Constellation Energy Corp

15. Retirement Benefits

Defined Benefit Pension and OPEB

The majority of current employees participate in the defined benefit pension and OPEB plans that we sponsor. As the plan sponsor, our Consolidated Balance Sheets reflect underfunded pension and OPEB liabilities equal to an excess of either the PBO or APBO over the fair value of the plan assets, consistent with a single employer benefit plan. