Retirement and Post-Retirement Employee Benefit Plans

12 Months Ended

Sep. 30, 2021

Retirement Benefits [Abstract]

Retirement and Post-Retirement Employee Benefit Plans

Retirement and Post-Retirement Employee Benefit Plans

We have both funded and unfunded noncontributory defined benefit plans that together cover most of our employees. We also maintain post-retirement plans that provide health care benefits to retired employees. Finally, we sponsor a defined contribution plan that covers substantially all employees. These plans are discussed in further detail below.

As a rate regulated entity, most of our net periodic pension and other postretirement benefits costs are recoverable through our rates over a period of up to 15 years. A portion of these costs is capitalized into our rate base or deferred as a regulatory asset or liability. The remaining costs are recorded as a component of operation and maintenance expense or other non-operating expense. Additionally, the amounts that have not yet been recognized in net periodic pension cost that have been recorded as regulatory assets or liabilities are as follows:

	Defined Benefit Plan		Supplemental Executive Retirement Plans		Postretirement Plans		Total
	(In thousands)
September 30, 2021
Unrecognized prior service (credit) cost	$	(353)	$	—	$	(64,313)	$	(64,666)
Unrecognized actuarial (gain) loss	(3,060)		39,666		(28,141)		8,465
	$	(3,413)	$	39,666	$	(92,454)	$	(56,201)
September 30, 2020
Unrecognized prior service (credit) cost	$	(584)	$	—	$	951	$	367
Unrecognized actuarial loss	78,082		51,045		9,110		138,237
	$	77,498	$	51,045	$	10,061	$	138,604

Defined Benefit Plans

Employee Pension Plan

As of September 30, 2021, we maintained one cash balance defined benefit plan, the Atmos Energy Corporation Pension Account Plan (the Plan). The Plan was established effective January 1999 and covers most of the employees of Atmos Energy that were hired on or before September 30, 2010. Effective October 1, 2010, the plan was closed to new participants. The assets of the Plan are held within the Atmos Energy Corporation Master Retirement Trust (the Master Trust).

Opening account balances were established for participants as of January 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Plan credits an allocation to each participant’s account at the end of each year according to a formula based on the participant’s age, service and total pay (excluding incentive pay). In addition, at the end of each year, a participant’s account is credited with interest on the employee’s prior year account balance. Participants are fully vested in their account balances after three years of service and may choose to receive their account balances as a lump sum or an annuity.

Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974, including the funding requirements under the Pension Protection Act of 2006 (PPA). However, additional voluntary contributions are made from time to time as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

During fiscal 2021, we contributed $10.0 million in cash to the Plan to achieve a desired level of funding while maximizing the tax deductibility of this payment. During fiscal 2020, we did not make a contribution to the Plan. Based upon market conditions at September 30, 2021, the current funded position of the Plan and the funding requirements under the PPA, we do not anticipate a minimum required contribution for fiscal 2022. However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels.

We make investment decisions and evaluate performance of the assets in the Master Trust on a medium-term horizon of at least three to five years. We also consider our current financial status when making recommendations and decisions regarding the Master Trust’s assets. Finally, we strive to ensure the Master Trust’s assets are appropriately invested to maintain an acceptable level of risk and meet the Master Trust’s long-term asset investment policy adopted by the Board of Directors.

To achieve these objectives, we invest the Master Trust’s assets in equity securities, fixed income securities, interests in commingled pension trust funds, other investment assets and cash and cash equivalents. Investments in equity securities are diversified among the market’s various subsectors in an effort to diversify risk and maximize returns. Fixed income securities are invested in investment grade securities. Cash equivalents are invested in securities that either are short term (less than 180 days) or readily convertible to cash with modest risk.

The following table presents asset allocation information for the Master Trust as of September 30, 2021 and 2020.

	Targeted Allocation  Range	Actual Allocation September 30
Security Class		2021	2020
Domestic equities	35%-55%	44.5%	45.3%
International equities	10%-20%	16.9%	15.6%
Fixed income	5%-30%	16.0%	17.0%
Company stock	0%-15%	10.6%	13.0%
Other assets	0%-20%	12.0%	9.1%

At September 30, 2021 and 2020, the Plan held 716,700 shares of our common stock which represented 10.6 percent and 13.0 percent of total Plan assets. These shares generated dividend income for the Plan of approximately $1.8 million and $1.6 million during fiscal 2021 and 2020.

