Employee Benefit Plans

12 Months Ended

Dec. 31, 2020

Text Block [Abstract]

Employee Benefit Plans

EMPLOYEE BENEFIT PLANS

We measure the assets and obligations of the defined benefit pension plans and other postretirement benefits plans to determine the plans’ funded status as of the end of the year. We record as a component of other comprehensive income/loss or a regulatory asset the changes in funded status that occurred during the year that are not recognized as part of net periodic benefit costs.

Defined Benefit Pension Plans

We sponsor three defined benefit pension plans: the Chesapeake Utilities Pension Plan ("Chesapeake Pension Plan"), the FPU Pension Plan and the Chesapeake SERP.

The Chesapeake Pension Plan, a qualified plan, was closed to new participants, effective January 1, 1999, and was frozen with respect to additional years of service and additional compensation, effective January 1, 2005. Benefits under the Chesapeake Pension Plan were based on each participant’s years of service and highest average compensation, prior to the freezing of the plan. Active participants on the date the Chesapeake Pension Plan was frozen were credited with two additional years of service. In 2019, we executed a de-risking strategy for the Chesapeake Pension Plan. As a result, during the fourth quarter of 2019, we purchased annuities for those retirees currently receiving monthly payments and offered lump-sum payments to terminated vested employees. Accordingly, the pension settlement expense associated with the de-risking strategy allocated to our Regulated Energy operations was recorded as regulatory assets or deferred pending regulatory approval authorizing recovery through rates. The remaining portion of the pension settlement expense totaling $0.7 million was recorded in other expense in our consolidated statement of income which reflected the amount allocated to our Unregulated Energy operations or was deemed not recoverable through the regulatory process.

The FPU Pension Plan, a qualified plan, covers eligible FPU non-union employees hired before January 1, 2005 and union employees hired before the respective union contract expiration dates in 2005 and 2006. Prior to the FPU merger, the FPU Pension Plan was frozen with respect to additional years of service and additional compensation, effective December 31, 2009.

The Chesapeake SERP, a nonqualified plan, is comprised of two sub-plans. The first sub-plan was frozen with respect to additional years of service and additional compensation as of December 31, 2004. Benefits under the Chesapeake SERP for the first sub-plan were based on each participant’s years of service and highest average compensation, prior to the freezing of the plan. Active participants on the date the Chesapeake SERP was frozen were credited with two additional years of service. The second sub-plan provides fixed payments for several executives who joined the Company as a result of an acquisition and whose agreements with the Company provided for this benefit.

The unfunded liability for all three plans at both December 31, 2020 and 2019, is included in the other pension and benefit costs liability in our consolidated balance sheets.

The following schedules set forth the funded status at December 31, 2020 and 2019 and the net periodic cost for the years ended December 31, 2020, 2019 and 2018 for the Chesapeake and FPU Pension Plans as well as the Chesapeake SERP:

	Chesapeake Pension Plan						FPU Pension Plan						Chesapeake SERP
At December 31,	2020			2019			2020			2019			2020			2019
(in thousands)
Change in benefit obligation:
Benefit obligation — beginning of year	$	6,214		$	10,712		$	65,304		$	59,377		$	2,157		$	2,285
Interest cost	176			375			2,085			2,452			63			74
Actuarial loss	450			1,443			6,069			6,508			144			159
Effect of settlement	(612)			(5,833)			—			—			—			—
Benefits paid	(82)			(483)			(3,092)			(3,033)			(152)			(361)
Benefit obligation — end of year	6,146			6,214			70,366			65,304			2,212			2,157
Change in plan assets:
Fair value of plan assets — beginning of year	4,630			8,649			49,703			43,601			—			—
Actual return on plan assets	369			1,180			6,581			7,978			—			—
Employer contributions	304			1,117			2,774			1,157			152			361
Effect of settlement	(612)			(5,833)			—			—			—			—
Benefits paid	(82)			(483)			(3,092)			(3,033)			(152)			(361)
Fair value of plan assets — end of year	4,609			4,630			55,966			49,703			—			—
Reconciliation:
Funded status	(1,537)			(1,584)			(14,400)			(15,601)			(2,212)			(2,157)
Accrued pension cost	$	(1,537)		$	(1,584)		$	(14,400)		$	(15,601)		$	(2,212)		$	(2,157)
Assumptions:
Discount rate	2.25		%	3.00		%	2.50		%	3.25		%	2.25		%	3.00		%
Expected return on plan assets	3.50		%	6.00		%	6.00		%	6.50		%	—		%	—		%

