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Employee Benefits
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits Disclosure Employee Benefits

Retirement Plans
The Company’s Retirement Income Plan ("Retirement Plan") is a qualified noncontributory defined benefit plan. Upon retirement or death of a vested plan participant, assets of the Retirement Plan are used to pay benefit obligations under the Retirement Plan. Contributions from the Company are based on various factors, such as the minimum funding amounts required by the U.S. Internal Revenue Service, state and federal regulatory requirements, amounts requested from customers in the Company's Texas and New Mexico jurisdictions, and the annual net periodic benefit cost of the Retirement Plan, as actuarially calculated. The assets of the Retirement Plan are primarily invested in common collective trusts which hold equity securities, debt securities and cash equivalents and are managed by a professional investment manager appointed by the Company.
The Company has two non-qualified retirement plans that are non-funded defined benefit plans. The Company's Supplemental Retirement Plan covers certain former employees and directors of the Company. The Excess Benefit Plan was adopted in 2004 and covers certain active and former employees of the Company. The net periodic benefit cost for the non-qualified retirement plans are based on substantially the same actuarial methods and economic assumptions as those used for the Retirement Plan.
The Retirement Plan was amended effective April 1, 2014 to offer a cash balance pension benefit as an alternative to its existing final average pay pension benefit for employees hired prior to January 1, 2014. Employees hired after January 1, 2014 are automatically enrolled in the cash balance pension benefit.
Prior to December 31, 2013, employees who completed one year of service with the Company and worked at least a minimum number of hours each year were covered by the final average pay formula of the plan. For participants that continue to be covered by the final average pay formula, retirement benefits are based on the employee’s final average pay and years of service. The cash balance pension benefit covers employees beginning on their employment commencement date or re-employment commencement date. Retirement benefits under the cash balance pension benefit are based on the employee’s cash balance account, consisting of pay credits and interest credits.
The obligations and funded status of the plans are presented below (in thousands):
 
December 31,
 
2019
 
2018
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
Change in projected benefit obligation:
 
 
 
 
 
 
 
Benefit obligation at end of prior year
$
335,496

 
$
26,719

 
$
361,989

 
$
28,392

Service cost
8,127

 
415

 
9,086

 
480

Interest cost
13,451

 
1,003

 
12,013

 
865

Actuarial (gain) loss
56,988

 
1,624

 
(29,911
)
 
(1,087
)
Benefits paid
(15,955
)
 
(1,940
)
 
(17,681
)
 
(1,931
)
Benefit obligation at end of year
398,107

 
27,821

 
335,496

 
26,719

Change in plan assets:
 
 
 
 
 
 
 
Fair value of plan assets at end of prior year
272,803

 
—

 
304,389

 
—

Actual return (loss) on plan assets
64,368

 
—

 
(19,683
)
 
—

Employer contribution
7,300

 
1,940

 
7,300

 
1,931

Benefits paid
(15,955
)
 
(1,940
)
 
(17,681
)
 
(1,931
)
Administrative and investment expenses
(1,364
)
 
—

 
(1,522
)
 
—

Fair value of plan assets at end of year
327,152

 
—

 
272,803

 
—

Funded status at end of year
$
(70,955
)
 
$
(27,821
)
 
$
(62,693
)
 
$
(26,719
)

Amounts recognized in the Company's balance sheets consist of the following (in thousands):
 
December 31,
 
2019
 
2018
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
Current liabilities
$
—

 
$
(2,031
)
 
$
—

 
$
(2,153
)
Noncurrent liabilities
(70,955
)
 
(25,790
)
 
(62,693
)
 
(24,566
)
Total
$
(70,955
)
 
$
(27,821
)
 
$
(62,693
)
 
$
(26,719
)

The accumulated benefit obligation in excess of plan assets is as follows (in thousands):    
 
December 31,
 
2019
 
2018
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
Projected benefit obligation
$
(398,107
)
 
$
(27,821
)
 
$
(335,496
)
 
$
(26,719
)
Accumulated benefit obligation
(364,941
)
 
(26,413
)
 
(308,582
)
 
(24,251
)
Fair value of plan assets
327,152

 
—

 
272,803

 
—


Pre-tax amounts recognized in AOCI consist of the following (in thousands):    
 
Years Ended December 31,
 
2019
 
2018
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
Net loss
$
121,622

 
$
10,153

 
$
112,532

 
$
9,300

Prior service benefit
(13,475
)
 