Our employee pension plan expenses and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data. We review the estimates and assumptions underlying our employee pension plans annually based upon a September 30 measurement date. The development of our assumptions is fully described in our significant accounting policies in Note 2 to the consolidated financial statements. The actuarial assumptions used to determine the pension liability for the Plan was determined as of September 30, 2021 and 2020 and the actuarial assumptions used to determine the net periodic pension cost for the Plan was determined as of September 30, 2020, 2019 and 2018. In October 2021, the Society of Actuaries released its annually-updated mortality improvement scale for pension plans incorporating new assumptions surrounding life expectancies in the United States.  As of September 30, 2021, we updated our assumed mortality rates to incorporate the updated mortality table.

Additional assumptions are presented in the following table:

	Pension Liability				Pension Cost
	2021		2020		2021		2020		2019
Discount rate	2.97	%	2.80	%	2.80	%	3.29	%	4.38	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%
Expected return on plan assets	6.25	%	6.25	%	6.25	%	6.50	%	6.75	%
Interest crediting rate	4.69	%	4.69	%	4.69	%	4.69	%	4.69	%

The following table presents the Plan’s accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2021 and 2020:

	2021		2020
	(In thousands)
Accumulated benefit obligation	$	558,639	$	565,755
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	604,221	$	577,270
Service cost	17,369		17,551
Interest cost	16,883		19,028
Actuarial (gain) loss	(7,561)		22,898
Benefits paid	(34,883)		(32,526)
Benefit obligation at end of year	596,029		604,221
Change in plan assets:
Fair value of plan assets at beginning of year	528,881		530,109
Actual return on plan assets	92,808		31,298
Employer contributions	10,000		—
Benefits paid	(34,883)		(32,526)
Fair value of plan assets at end of year	596,806		528,881
Reconciliation:
Funded status	777		(75,340)
Unrecognized prior service cost	—		—
Unrecognized net loss	—		—
Net amount recognized	$	777	$	(75,340)

Net periodic pension cost for the Plan for fiscal 2021, 2020 and 2019 is presented in the following table.

	Fiscal Year Ended September 30
	2021		2020		2019
	(In thousands)
Components of net periodic pension cost:
Service cost	$	17,369	$	17,551	$	15,311
Interest cost (1)	16,883		19,028		22,071
Expected return on assets (1)	(27,913)		(28,316)		(28,451)
Amortization of prior service cost (credit) (1)	8,686		(231)		(232)
Recognized actuarial (gain) loss (1)	(231)		9,025		4,201
Net periodic pension cost	$	14,794	$	17,057	$	12,900

(1)    The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.

The following tables set forth by level, within the fair value hierarchy, the Plan's assets at fair value as of September 30, 2021 and 2020. As required by authoritative accounting literature, assets are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The methods used to determine fair value for the assets held by the Plan are fully described in Note 2 to the consolidated financial statements. Investments in our common/collective trusts and limited partnerships that are measured at net asset value per share equivalent are not classified in the fair value hierarchy. The net asset value amounts presented are intended to reconcile the fair value hierarchy to the total investments. In addition to the assets shown below, the Plan had net accounts receivable of $2.1 million and $0.7 million at September 30, 2021 and 2020, which materially approximates fair value due to the short-term nature of these assets.

	Assets at Fair Value as of September 30, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Common stocks	$	239,166	$	—	$	—	$	239,166
Money market funds	—		7,060		—		7,060
Registered investment companies	74,236		—		—		74,236
Government securities:
Mortgage-backed securities	—		14,048		—		14,048
U.S. treasuries	7,483		34		—		7,517
Corporate bonds	—		30,834		—		30,834
Total investments measured at fair value	$	320,885	$	51,976	$	—	372,861
Investments measured at net asset value:
Common/collective trusts (1)							121,570
Limited partnerships (1)							100,299
Total investments							$	594,730

	Assets at Fair Value as of September 30, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Common stocks	$	211,244	$	—	$	—	$	211,244
Money market funds	—		6,096		—		6,096
Registered investment companies	29,762		—		—		29,762
Government securities:
Mortgage-backed securities	—		15,230		—		15,230
U.S. treasuries	21,755		36		—		21,791
Corporate bonds	—		52,648		—		52,648
Total investments measured at fair value	$	262,761	$	74,010	$	—	336,771
Investments measured at net asset value:
Common/collective trusts (1)							122,207
Limited partnerships (1)							69,176
Total investments							$	528,154

(1)    The fair value of our common/collective trusts and limited partnerships are measured using the net asset value per share practical expedient. There are no redemption restrictions, redemption notice periods or unfunded commitments for these investments. The redemption frequency is daily.

