Benefit Plans and Other Postretirement Benefits

Pension and Postretirement Health Care Benefits

Xcel Energy has several noncontributory, defined benefit pension plans that cover almost all employees. Generally, benefits are based on a combination of years of service and average pay. Xcel Energy’s policy is to fully fund into an external trust the actuarially determined pension costs subject to the limitations of applicable employee benefit and tax laws.

In addition to the qualified pension plans, Xcel Energy maintains a SERP and a nonqualified pension plan. The SERP is maintained for certain executives that were participants in the plan in 2008, when the SERP was closed to new participants. The nonqualified pension plan provides benefits for compensation that is in excess of the limits applicable to the qualified pension plans, with distributions funded by Xcel Energy’s consolidated operating cash flows. Obligations of the SERP and nonqualified plan as of Dec. 31, 2018 and 2017 were $33 million and $37 million, respectively. Xcel Energy recognized net benefit cost for the SERP and nonqualified plans of $4 million in 2018 and $5 million in 2017.

In 2016, Xcel Energy established rabbi trusts to provide partial funding for future distributions of the SERP and its deferred compensation plan, supplemented by Xcel Energy’s consolidated operating cash flows.

Xcel Energy has a contributory health and welfare benefit plan that provides health care and death benefits to certain Xcel Energy retirees.


•	NSP-Minnesota and NSP-Wisconsin discontinued subsidizing health care benefits for non-bargaining employees retiring after 1998 and for bargaining employees who retired after 1999.


•	Xcel Energy discontinued subsidizing health care benefits for nonbargaining employees of the former NCE who retired after June 30, 2003.


•	Xcel Energy discontinued health care benefits for SPS bargaining employees hired after Jan. 1, 2012.

Xcel Energy bases the investment-return assumption on expected long-term performance for each of the asset classes in its pension and postretirement health care portfolios. For pension assets, Xcel Energy considers the historical returns achieved by its asset portfolio over the past 20 years or longer period, as well as long-term projected return levels.

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


•	Investment returns in 2018 were below the assumed level of 6.87%;


•	Investment returns in 2017 were above the assumed level of 6.87%;


•	Investment returns in 2016 were below the assumed level of 6.87%; and,


•	In 2019, Xcel Energy’s expected investment-return assumption is 6.87%.

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. SPS is required to fund postretirement benefit costs for Texas and New Mexico amounts collected in rates. 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 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

The following presents, for each of the fair value hierarchy levels, Xcel Energy’s pension plan assets measured at fair value:



	Dec. 31, 2018 ^(a)												Dec. 31, 2017 ^(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	$	137	$	—	$	—	$	—		$	137		$	196		$	—	$	—	$	—	$	196
Commingled funds:	914		—		—		987			1,901			1,054			—		—		1,075		2,129
Debt securities:	—		621		—		—			621			—			673		—		—		673
Equity securities:	106		—		—		—			106			114			—		—		—		114
Other	2		5		—		(30		)	(23		)	(29		)	4		—		1		(24		)
Total	$	1,159	$	626	$	—	$	957		$	2,742		$	1,335		$	677	$	—	$	1,076	$	3,088


^(a)	See Note 10 for further information regarding fair value measurement inputs and methods.

The following presents, for each of the fair value hierarchy levels, Xcel Energy’s postretirement benefit plan assets that were measured at fair value:



	Dec. 31, 2018 ^(a)										Dec. 31, 2017 ^(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	$	19	$	—	$	—	$	—	$	19	$	29	$	—	$	—	$	—	$	29
Insurance contracts	—		45		—		—		45		—		50		—		—		50
Commingled funds	133		—		—		40		173		148		—		—		—		148
Debt securities	—		179		—		—		179		—		198		—		—		198
Equity securities	—		—		—		—		—		35		—		—		—		35
Other	—		1		—		—		1		—		1		—		—		1
Total	$	152	$	225	$	—	$	40	$	417	$	212	$	249	$	—	$	—	$	461


^(a)	See Note 10 for further information on fair value measurement inputs and methods.

No assets were transferred in or out of Level 3 for 2018 and 2017.

Funded Status — Comparisons of the actuarially computed benefit obligation, changes in plan assets and funded status of the pension and postretirement health care plans for Xcel Energy are as follows:



	Pension Benefits						Postretirement Benefits
(Millions of Dollars)	2018			2017			2018			2017
Change in Benefit Obligation:
Obligation at Jan. 1	$	3,828		$	3,682		$	621		$	603
Service cost	94			94			2			2
Interest cost	133			147			22			24
Plan amendments	—			(13		)	—			—
Actuarial (gain) loss	(224		)	259			(62		)	33
Plan participants’ contributions	—			—			8			8
Medicare subsidy reimbursements	—			—			1			1
Benefit payments ^(a)	(354		)	(341		)	(50		)	(50		)
Obligation at Dec. 31	$	3,477		$	3,828		$	542		$	621
Change in Fair Value of Plan Assets:
Fair value of plan assets at Jan. 1	$	3,088		$	2,856		$	461		$	442
Actual return on plan assets	(142		)	411			(13		)	41
Employer contributions	150			162			11			20
Plan participants’ contributions	—			—			8			8
Benefit payments	(354		)	(341		)	(50		)	(50		)
Fair value of plan assets at Dec. 31	$	2,742		$	3,088		$	417		$	461
Funded status of plans at Dec. 31	$	(735	)	$	(740	)	$	(125	)	$	(160	)
Amounts recognized in the Consolidated Balance Sheet at Dec. 31:
Current liabilities	$	—		$	—		$	(7	)	$	(3	)
Noncurrent liabilities	(735		)	(740		)	(118		)	(157		)
Net amounts recognized	$	(735	)	$	(740	)	$	(125	)	$	(160	)


^(a)	Includes approximately $198 million in 2018 and $174 million in 2017 of lump-sum benefit payments used in the determination of a settlement charge.