(68
)
 
(16,942
)
 
(107
)
Total
$
108,147

 
$
10,085

 
$
95,590

 
$
9,193


The following are the weighted-average actuarial assumptions used to determine the benefit obligations:
 
December 31,
 
2019
 
2018
 
 
 
Non-Qualified
 
 
 
Non-Qualified
 
Retirement
Income
Plan
 
Supplemental
Retirement
Plan
 
Excess
Benefit
Plan
 
Retirement
Income
Plan
 
Supplemental
Retirement
Plan
 
Excess
Benefit
Plan
Discount rate
3.32
%
 
2.87
%
 
3.31
%
 
4.42
%
 
4.11
%
 
4.45
%
Rate of compensation increase
4.5
%
 
N/A

 
4.5
%
 
4.5
%
 
N/A

 
4.5
%

The Company reassesses various actuarial assumptions at least on an annual basis. The discount rate is reviewed and updated at each measurement date. The discount rate used to measure the fiscal year end obligation is based on a segmented spot rate yield curve that matches projected future payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. A 1% increase in the discount rate would decrease the December 31, 2019 retirement plans' projected benefit obligation by 12.2%. A 1% decrease in the discount rate would increase the December 31, 2019 retirement plans' projected benefit obligation by 15.2%.
The components of net periodic benefit cost are presented below (in thousands):
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
Service cost (a)
$
9,491

 
$
415

 
$
10,608

 
$
480

 
$
8,156

 
$
362

Interest cost
13,451

 
1,003

 
12,013

 
865

 
12,196

 
863

Expected return on plan assets
(21,492
)
 
—

 
(21,076
)
 
—

 
(19,189
)
 
—

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Net loss
5,022

 
770

 
7,531

 
1,022

 
7,572

 
882

Prior service benefit
(3,467
)
 
(39
)
 
(3,467
)
 
(39
)
 
(3,467
)
 
(39
)
Net periodic benefit cost
$
3,005

 
$
2,149

 
$
5,609

 
$
2,328

 
$
5,268

 
$
2,068


_____________________
(a) Service cost for the Retirement Plan for 2019 and 2018 includes expenses of $1.4 million and $1.5 million, respectively, for administrative and investment expenses paid from plan assets during the year.

The changes in benefit obligations and plan assets recognized in other comprehensive income are presented below (in thousands): 
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
Net (gain) loss
$
14,112

 
$
1,624

 
$
10,848

 
$
(1,087
)
 
$
(4,265
)
 
$
2,217

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Net loss
(5,022
)
 
(770
)
 
(7,531
)
 
(1,022
)
 
(7,572
)
 
(882
)
Prior service benefit
3,467

 
39

 
3,467

 
39

 
3,467

 
39

Total recognized in other comprehensive income
$
12,557

 
$
893

 
$
6,784

 
$
(2,070
)
 
$
(8,370
)
 
$
1,374


The total amount recognized in net periodic benefit costs and other comprehensive income are presented below (in thousands): 
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
 
Retirement
Income
Plan
 
Non-Qualified
Retirement
Plans
Total recognized in net periodic benefit cost and other comprehensive income
$
15,562

 
$
3,042

 
$
12,393

 
$
258

 
$
(3,102
)
 
$
3,442


The following are amounts in AOCI that are expected to be recognized as components of net periodic benefit cost during 2020 (in thousands): 
 
Retirement Income
Plan
 
Non-Qualified
Retirement Plans
Net loss
$
8,127

 
$
828

Prior service benefit
(3,467
)
 
(39
)

The following are the weighted-average actuarial assumptions used to determine the net periodic benefit cost for the twelve months ended December 31:
 
2019
 
2018
 
2017
 
 
 
Non-Qualified
 
 
 
Non-Qualified
 
 
 
Non-Qualified
 
Retirement
Income
Plan
 
Supplemental Retirement
Plan
 
Excess
Benefit
Plan
 
Retirement
Income
Plan
 
Supplemental Retirement
Plan
 
Excess
Benefit
Plan
 
Retirement
Income
Plan
 
Supplemental Retirement
Plan
 
Excess
Benefit
Plan
Discount rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Benefit
    obligation
4.42
%
 
