NW Natural maintains a qualified non-contributory defined benefit pension plan (Pension Plan) for all eligible employees, non-qualified supplemental pension plans for eligible executive officers and other key employees, and other postretirement employee benefit plans. NW Natural also has a qualified defined contribution plan (Retirement K Savings Plan) for all eligible employees. The Pension Plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund retirement benefits.

Effective January 1, 2007 and 2010, the Pension Plan and postretirement benefits for non-union employees and union employees, respectively, were closed to new participants. Non-union and union employees hired or re-hired after December 31, 2006 and 2009, respectively, and employees of NW Natural subsidiaries are provided an enhanced Retirement K Savings Plan benefit.

The following table provides a reconciliation of the changes in NW Natural's benefit obligations and fair value of plan assets, as applicable, for NW Natural's pension and other postretirement benefit plans, excluding the Retirement K Savings Plan, and a summary of the funded status and amounts recognized in NW Holdings' and NW Natural's consolidated balance sheets as of December 31:


	Postretirement Benefit Plans
	Pension Benefits				Other Benefits
In thousands	2021		2020		2021		2020
Reconciliation of change in benefit obligation:
Obligation at January 1	$	566,147	$	515,668	$	29,039	$	29,568
Service cost	6,982		6,614		238		258
Interest cost	13,447		16,161		684		905
Net actuarial (gain) loss	(18,587)		52,777		(688)		145
Benefits paid	(25,371)		(25,073)		(2,050)		(1,837)
Obligation at December 31	$	542,618	$	566,147	$	27,223	$	29,039

Reconciliation of change in plan assets:
Fair value of plan assets at January 1	$	373,932	$	313,051	$	—	$	—
Actual return on plan assets	38,712		54,600		—		—
Employer contributions	11,944		31,354		2,050		1,837
Benefits paid	(25,371)		(25,073)		(2,050)		(1,837)
Fair value of plan assets at December 31	$	399,217	$	373,932	$	—	$	—
Funded status at December 31	$	(143,401)	$	(192,215)	$	(27,223)	$	(29,039)

At December 31, 2021, the net liability (benefit obligations less market value of plan assets) for the Pension Plan decreased $46.5 million compared to 2020. The decrease in the net pension liability is primarily due to the $25.3 million increase in plan assets and the $21.3 million decrease to the pension benefit obligation. The liability for non-qualified plans decreased $2.3 million, and the liability for other postretirement benefits decreased $1.8 million in 2021.

NW Natural's Pension Plan had a projected benefit obligation of $503.9 million and $525.1 million at December 31, 2021 and 2020, respectively, and fair values of plan assets of $399.2 million and $373.9 million, respectively. The plan had an accumulated benefit obligation of $464.4 million and $480.0 million at December 31, 2021 and 2020, respectively.


	Regulatory Assets												Other Comprehensive Loss (Income)
	Pension Benefits						Other Postretirement Benefits						Pension Benefits
In thousands	2021		2020		2019		2021		2020		2019		2021		2020		2019
Net actuarial (gain) loss	$	(32,258)	$	16,170	$	10,424	$	(688)	$	145	$	1,809	$	(812)	$	3,873	$	3,595

Amortization of:
Prior service (cost) credit	—		—		(7)		468		468		468		—		—		—
Actuarial loss	(21,250)		(18,627)		(14,057)		(645)		(607)		(369)		(1,225)		(923)		(648)
Total	$	(53,508)	$	(2,457)	$	(3,640)	$	(865)	$	6	$	1,908	$	(2,037)	$	2,950	$	2,947


	Regulatory Assets								AOCL
	Pension Benefits				Other Postretirement Benefits				Pension Benefits
In thousands	2021		2020		2021		2020		2021		2020
Prior service cost (credit)	$	—	$	—	$	(333)	$	(801)	$	—	$	—
Net actuarial loss	112,182		164,446		5,834		7,167		15,399		17,434
Total	$	112,182	$	164,446	$	5,501	$	6,366	$	15,399	$	17,434


	Year ended December 31,
In thousands	2021		2020
Beginning balance	$	(12,902)	$	(10,733)
Amounts reclassified to AOCL	812		(3,873)
Amounts reclassified from AOCL:
Amortization of actuarial losses	1,225		923
Total reclassifications before tax	2,037		(2,950)
Tax (benefit) expense	(539)		781
Total reclassifications for the period	1,498		(2,169)
Ending balance	$	(11,404)	$	(12,902)

In 2022, NW Natural will amortize an estimated $11.8 million from regulatory assets to net periodic benefit costs, consisting of $12.1 million of actuarial losses offset by $0.3 million of prior service credits.

The assumed discount rates for NW Natural's Pension Plan and other postretirement benefit plans were determined independently based on the FTSE Above Median Curve (discount rate curve), which uses high quality corporate bonds rated AA- or higher by S&P or Aa3 or higher by Moody’s. The discount rate curve was applied to match the estimated cash flows in each of the plans to reflect the timing and amount of expected future benefit payments for these plans.

The assumed expected long-term rate of return on plan assets for the Pension Plan was developed using a weighted-average of the expected returns for the target asset portfolio. In developing the expected long-term rate of return assumption, consideration was given to the historical performance of each asset class in which the plan’s assets are invested and the target asset allocation for plan assets.

The investment strategy and policies for Pension Plan assets held in the retirement trust fund were approved by the NW Natural Retirement Committee, which is composed of senior management with the assistance of an outside investment consultant. The policies set forth the guidelines and objectives governing the investment of plan assets. Plan assets are invested for total return

with appropriate consideration for liquidity, portfolio risk, and return expectations. All investments are expected to satisfy the prudent investments rule under the Employee Retirement Income Security Act of 1974. The approved asset classes may include cash and short-term investments, fixed income, common stock and convertible securities, absolute and real return strategies, and real estate. Plan assets may be invested in separately managed accounts or in commingled or mutual funds. Investment re-balancing takes place periodically as needed, or when significant cash flows occur, in order to maintain the allocation of assets within the stated target ranges. The retirement trust fund is not currently invested in NW Holdings or NW Natural securities.


Asset Category	Target Allocation
Long government/credit	20	%
U.S. large cap equity	18
Non-U.S. equity	18
Absolute return strategies	12
U.S. small/mid cap equity	10
Real estate funds	7
High yield bonds	5
Emerging markets equity	5
Emerging market debt	5

Non-qualified supplemental defined benefit plan obligations were $38.7 million and $41.0 million at December 31, 2021 and 2020, respectively. These plans are not subject to regulatory deferral, and the changes in actuarial gains and losses, prior service costs, and transition assets or obligations are recognized in AOCL, net of tax until they are amortized as a component of net periodic benefit cost. These are unfunded, non-qualified plans with no plan assets; however, a significant portion of the obligations is indirectly funded with company and trust-owned life insurance and other assets.

Other postretirement benefit plans are unfunded plans but are subject to regulatory deferral. The actuarial gains and losses, prior service costs, and transition assets or obligations for these plans are recognized as a regulatory asset.

Net periodic benefit costs consist of service costs, interest costs, the expected returns on plan assets, and the amortization of gains and losses and prior service costs. The gains and losses are the sum of the actuarial and asset gains and losses throughout the year and are amortized over the average remaining service period of active participants. The asset gains and losses are based in part on a market-related valuation of assets. The market-related valuation reflects differences between expected returns and actual investment returns with the differences recognized over a two-year period from the year in which they occur, thereby reducing year-to-year net periodic benefit cost volatility.

The service cost component of net periodic benefit cost for NW Natural pension and other postretirement benefit plans is recognized in operations and maintenance expense in the consolidated statements of comprehensive income. The other non-service cost components are recognized in other income (expense), net in the consolidated statements of comprehensive income. The following table provides the components of net periodic benefit cost for NW Natural's pension and other postretirement benefit plans for the years ended December 31:


	Pension Benefits						Other Postretirement Benefits
In thousands	2021		2020		2019		2021		2020		2019
Service cost	$	6,981	$	6,614	$	6,308	$	238	$	258	$	244
Interest cost	13,448		16,161		18,684		684		905		1,116
Expected return on plan assets	(24,232)		(21,865)		(20,854)		—		—		—
Amortization of prior service cost (credit)	—		—		7		(468)		(468)		(468)
Amortization of net actuarial loss	22,475		19,550		14,704		645		607		368
Net periodic benefit cost	18,672		20,460		18,849		1,099		1,302		1,260
Amount allocated to construction	(3,015)		(2,798)		(2,493)		(93)		(98)		(86)
Net periodic benefit cost charged to expense	15,657		17,662		16,356		1,006		1,204		1,174
Regulatory pension disallowance	—		—		10,500		—		—		—
Amortization of regulatory balancing account	7,131		7,131		16,841		—		—		—
Net amount charged to expense	$	22,788	$	24,793	$	43,697	$	1,006	$	1,204	$	1,174

Net periodic benefit costs are reduced by amounts capitalized to NGD plant. In addition, a certain amount of net periodic benefit costs were recorded to the regulatory balancing account, representing net periodic pension expense for the Pension Plan above the amount set in rates, as approved by the OPUC, from 2011 through October 31, 2018. Total amortization of the regulatory balancing account of $7.1 million was recognized in each of the years ended December 31, 2021 and 2020, of which $2.6 million was charged to operations and maintenance expense and $4.5 million was charged to other income (expense).