	Pension Benefits				Postretirement Benefits
(Millions of Dollars)	2018		2017		2018		2017
Significant Assumptions Used to Measure Benefit Obligations:
Discount rate for year-end valuation	4.31	%	3.63	%	4.32	%	3.62	%
Expected average long-term increase in compensation level	3.75		3.75		N/A		N/A
Mortality table	RP-2014		RP-2014		RP-2014		RP-2014
Health care costs trend rate — initial: Pre-65	N/A		N/A		6.50	%	7.00	%
Health care costs trend rate — initial: Post-65	N/A		N/A		5.35	%	5.50	%
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

Accumulated benefit obligation for the pension plan was $3,275 million and $3,612 million as of Dec. 31, 2018 and 2017, respectively.

Net Periodic Benefit Cost (Credit) — Net periodic benefit cost (credit), other than the service cost component, is included in other income in the consolidated 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)	2018			2017			2016			2018			2017			2016
Service cost	$	94		$	94		$	92		$	2		$	2		$	2
Interest cost	133			147			160			22			24			26
Expected return on plan assets	(209		)	(209		)	(210		)	(26		)	(25		)	(25		)
Amortization of prior service credit	(5		)	(2		)	(2		)	(11		)	(11		)	(11		)
Amortization of net loss	111			107			97			8			7			4
Settlement charge ^(a)	91			81			—			—			—			—
Net periodic pension cost (credit)	215			218			137			(5		)	(3		)	(4		)
Costs not recognized due to effects of regulation	(75		)	(79		)	(15		)	2			—			—
Net benefit cost (credit) recognized for financial reporting	$	140		$	139		$	122		$	(3	)	$	(3	)	$	(4	)
Significant Assumptions Used to Measure Costs:
Discount rate	3.63		%	4.13		%	4.66		%	3.62		%	4.13		%	4.65		%
Expected average long-term increase in compensation level	3.75			3.75			4.00			—			—			—
Expected average long-term rate of return on assets	6.87			6.87			6.87			5.30			5.80			5.80

^(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 2018 and 2017, as a result of lump-sum distributions during the 2018 and 2017 plan years, Xcel Energy recorded a total pension settlement charge of $91 million in 2018 and $81 million in 2017, the majority of which was not recognized due to the effects of regulation. A total of $11 million and $8 million was recorded in the consolidated statements of income in 2018 and 2017, respectively.



	Pension Benefits						Postretirement Benefits
(Millions of Dollars)	2018			2017			2018			2017
Amounts Not Yet Recognized as Components of Net Periodic Benefit Cost:
Net loss	$	1,633		$	1,709		$	116		$	147
Prior service credit	(20		)	(25		)	(33		)	(44		)
Total	$	1,613		$	1,684		$	83		$	103
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	$	94		$	100		$	—		$	—
Noncurrent regulatory assets	1,446			1,511			89			107
Current regulatory liabilities	—			—			(1		)	(1		)
Noncurrent regulatory liabilities	—			—			(10		)	(10		)
Deferred income taxes	19			19			1			2
Net-of-tax accumulated other comprehensive income	54			54			4			5
Total	$	1,613		$	1,684		$	83		$	103



Measurement date	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017

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 2016 - 2019 to meet minimum funding requirements.

Voluntary and required pension funding contributions:


•	$150 million in January 2019;


•	$150 million in 2018;


•	$162 million in 2017; and,


•	$125 million in 2016.

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.

Voluntary postretirement funding contributions:


•	Expects to contribute approximately $11 million during 2019;


•	$11 million during 2018;


•	$20 million during 2017; and,


•	$18 million during 2016.

Targeted asset allocations:



	Pension Benefits				Postretirement Benefits
	2018		2017		2018		2017
Domestic and international equity securities	36	%	36	%	18	%	24	%
Long-duration fixed income securities	30		27		—		—
Short-to-intermediate fixed income securities	17		20		70		60
Alternative investments	15		15		8		9
Cash	2		2		4		7
Total	100	%	100	%	100	%	100	%

Plan Amendments — The Xcel Energy Pension Plan and Xcel Energy Inc. Nonbargaining Pension Plan (South) were amended in 2017 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. In 2016, the Xcel Energy Pension Plan was amended to change the discount rate basis for lump-sum conversion to annuity participants and annuity conversion to lump-sum participants. Annual credits contributed to the PSCo Bargaining Plan retirement spending account also increased.

In 2018 and 2017, there were no plan amendments made which affected the postretirement benefit obligation.

Projected Benefit Payments

Xcel Energy’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
2019	$	281	$	45	$	2	$	43
2020	260		45		2		43
2021	259		45		2		43
2022	260		44		2		42
2023	259		43		2		41
2024-2028	1,238		197		13		184

Defined Contribution Plans

Xcel Energy maintains 401(k) and other defined contribution plans that cover most employees. Total expense to these plans was approximately $38 million in 2018, $37 million in 2017 and $36 million in 2016.

Multiemployer Plans

NSP-Minnesota and NSP-Wisconsin each contribute to several union multiemployer pension and other postretirement benefit plans, none of which are individually significant. These plans provide pension and postretirement health care benefits to certain union employees who may perform services for multiple employers and do not participate in the NSP-Minnesota and NSP-Wisconsin sponsored pension and postretirement health care plans. Contributing to these types of plans creates risk that differs from providing benefits under NSP-Minnesota and NSP-Wisconsin sponsored plans, in that if another participating employer ceases to contribute to a multiemployer plan, additional unfunded obligations may need to be funded over time by remaining participating employers.