained in Note 9. The Company has in place a policy that defines the investment objectives, establishes performance goals of asset managers, and provides procedures for the manner in which investments are to be reviewed. The plans implement investment strategies to achieve the following objectives:

•Implement investment strategies commensurate with the risk that the Corporate Investment Committee deems appropriate to meet the obligations of the pension plans and OPEB plans, minimize the volatility of expense, and account for contingencies

•Transition asset mix over the long-term to a higher proportion of high-quality fixed income investments as the plans’ funded statuses improve

Management is responsible for the determination of the asset target mix and the expected rate of return. The target asset allocations are determined based on consultations with external investment advisors. The expected long-term rate of return on pension and postretirement plan assets is calculated on the market-related value of assets. Actual gains and losses on pension and OPEB plan assets are recognized in the market-related value of assets equally over a period of not more than five years, which reduces year-to-year volatility. For the PNM Plans and TNMP Plans, the market-related value of assets is equal to the prior year’s market-related value of assets adjusted for contributions, benefit payments and investment gains and losses that are within a corridor of plus or minus 4.0% around the expected return on market value. Gains and losses that are outside the corridor are amortized over five years.

In August 2018, the FASB issued Accounting Standards Update 2018-14 - Compensation Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) to improve benefit plan sponsors’ disclosures for defined benefit pension and other post-employment benefit plans. ASU 2018-14 removes the requirement to disclose the amounts in other comprehensive income expected to be recognized as benefit cost over the next fiscal year and the requirement to disclose the impact of a one-percentage-point change in the assumed heath care cost trend rate. ASU 2018-14 clarifies the disclosure requirements for plans with PBOs and ABOs that are in excess of plan assets and requires an explanation for significant gains and losses related to changes in the benefit obligation during the period be disclosed. The Company has adopted ASU 2018-14 for the period ended December 31, 2020, its required effective date by modifying the disclosures herein as appropriate.

Pension Plans

For defined benefit pension plans, including the executive retirement plans, the PBO represents the actuarial present value of all benefits attributed by the pension benefit formula to employee service rendered prior to that date using assumptions regarding future compensation levels. The ABO represents the PBO without considering future compensation levels. Since the pension plans are frozen, the PBO and ABO are equal. The following table presents information about the PBO, fair value of plan assets, and funded status of the plans:

	PNM				TNMP
	Year Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
	(In thousands)
PBO at beginning of year	$	605,745	$	564,258	$	65,574	$	60,587
Service cost	—		—		—		—
Interest cost	19,941		25,175		2,177		2,686
Actuarial (gain) loss	47,567		61,151		4,459		7,889
Benefits paid	(42,349)		(44,839)		(4,820)		(5,588)
PBO at end of year	630,904		605,745		67,390		65,574
Fair value of plan assets at beginning of year	531,467		489,978		59,367		55,074
Actual return on plan assets	98,412		86,328		11,602		9,881
Employer contributions	—		—		—		—
Benefits paid	(42,349)		(44,839)		(4,820)		(5,588)
Fair value of plan assets at end of year	587,530		531,467		66,149		59,367
Funded status – asset (liability) for pension benefits	$	(43,374)	$	(74,278)	$	(1,241)	$	(6,207)

Actuarial (gain) loss results from changes in:

	PNM				TNMP
	Year Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
	(in thousands)
Discount rates	$	44,960	$	66,108	$	4,756	$	8,006
Demographic experience	2,607		(732)		(54)		394
Mortality rate	—		(4,225)		—		(296)
Other assumptions and experience	—		—		(243)		(215)
	$	47,567	$	61,151	$	4,459	$	7,889

The following table presents pre-tax information about net actuarial (gain) loss in AOCI as of December 31, 2020.

	PNM		TNMP
	(In thousands)
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at beginning of year	$	146,391	$	—
Experience (gain) loss	(21,393)		3,860
Regulatory asset (liability) adjustment	15,211		(3,860)
Amortization recognized in net periodic benefit cost (income)	(8,131)		—
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at end of year	$	132,078	$	—

The following table presents the components of net periodic benefit cost (income):

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
PNM
Service cost	$	—	$	—	$	—
Interest cost	19,941		25,175		24,270
Expected return on plan assets	(29,453)		(34,103)		(34,686)
Amortization of net (gain) loss	17,860		15,518		16,348
Amortization of prior service cost	(554)		(965)		(965)
Net periodic benefit cost	$	7,794	$	5,625	$	4,967
TNMP
Service cost	$	—	$	—	$	—
Interest cost	2,177		2,686		2,625
Expected return on plan assets	(3,284)		(3,868)		(3,963)
Amortization of net (gain) loss	1,258		941		1,088
Amortization of prior service cost	—		—		—
Net periodic benefit cost (income)	$	151	$	(241)	$	(250)

The following significant weighted-average assumptions were used to determine the PBO and net periodic benefit cost (income). Should actual experience differ from actuarial assumptions, the PBO and net periodic benefit cost (income) would be affected.

	Year Ended December 31,
PNM	2020		2019		2018
Discount rate for determining December 31 PBO	2.66	%	3.42	%	4.65	%
Discount rate for determining net periodic benefit cost (income)	3.42	%	4.65	%	4.05	%
Expected return on plan assets	5.90	%	6.86	%	6.54	%
Rate of compensation increase	N/A		N/A		N/A
TNMP
Discount rate for determining December 31 PBO	2.69	%	3.46	%	4.63	%
Discount rate for determining net periodic benefit cost (income)	3.46	%	4.63	%	4.01	%
Expected return on plan assets	5.90	%	6.90	%	6.57	%
Rate of compensation increase	N/A		N/A		N/A

The assumed discount rate for determining the PBO was determined based on a review of long-term high-grade bonds and management’s expectations. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the PBO. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. If all other factors were to remain unchanged, a 1% decrease in the expected long-term rate of return would cause PNM’s and TNMP’s 2021 net periodic benefit cost to increase $5.2 million and $0.6 million (analogous changes would result from a 1% increase). The actual rate of return for the PNM and TNMP pension plans was 19.3% and 20.4% for the year ended December 31, 2020.

The Company’s long-term pension investment strategy is to invest in assets whose interest rate sensitivity is correlated with the pension liability. The Company uses an investment strategy, known as Liability Driven Investing, that increases the liability matching investments as the funded status of the pension plans improve. The Company’s investment allocation targets consist of 35% equities, 15% alternative investments (both of which are considered return generating), and 50% liability matching securities that are primarily bonds and other fixed income investments. Equity investments are primarily in domestic securities that include large-, mid-, and small-capitalization companies. The pension plans have a 13% targeted allocation to equities of companies domiciled primarily in developed countries outside of the U.S. The equity investments category includes actively managed domestic equity securities that are benchmarked against a variety of style indices. Fixed income investments are primarily corporate bonds of companies from diversified industries and government securities. Alternative investments include investments in hedge funds, real estate funds, and private equity funds. The hedge funds and private equity funds are structured as multi-manager multi-strategy fund of funds to achieve a diversified position in these asset classes. The hedge funds pursue various absolute return strategies such as relative value, long-short equity, and event driven. Private equity fund

strategies include mezzanine financing, buy-outs, and venture capital. The real estate investments are commingled real estate portfolios that invest in a diversified portfolio of assets including commercial property and multi-family housing. See Note 9 for fair value information concerning assets held by the pension plans.

The following pension benefit payments are expected to be paid:

	PNM		TNMP
	(In thousands)
2021	$	46,312	$	5,301
2022	45,583		5,193
2023	44,299		4,936
2024	43,066		4,702
2025	41,869		4,589
2026 - 2030	188,950		19,829

Based on current law, funding requirements, and estimates of portfolio performance, the Company does not expect to make any cash contributions to the pension plans in 2021 or 2022. PNM and TNMP expect to contribute $10.8 million and zero in 2023, $11.5 million and zero in 2024, and $10.6 million and zero in 2025. The funding assumptions were developed using discount a rate of 2.9%. Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rates. PNM and TNMP may make additional contributions at their discretion.

Other Postretirement Benefit Plans

For postretirement benefit plans, the APBO is the actuarial present value of all future benefits attributed under the terms of the postretirement benefit plan to employee service rendered to date.

The following table presents information about the APBO, the fair value of plan assets, and the funded status of the plans:

	PNM				TNMP
	Year Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
	(In thousands)
APBO at beginning of year	$	75,121	$	75,305	$	11,235	$	10,064
Service cost	38		53		46		50
Interest cost	2,453		3,316		373		451
Participant contributions	1,714		2,131		243		316
Actuarial (gain) loss	3,261		2,587		747		1,004
Benefits paid	(7,391)		(8,271)		(706)		(650)
APBO at end of year	75,196		75,121		11,938		11,235
Fair value of plan assets at beginning of year	86,400		69,703		10,844		8,744
Actual return on plan assets	9,423		19,257		2,505		2,434
Employer contributions	3,256		3,580		—		—
Participant contributions	1,714		2,131		243		316
Benefits paid	(7,391)		(8,271)		(707)		(650)
Fair value of plan assets at end of year	93,402		86,400		12,885		10,844
Funded status – asset (liability)	$	18,206	$	11,279	$	947	$	(391)

As of December 31, 2020, the fair value of plan assets exceeds the APBO for both PNM’s and TNMP’s OPEB Plans and the resulting net asset is presented in other deferred charges on the Consolidated Balance Sheets.

