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Pension Benefits
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Pension Benefits Pension Benefits
Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees of CECONY, O&R and Con Edison Transmission and certain employees of the Clean Energy Businesses. The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974. Con Edison also maintains additional non–qualified supplemental pension plans.
Total Periodic Benefit Cost
The components of the Companies’ total periodic benefit costs for 2019, 2018 and 2017 were as follows:
  
Con Edison
CECONY
(Millions of Dollars)
2019
2018
2017
2019
2018
2017
Service cost – including administrative expenses
$250
$290
$263
$232
$272
$246
Interest cost on projected benefit obligation
601
561
591
564
525
554
Expected return on plan assets
(988)
(1,033)
(968)
(936)
(979)
(917)
Recognition of net actuarial loss
518
688
595
492
651
563
Recognition of prior service cost/(credit)
(17)
(17)
(17)
(19)
(19)
(19)
TOTAL PERIODIC BENEFIT COST
$364
$489
$464
$333
$450
$427
Cost capitalized
(108)
(127)
(181)
(102)
(119)
(169)
Reconciliation to rate level
(15)
(92)
(34)
(12)
(100)
(41)
Total expense recognized
$241
$270
$249
$219
$231
$217

In March 2017, the FASB issued amendments to the guidance for retirement benefits through ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The Companies adopted ASU 2017-07 beginning on January 1, 2018. The guidance requires that components of net periodic benefit cost other than service cost be presented outside of operating income on consolidated income statements, and that only the service cost component is eligible for capitalization. Accordingly, the service cost components are included in the line "Other operations and maintenance" and the non-service cost components are included in the line “Other deductions” in the Companies' consolidated income statements. As permitted by a practical expedient under ASU 2017-07, the Companies applied the presentation requirements retrospectively for both pension and other postretirement benefit costs using amounts disclosed in prior-period financial statements as appropriate estimates.
Funded Status
The funded status at December 31, 2019, 2018 and 2017 was as follows:
 
Con Edison
CECONY
(Millions of Dollars)
2019
2018

2017
2019

2018

2017

CHANGE IN PROJECTED BENEFIT OBLIGATION
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$14,449
$15,536
$14,095
$13,542
$14,567
$13,203
Service cost – excluding administrative expenses
245
286
259
228
267
241
Interest cost on projected benefit obligation
601
561
591
564
525
554
Net actuarial loss/(gain)
2,191
(1,219)
1,231
2,076
(1,159)
1,171
Plan amendments
15
—

6
—

—

—

Benefits paid
(709)
(715)
(646)
(660)
(658)
(602)
PROJECTED BENEFIT OBLIGATION AT END OF YEAR
$16,792
$14,449
$15,536
$15,750
$13,542
$14,567
CHANGE IN PLAN ASSETS
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$13,450
$14,274
$12,472
$12,744
$13,519
$11,815
Actual return on plan assets
2,556
(536)
2,041
2,425
(507)
1,935
Employer contributions
350
473
450
318
434
412
Benefits paid
(709)
(715)
(646)
(660)
(658)
(602)
Administrative expenses
(39)
(46)
(43)
(37)
(44)
(41)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR
$15,608
$13,450
$14,274
$14,790
$12,744
$13,519
FUNDED STATUS
$(1,184)
$(999)
$(1,262)
$(960)
$(798)
$(1,048)
Unrecognized net loss
$2,604
$2,464
$2,760
$2,466
$2,338
$2,624
Unrecognized prior service costs
(173)
(205)
(223)
(202)
(222)
(242)
Accumulated benefit obligation
15,015
13,030
13,897
14,010
12,161
12,972

The increase in the pension liability at Con Edison and CECONY of $185 million and $162 million, respectively, compared with December 31, 2018, was primarily due to an increase in the plan’s projected benefit obligation as a result of a decrease in the discount rate, partially offset by an increase in plan assets as a result of the actual return on plan assets. For Con Edison, this increase in pension liability corresponds with an increase to regulatory assets of $167 million for unrecognized net losses and unrecognized prior service costs associated with the Utilities consistent with the accounting rules for regulated operations, a debit to OCI of $10 million (net of taxes) for the unrecognized net losses, and an immaterial change to OCI (net of taxes) for the unrecognized prior service costs associated with the Clean Energy Businesses, Con Edison Transmission, and RECO.
For CECONY, the increase in pension liability corresponds with an increase to regulatory assets of $147 million for unrecognized net losses and unrecognized prior service costs consistent with the accounting rules for regulated operations, and also a debit to OCI of $2 million (net of taxes) for unrecognized net losses, and an immaterial change to OCI (net of taxes) for the unrecognized prior service costs associated with certain employees of the Clean Energy Businesses and Con Edison Transmission who previously worked for CECONY.
A portion of the unrecognized net loss and prior service cost for the pension plan, equal to $701 million and $(16) million, respectively, will be recognized from accumulated OCI and the regulatory asset into net periodic benefit cost over the next year for Con Edison. Included in these amounts are $663 million and $(20) million, respectively, for CECONY.
At December 31, 2019 and 2018, Con Edison’s investments include $397 million and $326 million, respectively, held in external trust accounts for benefit payments pursuant to the supplemental retirement plans. Included in these amounts for CECONY were $371 million and $301 million, respectively. See Note P. The accumulated benefit obligations for the supplemental retirement plans for Con Edison and CECONY were $395 million and $360 million as of December 31, 2019 and $316 million and $285 million as of December 31, 2018, respectively.
Assumptions
The actuarial assumptions were as follows: 
 