Supplemental Executive Retirement Plans

We have three nonqualified supplemental plans which provide additional pension, disability and death benefits to our officers, division presidents and certain other employees of the Company.

The first plan is referred to as the Supplemental Executive Benefits Plan (SEBP) and covers our corporate officers and certain other employees of the Company who were employed on or before August 12, 1998. The SEBP is a defined benefit arrangement which provides a benefit equal to 75 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SEBP.

In August 1998, we adopted the Supplemental Executive Retirement Plan (SERP) (formerly known as the Performance-Based Supplemental Executive Benefits Plan), which covers all corporate officers selected to participate in the plan between August 12, 1998 and August 5, 2009. The SERP is a defined benefit arrangement which provides a benefit equal to 60 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SERP.

Effective August 5, 2009, we adopted a new defined benefit Supplemental Executive Retirement Plan (the 2009 SERP), for corporate officers or any other employees selected at the discretion of the Board. Under the 2009 SERP, a nominal account has been established for each participant, to which the Company contributes at the end of each calendar year an amount equal to ten percent (25 percent for members of the Management Committee appointed on or after January 1, 2016) of the total of each participant’s base salary and cash incentive compensation earned during each prior calendar year, beginning December 31, 2009. The benefits vest after three years of service and attainment of age 55 and earn interest credits at the same annual rate as the Company’s Pension Account Plan.

Due to the retirement of certain executives of the company during fiscal 2021, we recognized a settlement charge of $9.2 million and paid a $25.7 million lump sum in relation to the retirements.

Similar to our employee pension plans, we review the estimates and assumptions underlying our supplemental plans annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for the supplemental plans were determined as of September 30, 2021 and 2020 and the actuarial assumptions used to determine the net periodic pension cost for the supplemental plans were determined as of September 30, 2020, 2019 and 2018. These assumptions are presented in the following table:

	Pension Liability				Pension Cost
	2021		2020		2021		2020		2019
Discount rate (1)	2.57	%	2.80	%	2.90	%	3.19	%	4.38	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%
Interest crediting rate	4.69	%	4.69	%	4.69	%	4.69	%	4.69	%

 (1)     Reflects a weighted average discount rate for pension cost for fiscal 2021 and 2020 due to the settlements during the year.

The following table presents the supplemental plans’ accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2021 and 2020:

	2021		2020
	(In thousands)
Accumulated benefit obligation	$	100,981	$	122,207
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	129,140	$	143,987
Service cost	1,067		1,074
Interest cost	3,180		4,188
Actuarial (gain) loss	1,332		7,386
Benefits paid	(4,720)		(4,766)
Settlements	(25,698)		(22,729)
Benefit obligation at end of year	104,301		129,140
Change in plan assets:
Fair value of plan assets at beginning of year	—		—
Employer contribution	30,418		27,495
Benefits paid	(4,720)		(4,766)
Settlements	(25,698)		(22,729)
Fair value of plan assets at end of year	—		—
Reconciliation:
Funded status	(104,301)		(129,140)
Unrecognized prior service cost	—		—
Unrecognized net loss	—		—
Accrued pension cost	$	(104,301)	$	(129,140)

Assets for the supplemental plans are held in separate rabbi trusts. At September 30, 2021 and 2020, assets held in the rabbi trusts consisted of equity securities of $38.1 million and $41.9 million, which are included in our fair value disclosures in Note 16 to the consolidated financial statements.

Net periodic pension cost for the supplemental plans for fiscal 2021, 2020 and 2019 is presented in the following table.

	Fiscal Year Ended September 30
	2021		2020		2019
	(In thousands)
Components of net periodic pension cost:
Service cost	$	1,067	$	1,074	$	869
Interest cost (1)	3,180		4,188		5,127
Recognized actuarial loss (1)	3,560		3,945		2,227
Settlements (1)	9,151		9,180		—
Net periodic pension cost	$	16,958	$	18,387	$	8,223

(1)    The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.

Estimated Future Benefit Payments

The following benefit payments for our defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years:

	Pension Plan		Supplemental Plans
	(In thousands)
2022	$	39,020	$	4,925
2023	39,624		11,384
2024	40,314		4,496
2025	41,085		39,769
2026	42,053		5,665
2027-2031	203,461		22,079

Postretirement Benefits

We sponsor the Retiree Medical Plan for Retirees and Disabled Employees of Atmos Energy Corporation (the Atmos Retiree Medical Plan). This plan provides medical and prescription drug protection to all qualified participants based on their date of retirement. The Atmos Retiree Medical Plan provides different levels of benefits depending on the level of coverage chosen by the participants and the terms of predecessor plans; however, we generally pay 80 percent of the projected net claims and administrative costs and participants pay the remaining 20 percent. Effective January 1, 2015, for employees who had not met the participation requirements by September 30, 2009, the contribution rates for the Company are limited to a three percent cost increase in claims and administrative costs each year, with the participant responsible for the additional costs.

Generally, our funding policy is to contribute annually an amount in accordance with the requirements of ERISA. However, additional voluntary contributions are made annually as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We expect to contribute between $15 million and $25 million to our postretirement benefits plan during fiscal 2022.

We maintain a formal investment policy with respect to the assets in our postretirement benefits plan to ensure the assets funding the postretirement benefit plan are appropriately invested to maintain an acceptable level of risk. We also consider our current financial status when making recommendations and decisions regarding the postretirement benefits plan.

We currently invest the assets funding our postretirement benefit plan in diversified investment funds which consist of common stocks, preferred stocks and fixed income securities. The diversified investment funds may invest up to 75 percent of assets in common stocks and convertible securities. The following table presents asset allocation information for the postretirement benefit plan assets as of September 30, 2021 and 2020.

	Actual Allocation September 30
Security Class	2021	2020
Diversified investment funds	97.9%	97.4%
Cash and cash equivalents	2.1%	2.6%

Similar to our employee pension and supplemental plans, we review the estimates and assumptions underlying our postretirement benefit plan annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for our postretirement plan were determined as of September 30, 2021 and 2020 and the actuarial assumptions used to determine the net periodic pension cost for the postretirement plan were determined as of September 30, 2020, 2019 and 2018.

Effective January 1, 2022, the Retiree Medical Plan for Retirees and Disabled Employees will be amended. The amendments remove the three percent cost increase limitation and change the post-65 retiree coverage to Via Benefits with an Atmos Energy funded Health Reimbursement Account. Eligible post-65 retirees and post-65 spouses will be eligible to enroll in benefits provided by Via Benefits, including those that previously deferred or declined retiree coverage. The amendments were approved by the Atmos Energy Board of Directors in May 2021 and the changes were communicated to participants beginning on July 31, 2021. These amendments to the Retiree Medical Plan for Retirees and Disabled Employees have been included in the actuarial assumptions used to determine the pension liability and net periodic for the postretirement plan as of September 30, 2020.

The assumptions are presented in the following table:

	Postretirement Liability				Postretirement Cost
	2021		2020		2021		2020		2019
Discount rate	3.01	%	2.80	%	2.80	%	3.29	%	4.38	%
Expected return on plan assets	4.94	%	4.94	%	4.94	%	5.14	%	5.33	%
Initial trend rate	6.25	%	6.25	%	6.25	%	6.25	%	6.50	%
Ultimate trend rate	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%
Ultimate trend reached in	2027		2026		2026		2025		2022

The following table presents the postretirement plan’s benefit obligation and funded status as of September 30, 2021 and 2020:

	2021		2020
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	370,678	$	316,033
Service cost	11,000		13,466
Interest cost	15,372		10,612
Plan participants’ contributions	5,648		5,849
Actuarial (gain) loss	6,800		43,412
Benefits paid	(19,610)		(18,694)
Plan amendments	(34,732)		—
Benefit obligation at end of year	355,156		370,678
Change in plan assets:
Fair value of plan assets at beginning of year	208,245		201,901
Actual return on plan assets	53,335		2,356
Employer contributions	20,581		16,833
Plan participants’ contributions	5,648		5,849
Benefits paid	(19,610)		(18,694)
Fair value of plan assets at end of year	268,199		208,245
Reconciliation:
Funded status	(86,957)		(162,433)
Unrecognized transition obligation	—		—
Unrecognized prior service cost	—		—
Unrecognized net loss	—		—
Accrued postretirement cost	$	(86,957)	$	(162,433)

Net periodic postretirement cost for fiscal 2021, 2020 and 2019 is presented in the following table.

