PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. The periodic costs or income of the PNM Plans and TNMP Plans are included in regulated rates to the extent attributable to regulated operations. PNM and TNMP receive a regulated return on the amounts funded for pension and OPEB plans in excess of the periodic cost or income to the extent included in retail rates (a “prepaid pension asset”).

Participants in the PNM Plans include eligible employees and retirees of PNMR and PNM. Participants in the TNMP Plans include eligible employees and retirees of TNMP. The PNM pension plan was frozen at the end of 1997 with regard to new participants, salary levels, and benefits. Through December 31, 2007, additional credited service could be accrued under the PNM pension plan up to a limit determined by age and service. The TNMP pension plan was frozen at December 31, 2005 with regard to new participants, salary levels, and benefits.

GAAP requires a plan sponsor to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur.

GAAP requires unrecognized prior service costs and unrecognized gains or losses to be recorded in AOCI and subsequently amortized. To the extent the amortization of these items will ultimately be recovered or returned through future rates, PNM and TNMP record the costs as a regulatory asset or regulatory liability. The amortization of these incurred costs is included as pension and postretirement benefit periodic cost or income in subsequent years.

The Company maintains trust funds for the pension and OPEB plans from which benefits are paid to eligible employees and retirees. The Company’s funding policy is to make contributions to the trusts, as determined by an independent actuary, that comply with minimum guidelines of the Employee Retirement Income Security Act and the IRC. Information concerning the investments is contained in Note 9. The Company has in place a policy that defines the investment objectives, establishes performance goals of asset managers, and provides procedures for the manner in which investments are to be reviewed. The plans implement investment strategies to achieve the following objectives:

Management is responsible for the determination of the asset target mix and the expected rate of return. The target asset allocations are determined based on consultations with external investment advisors. The expected long-term rate of return on pension and postretirement plan assets is calculated on the market-related value of assets. GAAP requires that actual gains and losses on pension and OPEB plan assets be recognized in the market-related value of assets equally over a period of not more than five years, which reduces year-to-year volatility. For the PNM Plans and TNMP Plans, the market-related value of assets is equal to the prior year’s market-related value of assets adjusted for contributions, benefit payments and investment gains and losses that are within a corridor of plus or minus 4.0% around the expected return on market value. Gains and losses that are outside the corridor are amortized over five years.

In March 2017, the FASB issued Accounting Standards Update 2017-07 - Compensation - Retirement Benefits (Topic 715) to improve the presentation of net periodic pension and other postretirement benefit costs. Prior to ASU 2017-07, the Company presented all of its net periodic benefit costs, net of amounts capitalized to construction and other accounts, as administrative and general expenses on its statements of earnings. ASU 2017-07 requires the service cost component of net benefit costs be presented in the same line item or items as employees’ compensation. The other components of net periodic benefit cost (the “non-service cost components”) are required to be presented separately from the service cost component and outside of operating income. ASU 2017-07 also limits capitalization of net periodic benefit costs to only the service cost component. ASU 2017-07 requires retrospective presentation of the service and non-service cost components of net periodic benefit costs in the income statement and prospective application regarding the capitalization of only the service cost component of net periodic benefit costs. The Company adopted ASU 2017-07 as of January 1, 2018, its required effective date. In accordance with the standard, the PNM and PNMR Consolidated Statements of Earnings reflect a reclassification from administrative and general expenses to other (deductions) for the non-service cost components of net periodic benefit costs in the amount of $8.6 million, net of amounts capitalized prior to the adoption of the standard, in the year ended December 31, 2017. The non-service components of TNMP’s

net periodic benefit costs in 2017 were insignificant. The Company believes PNM and TNMP can continue to capitalize the non-service cost components of net periodic benefit costs as regulatory assets and liabilities to the extent attributable to regulated operations. See Note 13. See New Accounting Pronouncements in Note 1 regarding updates to disclosure requirements that will be effective in future periods.