	Chesapeake Pension Plan									FPU Pension Plan									Chesapeake SERP
For the Years Ended December 31,	2020			2019 (1)			2018			2020			2019			2018			2020			2019			2018
(in thousands)
Components of net periodic pension cost:
Interest cost	$	176		$	375		$	384		$	2,085		$	2,452		$	2,339		$	63		$	74		$	83
Expected return on assets	(157)			(487)			(542)			(2,967)			(2,770)			(3,091)			—			—			—
Amortization of actuarial loss	243			391			343			552			505			404			20			85			101
Settlement expense	203			1,982			—			—			—			—			—			58			—
Net periodic pension cost	465			2,261			185			(330)			187			(348)			83			217			184
Amortization of pre-merger regulatory asset	—			—			—			—			543			761			—			—			—
Total periodic cost	$	465		$	2,261		$	185		$	(330)		$	730		$	413		$	83		$	217		$	184
Assumptions:
Discount rate	3.00		%	3.00		%	3.50		%	3.25		%	4.25		%	3.75		%	3.00		%	4.00		%	3.50		%
Expected return on plan assets	3.50		%	6.00		%	6.00		%	6.00		%	6.50		%	6.50		%	—		%	—		%	—		%

(1) As a result of annuity purchases and lump sum payments associated with the de-risking of the Chesapeake Pension Plan, the discount rate for Chesapeake Pension Plan was remeasured which triggered settlement accounting expense in the fourth quarter of 2019. We recorded $0.7 million of the settlement expense in our consolidated statement of income which reflected a portion of the pension settlement expense that was deemed not recoverable through the regulatory process.

Included in the net periodic costs for the FPU Pension Plan for the years ended December 31, 2019 and 2018 is amortization of the FPU pension regulatory asset, which represents the portion attributable to FPU's regulated operations for the changes in funded status that occurred, but were not recognized as part of net periodic cost, prior to the merger with Chesapeake Utilities in October 2009. This was previously deferred as a regulatory asset to be recovered through rates pursuant to an order by the Florida PSC. At December 31, 2020 and 2019, this regulatory asset was fully amortized. Excluding the service cost component, the other components of the net periodic costs have been recorded or reclassified to other expense, net of tax, in the consolidated statements of income.

Our funding policy provides that payments to the trust of each qualified plan shall be equal to at least the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The changes in investment types for the Chesapeake Pension Plan at December 31, 2020 and 2019, compared to same period in 2018, are associated with the de-risking strategy executed during the fourth quarter of 2019. The following schedule summarizes the assets of the Chesapeake Pension Plan and the FPU Pension Plan, by investment type, at December 31, 2020, 2019 and 2018:

	Chesapeake Pension Plan						FPU Pension Plan
At December 31,	2020		2019		2018		2020		2019		2018
Asset Category
Equity securities	—	%	—	%	49	%	54	%	53	%	50	%
Debt securities	96	%	92	%	41	%	37	%	37	%	41	%
Other	4	%	8	%	10	%	9	%	10	%	9	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

The investment policy of both the Chesapeake Utilities and FPU Pension Plans is designed to provide the capital assets necessary to meet the financial obligations of the plans. The investment goals and objectives are to achieve investment returns that, together with contributions, will provide funds adequate to pay promised benefits to present and future beneficiaries of the plans, earn a competitive return to increasingly fund a large portion of the plans’ retirement liabilities, minimize pension expense and cumulative contributions resulting from liability measurement and asset performance, and maintain the appropriate mix of investments to reduce the risk of large losses over the expected remaining life of each plan.

