Retirement Benefits

12 Months Ended

Dec. 31, 2016

12:Retirement Benefits

Benefit Plans: CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees under a number of different plans. These plans include:

a non‑contributory, qualified DB Pension Plan (closed to new non‑union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005)

a qualified Cash Balance Pension Plan for certain employees hired between July 1, 2003 and August 31, 2005

a non‑contributory, qualified DCCP for employees hired on or after September 1, 2005

benefits to certain management employees under a non‑contributory, nonqualified DB SERP (closed to new participants as of March 31, 2006)

a non‑contributory, nonqualified DC SERP for certain management employees hired or promoted on or after April 1, 2006

a contributory, qualified defined contribution 401(k) plan

health care and life insurance benefits under an OPEB Plan

DB Pension Plan: Participants in the DB Pension Plan include present and former employees of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries. DB Pension Plan trust assets are not distinguishable by company.

DCCP and Cash Balance Pension Plan: CMS Energy and Consumers provide an employer contribution to the DCCP 401(k) plan for employees hired on or after September 1, 2005. The contribution ranges from five to seven percent of base pay, depending on years of service. Employees are not required to contribute in order to receive the plan’s employer contribution.

Participants in the Cash Balance Pension Plan, effective July 1, 2003 to August 31, 2005, also participate in the DCCP as of September 1, 2005. Additional pay credits under the Cash Balance Pension Plan were discontinued as of September 1, 2005. DCCP expense for CMS Energy, including Consumers, was $20 million for the year ended December 31, 2016, $16 million for the year ended December 31, 2015, and $13 million for the year ended December 31, 2014. DCCP expense for Consumers was $19 million for the year ended December 31, 2016, $16 million for the year ended December 31, 2015, and $13 million for the year ended December 31, 2014.

DB SERP: The DB SERP is a nonqualified plan as defined by the Internal Revenue Code. DB SERP benefits are paid from a rabbi trust established in 1988. DB SERP rabbi trust earnings are taxable. Presented in the following table are the fair values of trust assets, ABO, and contributions for CMS Energy’s and Consumers’ DB SERP:



In Millions
Years Ended December 31	2016			2015
CMS Energy, including Consumers
Trust assets		$	144		$	148
ABO			143			140
Contributions			-			25
Consumers
Trust assets		$	104		$	106
ABO			101			97
Contributions			-			17

DC SERP: On April 1, 2006, CMS Energy and Consumers implemented a DC SERP and froze further new participation in the DB SERP. The DC SERP provides participants benefits ranging from 5 percent to 15 percent of total compensation. The DC SERP requires a minimum of five years of participation before vesting. CMS Energy’s and Consumers’ contributions to the plan, if any, are placed in a grantor trust. For CMS Energy and Consumers, trust assets were $3 million and $2 million at December 31, 2016 and 2015. DC SERP assets are included in other non‑current assets on CMS Energy’s and Consumers’ consolidated balance sheets. CMS Energy’s and Consumers’ DC SERP expense was less than $1 million for each of the years ended December 31, 2016, 2015, and 2014.

401(k) Plan: The 401(k) plan employer match equals 100 percent of eligible contributions up to the first three percent of an employee’s wages and 50 percent of eligible contributions up to the next two percent of an employee’s wages. The total 401(k) plan cost for CMS Energy, including Consumers, was $24 million for the year ended December 31, 2016, $19 million for the year ended December 31, 2015, and $18 million for the year ended December 31, 2014. The total 401(k) plan cost for Consumers was $23 million for the year ended December 31, 2016, $19 million for the year ended December 31, 2015, and $18 million for the year ended December 31, 2014.

OPEB Plan: Participants in the OPEB Plan include all regular full-time employees covered by the employee health care plan on the day before retirement from either CMS Energy or Consumers at age 55 or older with at least ten full years of applicable continuous service. Regular full-time employees who qualify for DB Pension Plan disability retirement or are disabled and covered by the DCCP and who have 15 years of applicable continuous service may also participate in the OPEB Plan. Retiree health care costs were based on the assumption that costs would increase 7.00 percent in 2017 and 7.25 percent in 2016 for those under 65 and would increase 7.75 percent in 2017 and 8.00 percent in 2016 for those over 65. The rate of increase was assumed to decline to 4.75 percent by 2027 and thereafter for all retirees.