	Pension Benefits						Other Postretirement Benefits
	2021		2020		2019		2021		2020		2019
Assumptions for net periodic benefit cost:
Weighted-average discount rate	2.40	%	3.18	%	4.19	%	2.34	%	3.11	%	4.13	%
Rate of increase in compensation	3.50	%	3.50	%	3.25-3.50%		n/a		n/a		n/a
Expected long-term rate of return	7.25	%	7.25	%	7.50	%	n/a		n/a		n/a
Assumptions for year-end funded status:
Weighted-average discount rate	2.71	%	2.36	%	3.16	%	2.72	%	2.34	%	3.11	%
Rate of increase in compensation(1)	3.50 %		3.50-6.50%		3.50-6.50%		n/a		n/a		n/a
Expected long-term rate of return	7.00	%	7.25	%	7.25	%	n/a		n/a		n/a

(1) Rate assumption was 6.50% in 2020 and 3.50% thereafter. The 2020 compensation increase assumption was a result of the 2019 execution of a collective bargaining agreement with unionized members of NW Natural effective December 1, 2019.

The assumed annual increase in health care cost trend rates used in measuring other postretirement benefits as of December 31, 2021 was 5.75%. These trend rates apply to both medical and prescription drugs. Medical costs and prescription drugs are assumed to decrease gradually each year to a rate of 4.75% by 2026.

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans; however, other postretirement benefit plans have a cap on the amount of costs reimbursable by NW Natural.

Mortality assumptions are reviewed annually and are updated for material changes as necessary. In 2021, mortality rate assumptions were updated from Pri-2012 mortality tables using scale MP-2020 to Pri-2012 mortality tables using scale MP-2021, which partially offset increases of the projected benefit obligation.

The following table provides information regarding employer contributions and benefit payments for NW Natural's Pension Plan, non-qualified pension plans, and other postretirement benefit plans for the years ended December 31, and estimated future contributions and payments:


In thousands	Pension Benefits	Other Benefits
Employer Contributions:
2020	31,362	$	1,837
2021	11,944	2,050
2022 (estimated)	2,335	1,654
Benefit Payments:
2019	23,160	1,774
2020	25,073	1,837
2021	25,371	2,050
Estimated Future Benefit Payments:
2022	23,210	1,654
2023	24,020	1,665
2024	24,728	1,654
2025	25,325	1,643
2026	25,824	1,606
2027-2031	133,617	7,640

NW Natural makes contributions to its Pension Plan based on actuarial assumptions and estimates, tax regulations, and funding requirements under federal law. The Pension Plan was underfunded by $104.7 million at December 31, 2021. NW Natural made cash contributions totaling $9.6 million to its Pension Plan for 2021. The American Rescue Plan, which was signed into law on March 11, 2021, includes a provision for pension relief that extends the amortization period for required contributions from 7 to 15 years and provides for the stabilization of interest rates used to calculate future required contributions. As a result, NW Natural does not expect to make any plan contributions during 2022.

In addition to the NW Natural-sponsored Pension Plan presented above, prior to 2014 NW Natural contributed to a multiemployer pension plan for its NGD union employees known as the Western States Office and Professional Employees International Union Pension Fund (Western States Plan). That plan's employer identification number is 94-6076144. Effective December 22, 2013,

NW Natural withdrew from the plan, which was a noncash transaction. Vested participants will receive all benefits accrued through the date of withdrawal. As the plan was underfunded at the time of withdrawal, NW Natural was assessed a withdrawal liability of $8.3 million, plus interest, which requires NW Natural to pay $0.6 million each year to the plan for 20 years beginning in July 2014. The cost of the withdrawal liability was deferred to a regulatory account on the balance sheet.

Payments were $0.4 million for 2021, and as of December 31, 2021, the liability balance was $5.8 million. For 2020 and 2019, contributions to the plan were $0.7 million and $0.6 million, respectively, which was approximately 6% to 5% of the total contributions to the plan by all employer participants in those years.

