Retirement Plans and Other Postretirement Benefits

3 Months Ended

Mar. 31, 2021

Retirement Benefits [Abstract]

Retirement Plans and Other Postretirement Benefits

Retirement Plans and Other Postretirement Benefits

Pinnacle West sponsors a qualified defined benefit and account balance pension plan, a non-qualified supplemental excess benefit retirement plan, and other postretirement benefit plans for the employees of Pinnacle West and our subsidiaries.  The other postretirement benefit plans include a group life and medical plan and a post-65 retiree health reimbursement arrangement (“HRA”). Pinnacle West uses a December 31

measurement date each year for its pension and other postretirement benefit plans.  The market-related value of our plan assets is their fair value at the measurement date.

Under the HRA, included in the other postretirement benefit plan, the Company provides a subsidy to retirees to defray the cost of a Medicare supplemental policy. In prior years, we had been assuming a 4.75% escalation of these benefits; however, actual escalation has been significantly less than this assumption. Accordingly, during 2020 and for future periods, the escalation assumption was reduced to 2.00%. This escalation factor assumption change, among other factors, resulted in an increase in the over-funded status of the other postretirement benefit plan as of December 31, 2020. As a result, on January 4, 2021, we initiated the transfer of approximately $106 million of assets from the other postretirement benefit plan into the Active Union Employee Medical Account. The Active Union Employee Medical Account is an existing trust account that holds assets restricted for paying active union employee medical costs (see Note 12). The transfer of other postretirement benefit plan assets into the Active Union Employee Medical Account permits access to approximately $106 million of assets for the sole purpose of paying active union employee medical benefits. This transfer of assets into the Active Union Employee Medical Account is consistent with the terms of a similar 2018 transaction.

The following table provides details of the plans’ net periodic benefit costs and the portion of these costs charged to expense (including administrative costs and excluding amounts capitalized as overhead construction or billed to electric plant participants) (dollars in thousands):

	Pension Benefits				Other Benefits
	Three Months Ended March 31,				Three Months Ended March 31,
	2021		2020		2021		2020
Service cost — benefits earned during the period	$	15,679	$	14,257	$	4,557	$	5,717
Non-service costs (credits):
Interest cost on benefit obligation	24,669		29,761		4,162		6,512
Expected return on plan assets	(50,608)		(46,806)		(10,361)		(10,019)
Amortization of:
Prior service credit	—		—		(9,427)		(9,394)
Net actuarial loss (gain)	3,985		9,011		(2,405)		—
Net periodic benefit cost/(benefit)	$	(6,275)	$	6,223	$	(13,474)	$	(7,184)
Portion of cost/(benefit) charged to expense	$	(8,011)	$	1,342	$	(9,528)	$	(5,456)

Contributions

We have not made voluntary contributions to our pension plan year-to-date in 2021. The minimum required contributions for the pension plan are zero for the next three years. We expect to make voluntary contributions up to $100 million in 2021 and zero in 2022 and 2023. We do not expect to make any contributions over this period to our other postretirement benefit plans.