ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (In thousands of dollars, except per share amounts)
The Company’s discount rate assumption, which is utilized to calculate the present value of the projected benefit payments of our post-retirement benefits, was determined by selecting a hypothetical portfolio of high-quality corporate bonds appropriate to match the projected benefit payments of the plans. The selected bond portfolio was derived from a universe of Aa-graded corporate bonds. The discount rate was then developed as the rate that equates the market value of the bonds purchased to the discounted value of the plan’s benefit payments. The Company’s pension expense and liability (benefit obligations) increases as the discount rate is reduced. The Company’s expected return on plan assets is determined by evaluating the asset class return expectations with its advisors as well as actual, long-term, historical results of our asset returns. The Company’s market related value of plan assets is equal to the fair value of the plan’s assets as of the last day of its fiscal year, and is a determinant for the expected return on plan assets which is a component of post-retirement benefits expense. The Company’s pension expense increases as the expected return on plan assets decreases. The Company believes its actual long- term asset allocation on average will approximate the targeted allocation. The Company’s investment strategy is to earn a reasonable rate of return while maintaining risk at acceptable levels. Risk is managed through fixed income investments to manage interest rate exposures that impact the valuation of liabilities and through the diversification of investments across and within various asset categories. Over time, as the plan’s funded status increases, the target allocation of return-seeking assets (e.g., equities and other instruments with a similar risk profile) may decline and the target allocation of liability-hedging assets (e.g., fixed income and other instruments with a similar risk profile) may increase. Investment returns are compared to a total plan benchmark constructed by applying the plan’s asset allocation target weightings to passive index returns representative of the respective asset classes in which the plan invests. The Retirement and Employee Benefits Committee meets quarterly to review plan investments and management monitors investment performance quarterly through a performance report prepared by an external consulting firm.
The target allocation by asset class as of December 31, 2025, along with the actual allocation of the Company’s pension plan assets, are as follows:
Percentage of Plan Assets at December 31,
Target Allocation
2025 41% 59% 100%
2024 39% 61% 100%
Return seeking assets Liability hedging assets
20-40% 60-80%
Total
100%
The fair value of the Company’s pension plans’ assets at December 31, 2025 by asset class are as follows:
Assets measured at NAV (a)
Level 1
Level 2
Level 3
Total
Common stock
$
15,351 $
- $
- $
- $
15,351
Return seeking assets: Global equities
- - - -
- - - - -
- - - - -
6,632
6,632
Hedge / diversifying strategies
61,039 37,335 170,732
61,039 37,335 170,732
Credit
Liability hedging assets Cash and cash equivalents
4,539
-
4,539
Total pension assets
$
19,890 $
- $
- $
275,738 $
295,628
(a) Assets that are measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy.
76
Made with FlippingBook - PDF hosting