4.11
%
 
4.45
%
 
3.77
%
 
3.40
%
 
3.81
%
 
4.30
%
 
3.76
%
 
4.35
%
    Service cost
4.50
%
 
N/A

 
4.53
%
 
3.86
%
 
N/A

 
3.89
%
 
4.51
%
 
N/A

 
4.52
%
    Interest cost
4.12
%
 
3.68
%
 
4.18
%
 
3.40
%
 
2.84
%
 
3.48
%
 
3.70
%
 
2.94
%
 
3.78
%
Expected long-term return on plan assets
7.5
%
 
N/A

 
N/A

 
7.5
%
 
N/A

 
N/A

 
7.0
%
 
N/A

 
N/A

Rate of compensation increase
4.5
%
 
N/A

 
4.5
%
 
4.5
%
 
N/A

 
4.5
%
 
4.5
%
 
N/A

 
4.5
%

The Company’s overall expected long-term rate of return on assets is 7.5% as of January 1, 2020, which is both a pre-tax and after-tax rate as pension funds are generally not subject to income tax. The expected long-term rate of return is based on the weighted average of the expected returns on investments based upon the target asset allocation of the pension fund. The Company’s target allocations for the plan’s assets are presented below:
 
 
December 31, 2019
Equity securities
 
45.3
%
Fixed income
 
46.3
%
Alternative investments
 
8.4
%
Total
 
100.0
%

The Retirement Plan invests the majority of its plan assets in common collective trusts which includes a diversified portfolio of domestic and international equity securities and fixed income securities. Alternative investments of the Retirement Plan are comprised of a real estate limited partnership, equity securities of real estate companies, primarily in real estate investment trusts and equity securities of listed companies involved in infrastructure activities. The expected rate of returns for the funds are assessed annually and are based on long-term relationships among major asset classes and the level of incremental returns that can be earned by the successful implementation of different active investment management strategies. Equity, real estate equity and infrastructure equity returns are based on estimates of long-term inflation rate, real rate of return, 10-year Treasury bond premium over cash, an expected equity risk premium, as well as other economic factors. Fixed income returns are based on maturity, long-term inflation, real rate of return and credit spreads. These assumptions also capture the expected correlation of returns between these asset classes over the long term.
The FASB guidance on disclosure for pension plans requires disclosure of fair value measurements of plan assets. To increase consistency and comparability in fair value measurements, the FASB guidance on fair value measurements established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•
Level 1 – Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Prices of securities held in the mutual funds and underlying portfolios of the Retirement Plan are primarily obtained from independent pricing services. These prices are based on observable market data. The Common Collective Trusts are valued using the Net Asset Value ("NAV") provided by the administrator of the fund. The NAV price is quoted on a restrictive market although the underlying investments are traded on active markets. The NAV used for determining the fair value of the investments in the Common Collective Trusts have readily determinable fair values. Accordingly, such fund values are categorized as Level 1.

•
Level 2 – Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. The fair value of these investments is based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.

•
Level 3 – Unobservable inputs using data that is not corroborated by market data.
The fair value of the Company’s Retirement Plan assets at December 31, 2019 and 2018, and the level within the three levels of the fair value hierarchy defined by the FASB guidance on fair value measurements are presented in the table below (in thousands):
Description of Securities
Fair Value as of
December 31,
2019
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and Cash Equivalents
$
2,622

 
$
2,622

 
$
—

 
$
—

Common Collective Trusts (a)
 
 
 
 
 
 
 
Equity funds
148,163

 
148,163

 
—

 
—

Fixed income funds
150,439

 
150,439

 
—

 
—

Real asset funds
24,119

 
24,119

 
—

 
—

Total Common Collective Trusts
322,721

 
322,721

 
—

 
—

Limited Partnership Interest in Real Estate (b)
1,809

 
 
 
 
 
 
Total Plan Investments
$
327,152

 
$
325,343

 
$
—

 
$
—


Description of Securities
Fair Value as of
December 31,
2018
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and Cash Equivalents
$
1,911

 
$
1,911

 
$
—

 
$
—

Common Collective Trusts (a)
 
 
 
 
 
 
 
Equity funds
140,214

 
140,214

 
—

 
—

Fixed income funds
110,333

 
110,333

 
—

 
—

Real asset funds
16,990

 
16,990

 
—

 
—

       Total Common Collective Trusts
267,537

 
267,537

 
—

 
—

Limited Partnership Interest in Real Estate (b)
3,355

 
 