For defined benefit pension plans, including the executive retirement plans, the PBO represents the actuarial present value of all benefits attributed by the pension benefit formula to employee service rendered prior to that date using assumptions regarding future compensation levels. The ABO represents the PBO without considering future compensation levels. Since the pension plans are frozen, the PBO and ABO are equal. The following table presents information about the PBO, fair value of plan assets, and funded status of the plans:



	PNM						TNMP
	Year Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(In thousands)
PBO at beginning of year	$	564,258		$	623,983		$	60,587		$	68,423
Service cost	—			—			—			—
Interest cost	25,175			24,270			2,686			2,625
Actuarial (gain) loss	61,151			(41,025		)	7,889			(5,216		)
Benefits paid	(44,839		)	(42,970		)	(5,588		)	(5,245		)
PBO at end of year	605,745			564,258			65,574			60,587
Fair value of plan assets at beginning of year	489,978			562,016			55,074			63,499
Actual return on plan assets	86,328			(29,068		)	9,881			(3,180		)
Employer contributions	—			—			—			—
Benefits paid	(44,839		)	(42,970		)	(5,588		)	(5,245		)
Fair value of plan assets at end of year	531,467			489,978			59,367			55,074
Funded status – asset (liability) for pension benefits	$	(74,278	)	$	(74,280	)	$	(6,207	)	$	(5,513	)



	PNM						TNMP
	Year Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(in thousands)
Discount rates	$	66,108		$	(34,769	)	$	8,006		$	(4,278	)
Demographic experience	(732		)	431			394			(301		)
Mortality rate	(4,225		)	(6,966		)	(296		)	(705		)
Other assumptions and experience	—			279			(215		)	68
	$	61,151		$	(41,025	)	$	7,889		$	(5,216	)



	PNM			TNMP
	(In thousands)
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at beginning of year	$	150,274		$	—
Experience (gain) loss	8,926			1,877
Regulatory asset (liability) adjustment	(5,539		)	(1,877		)
Amortization recognized in net periodic benefit cost (income)	(7,270		)	—
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at end of year	$	146,391		$	—
Amortization expected to be recognized in 2020	$	8,131		$	—



	Year Ended December 31,
	2019			2018			2017
	(In thousands)
PNM
Service cost	$	—		$	—		$	—
Interest cost	25,175			24,270			26,908
Expected return on plan assets	(34,103		)	(34,686		)	(33,803		)
Amortization of net (gain) loss	15,518			16,348			16,006
Amortization of prior service cost	(965		)	(965		)	(965		)
Net periodic benefit cost	$	5,625		$	4,967		$	8,146
TNMP
Service cost	$	—		$	—		$	—
Interest cost	2,686			2,625			2,887
Expected return on plan assets	(3,868		)	(3,963		)	(3,779		)
Amortization of net (gain) loss	941			1,088			923
Amortization of prior service cost	—			—			—
Net periodic benefit cost (income)	$	(241	)	$	(250	)	$	31



	Year Ended December 31,
PNM	2019		2018		2017
Discount rate for determining December 31 PBO	3.42	%	4.65	%	4.05	%
Discount rate for determining net periodic benefit cost (income)	4.65	%	4.05	%	4.51	%
Expected return on plan assets	6.86	%	6.54	%	6.40	%
Rate of compensation increase	N/A		N/A		N/A
TNMP
Discount rate for determining December 31 PBO	3.46	%	4.63	%	4.01	%
Discount rate for determining net periodic benefit cost (income)	4.63	%	4.01	%	4.49	%
Expected return on plan assets	6.90	%	6.57	%	6.40	%
Rate of compensation increase	N/A		N/A		N/A

The assumed discount rate for determining the PBO was determined based on a review of long-term high-grade bonds and management’s expectations. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the PBO. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. If all other factors were to remain unchanged, a 1% decrease in the expected long-term rate of return would cause PNM’s and TNMP’s 2020 net periodic benefit cost to increase $5.0 million and $0.6 million (analogous changes would result from a 1% increase). The actual rate of return for the PNM and TNMP pension plans was 18.5% and 18.9% for the year ended December 31, 2019.

The Company’s long-term pension investment strategy is to invest in assets whose interest rate sensitivity is correlated with the pension liability. The Company uses an investment strategy, known as Liability Driven Investing, that increases the liability matching investments as the funded status of the pension plans improve. The Company’s investment allocation targets consist of 30% equities, 20% alternative investments (both of which are considered return generating), and 50% fixed income. Equity investments are primarily in domestic securities that include large-, mid-, and small-capitalization companies. The pension plans have a 7% targeted allocation to equities of companies domiciled primarily in developed countries outside of the U.S. The equity investments category includes actively managed international and domestic equity securities that are benchmarked against a variety of style indices. Fixed income investments are primarily corporate bonds of companies from diversified industries and government securities. Alternative investments include investments in hedge funds, real estate funds, and private equity funds. The hedge funds and private equity funds are structured as multi-manager multi-strategy fund of funds to achieve a diversified position in these asset classes. The hedge funds pursue various absolute return strategies such as relative value, long-short equity,

and event driven. Private equity fund strategies include mezzanine financing, buy-outs, and venture capital. The real estate investments are commingled real estate portfolios that invest in a diversified portfolio of assets including commercial property and multi-family housing. See Note 9 for fair value information concerning assets held by the pension plans.

