| Employee Benefit Plans | Employee Benefit Plans Pension and Post-Retirement Medical Plans : Registrant maintains a defined benefit pension plan (the “Pension Plan”) that provides eligible employees (those aged 21 and older, hired before January 1, 2011) monthly benefits upon retirement based on average salaries and length of service. The eligibility requirement to begin receiving these benefits is 5 years of vested service. The normal retirement benefit is equal to 2% of the 5 highest consecutive years’ average earnings multiplied by the number of years of credited service, up to a maximum of 40 , reduced by a percentage of primary Social Security benefits. There is also an early retirement option. Annual contributions are made to the Pension Plan, which comply with the funding requirements of the Employee Retirement Income Security Act (“ERISA”). At December 31, 2019 , Registrant had 939 participants in the Pension Plan. Employees hired or rehired after December 31, 2010 are eligible to participate in a defined contribution plan. Registrant's existing 401(k) Investment Incentive Program was amended to include this defined contribution plan. Under this plan, Registrant provides a contribution ranging from 3% to 5.25% of eligible pay each pay period into investment vehicles offered by the plan’s trustee. Full vesting under this plan occurs upon 3 years of service. Employees hired before January 1, 2011 continue to participate in and accrue benefits under the terms of the Pension Plan. Registrant also provides post-retirement medical benefits for all active employees hired before February of 1995 through a medical insurance plan. Eligible employees, who retire prior to age 65, and/or their spouses, are able to retain the benefits under the plan for active employees until reaching age 65. Eligible employees upon reaching age 65, and those eligible employees retiring at or after age 65, and/or their spouses, receive coverage through a Medicare supplement insurance policy paid for by Registrant subject to an annual cap limit. Registrant’s post-retirement medical plan does not provide prescription drug benefits to Medicare-eligible employees and is not affected by the Medicare Prescription Drug Improvement and Modernization Act of 2003. In accordance with the accounting guidance for the effects of certain types of regulation, Registrant has established a regulatory asset for its underfunded position in its pension and post-retirement medical plans that is expected to be recovered through rates in future periods. The changes in actuarial gains and losses, prior service costs and transition assets or obligations pertaining to the regulatory asset are recognized as an adjustment to the regulatory asset account as these amounts are recognized as components of net periodic pension costs each year and in the rate-making process. The following table sets forth the Pension Plan’s and post-retirement medical plan’s funded status and amounts recognized in Registrant’s balance sheets and the components of net pension cost and accrued liability at December 31, 2019 and 2018 : Pension Benefits Post-Retirement Medical Benefits (dollars in thousands) 2019 2018 2019 2018 Change in Projected Benefit Obligation: Projected benefit obligation at beginning of year $ 196,082 $ 207,690 $ 7,886 $ 8,491 Service cost 4,441 5,342 186 218 Interest cost 8,527 7,646 285 292 Plan amendment — 3,626 — — Actuarial (gain) loss 29,784 (21,717 ) (538 ) (701 ) Benefits/expenses paid (6,982 ) (6,505 ) (424 ) (414 ) Projected benefit obligation at end of year $ 231,852 $ 196,082 $ 7,395 $ 7,886 Changes in Plan Assets: Fair value of plan assets at beginning of year $ 162,529 $ 173,648 $ 10,010 $ 11,053 Actual return on plan assets 33,018 (10,626 ) 1,685 (629 ) Employer contributions 3,913 6,012 170 — Benefits/expenses paid (6,983 ) (6,505 ) (594 ) (414 ) Fair value of plan assets at end of year $ 192,477 $ 162,529 $ 11,271 $ 10,010 Funded Status: Net amount recognized as accrued pension cost $ (39,375 ) $ (33,553 ) $ 3,876 $ 2,124 Pension Benefits Post-Retirement Medical Benefits (dollars in thousands) 2019 2018 2019 2018 Amounts recognized on the balance sheets: Non-current assets $ — $ — $ 3,876 $ 2,124 Current liabilities — — — — Non-current liabilities (39,375 ) (33,553 ) — — Net amount recognized $ (39,375 ) $ (33,553 ) $ 3,876 $ 2,124 Amounts recognized in regulatory assets consist of: Prior service cost (credit) $ 3,191 $ 3,626 $ — $ — Net (gain) loss 37,309 31,587 (5,432 ) (4,459 ) Regulatory assets (liabilities) 40,500 35,213 (5,432 ) (4,459 ) Unfunded accrued pension cost (1,125 ) (1,660 ) 1,556 2,335 Net liability (asset) recognized $ 39,375 $ 33,553 $ (3,876 ) $ (2,124 ) Changes in plan assets and benefit obligations recognized in regulatory assets: Regulatory asset at beginning of year $ 35,213 $ 32,761 $ (4,459 ) $ (5,650 ) Net loss (gain) 7,140 81 (1,775 ) 421 New prior service cost — 3,626 — — Amortization of prior service (cost) credit (434 ) — — — Amortization of net gain (loss) (1,419 ) (1,255 ) 802 770 Total change in regulatory asset 5,287 2,452 (973 ) 1,191 Regulatory asset (liability) at end of year $ 40,500 $ 35,213 $ (5,432 ) $ (4,459 ) Net periodic pension costs $ 4,447 $ 3,070 $ (779 ) $ (752 ) Change in regulatory asset 5,287 2,452 (973 ) 1,191 Total recognized in net periodic pension cost and regulatory asset (liability) $ 9,734 $ 5,522 $ (1,752 ) $ 439 Estimated amounts that will be amortized from regulatory asset over the next fiscal year: Prior service (cost) credit $ (434 ) $ (434 ) $ — $ — Net gain (loss) $ (1,768 ) $ (1,435 ) $ 796 $ 598 Additional year-end information for plans with an accumulated benefit obligation in excess of plan assets: Projected benefit obligation $ 231,852 $ 196,082 $ 7,395 $ 7,886 Accumulated benefit obligation $ 215,996 $ 183,036 N/A N/A Fair value of plan assets $ 192,477 $ 162,529 $ 11,271 $ 10,010 Weighted-average assumptions used to determine benefit obligations at December 31: Discount rate 3.43 % 4.43 % 3.12 % 4.20 % Rate of compensation increase * * N/A N/A * Age-graded ranging from 3.0% to 8.0% . The components of net periodic pension and post-retirement benefits cost, before allocation to the overhead pool, for 2019 , 2018 and 2017 are as follows: Pension Benefits Post-Retirement Medical Benefits (dollars in thousands, except percent) 2019 2018 2017 2019 2018 2017 Components of Net Periodic Benefits Cost: Service cost $ 4,441 $ 5,342 $ 4,999 $ 186 $ 218 $ 227 Interest cost 8,527 7,646 7,904 285 292 324 Expected return on plan assets (10,374 ) (11,172 ) (9,705 ) (449 ) (493 ) (466 ) Amortization of prior service cost (credit) 434 — — — — — Amortization of actuarial (gain) loss 1,419 1,254 923 (801 ) (769 ) (775 ) Net periodic pension cost under accounting standards $ 4,447 $ 3,070 $ 4,121 $ (779 ) $ (752 ) $ (690 ) Regulatory adjustment (593 ) — 465 — — — Total expense recognized, before surcharges and allocation to overhead pool $ 3,854 $ 3,070 $ 4,586 $ (779 ) $ (752 ) $ (690 ) Weighted-average assumptions used to determine net periodic cost: Discount rate 4.43 % 3.76 % 4.44 % 4.20 % 3.52 % 3.97 % Expected long-term return on plan assets 6.50 % 6.50 % 6.50 % * * * Rate of compensation increase ** ** ** N/A N/A N/A * 6.0% for union plan and 4.2% for non-union (net of income taxes) in 2019 , 2018 and 2017. ** Age-graded ranging from 3.0% to 8.0% . Regulatory Adjustment : The CPUC authorized GSWC to track differences between the forecasted annual pension expenses adopted in rates for its water and electric regions and the general office and the actual annual expense to be recorded by GSWC in accordance with the accounting guidance for pension costs. During the year ended December 31, 2019 , GSWC's actual expense was higher than the amounts included in customer rates by $593,000 . In 2018 and 2017 , GSWC's actual expense was lower than the amounts included in water and electric customer rates (including surcharges) by $1.7 million and $583,000 , respectively. In 2017 the annual over-collections were used to recover previously incurred under-collections. The cumulative amounts recorded in the two-way pension balancing accounts are included within the pensions and other post-retirement obligations regulatory assets discussed in Note 3. As of December 31, 2019 , the two-way pension balancing accounts had a $2.7 million cumulative net over-collection included within regulatory assets. Plan Funded Status : The Pension Plan was underfunded at December 31, 2019 and 2018 . Registrant’s market related value of plan assets is equal to the fair value of plan assets. Past volatile market conditions have affected the value of GSWC’s trust established to fund its future long-term pension benefits. These benefit plan assets and related obligations are measured annually using a December 31 measurement date. Changes in the Pension Plan’s funded status will affect the assets and liabilities recorded on the balance sheet in accordance with accounting guidance on employers’ accounting for defined benefit pension and other post-retirement plans. Due to Registrant’s regulatory recovery treatment, the recognition of the underfunded status for the Pension Plan has been offset by a regulatory asset pursuant to guidance on the accounting for the effects