Employee Retirement Benefits

Employee Pension Plan and Other Benefits Plans - NEE sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NEE and its subsidiaries. NEE also has a supplemental executive retirement plan (SERP), which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees, and sponsors a contributory postretirement plan for other benefits for retirees of NEE and its subsidiaries meeting certain eligibility requirements. The total accrued benefit cost of the SERP and postretirement plans is approximately $226 million ($187 million for FPL) and $241 million ($208 million for FPL) at December 31, 2018 and 2017, respectively.

Pension Plan Assets, Benefit Obligations and Funded Status - The changes in assets, benefit obligations and the funded status of the pension plan are as follows:



	2018			2017
	(millions)
Change in pension plan assets:
Fair value of plan assets at January 1	$	4,020		$	3,651
Actual return on plan assets	(69		)	574
Benefit payments	(160		)	(205		)
Acquisitions^(a)	15			—
Fair value of plan assets at December 31	$	3,806		$	4,020
Change in pension benefit obligation:
Obligation at January 1	$	2,593		$	2,474
Service cost	70			66
Interest cost	82			83
Acquisitions^(a)	15			—
Special termination benefits^(b)	35			38
Plan amendments	—			12
Actuarial losses (gains) - net	(113		)	125
Benefit payments	(160		)	(205		)
Obligation at December 31^(c)	$	2,522		$	2,593
Funded status:
Prepaid pension benefit costs at NEE at December 31	$	1,284		$	1,427
Prepaid pension benefit costs at FPL at December 31^(d)	$	1,407		$	1,351

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(a)	Relates to fully funded pension obligations acquired in 2018, see Note 8.


(b)	Reflects enhanced early retirement programs.


(c)	NEE's accumulated pension benefit obligation, which includes no assumption about future salary levels, at December 31, 2018 and 2017 was approximately $2,479 million and $2,548 million, respectively.


(d)	Reflects FPL's allocated benefits under NEE's pension plan.

NEE's unrecognized amounts included in accumulated other comprehensive income (loss) yet to be recognized as components of prepaid pension benefit costs are as follows:



	2018			2017
	(millions)
Unrecognized prior service benefit (net of $2 and $2 tax expense, respectively)	$	2		$	2
Unrecognized losses (net of $27 and $32 tax benefit, respectively)	(71		)	(49		)
Total	$	(69	)	$	(47	)

NEE's unrecognized amounts included in regulatory assets yet to be recognized as components of net prepaid pension benefit costs are as follows:



	2018			2017
	(millions)
Unrecognized prior service benefit	$	(3	)	$	(4	)
Unrecognized losses	376			160
Total	$	373		$	156

The following table provides the assumptions used to determine the benefit obligation for the pension plan. These rates are used in determining net periodic income in the following year.



	2018		2017
Discount rate^(a)	4.26	%	3.59	%
Salary increase	4.40	%	4.10	%

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(a)	The method of estimating the interest cost component of net periodic benefit costs uses a full yield curve approach by applying a specific spot rate along the yield curve.

NEE's investment policy for the pension plan recognizes the benefit of protecting the plan's funded status, thereby avoiding the necessity of future employer contributions. Its broad objectives are to achieve a high rate of total return with a prudent level of risk taking while maintaining sufficient liquidity and diversification to avoid large losses and preserve capital over the long term.

The NEE pension plan fund's current target asset allocation, which is expected to be reached over time, is 45% equity investments, 32% fixed income investments, 13% alternative investments and 10% convertible securities. The pension fund's investment strategy emphasizes traditional investments, broadly diversified across the global equity and fixed income markets, using a combination of different investment styles and vehicles. The pension fund's equity and fixed income holdings consist of both directly held securities as well as commingled investment arrangements such as common and collective trusts, pooled separate accounts, registered investment companies and limited partnerships. The pension fund's convertible security assets are principally direct holdings of convertible securities and include a convertible security oriented limited partnership. The pension fund's alternative investments consist primarily of private equity and real estate oriented investments in limited partnerships as well as absolute return oriented limited partnerships that use a broad range of investment strategies on a global basis.

The fair value measurements of NEE's pension plan assets by fair value hierarchy level are as follows:



	December 31, 2018^(a)
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(millions)
Equity securities^(b)	$	1,030	$	11	$	2	$	1,043
Equity commingled vehicles^(c)	—		638		—		638
U.S. Government and municipal bonds	84		11		—		95
Corporate debt securities^(d)	—		252		—		252
Asset-backed securities	—		253		—		253
Debt security commingled vehicles	—		133		—		133
Convertible securities^(e)	17		303		—		320
Total investments in the fair value hierarchy	$	1,131	$	1,601	$	2	2,734
Total investments measured at net asset value^(f)							1,072
Total fair value of plan assets							$	3,806

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(a)	See Note 5 for discussion of fair value measurement techniques and inputs.


