Retirement Benefits

12 Months Ended

Dec. 31, 2017

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:

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

a non‑contributory, qualified DCCP for employees hired on or after July 1, 2003

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 Plans: Participants in the pension plans include present and former employees of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries. Pension plan trust assets are not distinguishable by company. Effective December 31, 2017, CMS Energy’s and Consumers’ then-existing pension plan was amended to include only retired and former employees already covered; this amended plan is referred to as DB Pension Plan B. Also effective December 31, 2017, active employees were moved to a newly created pension plan, referred to as DB Pension Plan A, whose benefits mirror those provided under DB Pension Plan B. Maintaining separate plans for the two groups will allow CMS Energy and Consumers to employ a more targeted investment strategy and will provide additional opportunities to mitigate risk and volatility.

DCCP: CMS Energy and Consumers provide an employer contribution to the DCCP 401(k) plan for employees hired on or after July 1, 2003. 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. DCCP expense for CMS Energy, including Consumers, was $23 million for the year ended December 31, 2017, $20 million for the year ended December 31, 2016, and $16 million for the year ended December 31, 2015. DCCP expense for Consumers was $22 million for the year ended December 31, 2017, $19 million for the year ended December 31, 2016, and $16 million for the year ended December 31, 2015.

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. The trust assets are not considered plan assets under ASC 715. 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	2017			2016
CMS Energy, including Consumers
Trust assets		$	146		$	144
ABO			149			143
Contributions			7			-
Consumers
Trust assets		$	106		$	104
ABO			107			101
Contributions			6			-

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 $5 million at December 31, 2017 and $3 million at December 31, 2016. 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 $1 million for the year ended December 31, 2017 and less than $1 million for each of the years ended December 31, 2016 and 2015.

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 $26 million for the year ended December 31, 2017, $24 million for the year ended December 31, 2016, and $19 million for the year ended December 31, 2015. The total 401(k) plan cost for Consumers was $25 million for the year ended December 31, 2017, $23 million for the year ended December 31, 2016, and $19 million for the year ended December 31, 2015.

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 disability retirement under the DB Pension Plans 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 7.50 percent in 2018 and 7.00 percent in 2017 for those under 65 and would increase 8.00 percent in 2018 and 7.75 percent in 2017 for those over 65. The rate of increase was assumed to decline to 4.75 percent by 2027 and thereafter for all retirees.

In November 2017, CMS Energy and Consumers approved certain amendments to the OPEB Plan. Under these amendments, effective January 1, 2019, certain Medicare-eligible retirees will purchase health care plans from private Medicare exchanges. CMS Energy and Consumers performed a remeasurement of the OPEB Plan as of October 31, 2017, resulting in a significant reduction in the benefit obligation.

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, 2017	Point Increase			Point Decrease
CMS Energy, including Consumers
Effect on total service and interest cost component		$	2		$	(2)
Effect on PBO			32			(28)
Consumers
Effect on total service and interest cost component		$	2		$	(2)
Effect on PBO			30			(27)

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	2017			2016			2015
CMS Energy, including Consumers
Weighted average for benefit obligations1
Discount rate2
DB Pension Plan A3		3.78	%
DB Pension Plan B3		3.64
DB SERP		3.65			4.16	%		4.43	%
OPEB Plan		3.74			4.49			4.70
Rate of compensation increase
DB Pension Plan A3		3.50
DB SERP		5.50			5.50			5.50
Weighted average for net periodic benefit cost1
Service cost discount rate2,4
DB Pension Plans		4.53			4.79			4.10
DB SERP		4.51			4.87			4.10
OPEB Plan		4.89			4.75			4.30
Interest cost discount rate2,4
DB Pension Plans		3.56			3.66			4.10
DB SERP		3.51			3.64			4.10
OPEB Plan		3.79			3.89			4.30
Expected long-term rate of return on plan assets5
DB Pension Plans		7.25			7.25			7.50
OPEB Plan		7.25			7.25			7.25
Rate of compensation increase
DB Pension Plans		3.60			3.00			3.00
DB SERP		5.50			5.50			5.50

1The mortality assumption for benefit obligations was based on the RP-2014 mortality table, with projection scales MP-2017 for 2017, MP-2016 for 2016, and MP-2015 for 2015. The mortality assumption for net periodic benefit cost for 2017, 2016, and 2015 was based on the RP-2014 mortality table, with projection scales MP-2016 for 2017, MP-2015 for 2016, and MP-2014 for 2015.