The assumptions used in the health care cost-trend rate affect service, interest, and PBO costs. Presented in the following table are the effects of a one-percentage-point change in the health care cost-trend assumption:



In Millions
	One Percentage			One Percentage
Year Ended December 31, 2016	Point Increase			Point Decrease
CMS Energy, including Consumers
Effect on total service and interest cost component		$	13		$	(10)
Effect on PBO			201			(163)
Consumers
Effect on total service and interest cost component		$	13		$	(10)
Effect on PBO			196			(159)

Assumptions: Presented in the following table are the weighted-average assumptions used in CMS Energy’s and Consumers’ retirement benefits plans to determine benefit obligations and net periodic benefit cost:



December 31	2016			2015			2014
CMS Energy, including Consumers
Weighted average for benefit obligations1
Discount rate2,3
DB Pension Plan		4.30	%		4.52	%		4.10	%
DB SERP		4.16			4.43			4.10
OPEB Plan		4.49			4.70			4.30
Rate of compensation increase
DB Pension Plan		3.60			3.00			3.00
DB SERP		5.50			5.50			5.50
Weighted average for net periodic benefit cost1
Service cost discount rate2,3
DB Pension Plan		4.79			4.10			4.90
DB SERP		4.87			4.10			4.90
OPEB Plan		4.75			4.30			5.10
Interest cost discount rate2,3
DB Pension Plan		3.66			4.10			4.90
DB SERP		3.64			4.10			4.90
OPEB Plan		3.89			4.30			5.10
Expected long-term rate of return on plan assets4
DB Pension Plan		7.25			7.50			7.50
OPEB Plan		7.25			7.25			7.25
Rate of compensation increase
DB Pension Plan		3.00			3.00			3.00
DB SERP		5.50			5.50			5.50

The mortality assumption for benefit obligations was based on the RP-2014 mortality table, with projection scales MP-2016 for 2016, MP-2015 for 2015, and MP-2014 for 2014. The mortality assumption for net periodic benefit cost for 2016 and 2015 was based on the RP-2014 mortality table, with projection scales MP-2015 for 2016 and MP-2014 for 2015, and for 2014 was based on the RP-2000 mortality table.

The discount rate reflects the rate at which benefits could be effectively settled and is equal to the equivalent single rate resulting from a yield-curve analysis. This analysis incorporated the projected benefit payments specific to CMS Energy’s and Consumers’ DB Pension Plan and OPEB Plan and the yields on high-quality corporate bonds rated Aa or better.

In January 2016, CMS Energy and Consumers changed the method they use to determine the discount rate used to calculate the service cost and interest cost components of net periodic benefit costs for the DB Pension and OPEB Plans. Historically, the discount rate used for this purpose represented a single weighted-average rate derived from the yield curve used to determine the benefit obligation. CMS Energy and Consumers have elected to use instead a full-yield-curve approach in the estimation of service cost and interest cost; this approach is more accurate in that it applies individual spot rates along the yield curve to future projected benefit payments based on the time of payment. This change represented a change in accounting estimate and did not impact years prior to 2016. As a result of changing to the full-yield-curve approach to determine the discount rate, for the year ended December 31, 2016, the service cost and interest cost components of net periodic benefit costs were reduced by $23 million for the DB Pension Plan and $12 million for the OPEB Plan for CMS Energy and by $22 million for the DB Pension Plan and $11 million for the OPEB Plan for Consumers.

⁴

CMS Energy and Consumers determined the long-term rate of return using historical market returns, the present and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge. CMS Energy and Consumers considered the asset allocation of the portfolio in forecasting the future expected total return of the portfolio. The goal was to determine a long-term rate of return that could be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, CMS Energy and Consumers review for reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an expected return model. CMS Energy’s and Consumers’ expected long-term rate of return on DB Pension Plan assets was 7.25 percent in 2016. The actual return (loss) on DB Pension Plan assets was 8.0 percent in 2016, (2.0) percent in 2015, and 7.4 percent in 2014.

Costs: Presented in the following table are the costs (credits) and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:



In Millions
	DB Pension Plan and DB SERP									OPEB Plan
Years Ended December 31	2016			2015			2014			2016			2015			2014
CMS Energy, including Consumers
Net periodic cost (credit)
Service cost		$	42		$	50		$	42		$	18		$	25		$	20
Interest cost			90			108			105			46			58			56
Expected return on plan assets			(147)			(138)			(135)			(85)			(91)			(88)
Amortization of:
Net loss			71			97			60			21			21			2
Prior service cost (credit)			4			1			1			(41)			(41)			(41)
Net periodic cost (credit)		$	60		$	118		$	73		$	(41)		$	(28)		$	(51)
Consumers
Net periodic cost (credit)
Service cost		$	41		$	49		$	41		$	17		$	25		$	20
Interest cost			87			103			100			45			56			54
Expected return on plan assets			(143)			(134)			(131)			(80)			(86)			(83)
Amortization of:
Net loss			68			93			59			22			22			3
Prior service cost (credit)			4			1			1			(40)			(40)			(40)
Net periodic cost (credit)		$	57		$	112		$	70		$	(36)		$	(23)		$	(46)