2019

2018

2017

Weighted-average assumptions used to determine benefit obligations at December 31:
 
 
 
Discount rate
3.35
%
4.25
%
3.70
%
Rate of compensation increase
 
 
 
CECONY
3.80
%
4.25
%
4.25
%
O&R
3.20
%
4.00
%
4.00
%
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
 
 
 
Discount rate
4.25
%
3.70
%
4.25
%
Expected return on plan assets
7.00
%
7.50
%
7.50
%
Rate of compensation increase
 
 
 
CECONY
4.25
%
4.25
%
4.25
%
O&R
4.00
%
4.00
%
4.00
%

The expected return assumption reflects anticipated returns on the plan’s current and future assets. The Companies’ expected return was based on an evaluation of the current environment, market and economic outlook, relationships between the economy and asset class performance patterns, and recent and long-term trends in asset class performance. The projections were based on the plan’s target asset allocation.
Discount Rate Assumption
To determine the assumed discount rate, the Companies use a model that produces a yield curve based on yields on selected highly rated (Aa or higher by either Moody’s or Standard & Poor’s) corporate bonds. Bonds with insufficient liquidity, bonds with questionable pricing information and bonds that are not representative of the overall market are excluded from consideration. For example, the bonds used in the model cannot be callable (with the exception of "make whole" callable bonds), and the amount of the bond issue outstanding must be in excess of $50 million. The spot rates defined by the yield curve and the plan’s projected benefit payments are used to develop a weighted average discount rate.
Expected Benefit Payments
Based on current assumptions, the Companies expect to make the following benefit payments over the next ten years:
(Millions of Dollars)
2020
2021
2022
2023
2024
2025-2029
Con Edison
$744
$756
$770
$788
$801
$4,181
CECONY
688
699
713
728
741
3,883

Expected Contributions
Based on estimates as of December 31, 2019, the Companies expect to make contributions to the pension plans during 2020 of $472 million (of which $433 million is to be made by CECONY). The Companies’ policy is to fund the total periodic benefit cost of the qualified plan to the extent tax deductible and to also contribute to the non-qualified supplemental plans.
Plan Assets
The asset allocations for the pension plan at the end of 2019, 2018 and 2017, and the target allocation for 2020 are as follows:
  
Target
Allocation Range
 
           Plan Assets at December 31,
Asset Category
2020
 
2019

 
2018

 
2017

Equity Securities
45% - 55%
 
51
%
 
51
%
 
58
%
Debt Securities
33% - 43%
 
38
%
 
39
%
 
33
%
Real Estate
10% - 14%
 
11
%
 
10
%
 
9
%
Total
100%
 
100
%
 
100
%
 
100
%

Con Edison has established a pension trust for the investment of assets to be used for the exclusive purpose of providing retirement benefits to participants and beneficiaries and payment of plan expenses.
Pursuant to resolutions adopted by Con Edison’s Board of Directors, the Management Development and Compensation Committee of the Board of Directors (the Committee) has general oversight responsibility for Con Edison’s pension and other employee benefit plans. The pension plan’s named fiduciaries have been granted the authority to control and manage the operation and administration of the plans, including overall responsibility for the investment of assets in the trust and the power to appoint and terminate investment managers.
The investment objectives of the Con Edison pension plan are to maintain a level and form of assets adequate to meet benefit obligations to participants, to achieve the expected long-term total return on the trust assets within a prudent level of risk and maintain a level of volatility that is not expected to have a material impact on the company’s expected contribution and expense or the company’s ability to meet plan obligations. The assets of the plan have no significant concentration of risk in one country (other than the United States), industry or entity.
The strategic asset allocation is intended to meet the objectives of the pension plan by diversifying its funds across asset classes, investment styles and fund managers. An asset/liability study typically is conducted every few years to determine whether the current strategic asset allocation continues to represent the appropriate balance of expected risk and reward for the plan to meet expected liabilities. Each study considers the investment risk of the asset allocation and determines the optimal asset allocation for the plan. The target asset allocation for 2020 reflects the results of such a study conducted in 2018.
Individual fund managers operate under written guidelines provided by Con Edison, which cover such areas as investment objectives, performance measurement, permissible investments, investment restrictions, trading and execution, and communication and reporting requirements. Con Edison management regularly monitors, and the named fiduciaries review and report to the Committee regarding, asset class performance, total fund performance, and compliance with asset allocation guidelines. Management changes fund managers and rebalances the portfolio as appropriate. At the direction of the named fiduciaries, such changes are reported to the Committee.
Assets measured at fair value on a recurring basis are summarized below as defined by the accounting rules for fair value measurements (see Note P).
The fair values of the pension plan assets at December 31, 2019 by asset category are as follows:
(Millions of Dollars)
Level 1