2The 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 Plans and OPEB Plan and the yields on high-quality corporate bonds rated Aa or better.

3Effective December 31, 2017, CMS Energy’s and Consumers’ existing defined benefit pension plan was amended to include only retired or inactive employees; this amended plan is referred to as DB Pension Plan B. Active employees were moved to a newly created pension plan, referred to as DB Pension Plan A. The discount rate used to measure the existing plan was 4.30 percent at December 31, 2016 and 4.52 percent at December 31, 2015. The weighted-average rate of compensation increase used to measure the existing plan was 3.60 percent at December 31, 2016 and 3.00 percent at December 31, 2015.

4In 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.

5CMS 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 the assets of the DB Pension Plans was 7.25 percent in 2017. The actual return (loss) on the assets of the DB Pension Plans was 18.0 percent in 2017, 8.0 percent in 2016, and (2.0) percent in 2015.

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 Plans and DB SERP									OPEB Plan
Years Ended December 31	2017			2016			2015			2017			2016			2015
CMS Energy, including Consumers
Net periodic cost (credit)
Service cost		$	45		$	42		$	50		$	19		$	18		$	25
Interest cost			93			90			108			51			46			58
Expected return on plan assets			(153)			(147)			(138)			(90)			(85)			(91)
Amortization of:
Net loss			82			71			97			29			21			21
Prior service cost (credit)			5			4			1			(40)			(41)			(41)
Net periodic cost (credit)		$	72		$	60		$	118		$	(31)		$	(41)		$	(28)
Consumers
Net periodic cost (credit)
Service cost		$	44		$	41		$	49		$	19		$	17		$	25
Interest cost			90			87			103			49			45			56
Expected return on plan assets			(149)			(143)			(134)			(84)			(80)			(86)
Amortization of:
Net loss			79			68			93			29			22			22
Prior service cost (credit)			4			4			1			(39)			(40)			(40)
Net periodic cost (credit)		$	68		$	57		$	112		$	(26)		$	(36)		$	(23)

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 2018 from or to the associated regulatory asset (liability) and AOCI:



In Millions
	DB Pension Plans			OPEB Plan
CMS Energy, including Consumers
Regulatory asset (liability)		$	75		$	(49)
AOCI			2			(2)
Consumers
Regulatory asset (liability)		$	75		$	(49)

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 for DB Pension Plan A and the OPEB Plan and, beginning in 2018, over average remaining life expectancy of participants for DB Pension Plan B. The estimated period of amortization of gains and losses for CMS Energy and Consumers was nine years for DB Pension Plan A and 20 years for DB Pension Plan B for the year ended December 31, 2017. The estimated period of amortization of gains and losses for CMS Energy and Consumers was ten years for the DB Pension Plans for the years ended December 31, 2016 and 2015. For the OPEB Plan, the estimated amortization period was 11 years for the years ended December 31, 2017 and 2016 and 13 years for the year ended December 31, 2015.

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 new prior service credits for OPEB in 2017 and 2015 and a new prior service cost for the DB Pension Plans 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 the assets of the DB Pension Plans 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 Plans							DB SERP						OPEB Plan
Years Ended December 31	2017			2016				2017			2016			2017			2016
CMS Energy, including Consumers
Benefit obligation at beginning of period		$	2,562		$	2,403			$	151		$	150		$	1,408		$	1,227
Service cost			45			42				-			-			19			18
Interest cost			88			85				5			5			51			46
Plan amendments			-			-				-			-			(309)			-
Actuarial (gain) loss			241	1		196	1			7			4			(24)	1		171	1
Benefits paid			(156)			(164)				(9)			(8)			(48)			(54)
Benefit obligation at end of period		$	2,780		$	2,562			$	154		$	151		$	1,097		$	1,408
Plan assets at fair value at beginning of period		$	2,101		$	2,013			$	-		$	-		$	1,264		$	1,208
Actual return on plan assets			360			152				-			-			203			109
Company contribution			-			100				9			8			-			-
Actual benefits paid			(156)			(164)				(9)			(8)			(47)			(53)
Plan assets at fair value at end of period		$	2,305		$	2,101			$	-		$	-		$	1,420		$	1,264
Funded status		$	(475)	2	$	(461)	2		$	(154)		$	(151)		$	323		$	(144)
Consumers
Benefit obligation at beginning of period									$	109		$	106		$	1,365		$	1,188
Service cost										-			-			19			17
Interest cost										4			4			49			45
Plan amendments										-			-			(303)			-
Actuarial (gain) loss										5			4			(31)	1		167	1
Benefits paid										(6)			(5)			(46)			(52)
Benefit obligation at end of period									$	112		$	109		$	1,053		$	1,365
Plan assets at fair value at beginning of period									$	-		$	-		$	1,184		$	1,133
Actual return on plan assets										-			-			190			103
Company contribution										6			5			-			-
Actual benefits paid										(6)			(5)			(45)			(52)
Plan assets at fair value at end of period									$	-		$	-		$	1,329		$	1,184
Funded status									$	(112)		$	(109)		$	276		$	(181)

1The actuarial loss for 2017 for the DB Pension Plans was primarily the result of lowering the discount rates. The actuarial gain for 2017 for the OPEB Plan was primarily the result of better claim experience in calculating the plan’s funded status. The actuarial loss for 2016 was primarily the result of claims, experience, and lowering the discount rates used in calculating the plans’ funded status.

2At December 31, 2017, $455 million of the total funded status of the DB Pension Plans was attributable to Consumers, based on an allocation of expenses. At December 31, 2016, $441 million of the total funded status of the DB Pension Plans 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’ assets and liabilities:



In Millions
December 31	2017			2016
CMS Energy, including Consumers
Non-current assets
DB Pension Plans		$	143		$	-
OPEB Plan			323			-
Current liabilities
DB SERP			9			8
Non-current liabilities
DB Pension Plans			618			461
DB SERP			145			143
OPEB Plan			-			144
Consumers
Non-current assets
DB Pension Plans		$	147		$	-
OPEB Plan			276			-
Current liabilities
DB SERP			7			5
Non-current liabilities
DB Pension Plans			602			441
DB SERP			105			104
OPEB Plan			-			181

The ABO for the DB Pension Plans was $2.4 billion at December 31, 2017 and $2.3 billion at December 31, 2016. Presented in the following table is information related to the defined benefit pension plan for which the PBO and the ABO exceed plan assets:



In Millions
December 31	2017			2016
CMS Energy, including Consumers
PBO		$	1,511		$	2,562
ABO			1,164			2,250
Fair value of plan assets			893			2,101

Items Not Yet Recognized as a Component of Net Periodic Benefit Cost: Presented in the following table are the amounts recognized in regulatory assets, regulatory liabilities, 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 Plans and DB SERP						OPEB Plan
Years Ended December 31	2017			2016			2017			2016
CMS Energy, including Consumers
Regulatory assets (liabilities)
Net loss		$	1,017		$	1,062		$	316		$	483
Prior service cost (credit)			11			15			(451)			(187)
Regulatory assets (liabilities)		$	1,028		$	1,077		$	(135)		$	296
AOCI
Net loss (gain)			97			93			(6)			(8)
Prior service cost (credit)			1			1			(12)			(6)
Total amounts recognized in regulatory assets (liabilities) and AOCI		$	1,126		$	1,171		$	(153)		$	282
Consumers
Regulatory assets (liabilities)
Net loss		$	1,017		$	1,062		$	316		$	483
Prior service cost (credit)			11			15			(451)			(187)
Regulatory assets (liabilities)		$	1,028		$	1,077		$	(135)		$	296
AOCI
Net loss			36			33			-			-
Total amounts recognized in regulatory assets (liabilities) and AOCI		$	1,064		$	1,110		$	(135)		$	296

Plan Assets: Presented in the following tables are the fair values of the assets of CMS Energy’s DB Pension Plans and OPEB Plan, 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 Plans
	December 31, 2017									December 31, 2016
	Total			Level 1			Level 2			Total			Level 1			Level 2
CMS Energy, including Consumers
Cash and short-term investments		$	21		$	21		$	-		$	110		$	110		$	-
U.S. government and agencies securities			4			-			4			1			-			1
Corporate debt			336			-			336			266			-			266
State and municipal bonds			9			-			9			9			-			9
Foreign corporate bonds			31			-			31			25			-			25
Mutual funds			662			662			-			571			571			-
		$	1,063		$	683		$	380		$	982		$	681		$	301
Pooled funds			1,242									1,119
Total		$	2,305								$	2,101



In Millions
	OPEB Plan
	December 31, 2017									December 31, 2016
	Total			Level 1			Level 2			Total			Level 1			Level 2
CMS Energy, including Consumers
Cash and short-term investments		$	16		$	16		$	-		$	39		$	39		$	-
U.S. government and agencies securities			1			-			1			-			-			-
Corporate debt			50			-			50			38			-			38
State and municipal bonds			1			-			1			1			-			1
Foreign corporate bonds			4			-			4			4			-			4
Common stocks			40			40			-			44			44			-
Mutual funds			647			647			-			563			563			-
		$	759		$	703		$	56		$	689		$	646		$	43
Pooled funds			661									575
Total		$	1,420								$	1,264

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 are valued based on quoted market prices.

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

State and Municipal Bonds: State and municipal bonds are valued using a matrix-pricing model that incorporates Level 2 market-based information. The fair value of the bonds is 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 are 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 are actively managed and tracked by the S&P 500 Index. These securities are valued at their quoted closing prices.

Mutual Funds: Mutual funds represent shares in registered investment companies that are priced based on the daily quoted net asset values 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. These funds primarily consist of U.S. and foreign equity securities, but also include U.S. and foreign fixed-income securities and alternative investments. Since these investments are valued at their net asset value as a practical expedient, they are not classified in the fair value hierarchy.

Asset Allocations: Presented in the following table are the investment components of the assets of CMS Energy’s DB Pension Plans and OPEB Plan as of December 31, 2017:



	DB Pension Plans			OPEB Plan
Equity securities		55	%		52	%
Fixed-income securities		30			25
Alternative-strategy investments		15			23
		100	%		100	%

CMS Energy’s target asset allocation for the assets of the DB Pension Plans is 53 percent equity, 41 percent fixed income, and 6 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 Plans:



In Millions
Years Ended December 31	2017			2016
CMS Energy, including Consumers
OPEB Plan		$	-		$	-
DB Pension Plans			-			100
Consumers
OPEB Plan		$	-		$	-
DB Pension Plans			-			93

Contributions comprise required amounts and discretionary contributions. Neither CMS Energy nor Consumers plans to contribute to the OPEB Plan or DB Pension Plans in 2018. Actual future contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements.

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 Plans			DB SERP			OPEB Plan
CMS Energy, including Consumers
2018		$	157		$	10		$	56
2019			163			10			58
2020			168			10			60
2021			169			10			62
2022			170			10			62
2023-2027			457			47			312
Consumers
2018		$	153		$	7		$	54
2019			159			7			55
2020			163			7			57
2021			164			7			59
2022			166			7			60
2023-2027			457			32			298

Collective Bargaining Agreements: At December 31, 2017, unions represented 38 percent of CMS Energy’s employees and 40 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