NW Natural's Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). NW Natural contributions totaled $8.8 million, $8.3 million, and $7.0 million for 2021, 2020, and 2019, respectively.

NW Natural's supplemental deferred compensation plans for eligible officers and senior managers are non-qualified plans. These plans are designed to enhance the retirement savings of employees and to assist them in strengthening their financial security by providing an incentive to save and invest regularly.

Below is a description of the valuation methodologies used for assets measured at fair value. In cases where NW Natural's Pension Plan is invested through a collective trust fund or mutual fund, the fund's market value is utilized. Market values for investments directly owned are also utilized.

U.S. EQUITY. These are non-published net asset value (NAV) assets. The non-published NAV assets consist of commingled trusts where NAV is not published but the investment can be readily disposed of at NAV or market value. The underlying investments in this asset class includes investments primarily in U.S. common stocks.

INTERNATIONAL/GLOBAL EQUITY. These are Level 1 and non-published NAV assets. The Level 1 asset is a mutual fund, and the non-published NAV assets consist of commingled trusts where the NAV/unit price is not published, but the investment can be readily disposed of at the NAV/unit price. The mutual funds has a readily determinable fair value, including a published NAV, and the commingled trusts are valued at unit price. This asset class includes investments primarily in foreign equity common stocks.

LIABILITY HEDGING. These are non-published NAV assets. The non-published NAV assets consist of commingled trusts where NAV is not published but the investment can be readily disposed of at NAV or market value. The underlying investments in this asset class include long duration fixed income investments primarily in U.S. treasuries, U.S. government agencies, municipal securities, mortgage-backed securities, asset-backed securities, as well as U.S. and international investment-grade corporate bonds.

OPPORTUNISTIC. These are non-published NAV assets consisting of commingled trusts where the investments can be readily disposed of at unit price, and a hedge fund of funds where the valuation is not published. This hedge fund of funds is winding down. Based on recent dispositions, NW Natural believes the remaining investment is fairly valued. The hedge fund of funds is valued at the weighted average value of investments in various hedge funds, which in turn are valued at the closing price of the underlying securities. This asset class includes investments in emerging market debt, leveraged loans, REITs, high yield bonds, a commodities fund, and a hedge fund of funds.

CASH AND CASH EQUIVALENTS. These are Level 1 and non-published NAV assets. The Level 1 assets consist of cash in U.S. dollars, which can be readily disposed of at face value. The non-published NAV assets represent mutual funds without published NAV's but the investment can be readily disposed of at the NAV. The mutual funds are valued at the NAV of the shares held by the plan at the valuation date.

The preceding valuation methods may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Although we believe these valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain investments could result in a different fair value measurement at the reporting date.

Investment securities are exposed to various financial risks including interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of NW Natural's investment securities will occur in the near term and such changes could materially affect NW Natural's investment account balances and the amounts reported as plan assets available for benefit payments.


In thousands	December 31, 2021
Investments	Level 1		Level 2		Level 3		Non-Published NAV(1)		Total
US equity	$	—	$	—	$	—	$	121,090	$	121,090
International / Global equity	35,456		—		—		88,078		123,534
Liability hedging	—		—		—		118,464		118,464
Opportunistic	—		—		—		33,808		33,808
Cash and cash equivalents	—		—		—		2,321		2,321








Total investments	$	35,456	$	—	$	—	$	363,761	$	399,217

	December 31, 2020
Investments	Level 1		Level 2		Level 3		Non-Published NAV(1)		Total
US equity	$	—	$	—	$	—	$	117,764	$	117,764
International / Global equity	39,114		—		—		78,092		117,206
Liability hedging	—		—		—		111,041		111,041
Opportunistic	—		—		—		25,625		25,625
Cash and cash equivalents	—		—		—		2,295		2,295








Total investments	$	39,114	$	—	$	—	$	334,817	$	373,931

							December 31,
							2021		2020
Receivables:
Accrued interest and dividend income							$	—	$	6,429

Total receivables							—		6,429
Liabilities:
Due to broker for securities purchased							—		6,429
Total investment in retirement trust							$	399,217	$	373,931

(1) The fair value for these investments is determined using Net Asset Value per share (NAV) as of December 31, as a practical expedient, and therefore they are not classified within the fair value hierarchy. These investments primarily consist of institutional investment products, for which the NAV is generally not publicly available.