Xcel Energy, which includes PSCo, investment-return assumption considers the expected long-term performance for each of the asset classes in its pension and postretirement health care portfolio. Xcel Energy considers the historical returns achieved by its asset portfolios over long time periods, as well as long-term projected return levels. 20-years or longer period, as well as the long-term return levels projected and recommended by investment experts. Xcel Energy Inc. and PSCo continually review pension assumptions.

Pension cost determination assumes a forecasted mix of investment types over the long-term.

•Investment returns in 2021 were above the assumed level of 6.38%.

•Investment returns in 2020 were above the assumed level of 6.84%.

•Investment returns in 2019 were above the assumed level of 6.84%.

•In 2022, PSCo’s expected investment-return assumption is 6.39%.

Pension plan and postretirement benefit assets are invested in a portfolio according to Xcel Energy’s return, liquidity and diversification objectives to provide a source of funding for plan obligations and minimize contributions to the plan, within appropriate levels of risk. The principal mechanism for achieving these objectives is the asset allocation given the long-term risk, return, correlation and liquidity characteristics of each particular asset class.

There were no significant concentrations of risk in any industry, index, or entity. Market volatility can impact even well-diversified portfolios and significantly affect the return levels achieved by the assets in any year.

State agencies also have issued guidelines to the funding of postretirement benefit costs. PSCo is required to fund postretirement benefit costs in irrevocable external trusts that are dedicated to the payment of these postretirement benefits. These assets are invested in a manner consistent with the investment strategy for the pension plan.

Xcel Energy’s ongoing investment strategy is based on plan-specific investment recommendations that seek to minimize potential investment and interest rate risk as a plan’s funded status increases over time. The investment recommendations consider many factors and generally result in a greater percentage of long-duration fixed income securities being allocated to specific plans having relatively higher funded status ratios and a greater percentage of growth assets being allocated to plans having relatively lower funded status ratios.

Plan Assets

For each of the fair value hierarchy levels, PSCo’s pension plan assets measured at fair value:


	Dec. 31, 2021 (a)										Dec. 31, 2020 (a)
(Millions of Dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total		Level 1		Level 2		Level 3		Measured at NAV		Total
Cash equivalents	$	49	$	—	$	—	$	—	$	49	$	75	$	—	$	—	$	—	$	75
Commingled funds	492		—		—		409		901		518		—		—		388		906
Debt securities	—		360		2		—		362		—		270		1		—		271
Equity securities	24		—		—		—		24		27		—		—		—		27
Other	—		3		—		12		15		2		2		—		—		4
Total	$	565	$	363	$	2	$	421	$	1,351	$	622	$	272	$	1	$	388	$	1,283

(a)See Note 8 for further information on fair value measurement inputs and methods.

For each of the fair value hierarchy levels, PSCo’s proportionate allocation of the total postretirement benefit plan assets that were measured at fair value:


	Dec. 31, 2021 (a)										Dec. 31, 2020 (a)
(Millions of Dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total		Level 1		Level 2		Level 3		Measured at NAV		Total
Cash equivalents	$	25	$	—	$	—	$	—	$	25	$	24	$	—	$	—	$	—	$	24
Insurance contracts	—		46		—		—		46		—		45		—		—		45
Commingled funds	57		—		—		68		125		64		—		—		61		125
Debt securities	—		194		1		—		195		—		207		—		—		207
Other	—		2		—		—		2		—		3		—		—		3
Total	$	82	$	242	$	1	$	68	$	393	$	88	$	255	$	—	$	61	$	404

(a)See Note 8 for further information on fair value measurement inputs and methods.

No assets were transferred in or out of Level 3 for 2021 or 2020.

Funded Status — Benefit obligations for both pension and postretirement plans decreased from Dec. 31, 2020 to Dec. 31, 2021, due primarily to benefit payments and increases in discount rates used in actuarial valuations. Comparisons of the actuarially computed benefit obligation, changes in plan assets and funded status of the pension and postretirement health care plans for PSCo are as follows:


	Pension Benefits				Postretirement Benefits
(Millions of Dollars)	2021		2020		2021		2020
Change in Benefit Obligation:
Obligation at Jan. 1	$	1,428	$	1,330	$	415	$	380
Service cost	32		30		1		1
Interest cost	39		46		11		13
Plan amendments	—		—		—		—
Actuarial (gain) loss	(57)		102		(31)		52
Plan participants’ contributions	—		—		7		6
Medicare subsidy reimbursements	—		—		2		1
Benefit payments	(79)		(80)		(36)		(38)
Obligation at Dec. 31	$	1,363	$	1,428	$	369	$	415
Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	1,283	$	1,124	$	404	$	401
Actual return on plan assets	102		189		15		32
Employer contributions	45		50		3		3
Plan participants’ contributions	—		—		7		6
Benefit payments	(79)		(80)		(36)		(38)
Fair value of plan assets at Dec. 31	$	1,351	$	1,283	$	393	$	404
Funded status of plans at Dec. 31	$	(12)	$	(145)	$	24	$	(11)
Amounts recognized in the Consolidated Balance Sheet at Dec. 31:
Noncurrent assets	6		—		24		—
Noncurrent liabilities	(18)		(145)		—		(11)
Net amounts recognized	$	(12)	$	(145)	$	24	$	(11)

Accumulated benefit obligation for the pension plan was $1,291 million and $1,353 million as of Dec. 31, 2021 and 2020, respectively.