of certain types of regulation. Plan Assets : The assets of the pension and post-retirement medical plans are managed by a third party trustee. The investment policy allocation of the assets in the trust was approved by Registrant’s Administrative Committee (the “Committee”) for the pension and post-retirement medical funds, which has oversight responsibility for all retirement plans. The primary objectives underlying the investment of the pension and post-retirement plan assets are: (i) attempt to maintain a fully funded status with a cushion for unexpected developments, possible future increases in expense levels and/or a reduction in the expected return on investments; (ii) seek to earn long-term returns that compare favorably to appropriate market indexes, peer group universes and the policy asset allocation index; (iii) seek to provide sufficient liquidity to pay current benefits and expenses; (iv) attempt to limit risk exposure through prudent diversification; and (v) seek to limit costs of administering and managing the plans. The Committee recognizes that risk and volatility are present to some degree with all types of investments. High levels of risk may be avoided through diversification by asset class, style of each investment manager and sector and industry limits. Investment managers are retained to manage a pool of assets and allocate funds in order to achieve an appropriate, diversified and balanced asset mix. The Committee’s strategy balances the requirement to maximize returns using potentially higher-return generating assets, such as equity securities, with the need to control the risk of its benefit obligations with less volatile assets, such as fixed-income securities. The Committee approves the target asset allocations. Registrant’s pension and post-retirement plan weighted-average asset allocations at December 31, 2019 and 2018 , by asset category are as follows: Pension Benefits Post-Retirement Medical Benefits Asset Category 2019 2018 2019 2018 Actual Asset Allocations : Equity securities 56 % 53 % 61 % 59 % Debt securities 39 % 43 % 38 % 39 % Real Estate Funds 5 % 4 % — % — % Cash equivalents — % — % 1 % 2 % Total 100 % 100 % 100 % 100 % Equity securities did not include AWR’s Common Shares as of December 31, 2019 and 2018 . Target Asset Allocations for 2019: Pension Benefits Post-retirement Medical Benefits Equity securities 60 % 60 % Debt securities 40 % 40 % Total 100 % 100 % The Pension Plan assets are in collective trust funds managed by a management firm appointed by the Committee. The fair value of these collective trust funds is measured using net asset value per share. In accordance with ASU 2015-07 Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalents) , the fair value of the collective trust funds is not categorized in the fair value hierarchy as of December 31, 2019 and 2018 . The following tables set forth the fair value, measured by net asset value, of the pension investment assets as of December 31, 2019 and 2018 : Net Asset Value as of December 31, 2019 (dollars in thousands) Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Cash equivalents $ 600 — N/A N/A Fixed income fund 74,123 — Daily Daily Equity securities : U.S. small/mid cap funds 17,865 — Daily Daily U.S. large cap funds 47,132 — Daily Daily International funds 43,778 — Daily Daily Total equity funds 108,775 — Real estate funds 8,979 — Daily Daily Total $ 192,477 — Net Asset Value as of December 31, 2018 (dollars in thousands) Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Cash equivalents $ 590 — N/A N/A Fixed income fund 70,642 — Daily Daily Equity securities : U.S. small/mid cap funds 22,313 — Daily Daily U.S. large cap funds 46,133 — Daily Daily International funds 15,548 — Daily Daily Total equity funds 83,994 Real estate funds 7,303 — Daily Daily Total $ 162,529 — The collective trust funds may be invested or redeemed daily, and generally do not have any significant restrictions to redeem the investments. As previously discussed in Note 1, the accounting guidance for fair value measurements establishes a framework for measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. As required by the accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. All equity investments in the post-retirement medical plan are Level 1 investments in mutual funds. The fixed income category includes corporate bonds and notes. The majority of fixed income investments range in maturities from less than 1 to 20 years. The fair values of these investments are based on quoted market prices in active markets. The following tables set forth by level, within the fair value hierarchy, the