The following allocation range of asset classes is intended to produce a rate of return sufficient to meet the plans’ goals and objectives (this allocation range applied to the Chesapeake Pension Plan prior to the de-risking strategy executed during the fourth quarter of 2019):

Asset Allocation Strategy
Asset Class	Minimum Allocation Percentage		Maximum Allocation Percentage
Domestic Equities (Large Cap, Mid Cap and Small Cap)	14	%	32	%
Foreign Equities (Developed and Emerging Markets)	13	%	25	%
Fixed Income (Inflation Bond and Taxable Fixed)	26	%	40	%
Alternative Strategies (Long/Short Equity and Hedge Fund of Funds)	6	%	14	%
Diversifying Assets (High Yield Fixed Income, Commodities, and Real Estate)	7	%	19	%
Cash	0	%	5	%

Due to periodic contributions and different asset classes producing varying returns, the actual asset values may temporarily move outside of the intended ranges. The investments are monitored on a quarterly basis, at a minimum, for asset allocation and performance. At December 31, 2020 and 2019, the assets of the Chesapeake Pension Plan and the FPU Pension Plan were comprised of the following investments:

	Fair Value Measurement Hierarchy
	At December 31, 2020								At December 31, 2019
Asset Category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
(in thousands)
Mutual Funds - Equity securities
U.S. Large Cap (1)	$	3,615	$	—	$	—	$	3,615	$	3,553	$	—	$	—	$	3,553
U.S. Mid Cap (1)	1,672		—		—		1,672		1,604		—		—		1,604
U.S. Small Cap (1)	891		—		—		891		726		—		—		726
International (2)	11,307		—		—		11,307		9,855		—		—		9,855
Alternative Strategies (3)	5,586		—		—		5,586		4,739		—		—		4,739
	23,071		—		—		23,071		20,477		—		—		20,477
Mutual Funds - Debt securities
Fixed income (4)	21,563		—		—		21,563		19,220		—		—		19,220
High Yield (4)	2,606		—		—		2,606		2,476		—		—		2,476
	24,169		—		—		24,169		21,696		—		—		21,696
Mutual Funds - Other
Commodities (5)	2,246		—		—		2,246		1,708		—		—		1,708
Real Estate (6)	1,954		—		—		1,954		2,288		—		—		2,288
Guaranteed deposit (7)	—		—		1,019		1,019		—		—		1,147		1,147
	4,200		—		1,019		5,219		3,996		—		1,147		5,143
Total Pension Plan Assets in fair value hierarchy	$	51,440	$	—	$	1,019	52,459		$	46,169	$	—	$	1,147	47,316
Investments measured at net asset value (8)							8,116								7,017
Total Pension Plan Assets							$	60,575							$	54,333

(1) Includes funds that invest primarily in United States common stocks.

(2) Includes funds that invest primarily in foreign equities and emerging markets equities.

(3) Includes funds that actively invest in both equity and debt securities, funds that sell short securities and funds that provide long-term capital appreciation. The funds may invest in debt securities below investment grade.

(4) Includes funds that invest in investment grade and fixed income securities.

(5) Includes funds that invest primarily in commodity-linked derivative instruments and fixed income securities.

(6) Includes funds that invest primarily in real estate.

(7) Includes investment in a group annuity product issued by an insurance company.

(8) Certain investments that were measured at net asset value per share have not been classified in the fair value hierarchy. These amounts are presented to reconcile to total pension plan assets.

At December 31, 2020 and 2019, our pension plans investments were classified under the same fair value measurement hierarchy (Level 1 through Level 3) described under Note 9, Fair Value of Financial Instruments. The Level 3 investments were recorded at fair value based on the contract value of annuity products underlying guaranteed deposit accounts, which was calculated using discounted cash flow models. The contract value of these products represented deposits made to the contract, plus earnings at guaranteed crediting rates, less withdrawals and fees. Certain investments that were measured at net asset value per share have not been classified in the fair value hierarchy and are presented in the table above to reconcile to total pension plan assets.

The following table sets forth the summary of the changes in the fair value of Level 3 investments for the years ended December 31, 2020 and 2019:

	For the Year Ended December 31,
	2020		2019
(in thousands)
Balance, beginning of year	$	1,147	$	627
Purchases	3,190		2,274
Transfers in	921		3,090
Disbursements	(4,290)		(4,907)
Investment income	51		63
Balance, end of year	$	1,019	$	1,147

Other Postretirement Benefits Plans

We sponsor two defined benefit postretirement health plans: the Chesapeake Utilities Postretirement Plan ("Chesapeake Postretirement Plan") and the FPU Medical Plan. The following table sets forth the funded status at December 31, 2020 and 2019:

	Chesapeake Postretirement Plan						FPU Medical Plan
At December 31,	2020			2019			2020			2019
(in thousands)
Change in benefit obligation:
Benefit obligation — beginning of year	$	1,100		$	1,002		$	1,224		$	1,187
Interest cost	26			39			30			48
Plan participants contributions	166			149			37			38
Actuarial loss (gain)	(34)			73			(181)			47
Benefits paid	(225)			(163)			(101)			(96)
Benefit obligation — end of year	1,033			1,100			1,009			1,224
Change in plan assets:
Fair value of plan assets — beginning of year	—			—			—			—
Employer contributions	59			14			64			58
Plan participants contributions	166			149			37			38
Benefits paid	(225)			(163)			(101)			(96)
Fair value of plan assets — end of year	—			—			—			—
Reconciliation:
Funded status	(1,033)			(1,100)			(1,009)			(1,224)
Accrued postretirement cost	$	(1,033)		$	(1,100)		$	(1,009)		$	(1,224)
Assumptions:
Discount rate	2.25		%	3.00		%	2.50		%	3.25		%

Net periodic postretirement benefit costs for 2020, 2019, and 2018 include the following components:

	Chesapeake Postretirement Plan									FPU Medical Plan
For the Years Ended December 31,	2020			2019			2018			2020			2019			2018
(in thousands)
Components of net periodic postretirement cost:
Interest cost	$	26		$	39		$	38		$	30		$	48		$	47
Amortization of actuarial loss	24			46			58			(19)			—			—
Amortization of prior service cost (credit)	(77)			(77)			(77)			—			—			—
Net periodic cost	(27)			8			19			11			48			47
Amortization of pre-merger regulatory asset	—			—			—			6			8			8
Total periodic cost	$	(27)		$	8		$	19		$	17		$	56		$	55
Assumptions
Discount rate	3.00		%	4.00		%	3.50		%	3.25		%	4.25		%	3.75		%

The following table presents the amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss or as a regulatory asset as of December 31, 2020:

(in thousands)	Chesapeake Pension Plan		FPU Pension Plan		Chesapeake SERP		Chesapeake Postretirement Plan		FPU Medical Plan		Total
Prior service cost (credit)	$	—	$	—	$	—	$	(370)	$	—	$	(370)
Net loss (gain)	2,033		21,242		699		546		(194)		24,326
Total	$	2,033	$	21,242	$	699	$	176	$	(194)	$	23,956
Accumulated other comprehensive loss (gain) pre-tax(1)	$	2,033	$	4,036	$	699	$	176	$	(37)	$	6,907
Post-merger regulatory asset	—		17,206		—		—		(157)		17,049
Total unrecognized cost	$	2,033	$	21,242	$	699	$	176	$	(194)	$	23,956

(1) The total amount of accumulated other comprehensive loss recorded on our consolidated balance sheet as of December 31, 2020 is net of income tax benefits of $1.8 million.

Pursuant to a Florida PSC order, FPU continues to record as a regulatory asset a portion of the unrecognized pension and postretirement benefit costs after the merger with Chesapeake Utilities related to its regulated operations, which is included in the above table as a post-merger regulatory asset. As of December 31, 2020, the pre-merger regulatory asset related to the FPU Pension and FPU Medical Plan was fully amortized.

 Assumptions

The assumptions used for the discount rate to calculate the benefit obligations were based on the interest rates of high-quality bonds in 2020, considering the expected lives of each of the plans. In determining the average expected return on plan assets for each applicable plan, various factors, such as historical long-term return experience, investment policy and current and expected allocation, were considered. Since Chesapeake Utilities' plans and FPU’s plans have different expected plan lives, particularly in light of the lump-sum-payment option provided in the Chesapeake Pension Plan and the de-risking strategy implemented in the fourth quarter of 2019 for Chesapeake's Plan, different assumptions regarding discount rate and expected return on plan assets were selected for Chesapeake Utilities' and FPU’s plans. Since both pension plans are frozen with respect to additional years of service and compensation, the rate of assumed compensation increases is not applicable.

The health care inflation rate for 2020 used to calculate the benefit obligation is 5.0 percent for medical and 6.0 percent for prescription drugs for the Chesapeake Postretirement Plan; and 5.0 percent for both medical and prescription drugs for the FPU Medical Plan.

Estimated Future Benefit Payments

In 2021, we expect to contribute $0.3 million and $2.1 million to the Chesapeake Pension Plan and FPU Pension Plan, respectively, and $0.2 million to the Chesapeake SERP. We also expect to contribute less than $0.1 million to both the Chesapeake Postretirement Plan and FPU Medical Plan, in 2021.