 
 
 
 
Total Plan Investments
$
272,803

 
$
269,448

 
$
—

 
$
—

 _____________________
(a)
The Common Collective Trusts are invested in equity and fixed income securities, or a combination thereof. The investment objective of each fund is to produce returns in excess of, or commensurate with, its predefined index.
(b)
This investment is a commercial real estate partnership that purchases land, develops limited infrastructure and sells it for commercial development. The Company was restricted from selling its partnership interest during the life of the partnership, which spanned 7 years. Return on investment is realized as land is sold. The fair value of the limited partnership interest in real estate is based on the NAV of the partnership which reflects the appraised value of the land. The partnership term expired on June 30, 2016. Upon expiration, dissolution of the partnership commenced and, as a result, the general partner of the partnership is attempting to sell the remaining inventory as soon as possible at the highest pricing possible.
The table below reflects the changes in the fair value of investments in the real estate limited partnership during the period (in thousands): 
 
Fair Value of
Investments in
Real Estate
Balances at December 31, 2017
$
3,853

Sale of land
(48
)
Unrealized loss in fair value
(450
)
Balances at December 31, 2018
3,355

Sale of land
(1,584
)
Unrealized gain in fair value
38

Balances at December 31, 2019
$
1,809


There were no transfers in or out of Level 1 and Level 2 fair value measurements categories due to changes in observable inputs during the twelve-month periods ending December 31, 2019 and 2018. There were no purchases, issuances, and settlements related to the assets in the Level 3 fair value measurement category during the twelve-month periods ending December 31, 2019 and 2018.
The Company and the fiduciaries responsible for the Retirement Plan adhere to the traditional capital market pricing theory which maintains that over the long term, the risk of owning equities should be rewarded with a greater return than available from fixed income investments. The Company and the fiduciaries responsible for the Retirement Plan seek to minimize the risk of owning equity securities by investing in funds that pursue risk minimization strategies and by diversifying its investments to limit its risks during falling markets. The investment manager has full discretionary authority to direct the investment of plan assets held in trust within the guidelines prescribed by the Company and the fiduciaries responsible for the Retirement Plan through the plan’s investment policy statement including the ability to hold cash equivalents. The investment guidelines of the investment policy statement are in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA") and U.S. Department of Labor ("DOL") regulations.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):
 
Retirement Income
Plan
 
Non-Qualified
Retirement Plans
2020
$
19,163

 
$
2,031

2021
19,517

 
1,995

2022
19,870

 
1,958

2023
21,462

 
2,022

2024
21,209

 
1,949

2025-2029
113,539

 
8,363


401(k) Defined Contribution Plans
The Company sponsors 401(k) defined contribution plans covering substantially all employees. The Company provides a 50 percent matching contribution up to 6 percent of the employee’s compensation for employees who are enrolled in the final average pay pension benefit of the Retirement Plan and a 100 percent matching contribution up to 6 percent of the employee's compensation for employees who are enrolled in the cash balance pension benefit of the Retirement Plan, subject to certain other limits and exclusions. Annual matching contributions made to the savings plans for the years 2019, 2018 and 2017 were $4.7 million, $4.6 million, and $4.4 million, respectively.
Other Post-retirement Benefits
The Company provides certain other post-retirement benefits, including health care benefits for retired employees and their eligible dependents and life insurance benefits for retired employees only ("OPEB Plan"). Substantially all of the Company’s employees may become eligible for those benefits if they retire while working for the Company. Contributions from the Company are based on various factors such as the OPEB Plan's funded status, tax deductibility of contributions to the OPEB Plan, state and federal regulatory requirements, amounts requested from customers in the Company's Texas and
New Mexico jurisdictions and the annual net periodic benefit cost of the OPEB Plan, as actuarially calculated. The assets of the OPEB Plan are primarily invested in institutional funds which hold equity securities, debt securities and cash equivalents and are managed by a professional investment manager appointed by the Company.
The following table contains a reconciliation of the change in the benefit obligation, the fair value of plan assets and the funded status of the OPEB Plan (in thousands):
 
December 31,
 
2019
 
2018
Change in benefit obligation:
 
 
 
Benefit obligation at end of prior year
$
60,862

 
$
67,290

Service cost
2,242

 
2,591

Interest cost
2,456

 
2,252

Actuarial (gain) loss
889

 
(9,295
)
Benefits paid from plan assets
(2,643
)
 
