Pension Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2023

Retirement Benefits [Abstract]

Retirement Benefits [Text Block]

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 $5.2 million, $5.4 million, and $5.1 million for the years ended December 31, 2023, 2022, and 2021, 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:	2023			2022			2023			2022
Net benefit obligation as of January 1,	$	335,288		$	460,666		$	63,828		$	84,526
Service cost		2,892			5,064			780			1,293
Interest cost		17,319			11,161			3,308			1,940
Plan participants' contributions		—			—			1,017			986
Actuarial loss (gain)(a)		11,946			(120,166	)		1,951			(19,484	)
Plan amendments		—			—			(242	)		—
Gross benefits paid		(20,985	)		(21,437	)		(5,986	)		(5,725	)
Less: federal subsidy on benefits paid(b)		—			—			317			292
Benefit obligation as of December 31,	$	346,460		$	335,288		$	64,973		$	63,828
Change in Plan Assets:
Fair value of plan assets as of January 1,	$	370,171		$	473,953		$	41,867		$	54,844
Actual return on plan assets		53,346			(84,562	)		5,312			(8,958	)
Employer contributions		2,203			2,217			939			720
Plan participants' contributions		—			—			1,017			986
Gross benefits paid		(20,985	)		(21,437	)		(5,986	)		(5,725	)
Fair value of plan assets at end of year		404,735			370,171			43,149			41,867
Funded Status as of December 31,	$	58,275		$	34,883		$	(21,824	)	$	(21,961	)

(a)In 2022, higher discount rates were the primary 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 both the years ended December 31, 2023 and 2022, the subsidy due to MGE was $0.3 million.

The accumulated benefit obligation for the defined benefit pension plans as of December 31, 2023 and 2022, was $328.4 million and $319.6 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)	2023			2022			2023			2022
Long-term asset	$	93,896		$	68,872		$	—		$	—
Current liability		(2,387	)		(2,408	)		—			—
Long-term liability		(33,234	)		(31,581	)		(21,824	)		(21,961	)
Net asset (liability)	$	58,275		$	34,883		$	(21,824	)	$	(21,961	)

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)	2023		2022		2023			2022
Net actuarial loss (gain)	$	33,237	$	51,148	$	(1,626	)	$	(1,085	)
Prior service benefit		—		—		(242	)		—
Transition obligation		—		—		5			9
Total	$	33,237	$	51,148	$	(1,863	)	$	(1,076	)

The projected benefit obligation and fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets as of December 31 are as follows:

(In thousands)	Pension Benefits
Projected Benefit Obligation in Excess of Plan Assets	2023		2022
Projected benefit obligation, end of year	$	35,621	$	33,989
Fair value of plan assets, end of year		—		—

The accumulated benefit obligation and fair value of plan assets with an accumulated benefit obligation in excess of plan assets as of December 31 are as follows:

(In thousands)	Pension Benefits				Other Postretirement Benefits
Accumulated Benefit Obligation in Excess of Plan Assets	2023		2022		2023		2022
Accumulated benefit obligation, end of year	$	34,387	$	33,211	$	64,973	$	63,828
Fair value of plan assets, end of year		—		—		43,149		41,867

b.Net Periodic Benefit Cost.

(In thousands)	Pension Benefits									Other Postretirement Benefits
Components of Net Periodic Benefit Cost:	2023			2022			2021			2023			2022			2021
Service cost	$	2,892		$	5,064		$	5,730		$	780		$	1,293		$	1,448
Interest cost		17,319			11,161			9,109			3,308			1,940			1,549
Expected return on assets		(25,248	)		(31,391	)		(29,487	)		(2,595	)		(3,365	)		(3,277	)
Amortization of:
Transition obligation		—			—			—			3			3			3
Prior service (credit) cost		—			(20	)		(124	)		—			(297	)		(1,518	)
Actuarial loss		1,760			2,416			6,646			(190	)		145			493
Net periodic benefit cost (credit)	$	(3,277	)	$	(12,770	)	$	(8,126	)	$	1,306		$	(281	)	$	(1,302	)

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. 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. The deferred costs have not been reflected in the table above. See Footnote 8 for further information.

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
	2023			2022			2023			2022
Discount rate		5.10	%		5.47	%		5.11	%		5.45	%
Rate of compensation increase		4.30	%		3.21	%	N/A			N/A
Assumed health care cost trend rates:
Health care cost trend rate assumed for next year	N/A			N/A				6.75	%		7.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	N/A			N/A				4.75	%		4.75	%
Year that the rate reaches the ultimate trend rate	N/A			N/A			2032			2032

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
	2023			2022			2021			2023			2022			2021
Discount rate		5.47	%		2.94	%		2.70	%		5.45	%		2.85	%		2.52	%
Expected rate of return on plan assets		7.00	%		6.75	%		7.00	%		6.59	%		6.40	%		6.61	%
Rate of compensation increase		3.28	%		3.24	%		3.23	%	N/A			N/A			N/A

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, 2023 and 2022, and the target allocation for 2024, by asset category, follows:

	Target			Percentage of Plan Assets at Year End
	Allocation			2023			2022
Equity securities(a)		63.0	%		64.0	%		65.0	%
Fixed income securities		30.0	%		30.0	%		26.0	%
Real estate		7.0	%		6.0	%		9.0	%
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 $43.1 million and $41.9 million as of December 31, 2023 and 2022, respectively. Of this amount, $37.2 million and $36.3 million as of December 31, 2023 and 2022, 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, 2023. 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, 2023, 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, 2023:

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.

Insurance Continuance Fund – The Insurance Continuance Fund 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)	2023		2022
Cash and Cash Equivalents	$	2,079	$	1,715
Equity Securities:
U.S. Large Cap		132,047		121,884
U.S. Mid Cap		32,840		28,392
U.S. Small Cap		40,830		35,372
International Blend		78,294		75,843
Fixed Income Securities:
Short-Term Fund		7,465		3,807
High Yield Bond		22,273		17,895
Long Duration Bond		100,431		85,767
Real Estate		28,840		38,418
Insurance Continuance Fund		1,585		1,613
Fixed Rate Fund		1,200		1,332
Total	$	447,884	$	412,038

g.Expected Cash Flows.

MGE does not expect to need to make any required contributions to the qualified plans for 2024. The contributions for years after 2024 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 2023, MGE made $7.7 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
2024	$	21,650	$	5,489	$	(368	)	$	5,121
2025		21,884		5,707		(402	)		5,305
2026		22,155		5,665		(449	)		5,216
2027		22,516		5,607		(489	)		5,118
2028		22,760		5,578		(519	)		5,059
2029 - 2033		116,273		26,608		(2,971	)		23,637