	Pension Benefits				Postretirement Benefits
Significant Assumptions Used to Measure Benefit Obligations:	2021		2020		2021		2020
Discount rate for year-end valuation	3.08	%	2.71	%	3.09	%	2.65	%
Expected average long-term increase in compensation level	3.75	%	3.75	%	N/A		N/A
Mortality table	Pri-2012		Pri-2012		Pri-2012		Pri-2012
Health care costs trend rate — initial: Pre-65	N/A		N/A		5.30	%	5.50	%
Health care costs trend rate — initial: Post-65	N/A		N/A		4.90	%	5.00	%
Ultimate trend assumption — initial: Pre-65	N/A		N/A		4.50	%	4.50	%
Ultimate trend assumption — initial: Post-65	N/A		N/A		4.50	%	4.50	%
Years until ultimate trend is reached	N/A		N/A		4		5

Net Periodic Benefit Cost (Credit) — Net periodic benefit cost (credit), other than the service cost component, is included in other income (expense) in the statements of income.

Components of net periodic benefit cost (credit) and amounts recognized in other comprehensive income and regulatory assets and liabilities:


	Pension Benefits									Postretirement Benefits
(Millions of Dollars)	2021			2020			2019			2021			2020			2019
Service cost	$	32		$	30		$	26		$	1		$	—		$	1
Interest cost	39			46			52			11			13			15
Expected return on plan assets	(73)			(70)			(69)			(16)			(17)			(19)
Amortization of prior service credit	—			(3)			(3)			(4)			(4)			(5)
Amortization of net loss	32			30			25			3			1			3
Settlement charge (a)	—			—			3			—			—			—
Net periodic pension cost (credit)	30			33			34			(5)			(7)			(5)
Effects of regulation	—			4			4			2			3			1
Net benefit cost (credit) recognized for financial reporting	$	30		$	37		$	38		$	(3)		$	(4)		$	(4)
Significant Assumptions Used to Measure Costs:
Discount rate	2.71		%	3.49		%	4.31		%	2.65		%	3.47		%	4.32		%
Expected average long-term increase in compensation level	3.75			3.75			3.75			N/A			N/A			N/A
Expected average long-term rate of return on assets	6.38			6.84			6.84			4.10			4.50			4.50

(a)A settlement charge is required when the amount of all lump-sum distributions during the year is greater than the sum of the service and interest cost components of the annual net periodic pension cost. In 2019, as a result of lump-sum distributions during the plan year, PSCo recorded a total pension settlement charge of $3 million. An immaterial amount was recorded in the income statement in 2019. There were no settlement charges recorded to the qualified pension plans in 2021 or 2020.


	Pension Benefits				Postretirement Benefits
(Millions of Dollars)	2021		2020		2021		2020
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost:
Net loss	$	313	$	432	$	48	$	81
Prior service credit	(1)		(1)		(2)		(6)
Total	$	312	$	431	$	46	$	75
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost Have Been Recorded as Follows Based Upon Expected Recovery in Rates:
Current regulatory assets	$	24	$	25	$	—	$	—
Noncurrent regulatory assets	288		404		46		75
Deferred income taxes	—		1		—		—
Net-of-tax accumulated other comprehensive income	—		1		—		—
Total	$	312	$	431	$	46	$	75

Measurement date

Dec. 31, 2021

Dec. 31, 2020

Dec. 31, 2021

Dec. 31, 2020

Cash Flows — Funding requirements can be impacted by changes to actuarial assumptions, actual asset levels and other calculations prescribed by the requirements of income tax and other pension-related regulations. Required contributions were made in 2019 - 2022 to meet minimum funding requirements. Total voluntary and required pension funding contributions across all four of Xcel Energy’s pension plans were as follows:

•$50 million in January 2022, of which $40 million was attributable to PSCo.

•$131 million in 2021, of which $46 million was attributable to PSCo.

•$150 million in 2020, of which $50 million was attributable to PSCo.

•$154 million in 2019, of which $46 million was attributable to PSCo.

The postretirement health care plans have no funding requirements other than fulfilling benefit payment obligations when claims are presented and approved. Additional cash funding requirements are prescribed by certain state and federal rate regulatory authorities. Xcel Energy’s voluntary postretirement funding contributions were as follows:

•$9 million in January 2022, of which an immaterial amount is attributable to PSCo.

•$15 million during 2021, of which $3 million was attributable to PSCo.

•$11 million during 2020, of which $3 million was attributable to PSCo.

•$15 million during 2019, of which $4 million was attributable to PSCo.

Targeted asset allocations:


	Pension Benefits				Postretirement Benefits
	2021		2020		2021		2020
Domestic and international equity securities	33	%	35	%	15	%	15	%
Long-duration fixed income securities	37		35		—		—
Short-to-intermediate fixed income securities	11		13		71		72
Alternative investments	17		15		8		9
Cash	2		2		6		4
Total	100	%	100	%	100	%	100	%

The asset allocations above reflect target allocations approved in the calendar year to take effect in the subsequent year

Plan Amendments —

In 2020 and 2019, there were no significant plan amendments made which affected the projected benefit obligation.

In 2021, Xcel Energy amended the Xcel Energy Pension Plan and Xcel Energy Inc. Nonbargaining Pension Plan (South) to reduce supplemental benefits for non-bargaining participants as well as to allow the transfer of a portion of non-qualified pension obligations into the qualified plans.

Projected Benefit Payments

PSCo’s projected benefit payments:


(Millions of Dollars)	Projected Pension Benefit Payments		Gross Projected Postretirement Health Care Benefit Payments		Expected Medicare Part D Subsidies		Net Projected Postretirement Health Care Benefit Payments
2022	$	83	$	30	$	2	$	28
2023	82		29		2		27
2024	82		29		2		27
2025	82		28		2		26
2026	81		27		2		25
2027-2031	388		123		13		110

Defined Contribution Plans

Xcel Energy, which includes PSCo, maintains 401(k) and other defined contribution plans that cover most employees. Total expense to these plans for PSCo was approximately $12 million in 2021 and 2020 and $11 million in 2019.