(b)	Includes foreign investments of $459 million.


(c)	Includes foreign investments of $193 million.


(d)	Includes foreign investments of $77 million.


(e)	Includes foreign investments of $30 million.


(f)	Includes foreign investments of $214 million.



	December 31, 2017^(a)
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(millions)
Equity securities^(b)	$	1,077	$	16	$	2	$	1,095
Equity commingled vehicles^(c)	—		853		—		853
U.S. Government and municipal bonds	118		13		—		131
Corporate debt securities^(d)	3		238		10		251
Asset-backed securities	—		170		—		170
Debt security commingled vehicles^(e)	—		155		—		155
Convertible securities^(f)	19		307		—		326
Total investments in the fair value hierarchy	$	1,217	$	1,752	$	12	2,981
Total investments measured at net asset value^(g)							1,039
Total fair value of plan assets							$	4,020

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(a)	See Note 5 for discussion of fair value measurement techniques and inputs.


(b)	Includes foreign investments of $480 million.


(c)	Includes foreign investments of $287 million.


(d)	Includes foreign investments of $73 million.


(e)	Includes foreign investments of $2 million.


(f)	Includes foreign investments of $35 million.


(g)	Includes foreign investments of $233 million

Expected Cash Flows - The following table provides information about benefit payments expected to be paid by the pension plan for each of the following calendar years (in millions):



2019	$	226
2020	$	160
2021	$	167
2022	$	167
2023	$	172
2024 - 2028	$	877

Net Periodic (Income) Cost - The components of net periodic (income) cost for the plans are as follows:



	Pension Benefits									Postretirement Benefits
	2018			2017			2016			2018			2017			2016
				(millions)
Service cost	$	70		$	66		$	62		$	1		$	1		$	2
Interest cost	82			83			105			7			8			13
Expected return on plan assets	(276		)	(270		)	(260		)	—			—			(1		)
Amortization of prior service cost (benefit)	(1		)	(1		)	1			(15		)	(10		)	(2		)
Special termination benefits	35			38			—			—			—			—
Postretirement benefits settlement	—			—			—			—			1			—
Net periodic (income) cost at NEE	$	(90	)	$	(84	)	$	(92	)	$	(7	)	$	—		$	12
Net periodic (income) cost allocated to FPL	$	(57	)	$	(51	)	$	(58	)	$	(6	)	$	—		$	9

Other Comprehensive Income - The components of net periodic income (cost) recognized in OCI for the pension plan are as follows:



	2018			2017		2016
	(millions)
Prior service benefit (net of $3 tax expense)	$	—		$	—	$	4
Net gains (losses) (net of $4 tax benefit, $23 tax expense and $16 tax benefit, respectively)	(13		)	37		(26		)
Total	$	(13	)	$	37	$	(22	)

Regulatory Assets (Liabilities) - The components of net periodic (income) cost recognized during the year in regulatory assets (liabilities) for the pension plan are as follows:



	2018		2017
	(millions)
Unrecognized losses (gains)	$	216	$	(120	)
Amortization of prior service cost	1		1
Total	$	217	$	(119	)

The assumptions used to determine net periodic income for the pension plan are as follows:



	2018		2017		2016
Discount rate	3.59	%	4.09	%	4.35	%
Salary increase	4.10	%	4.10	%	4.10	%
Expected long-term rate of return, net of investment management fees^(a)	7.35	%	7.35	%	7.35	%

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(a)

In developing the expected long-term rate of return on assets assumption for its pension plan, NEE evaluated input, including other qualitative and quantitative factors, from its actuaries and consultants, as well as information available in the marketplace. NEE considered different models, capital market return assumptions and historical returns for a portfolio with an equity/bond asset mix similar to its pension fund. NEE also considered its pension fund's historical compounded returns.

Employee Contribution Plan - NEE offers an employee retirement savings plan which allows eligible participants to contribute a percentage of qualified compensation through payroll deductions. NEE makes matching contributions to participants' accounts. Defined contribution expense pursuant to this plan was approximately $54 million, $53 million and $52 million for NEE ($34 million, $33 million and $32 million for FPL) for the years ended December 31, 2018, 2017 and 2016, respectively.

Amendments to Presentation of Retirement Benefits - Effective January 1, 2018, NEE adopted an accounting standards update that requires certain changes in classification of components of net periodic pension and postretirement benefit costs within the income statement and allows only the service cost component to be eligible for capitalization. NEE adopted the standards update using the retrospective approach for presentation of the components of net periodic pension and postretirement benefit costs and the prospective approach for capitalization of service cost. Upon adoption, NEE, among other things, reclassified the non-service cost components noted in the net periodic (income) cost table above from O&M expense to other net periodic benefit income in NEE's consolidated statements of income. The adoption of this standards update did not have an impact on net income attributable to NEE and did not have any impact on FPL as NEE is the plan sponsor.