Presented in the following table are the estimated net loss and prior service cost (credit) that will be amortized into net periodic benefit cost in 2017 from or to the associated regulatory asset and AOCI:



In Millions
	DB Pension Plan			OPEB Plan
CMS Energy, including Consumers
Regulatory asset		$	82		$	(2)
AOCI			2			(2)
Consumers
Regulatory asset		$	82		$	(2)

CMS Energy and Consumers amortize net gains and losses in excess of ten percent of the greater of the PBO or the MRV over the average remaining service period. The estimated period of amortization of gains and losses for CMS Energy and Consumers was ten years for the DB Pension Plan for the years ended December 31, 2016, 2015, and 2014 and for the OPEB Plan was 11 years for the year ended December 31, 2016 and 13 years for the years ended December 31, 2015 and 2014. Prior service cost (credit) amortization is established in the year in which the prior service cost (credit) first occurred, and is based on the same amortization period for all future years until the prior service cost (credit) is fully amortized. CMS Energy and Consumers had a new prior service credit for OPEB in 2015 and new prior service cost for the DB Pension Plan in 2015. The estimated period of amortization of these new prior service costs (credits) for CMS Energy and Consumers is ten years.

CMS Energy and Consumers determine the MRV for DB Pension Plan assets as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not be admitted into the MRV until future years. CMS Energy and Consumers reflect each year’s gain or loss in the MRV in equal amounts over a five-year period beginning on the date the original amount was determined. CMS Energy and Consumers determine the MRV for OPEB Plan assets as the fair value of assets on the measurement date.

Reconciliations: Presented in the following table are reconciliations of the funded status of CMS Energy’s and Consumers’ retirement benefits plans with their retirement benefits plans’ liabilities:



In Millions
	DB Pension Plan							DB SERP						OPEB Plan
Years Ended December 31	2016			2015				2016			2015			2016			2015
CMS Energy, including Consumers
Benefit obligation at beginning of period		$	2,403		$	2,547			$	150		$	156		$	1,227		$	1,378
Service cost			42			49				-			1			18			25
Interest cost			85			102				5			6			46			58
Plan amendments			-			13				-			-			-			(25)
Actuarial (gain) loss			196	1		(153)	1			4			(5)			171	1		(152)	1
Benefits paid			(164)			(155)				(8)			(8)			(54)			(57)
Benefit obligation at end of period		$	2,562		$	2,403			$	151		$	150		$	1,408		$	1,227
Plan assets at fair value at beginning of period		$	2,013		$	1,979			$	-		$	-		$	1,208		$	1,265
Actual return on plan assets			152			(36)				-			-			109			(29)
Company contribution			100			225				8			8			-			29
Actual benefits paid			(164)			(155)				(8)			(8)			(53)			(57)
Plan assets at fair value at end of period		$	2,101		$	2,013			$	-		$	-		$	1,264		$	1,208
Funded status		$	(461)	2	$	(390)	2		$	(151)		$	(150)		$	(144)		$	(19)
Consumers
Benefit obligation at beginning of period									$	106		$	111		$	1,188		$	1,336
Service cost										-			1			17			25
Interest cost										4			4			45			56
Plan amendments										-			-			-			(24)
Actuarial (gain) loss										4			(5)			167	1		(150)	1
Benefits paid										(5)			(5)			(52)			(55)
Benefit obligation at end of period									$	109		$	106		$	1,365		$	1,188
Plan assets at fair value at beginning of period									$	-		$	-		$	1,133		$	1,186
Actual return on plan assets										-			-			103			(27)
Company contribution										5			5			-			29
Actual benefits paid										(5)			(5)			(52)			(55)
Plan assets at fair value at end of period									$	-		$	-		$	1,184		$	1,133
Funded status									$	(109)		$	(106)		$	(181)		$	(55)

The actuarial loss for 2016 was primarily the result of claims, experience, and lowering the discount rates used in calculating the plans’ obligations. The actuarial gain for 2015 was primarily the result of increasing the discount rates used in calculating the plans’ obligations.

At December 31, 2016, $441 million of the total funded status of the DB Pension Plan was attributable to Consumers, based on an allocation of expenses. At December 31, 2015, $368 million of the total funded status of the DB Pension Plan was attributable to Consumers, based on an allocation of expenses.

Presented in the following table is the classification of CMS Energy’s and Consumers’ retirement benefit plans’ liabilities:



In Millions
December 31	2016			2015
CMS Energy, including Consumers
Current liabilities
DB SERP		$	8		$	8
Non-current liabilities
DB Pension Plan			461			390
DB SERP			143			142
OPEB Plan			144			19
Consumers
Current liabilities
DB SERP		$	5		$	5
Non-current liabilities
DB Pension Plan			441			368
DB SERP			104			101
OPEB Plan			181			55

Presented in the following table are the DB Pension Plan PBO, ABO, and fair value of plan assets:



In Millions
December 31	2016			2015
CMS Energy, including Consumers
DB Pension Plan PBO		$	2,562		$	2,403
DB Pension Plan ABO			2,250			2,140
Fair value of DB Pension Plan assets			2,101			2,013

Items Not Yet Recognized as a Component of Net Periodic Benefit Cost: Presented in the following table are the amounts recognized in regulatory assets and AOCI that have not been recognized as components of net periodic benefit cost. For additional details on regulatory assets and liabilities, see Note 3, Regulatory Matters.



In Millions
	DB Pension Plan and DB SERP						OPEB Plan
Years Ended December 31	2016			2015			2016			2015
CMS Energy, including Consumers
Regulatory assets
Net loss		$	1,062		$	944		$	483		$	360
Prior service cost (credit)			15			19			(187)			(227)
Regulatory assets		$	1,077		$	963		$	296		$	133
AOCI
Net loss (gain)			93			86			(8)			(11)
Prior service cost (credit)			1			1			(6)			(8)
Total amounts recognized in regulatory assets and AOCI		$	1,171		$	1,050		$	282		$	114
Consumers
Regulatory assets
Net loss		$	1,062		$	944		$	483		$	360
Prior service cost (credit)			15			19			(187)			(227)
Regulatory assets		$	1,077		$	963		$	296		$	133
AOCI
Net loss			33			29			-			-
Total amounts recognized in regulatory assets and AOCI		$	1,110		$	992		$	296		$	133

Plan Assets: Presented in the following tables are the fair values of CMS Energy’s DB Pension Plan and OPEB Plan assets, by asset category and by level within the fair value hierarchy. For additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements.



In Millions
	DB Pension Plan
	December 31, 2016									December 31, 2015
	Total			Level 1			Level 2			Total			Level 1			Level 2
CMS Energy, including Consumers
Cash and short-term investments		$	110		$	110		$	-		$	215		$	215		$	-
U.S. government and agencies securities			1			-			1			19			-			19
Corporate debt			266			-			266			243			-			243
State and municipal bonds			9			-			9			8			-			8
Foreign corporate bonds			25			-			25			16			-			16
Mutual funds			571			571			-			538			538			-
		$	982		$	681		$	301		$	1,039		$	753		$	286
Pooled funds			1,119									974
Total		$	2,101								$	2,013



In Millions
	OPEB Plan
	December 31, 2016									December 31, 2015
	Total			Level 1			Level 2			Total			Level 1			Level 2
CMS Energy, including Consumers
Cash and short-term investments		$	39		$	39		$	-		$	51		$	51		$	-
U.S. government and agencies securities			-			-			-			3			-			3
Corporate debt			38			-			38			34			-			34
State and municipal bonds			1			-			1			1			-			1
Foreign corporate bonds			4			-			4			2			-			2
Common stocks			44			44			-			54			54			-
Mutual funds			563			563			-			456			456			-
		$	689		$	646		$	43		$	601		$	561		$	40
Pooled funds			575									607
Total		$	1,264								$	1,208

Cash and Short-Term Investments: Cash and short-term investments consist of money market funds with daily liquidity.

U.S. Government and Agencies Securities: U.S. government and agencies securities consist of U.S. Treasury notes and other debt securities backed by the U.S. government and related agencies. These securities were valued based on quoted market prices.

Corporate Debt: Corporate debt investments consisted of investment grade bonds of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or yields presently available on comparable securities of issuers with similar credit ratings.

State and Municipal Bonds: State and municipal bonds were valued using a matrix-pricing model that incorporates Level 2 market-based information. The fair value of the bonds was derived from various observable inputs, including benchmark yields, reported securities trades, broker/dealer quotes, bond ratings, and general information on market movements for investment grade state and municipal securities normally considered by market participants when pricing such debt securities.