	Fiscal Year Ended September 30
	2021		2020		2019
	(In thousands)
Components of net periodic postretirement cost:
Service cost	$	11,000	$	13,466	$	10,810
Interest cost (1)	15,372		10,612		11,839
Expected return on assets (1)	(10,455)		(10,499)		(10,659)
Amortization of transition obligation (1)	—		—		—
Amortization of prior service cost (1)	30,533		173		173
Recognized actuarial gain (1)	1,172		(1,337)		(8,178)
Net periodic postretirement cost	$	47,622	$	12,415	$	3,985

(1)    The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.

We are currently recovering other postretirement benefits costs through our regulated rates in substantially all of our service areas under accrual accounting as prescribed by accounting principles generally accepted in the United States. Other postretirement benefits costs have been specifically addressed in rate orders in each jurisdiction served by our Kentucky/Mid-States, West Texas, Mid-Tex and Mississippi Divisions as well as our Kansas jurisdiction and APT or have been included in a rate case and not disallowed. Management believes that this accounting method is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses.

The following tables set forth by level, within the fair value hierarchy, the Retiree Medical Plan’s assets at fair value as of September 30, 2021 and 2020. The methods used to determine fair value for the assets held by the Retiree Medical Plan are fully described in Note 2 to the consolidated financial statements.

	Assets at Fair Value as of September 30, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Money market funds	$	—	$	5,527	$	—	$	5,527
Registered investment companies	262,672		—		—		262,672
Total investments measured at fair value	$	262,672	$	5,527	$	—	$	268,199

	Assets at Fair Value as of September 30, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Money market funds	$	—	$	5,525	$	—	$	5,525
Registered investment companies	202,720		—		—		202,720
Total investments measured at fair value	$	202,720	$	5,525	$	—	$	208,245

Estimated Future Benefit Payments

The following benefit payments paid by us, retirees and prescription drug subsidy payments for our postretirement benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years. Company payments for fiscal 2021 include contributions to our postretirement plan trusts.

	Company Payments		Retiree Payments		Subsidy Payments		Total Postretirement Benefits
	(In thousands)
2022	$	17,701	$	2,490	$	—	$	20,191
2023	18,031		2,465		—		20,496
2024	18,341		2,404		—		20,745
2025	18,981		2,425		—		21,406
2026	19,414		2,395		—		21,809
2027-2031	100,312		10,641		—		110,953

Defined Contribution Plan

The Atmos Energy Corporation Retirement Savings Plan and Trust (the Retirement Savings Plan) covers substantially all employees and is subject to the provisions of Section 401(k) of the Internal Revenue Code. Effective January 1, 2007, employees automatically become participants of the Retirement Savings Plan on the date of employment. Participants may elect a salary reduction up to a maximum of 65 percent of eligible compensation, as defined by the Plan, not to exceed the maximum allowed by the Internal Revenue Service. New participants are automatically enrolled in the Plan at a contribution rate of four percent of eligible compensation, from which they may opt out. We match 100 percent of a participant’s contributions, limited to four percent of the participant’s salary. Prior to January 1, 2021, participants were eligible to receive matching contributions after completing one year of service, in which they are immediately vested. Effective January 1, 2021, participants are eligible to receive matching contributions immediately upon enrollment in the Retirement Savings Plan. This matching contribution vests after completing one year of service. Participants are also permitted to take out a loan against their accounts subject to certain restrictions. Employees hired on or after October 1, 2010 participate in the enhanced plan in which participants receive a fixed annual contribution of four percent of eligible earnings to their Retirement Savings Plan account. Participants will continue to be eligible for company matching contributions of up to four percent of their eligible earnings and will be fully vested in the fixed annual contribution after three years of service.

Matching and fixed annual contributions to the Retirement Savings Plan are expensed as incurred and amounted to $20.6 million, $17.9 million and $16.7 million for fiscal years 2021, 2020 and 2019. At September 30, 2021 and 2020, the Retirement Savings Plan held 1.9 percent and 2.2 percent of our outstanding common stock.