Based on current law, funding requirements, and estimates of portfolio performance, the Company does not expect to make any cash contributions to the pension plans in 2020 or 2021. PNM and TNMP expect to contribute $4.6 million and zero to the PNM and TNMP pension plans in 2022, $19.1 million and $1.1 million in 2023, and $19.0 million and $2.8 million in 2024. The funding assumptions were developed using discount rates of 3.4% to 3.5%. Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rates. PNM and TNMP may make additional contributions at their discretion.



	PNM						TNMP
	Year Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(In thousands)
APBO at beginning of year	$	75,305		$	89,897		$	10,064		$	12,279
Service cost	53			83			50			134
Interest cost	3,316			3,439			451			477
Participant contributions	2,131			2,390			316			174
Actuarial (gain) loss	2,587			(12,206		)	1,004			(2,213		)
Benefits paid	(8,271		)	(8,298		)	(650		)	(787		)
APBO at end of year	75,121			75,305			11,235			10,064
Fair value of plan assets at beginning of year	69,703			80,356			8,744			10,002
Actual return on plan assets	19,257			(7,669		)	2,434			(988		)
Employer contributions	3,580			2,924			—			343
Participant contributions	2,131			2,390			316			174
Benefits paid	(8,271		)	(8,298		)	(650		)	(787		)
Fair value of plan assets at end of year	86,400			69,703			10,844			8,744
Funded status – asset (liability)	$	11,279		$	(5,602	)	$	(391	)	$	(1,320	)



	PNM						TNMP
	Year Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(in thousands)
Discount rates	$	7,236		$	(4,076	)	$	1,375		$	(710	)
Claims, contributions, and demographic experience	(4,022		)	(3,174		)	(311		)	72
Assumed participation rate	—			(4,040		)	—			(1,461		)
Mortality rate	(627		)	(916		)	(60		)	(114		)
	$	2,587		$	(12,206	)	$	1,004		$	(2,213	)



	Year Ended December 31,
	2019			2018			2017
	(In thousands)
PNM
Service cost	$	53		$	83		$	96
Interest cost	3,316			3,439			4,025
Expected return on plan assets	(5,278		)	(5,414		)	(5,230		)
Amortization of net (gain) loss	675			2,354			3,682
Amortization of prior service credit	(397		)	(1,664		)	(1,663		)
Net periodic benefit cost (income)	$	(1,631	)	$	(1,202	)	$	910
TNMP
Service cost	$	50		$	134		$	143
Interest cost	451			477			556
Expected return on plan assets	(517		)	(542		)	(456		)
Amortization of net (gain) loss	(444		)	(227		)	(79		)
Amortization of prior service cost	—			—			—
Net periodic benefit cost (income)	$	(460	)	$	(158	)	$	164



	Year Ended December 31,
PNM	2019		2018		2017
Discount rate for determining December 31 APBO	3.42	%	4.63	%	4.00	%
Discount rate for determining net periodic benefit cost	4.63	%	4.00	%	4.47	%
Expected return on plan assets	7.20	%	7.42	%	7.50	%
Rate of compensation increase	N/A		N/A		N/A
TNMP
Discount rate for determining December 31 APBO	3.42	%	4.63	%	4.00	%
Discount rate for determining net periodic benefit cost	4.63	%	4.00	%	4.47	%
Expected return on plan assets	5.80	%	5.86	%	5.40	%
Rate of compensation increase	N/A		N/A		N/A

on the funds invested, or to be invested, to provide for the benefits included in the APBO. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates), and current and target asset allocations between asset categories. If all other factors were to remain unchanged, a 1% decrease in the expected long-term rate of return would cause PNM’s and TNMP’s 2020 net periodic benefit cost to increase $0.8 million and $0.1 million (analogous changes would result from a 1% increase). The actual rate of return for the PNM and TNMP OPEB plans was 28.1% and 28.4% for the year ended December 31, 2019.