Foreign Corporate Bonds: Foreign corporate debt securities were valued based on quoted market prices, when available, or on yields available on comparable securities of issuers with similar credit ratings.

Common Stocks: Common stocks in the OPEB Plan consist of equity securities with low transaction costs that were actively managed and tracked by the S&P 500 Index. These securities were valued at their quoted closing prices.

Mutual Funds: Mutual funds represent shares in registered investment companies that are priced based on the daily quoted NAVs that are publicly available and are the basis for transactions to buy or sell shares in the funds.

Pooled Funds: Pooled funds include both common and collective trust funds as well as special funds that contain only employee benefit plan assets from two or more unrelated benefit plans. Presented in the following table are the investment components of these funds:



	DB Pension Plan						OPEB Plan
December 31	2016			2015			2016			2015
U.S. equity securities		67	%		62	%		72	%		58	%
Foreign equity securities		16			18			13			13
U.S. fixed-income securities		9			11			8			22
Foreign fixed-income securities		4			6			4			5
Alternative investments		4			3			3			2
		100	%		100	%		100	%		100	%

Since these investments were valued at their NAV as a practical expedient, they are not classified in the fair value hierarchy.

Target Asset Allocations: CMS Energy’s target asset allocation for DB Pension Plan assets is 53 percent equity, 32 percent fixed income, and 15 percent alternative-strategy investments. This target asset allocation is expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plan. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P MidCap and SmallCap Indexes and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers as well as high-yield and global bond funds. Alternative strategies are diversified across absolute return investment approaches and global tactical asset allocation. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.

CMS Energy established union and non‑union VEBA trusts to fund future retiree health and life insurance benefits. These trusts are funded through the ratemaking process for Consumers and through direct contributions from the non‑utility subsidiaries. CMS Energy’s target asset allocation for the health trusts is 50 percent equity, 30 percent fixed income, and 20 percent alternative-strategy investments. CMS Energy’s target asset allocation for the life trusts is 42 percent equity, 28 percent fixed income, and 30 percent alternative-strategy investments. These target allocations are expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plans. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P SmallCap Index and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers. Alternative strategies are diversified across absolute return investment approaches and global tactical asset allocation. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.

Contributions: Presented in the following table are the contributions to CMS Energy’s and Consumers’ OPEB Plan and DB Pension Plan:



In Millions
Years Ended December 31	2016			2015
CMS Energy, including Consumers
OPEB Plan		$	-		$	29
DB Pension Plan			100			225
Consumers
OPEB Plan		$	-		$	29
DB Pension Plan			93			209

Contributions comprise required amounts and discretionary contributions. Neither CMS Energy nor Consumers plans to contribute to the OPEB or DB Pension Plans in 2017. Actual future contributions will depend on future investment performance, discount rates, and various factors related to the DB Pension Plan and OPEB Plan participants.

Following amendments to the OPEB Plan in July 2013, Consumers’ OPEB costs decreased substantially and, as a result, the OPEB Plan was fully funded at December 31, 2013. In May 2014, Consumers filed an application with the MPSC requesting approval to suspend contributions to Consumers’ OPEB Plan during 2014 and 2015 if the OPEB Plan continued to be fully funded. Consumers’ electric and gas rates still reflect the higher OPEB costs, and previous MPSC orders required Consumers to contribute to the OPEB Plan the associated amount collected in rates annually.

In September 2014, the MPSC approved a settlement agreement addressing Consumers’ OPEB Plan funding application. Under the settlement agreement, Consumers contributed $25 million to the plan in 2014 and $29 million in February 2015. Consumers will suspend further contributions until the MPSC determines funding requirements in future general rate cases.

Benefit Payments: Presented in the following table are the expected benefit payments for each of the next five years and the five-year period thereafter:



In Millions
	DB Pension Plan			DB SERP			OPEB Plan
CMS Energy, including Consumers
2017		$	153		$	8		$	59
2018			159			8			63
2019			163			9			66
2020			165			11			69
2021			166			10			72
2022-2026			827			50			385
Consumers
2017		$	149		$	5		$	57
2018			155			5			61
2019			159			6			64
2020			161			7			67
2021			161			7			70
2022-2026			803			32			371

Collective Bargaining Agreements: At December 31, 2016, unions represented 39 percent of CMS Energy’s employees and 41 percent of Consumers’ employees. The UWUA represents Consumers’ operating, maintenance, construction, and call center employees. The USW represents Zeeland employees. Union contracts expire in 2020.

Consumers Energy Company [Member]

Retirement Benefits