post-retirement plan's investment assets measured at fair value as of December 31, 2019 and 2018 : Fair Value as of December 31, 2019 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Post-Retirement Plan Assets: Cash equivalents $ 69 — — $ 69 Fixed income 4,279 — — 4,279 U.S. equity securities 6,923 — — 6,923 Total investments measured at fair value $ 11,271 — — $ 11,271 Fair Value as of December 31, 2018 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Post-Retirement Plan Assets: Cash equivalents $ 263 — — $ 263 Fixed income 3,871 — — 3,871 U.S. equity securities 5,876 — — 5,876 Total investments measured at fair value $ 10,010 — — $ 10,010 Plan Contributions : During 2019 , Registrant contributed $3.9 million to its pension plan and did not make a contribution to the post-retirement medical plan. Registrant expects to contribute approximately $3.3 million to its pension plan in 2020. Registrant’s policy is to fund the plans annually at a level which is deductible for income tax purposes and is consistent with amounts recovered in customer rates. Benefit Payments : Estimated future benefit payments at December 31, 2019 for the next five years and thereafter are as follows (in thousands): Pension Benefits Post-Retirement Medical Benefits 2020 $ 7,910 $ 526 2021 8,574 599 2022 9,263 642 2023 9,839 677 2024 10,441 652 Thereafter 60,621 2,607 Total $ 106,648 $ 5,703 Assumptions : Certain actuarial assumptions, such as the discount rate, long-term rate of return on plan assets, mortality, and the healthcare cost trend rate have a significant effect on the amounts reported for net periodic benefit cost as well as the related benefit obligation amounts. Discount Rate — The assumed discount rate for pension and post-retirement medical plans reflects the market rates for high-quality corporate bonds currently available. Registrant’s discount rates were determined by considering the average of pension yield curves constructed of a large population of high quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves. Expected Long-Term Rate of Return on Assets — The long-term rate of return on plan assets represents an estimate of long-term returns on an investment portfolio consisting of a mixture of equities, fixed income and other investments. To develop the expected long-term rate of return on assets assumption for the pension plan, Registrant considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. Registrant’s policy is to fund the medical benefit trusts based on actuarially determined amounts as allowed in rates approved by the CPUC. Registrant has invested the funds in the post-retirement trusts that will achieve a desired return and minimize amounts necessary to recover through rates. The mix is expected to provide for a return on assets similar to the Pension Plan and to achieve Registrant’s targeted allocation. This resulted in the selection of the 6.0% long-term rate of return on assets assumption for the union plan and 4.2% (net of income taxes) for the non-union plan portion of the post-retirement plan. Mortality — Mortality assumptions are a critical component of benefit obligation amounts and a key factor in determining the expected length of time for annuity payments. Registrant uses the latest mortality tables published by the Society of Actuaries. Accordingly, the benefit obligation amounts as of December 31, 2019 and 2018 have incorporated recent updates to the mortality tables. Healthcare Cost Trend Rate — The assumed health care cost trend rate for 2020 starts at 5.9% grading down to 4.4% in 2035 for those under age 65, and at 5.0% grading down to 4.2% in 2025 for those 65 and over. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects on the post-retirement medical plan: (dollars in thousands) 1-Percentage-Point Increase 1-Percentage-Point Decrease Effect on total of service and interest cost components $ 34 $ (29 ) Effect on post-retirement benefit obligation $ 749 $ (645 ) Supplemental Executive Retirement Plan : Registrant has a supplemental executive retirement plan (“SERP”) that is intended to restore retirement benefits to certain key employees and officers of Registrant that are limited by Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended. The Board of Directors approved the establishment of a Rabbi Trust created for the SERP. Assets in a Rabbi Trust can be subject to the claims of creditors; therefore, they are not considered as an asset for purposes of computing the SERP’s funded status. As of December 31, 2019 , the balance in the Rabbi Trust totaled $21.6 million and is included in Registrant’s other property and investments. All