 
Level 2

 
Total

Investments within the fair value hierarchy
 
 
 
 
 
U.S. Equity (a)
$3,652
 

$—

 
$3,652
International Equity (b)
3,354
 
—

 
3,354
U.S. Government Issued Debt (c)
—

 
1,496
 
1,496
Corporate Bonds Debt (d)
—

 
3,260
 
3,260
Structured Assets Debt (e)
—

 
173
 
173
Other Fixed Income Debt (f)
—

 
955
 
955
Cash and Cash Equivalents (g)
—

 
326
 
326
Futures (h)
—

 
—

 
—

Total investments within the fair value hierarchy
$7,006
 
$6,210
 
$13,216
Investments measured at NAV per share (n)


 


 

Private Equity (i)
 
 
 
 
555
Real Estate (j)
 
 
 
 
1,806
Hedge Funds (k)
 
 
 
 
270
Total investments valued using NAV per share

 

 
$2,631
Funds for retiree health benefits (l)
(110)
 
(98)
 
(208)
Funds for retiree health benefits measured at NAV per share (l)(n)

 

 
(42)
Total funds for retiree health benefits

 

 
$(250)
Investments (excluding funds for retiree health benefits)
$6,896
 
$6,112
 
$15,597
Pending activities (m)
 
 
 
 
11
Total fair value of plan net assets
 
 
 
 
$15,608
(a)
U.S. Equity includes both actively- and passively-managed assets with investments in domestic equity index funds and actively-managed small-capitalization equities.
(b)
International Equity includes international equity index funds and actively-managed international equities.
(c)
U.S. Government Issued Debt includes agency and treasury securities.
(d)
Corporate Bonds Debt consists of debt issued by various corporations.
(e)
Structured Assets Debt includes commercial-mortgage-backed securities and collateralized mortgage obligations.
(f)
Other Fixed Income Debt includes municipal bonds, sovereign debt and regional governments.
(g)
Cash and Cash Equivalents include short term investments, money markets, foreign currency and cash collateral.
(h)
Futures consist of exchange-traded financial contracts encompassing U.S. Equity, International Equity and U.S. Government indices.
(i)
Private Equity consists of global equity funds that are not exchange-traded.
(j)
Real Estate investments include real estate funds based on appraised values that are broadly diversified by geography and property type.
(k)
Hedge Funds are within a commingled structure which invests in various hedge fund managers who can invest in all financial instruments.
(l)
The Companies set aside funds for retiree health benefits through a separate account within the pension trust, as permitted under Section 401(h) of the Internal Revenue Code of 1986, as amended. In accordance with the Code, the plan’s investments in the 401(h) account may not be used for, or diverted to, any purpose other than providing health benefits for retirees. The net assets held in the 401(h) account are calculated based on a pro-rata percentage allocation of the net assets in the pension plan. The related obligations for health benefits are not included in the pension plan’s obligations and are included in the Companies’ other postretirement benefit obligation. See Note F.
(m)
Pending activities include security purchases and sales that have not settled, interest and dividends that have not been received and reflects adjustments for available estimates at year end.
(n)
In accordance with ASU 2015-07, Fair Value Measurements (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
The fair values of the pension plan assets at December 31, 2018 by asset category are as follows:
(Millions of Dollars)
Level 1

 
Level 2

 
Total
Investments within the fair value hierarchy
 
 
 
 
 
U.S. Equity (a)
$3,515
 
$10
 
$3,525
International Equity (b)
2,896
 
—

 
2,896
U.S. Government Issued Debt (c)
—

 
1,886
 
1,886
Corporate Bonds Debt (d)
—

 
2,619
 
2,619
Structured Assets Debt (e)
—

 
6
 
6
Other Fixed Income Debt (f)
—

 
121
 
121
Cash and Cash Equivalents (g)
160
 
556
 
716
Futures (h)
568
 
—

 
568
Total investments within the fair value hierarchy
$7,139
 
$5,198
 
$12,337
Investments measured at NAV per share (n)
 
 
 
 
 
Private Equity (i)
 
 
 
 
440
Real Estate (j)
 
 
 
 
1,310
Hedge Funds (k)


 
 
 
255
Total investments valued using NAV per share

 

 
$2,005
Funds for retiree health benefits (l)
(118)
 
(86)
 
(204)
Funds for retiree health benefits measured at NAV per share (l)(n)
 
 
 
 
(33)
Total funds for retiree health benefits
 
 
 
 
$(237)
Investments (excluding funds for retiree health benefits)
$7,021
 
$5,112
 
$14,105
Pending activities (m)
 
 
 
 
(655)
Total fair value of plan net assets
 
 
 
 
$13,450
(a) - (n) Reference is made to footnotes (a) through (n) in the above table of pension plan assets at December 31, 2019 by asset category.
The Companies also offer a defined contribution savings plan that covers substantially all employees and made contributions to the plan as follows:
  
              For the Years Ended December 31,
(Millions of Dollars)
2019
 
2018
 
2017
Con Edison
$49
 
$45
 
$40
CECONY
42
 
39
 
35