Actuarial (gain) loss results from changes in:

	PNM				TNMP
	Year Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
	(in thousands)
Discount rates	$	4,959	$	7,236	$	1,008	$	1,375
Claims, contributions, and demographic experience	(1,698)		(4,022)		(261)		(311)
Assumed participation rate	—		—		—		—
Mortality rate	—		(627)		—		(60)
	$	3,261	$	2,587	$	747	$	1,004

In the year ended December 31, 2020, actuarial gains of $0.6 million were recorded as adjustments to regulatory assets for the PNM OPEB plan. For the TNMP OPEB plan, actuarial gains of $1.2 million were recorded as adjustments to regulatory liabilities.

The following table presents the components of net periodic benefit cost (income):

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
PNM
Service cost	$	38	$	53	$	83
Interest cost	2,453		3,316		3,439
Expected return on plan assets	(5,548)		(5,278)		(5,414)
Amortization of net (gain) loss	348		675		2,354
Amortization of prior service credit	—		(397)		(1,664)
Net periodic benefit cost (income)	$	(2,709)	$	(1,631)	$	(1,202)
TNMP
Service cost	$	46	$	50	$	134
Interest cost	373		451		477
Expected return on plan assets	(538)		(517)		(542)
Amortization of net (gain) loss	(323)		(444)		(227)
Amortization of prior service cost	—		—		—
Net periodic benefit cost (income)	$	(442)	$	(460)	$	(158)

The following significant weighted-average assumptions were used to determine the APBO and net periodic benefit cost. Should actual experience differ from actuarial assumptions, the APBO and net periodic benefit cost would be affected.

	Year Ended December 31,
PNM	2020		2019		2018
Discount rate for determining December 31 APBO	2.65	%	3.42	%	4.63	%
Discount rate for determining net periodic benefit cost	3.42	%	4.63	%	4.00	%
Expected return on plan assets	7.00	%	7.20	%	7.42	%
Rate of compensation increase	N/A		N/A		N/A
TNMP
Discount rate for determining December 31 APBO	2.65	%	3.42	%	4.63	%
Discount rate for determining net periodic benefit cost	3.42	%	4.63	%	4.00	%
Expected return on plan assets	5.60	%	5.80	%	5.86	%
Rate of compensation increase	N/A		N/A		N/A

The assumed discount rate for determining the APBO was determined based on a review of long-term high-grade bonds and management’s expectations. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the APBO. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates), and current and target asset allocations between asset categories. If all other factors were to remain unchanged, a

1% decrease in the expected long-term rate of return would cause PNM’s and TNMP’s 2021 net periodic benefit cost to increase $0.9 million and $0.1 million (analogous changes would result from a 1% increase). The actual rate of return for the PNM and TNMP OPEB plans was 11.1% and 23.6% for the year ended December 31, 2020.

The following table shows the assumed health care cost trend rates for the PNM OPEB plan: 

	PNM
	December 31,
	2020		2019
Health care cost trend rate assumed for next year	6.25	%	6.50	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2026		2026

TNMP’s exposure to cost increases in the OPEB plan is minimized by a provision that limits TNMP’s share of costs under the plan. Costs of the plan in excess of the limit, which was reached at the end of 2001, are wholly borne by the participants. As a result, a one-percentage-point change in assumed health care cost trend rates would have no effect on either the net periodic expense or the year-end APBO. Effective January 1, 2018, the PNM OPEB plan was amended to limit the annual increase in the Company’s costs to 5%. Increases in excess of the limit are born by the PNM OPEB plan participants.

The Company’s OPEB plans invest in a portfolio that is diversified by asset class and style strategies. The OPEB plans generally use the same pension fixed income and equity investment managers and utilize the same overall investment strategy as described above for the pension plans, except there is no allocation to alternative investments. The OPEB plans have a target asset allocation of 30% equities and 70% fixed income. See Note 9 for fair value information concerning assets held by the other postretirement benefit plans.