The schedule below shows the estimated future benefit payments for each of the plans previously described:

	Chesapeake Pension Plan(1)		FPU Pension Plan(1)		Chesapeake SERP(2)		Chesapeake Postretirement Plan(2)		FPU Medical Plan(2)
(in thousands)
2021	$	384	$	3,409	$	151	$	68	$	67
2022	$	99	$	3,493	$	150	$	66	$	67
2023	$	981	$	3,559	$	148	$	61	$	66
2024	$	106	$	3,601	$	146	$	58	$	67
2025	$	1,007	$	3,680	$	158	$	55	$	67
Years 2026 through 2030	$	1,193	$	18,627	$	735	$	222	$	317

(1) The pension plan is funded; therefore, benefit payments are expected to be paid out of the plan assets.

(2) Benefit payments are expected to be paid out of our general funds.

Retirement Savings Plan

For the years ended December 31, 2020, 2019 and 2018, we sponsored a 401(k) Retirement Savings Plan. This plan is offered to all eligible employees who have completed three months of service. We match 100 percent of eligible participants’ pre-tax contributions to the Retirement Savings Plan up to a maximum of six percent of eligible compensation. The employer matching contribution is made in cash and is invested based on a participant’s investment directions. In addition, we may make a discretionary supplemental contribution to participants in the plan, without regard to whether or not they make pre-tax contributions. Any supplemental employer contribution is generally made in our common stock. With respect to the employer match and supplemental employer contribution, employees are 100 percent vested after two years of service or upon reaching 55 years of age while still employed by us. New employees who do not make an election to contribute and do not opt out of the Retirement Savings Plan will be automatically enrolled at a deferral rate of three percent, and the automatic deferral rate will increase by one percent per year up to a maximum of ten percent. All contributions and matched funds can be invested among the mutual funds available for investment.

Employer contributions to our Retirement Savings Plan totaled $5.9 million, $5.7 million, and $5.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there were 813,230 shares of our common stock reserved to fund future contributions to the Retirement Savings Plan.

Non-Qualified Deferred Compensation Plan

Members of our Board of Directors, and officers designated by the Compensation Committee, are eligible to participate in the Non-Qualified Deferred Compensation Plan. Directors can elect to defer any portion of their cash or stock compensation and officers can defer up to 80 percent of their base compensation, cash bonuses or any amount of their stock bonuses (net of required withholdings). Officers may receive a matching contribution on their cash compensation deferrals up to six percent of their compensation, provided it does not duplicate a match they receive in the Retirement Savings Plan. Stock bonuses are not eligible for matching contributions. Participants are able to elect the payment of deferred compensation to begin on a specified future date or upon separation from service. Additionally, participants can elect to receive payments upon the earlier or later of a fixed date or separation from service. The payments can be made in one lump sum or annual installments for up to 15 years.

All obligations arising under the Non-Qualified Deferred Compensation Plan are payable from our general assets, although we have established a Rabbi Trust to informally fund the plan. Deferrals of cash compensation may be invested by the participants in various mutual funds (the same options that are available in the Retirement Savings Plan). The participants are credited with gains or losses on those investments. Deferred stock compensation may not be diversified. The participants are credited with dividends on our common stock in the same amount that is received by all other stockholders. Such dividends are reinvested into our common stock. Assets held in the Rabbi Trust, recorded as Investments on the consolidated balance sheet, had a fair value of $10.8 million and $9.2 million at December 31, 2020 and 2019, respectively. (See Note 10, Investments, for further details). The assets of the Rabbi Trust are at all times subject to the claims of our general creditors.

Deferrals of officer base compensation and cash bonuses and directors’ cash retainers are paid in cash. All deferrals of executive performance shares, which represent deferred stock units, and directors’ stock retainers are paid in shares of our common stock, except that cash is paid in lieu of fractional shares. The value of our stock held in the Rabbi Trust is classified within the stockholders’ equity section of the consolidated balance sheets and has been accounted for in a manner similar to treasury stock. The amounts recorded under the Non-Qualified Deferred Compensation Plan totaled $5.7 million and $4.5 million at December 31, 2020 and 2019, respectively, which are also shown as a deduction against stockholders' equity in the consolidated balance sheet.