(3,003
)
Benefits paid from corporate assets
(176
)
 
(141
)
Retiree contributions
1,262

 
1,168

Benefit obligation at end of year
64,892

 
60,862

Change in plan assets:
 
 
 
Fair value of plan assets at end of prior year
36,287

 
40,873

Actual return (loss) on plan assets
6,636

 
(2,997
)
Employer contribution
450

 
450

Benefits paid from plan assets
(2,643
)
 
(3,003
)
Retiree contributions
1,262

 
1,168

Administrative and investment expenses
(181
)
 
(204
)
Fair value of plan assets at end of year
41,811

 
36,287

Funded status at end of year
$
(23,081
)
 
$
(24,575
)


Amounts recognized in the Company's balance sheets consist of the following (in thousands):
 
December 31,
 
2019
 
2018
Current liabilities
$
—

 
$
—

Noncurrent liabilities
(23,081
)
 
(24,575
)
Total
$
(23,081
)
 
$
(24,575
)

Pre-tax amounts recognized in AOCI consist of the following (in thousands):
 
December 31,
 
2019
 
2018
Net gain
$
(38,139
)
 
$
(36,890
)
Prior service benefit
(23,472
)
 
(28,706
)
Total
$
(61,611
)
 
$
(65,596
)

The following are the weighted-average actuarial assumptions used to determine the accrued benefit obligations:
 
December 31,
 
2019
 
2018
Discount rate at end of year
3.41
%
 
4.43
%
Health care cost trend rates:
 
 
 
Initial
 
 
 
Pre-65 medical
5.75
%
 
6.00
%
Post-65 medical
4.50
%
 
4.50
%
Pre-65 drug
6.75
%
 
7.00
%
Post-65 drug
7.00
%
 
8.50
%
Ultimate
4.50
%
 
4.50
%
Year ultimate reached (a)
2026

 
2026


_____________________
(a) Pre-65 medical reaches the ultimate trend rate in 2025. Additionally, the Post-65 medical trend is assumed to be 4.50% for all years into the future.
The Company reassesses various actuarial assumptions at least on an annual basis. The discount rate is reviewed and updated at each measurement date. The discount rate used to measure the fiscal year end obligation is based on a segmented spot rate yield curve that matches projected future payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. A 1% increase in the discount rate would decrease the December 31, 2019 accumulated post-retirement benefit obligation by 14.2%. A 1% decrease in the discount rate would increase the December 31, 2019 accumulated post-retirement benefit obligation by 18.4%.
Net periodic benefit cost is made up of the components listed below (in thousands):
 
Years Ended December 31,
 
2019
 
2018
 
2017
Service cost (a)
$
2,423

 
$
2,795

 
$
2,236

Interest cost
2,456

 
2,252

 
2,723

Expected return on plan assets
(2,120
)
 
(2,435
)
 
(1,907
)
Amortization of:
 
 
 
 
 
Prior service benefit
(5,234
)
 
(6,151
)
 
(6,151
)
Net gain
(2,377
)
 
(2,166
)
 
(1,678
)
Net periodic benefit cost
$
(4,852
)
 
$
(5,705
)
 
$
(4,777
)

_____________________
(a) Service cost for 2019 and 2018 includes expenses of $181 and $204 thousand, respectively, for administrative and investment expenses paid from plan assets during the year.
The changes in benefit obligations and plan assets recognized in other comprehensive income are presented below (in thousands):
 
Years Ended December 31,
 
2019
 
2018
 
2017
Net gain
$
(3,626
)
 
$
(3,863
)
 
$
(10,586
)
Amortization of:
 
 
 
 
 
Prior service benefit
5,234

 
6,151

 
6,151

Net gain
2,377

 
2,166

 
1,678

Total recognized in other comprehensive income
$
3,985

 
$
4,454

 
$
(2,757
)

The total amount recognized in net periodic benefit cost and other comprehensive income are presented below (in thousands):
 
Years Ended December 31,
 
2019
 
2018
 
2017
Total recognized in net periodic benefit cost and other comprehensive income
$
(867
)
 
$
(1,251
)
 
$
(7,534
)

The amount in AOCI that is expected to be recognized as a component of net periodic benefit cost during 2020 is a prior service benefit of $3.1 million and a net gain of $2.4 million.
The following are the weighted-average actuarial assumptions used to determine the net periodic benefit cost for the twelve months ended December 31:
 