The following OPEB payments, which reflect expected future service and are net of participant contributions, are expected to be paid:

	PNM		TNMP
	(In thousands)
2021	$	6,455	$	649
2022	6,132		678
2023	5,960		698
2024	5,711		709
2025	5,357		713
2026 - 2030	22,474		3,400

PNM and TNMP made no cash contributions to the OPEB trusts in 2020 or 2019 and PNM and TNMP do not expect to make cash contributions to the OPEB trusts in 2021-2025. However, a portion of the disbursements attributable to the OPEB trust are paid by PNM and are therefore considered to be contributions to the PNM OPEB plan. Payments by PNM on behalf of the PNM OPEB plan are expected to be $3.7 million in 2021 and $13.1 million in 2022-2025.

Executive Retirement Programs

For the executive retirement programs, the following table presents information about the PBO and funded status of the plans:

	PNM				TNMP
	Year Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
	(In thousands)
PBO at beginning of year	$	14,994	$	14,726	$	692	$	702
Service cost	—		—		—		—
Interest cost	491		651		22		30
Actuarial (gain) loss	78		1,053		58		54
Benefits paid	(1,341)		(1,436)		(94)		(94)
PBO at end of year – funded status	14,222		14,994		678		692
Less current liability	1,323		1,434		91		91
Non-current liability	$	12,899	$	13,560	$	587	$	601

The following table presents pre-tax information about net actuarial loss in AOCI as of December 31, 2020.

	December 31, 2020
	PNM		TNMP
	(In thousands)
Amount in AOCI not yet recognized in net periodic benefit cost at beginning of year	$	2,395	$	—
Experience (gain) loss	78		58
Regulatory asset (liability) adjustment	(45)		(58)
Amortization recognized in net periodic benefit cost (income)	(169)		—
Amount in AOCI not yet recognized in net periodic benefit cost at end of year	$	2,259	$	—

The following table presents the components of net periodic benefit cost:

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
PNM
Service cost	$	—	$	—	$	—
Interest cost	491		651		622
Amortization of net (gain) loss	403		318		359
Amortization of prior service cost	—		—		—
Net periodic benefit cost	$	894	$	969	$	981
TNMP
Service cost	$	—	$	—	$	—
Interest cost	22		30		29
Amortization of net (gain) loss	24		15		15
Amortization of prior service cost	—		—		—
Net periodic benefit cost	$	46	$	45	$	44

The following significant weighted-average assumptions were used to determine the PBO and net periodic benefit cost. Should actual experience differ from actuarial assumptions, the PBO and net periodic benefit cost would be affected.

	Year Ended December 31,
PNM	2020		2019		2018
Discount rate for determining December 31 PBO	2.68	%	3.44	%	4.66	%
Discount rate for determining net periodic benefit cost	3.44	%	4.66	%	4.05	%
Long-term rate of return on plan assets	N/A		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A
TNMP
Discount rate for determining December 31 PBO	2.69	%	3.46	%	4.63	%
Discount rate for determining net periodic benefit cost	3.46	%	4.63	%	4.01	%
Long-term rate of return on plan assets	N/A		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A

The assumed discount rate for determining the PBO was determined based on a review of long-term high-grade bonds and management’s expectations. The impacts of changes in assumptions or experience were not significant.

Disbursements under the executive retirement program, funded by PNM and TNMP, which are considered to be contributions to the plan were $1.4 million and $0.1 million in the year ended December 31, 2020 and $1.4 million and $0.1 million for the year ended December 31, 2019. The following executive retirement plan payments, which reflect expected future service, are expected:

	PNM		TNMP
	(In thousands)
2021	$	1,341	$	93
2022	1,303		90
2023	1,259		85
2024	1,210		80
2025	1,156		73
2026 - 2030	4,856		252

Other Retirement Plans

PNMR sponsors a 401(k) defined contribution plan for eligible employees, including those of its subsidiaries. PNMR’s contributions to the 401(k) plan consist of a discretionary matching contribution equal to 75% of the first 6% of eligible compensation contributed by the employee on a before-tax basis. PNMR also makes a non-matching contribution ranging from 3% to 10% of eligible compensation based on the eligible employee’s age. PNMR also provides executive deferred compensation benefits through an unfunded, non-qualified plan. The purpose of this plan is to permit certain key employees of PNMR who participate in the 401(k) defined contribution plan to defer compensation and receive credits without reference to the certain limitations on contributions.

A summary of expenses for these other retirement plans is as follows:

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
PNMR
401(k) plan	$	16,247	$	16,097	$	16,677
Non-qualified plan	$	2,090	$	4,551	$	865
PNM
401(k) plan	$	11,676	$	11,587	$	12,052
Non-qualified plan	$	1,544	$	3,384	$	621
TNMP
401(k) plan	$	4,572	$	4,511	$	4,625
Non-qualified plan	$	547	$	1,167	$	244