TNMP’s exposure to cost increases in the OPEB plan is minimized by a provision that limits TNMP’s share of costs under the plan. Costs of the plan in excess of the limit, which was reached at the end of 2001, are wholly borne by the participants. As a result, a one-percentage-point change in assumed health care cost trend rates would have no effect on either the net periodic expense or the year-end APBO. Effective January 1, 2018, the PNM OPEB plan was amended to limit the annual increase in the Company’s costs to 5%. Increases in excess of the limit are born by the PNM OPEB plan participants.

The Company’s OPEB plans invest in a portfolio that is diversified by asset class and style strategies. The OPEB plans generally use the same pension fixed income and equity investment managers and utilize the same overall investment strategy as described above for the pension plans, except there is no allocation to alternative investments. The OPEB plans have a target asset allocation of 70% equities and 30% fixed income. See Note 9 for fair value information concerning assets held by the other postretirement benefit plans.

PNM and TNMP made no cash contributions to the OPEB trusts in 2019 or 2018 and PNM and TNMP do not expect to make cash contributions to the OPEB trusts in 2020-2024. However, a portion of the disbursements attributable to the OPEB trust are paid by PNM and are therefore considered to be contributions to the PNM OPEB plan. Payments by PNM on behalf of the PNM OPEB plan are expected to be $3.7 million in 2020 and $13.5 million in 2021-2024.



	PNM						TNMP
	Year Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(In thousands)
PBO at beginning of year	$	14,726		$	16,117		$	702		$	771
Service cost	—			—			—			—
Interest cost	651			622			30			29
Actuarial (gain) loss	1,053			(508		)	54			(4		)
Benefits paid	(1,436		)	(1,505		)	(94		)	(94		)
PBO at end of year – funded status	14,994			14,726			692			702
Less current liability	1,434			1,627			91			141
Non-current liability	$	13,560		$	13,099		$	601		$	561



	December 31, 2019
	PNM			TNMP
	(In thousands)
Amount in AOCI not yet recognized in net periodic benefit cost at beginning of year	$	2,086		$	—
Experience (gain) loss	1,053			54
Regulatory asset (liability) adjustment	(611		)	(54		)
Amortization recognized in net periodic benefit cost (income)	(133		)	—
Amount in AOCI not yet recognized in net periodic benefit cost at end of year	$	2,395		$	—
Amortization expected to be recognized in 2020	$	169		$	—



	Year Ended December 31,
	2019		2018		2017
	(In thousands)
PNM
Service cost	$	—	$	—	$	—
Interest cost	651		622		697
Amortization of net (gain) loss	318		359		313
Amortization of prior service cost	—		—		—
Net periodic benefit cost	$	969	$	981	$	1,010
TNMP
Service cost	$	—	$	—	$	—
Interest cost	30		29		33
Amortization of net (gain) loss	15		15		9
Amortization of prior service cost	—		—		—
Net periodic benefit cost	$	45	$	44	$	42



	Year Ended December 31,
PNM	2019		2018		2017
Discount rate for determining December 31 PBO	3.44	%	4.66	%	4.05	%
Discount rate for determining net periodic benefit cost	4.66	%	4.05	%	4.51	%
Long-term rate of return on plan assets	N/A		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A
TNMP
Discount rate for determining December 31 PBO	3.46	%	4.63	%	4.01	%
Discount rate for determining net periodic benefit cost	4.63	%	4.01	%	4.49	%
Long-term rate of return on plan assets	N/A		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A

Disbursements under the executive retirement program, funded by PNM and TNMP, which are considered to be contributions to the plan were $1.4 million and $0.1 million in the year ended December 31, 2019 and $1.5 million and $0.1 million for the year ended December 31, 2018. The following executive retirement plan payments, which reflect expected future service, are expected:

PNMR sponsors a 401(k) defined contribution plan for eligible employees, including those of its subsidiaries. PNMR’s contributions to the 401(k) plan consist of a discretionary matching contribution equal to 75% of the first 6% of eligible compensation contributed by the employee on a before-tax basis. PNMR also makes a non-matching contribution ranging from 3% to 10% of eligible compensation based on the eligible employee’s age. PNMR also provides executive deferred compensation benefits through an unfunded, non-qualified plan. The purpose of this plan is to permit certain key employees of PNMR who participate in the 401(k) defined contribution plan to defer compensation and receive credits without reference to the certain limitations on contributions.