2019
 
2018
 
2017
Discount rate:
 
 
 
 
 
Benefit obligation
4.44
%
 
3.79
%
 
4.37
%
Service cost
4.51
%
 
3.87
%
 
4.59
%
Interest cost
4.15
%
 
3.38
%
 
3.76
%
Expected long-term return on plan assets
6.00
%
 
6.12
%
 
4.875
%
Health care cost trend rates:
 
 
 
 
 
Initial
 
 
 
 
 
Pre-65 medical
6.0
%
 
6.25
%
 
6.5
%
Post-65 medical
4.5
%
 
4.5
%
 
4.5
%
Pre-65 drug
7.0
%
 
7.25
%
 
7.5
%
Post-65 drug
8.5
%
 
10.0
%
 
10.5
%
Ultimate
4.5
%
 
4.5
%
 
4.5
%
Year ultimate reached (a)
2026

 
2026

 
2026


_____________________
(a) Pre-65 medical reaches the ultimate trend rate in 2025. Additionally, the Post-65 medical trend is assumed to be 4.50% for all years into the future.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. The effect of a 1% change in these assumed health care cost trend rates would increase or decrease the December 31, 2019 benefit obligation by $10.6 million or $8.3 million, respectively. In addition, a 1% change in said rate would increase or decrease the aggregate 2019 service and interest cost components of the net periodic benefit cost by $1.0 million or $0.8 million, respectively.
The Company's overall expected long-term rate of return on assets is 7.85%, as of January 1, 2020, on a pre-tax basis. The expected long-term rate of return on assets on an after-tax basis is 6.00% as of January 1, 2020. The trust's tax rate was assumed to be 23.60% at January 1, 2019 and January 1, 2020. The expected long-term rate of return is based on the after-tax weighted average of the expected returns on investments based upon the target asset allocation. The Company’s target allocations for the plan’s assets are presented below:
 
 
December 31, 2019
Equity securities
 
45.4
%
Fixed income
 
39.3
%
Alternative investments
 
15.3
%
Total
 
100.0
%

The OPEB Plan invests the majority of its plan assets in institutional funds which includes a diversified portfolio of domestic and international equity securities and fixed income securities. Alternative investments of the OPEB Plan are comprised of a real estate limited partnership and equity securities of real estate companies, primarily in real estate investment
trusts. The alternative investments also include equity securities of a dynamic, diversified portfolio designed to capture market opportunities. The underlying allocations to various asset classes in this portfolio will shift over time, but the overall strategic allocation is as follows: 75% global equity, 15% marketable real assets and 10% global fixed income. The expected rates of return for the funds are assessed annually and are based on long-term relationships among major asset classes and the level of incremental returns that can be earned by the successful implementation of different active investment management strategies. Equity returns are based on estimates of long-term inflation rate, real rate of return, 10-year Treasury bond premium over cash, an expected equity risk premium, as well as other economic factors. Fixed income returns are based on maturity, long-term inflation, real rate of return and credit spreads. These assumptions also capture the expected correlation of returns between these asset classes over the long term.
The FASB guidance on disclosure for other post-retirement benefit plans requires disclosure of fair value measurements of plan assets. To increase consistency and comparability in fair value measurements, the FASB guidance on fair value measurements established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•
Level 1 – Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Prices of securities held in the mutual funds and underlying portfolios of the Other Post-retirement Benefits Plan are primarily obtained from independent pricing services. These prices are based on observable market data. The institutional funds are valued using the NAV provided by the administrator of the fund. The NAV price is quoted on a restrictive market although the underlying investments are traded on active markets. The NAV used for determining the fair value of the investments in the institutional funds have readily determinable fair values. Accordingly, such fund values are categorized as Level 1.

•
Level 2 – Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. The fair value of these investments is based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.

•
Level 3 – Unobservable inputs using data that is not corroborated by market data.
    