equity investments in the Rabbi Trust are Level 1 investments in mutual funds. The fixed income category includes corporate bonds and notes. The fair values of these investments are based on quoted market prices in active markets. The following tables set forth by level, within the fair value hierarchy, the Rabbi Trust investment assets measured at fair value as of December 31, 2019 and 2018 : Fair Value as of December 31, 2019 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Assets held in Rabbi Trust: Cash equivalents $ 72 — — $ 72 Fixed income securities 8,427 — — 8,427 Equity securities 13,054 — — 13,054 Total investments measured at fair value $ 21,553 — — $ 21,553 Fair Value as of December 31, 2018 (dollars in thousands) Level 1 Level 2 Level 3 Total Fair Value of Assets held in Rabbi Trust: Cash equivalents $ 166 — — $ 166 Fixed income securities 6,251 — — 6,251 Equity securities 9,995 — — 9,995 Total investments measured at fair value $ 16,412 — — $ 16,412 The following provides a reconciliation of benefit obligations, funded status of the SERP, as well as a summary of significant estimates at December 31, 2019 and 2018 : (dollars in thousands) 2019 2018 Change in Benefit Obligation: Benefit obligation at beginning of year $ 24,517 $ 24,062 Service cost 1,193 1,096 Interest cost 1,069 888 Actuarial (gain) loss 3,419 (1,104 ) Benefits paid (495 ) (425 ) Benefit obligation at end of year $ 29,703 $ 24,517 Changes in Plan Assets: Fair value of plan assets at beginning and end of year — — Funded Status: Net amount recognized as accrued cost $ (29,703 ) $ (24,517 ) (in thousands) 2019 2018 Amounts recognized on the balance sheets: Current liabilities $ (609 ) $ (433 ) Non-current liabilities (29,094 ) (24,084 ) Net amount recognized $ (29,703 ) $ (24,517 ) Amounts recognized in regulatory assets consist of: Prior service cost $ — $ — Net loss 8,352 5,403 Regulatory assets 8,352 5,403 Unfunded accrued cost 21,351 19,114 Net liability recognized $ 29,703 $ 24,517 Changes in plan assets and benefit obligations recognized in regulatory assets consist of: Regulatory asset at beginning of year $ 5,403 $ 7,556 Net (gain) loss 3,419 (1,104 ) Amortization of prior service credit — — Amortization of net loss (470 ) (1,049 ) Total change in regulatory asset 2,949 (2,153 ) Regulatory asset at end of year $ 8,352 $ 5,403 Net periodic pension cost $ 2,733 $ 3,033 Change in regulatory asset 2,949 (2,153 ) Total recognized in net periodic pension and regulatory asset $ 5,682 $ 880 Estimated amounts that will be amortized from regulatory asset over the next fiscal year: Initial net asset (obligation) $ — $ — Prior service cost — — Net loss (844 ) (471 ) Additional year-end information for plans with an accumulated benefit obligation in excess of plan assets: Projected benefit obligation $ 29,703 $ 24,517 Accumulated benefit obligation 26,251 21,229 Fair value of plan assets — — Weighted-average assumptions used to determine benefit obligations: Discount rate 3.36 % 4.40 % Rate of compensation increase 4.00 % 4.00 % The components of SERP expense, before allocation to the overhead pool, for 2019 , 2018 and 2017 are as follows: (dollars in thousands, except percent) 2019 2018 2017 Components of Net Periodic Benefits Cost: Service cost $ 1,193 $ 1,096 $ 930 Interest cost 1,069 888 893 Amortization of prior service cost — — 12 Amortization of net loss 471 1,049 777 Net periodic pension cost $ 2,733 $ 3,033 $ 2,612 Weighted-average assumptions used to determine net periodic cost: Discount rate 4.40 % 3.72 % 4.34 % Rate of compensation increase 4.00 % 4.00 % 4.00 % Benefit Payments : Estimated future benefit payments for the SERP at December 31, 2019 for the next five years and thereafter are as follows (in thousands): 2020 $ 609 2021 830 2022 932 2023 1,624 2024 1,704 Thereafter 10,117 Total $ 15,816 401(k) Investment Incentive Program : Registrant has a 401(k) Investment Incentive Program under which employees may invest a percentage of their pay, up to a maximum investment prescribed by law, in an investment program managed by an outside investment manager. Registrant’s cash contributions to the 401(k) are based upon a percentage of individual employee contributions and for the years ended December 31, 2019 , 2018 and 2017 were $2.5 million , $2.4 million and $2.3 million , respectively. The Investment Incentive Program also incorporates the defined contribution plan for employees hired on or after January 1, 2011. The cash contributions to the defined contribution plan for the years ended December 31, 2019 , 2018 and 2017 were $1.6 million , $1.3 million and $1.1 million , respectively. |