The fair value of the Company’s OPEB Plan assets at December 31, 2019 and 2018 and the level within the three levels of the fair value hierarchy defined by the FASB guidance on fair value measurements are presented in the table below (in thousands): 
Description of Securities
Fair Value as of
December 31,
2019
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and Cash Equivalents
$
2,522

 
$
2,522

 
$
—

 
$
—

Institutional Funds (a)
 
 
 
 
 
 
 
Equity funds
18,664

 
18,664

 
—

 
—

Fixed income funds
15,038

 
15,038

 
—

 
—

Multi asset funds
3,766

 
3,766

 
—

 
—

Real asset funds
1,482

 
1,482

 
—

 
—

Total Institutional Funds
38,950

 
38,950

 
—

 
—

Limited Partnership Interest in Real Estate (b)
339

 
 
 
 
 
 
Total Plan Investments
$
41,811

 
$
41,472

 
$
—

 
$
—

 
 
 
 
 
 
 
 
Description of Securities
Fair Value as of
December 31,
2018
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and Cash Equivalents
$
1,353

 
$
1,353

 
$
—

 
$
—

Institutional Funds (a)
 
 
 
 
 
 
 
Equity funds
17,887

 
17,887

 
—

 
—

Fixed income funds
11,437

 
11,437

 
—

 
—

Multi asset funds
3,576

 
3,576

 
—

 
—

Real asset funds
1,405

 
1,405

 
—

 
—

Total Institutional Funds
34,305

 
34,305

 
—

 
—

Limited Partnership Interest in Real Estate (b)
629

 
 
 
 
 
 
Total Plan Investments
$
36,287

 
$
35,658

 
$
—

 
$
—

 ___________________
(a)
The institutional funds are invested in equity or fixed income securities, or a combination thereof. The investment objective of each fund is to produce returns in excess of, or commensurate with, its predefined index.
(b)
This investment is a commercial real estate partnership that purchases land, develops limited infrastructure and sells it for commercial development. The OPEB Plan trust was restricted from selling its partnership interest during the life of the partnership, which spanned 7 years. Return of investment is realized as land is sold. The fair value of the limited partnership interest in real estate is based on the NAV of the partnership which reflects the appraised value of the land. The partnership term expired on June 30, 2016. Upon expiration, dissolution of the partnership commenced and, as a result, the general partner of the partnership is attempting to sell the remaining inventory as soon as possible at the highest pricing possible.

The table below reflects the changes in the fair value of the investments in real estate during the period (in thousands): 
 
Fair Value of
Investments  in
Real Estate
Balance at December 31, 2017
$
722

Sale of land
(9
)
Unrealized loss in fair value
(84
)
Balance at December 31, 2018
629

Sale of land
(297
)
Unrealized gain in fair value
7

Balance at December 31, 2019
$
339


There were no transfers in or out of Level 1 and Level 2 fair value measurements categories due to changes in observable inputs during the twelve month periods ending December 31, 2019 and 2018. There were no purchases, issuances and settlements related to the assets in the Level 3 fair value measurement category during the twelve month periods ending December 31, 2019 and 2018.
The Company and the fiduciaries responsible for the OPEB Plan adhere to the traditional capital market pricing theory, which maintains that over the long term, the risk of owning equities should be rewarded with a greater return than available from fixed income investments. The Company and the fiduciaries responsible for the OPEB Plan seek to minimize the risk of owning equity securities by investing in funds that pursue risk minimization strategies and by diversifying its investments to limit its risks during falling markets. The investment manager has full discretionary authority to direct the investment of plan assets held in trust within the investment policy guidelines prescribed by the Company. The investment guidelines of the investment policy statement are in accordance with the ERISA and DOL regulations.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands): 
2020
$
2,131

2021
2,277

2022
2,463

2023
2,642

2024
2,843

2025-2029
15,179



Annual Short-Term Incentive Plan
The Annual Short-Term Incentive Plan ("Incentive Plan") provides for the payment of cash awards to eligible Company employees, including each of its named executive officers. Payment of awards is based on the achievement of performance measures reviewed and approved by the Board of Directors’ Compensation Committee. Generally, these performance measures are based on meeting certain financial, operational and individual performance criteria. The financial performance goals are based on specified levels of earnings and certain O&M expenses. The operational performance goals are based on reliability and customer satisfaction. If a minimum level of earnings is not attained, no amounts will be paid under the Incentive Plan, unless the Board of Directors' Compensation Committee determines otherwise. In 2019, the Company reached the required levels of earnings, certain O&M expenses, reliability and customer satisfaction goals for an incentive payment of $14.4 million. In 2018 and 2017, the Company achieved required levels of similar goals for incentive payments of $11.0 million and $9.7 million, respectively.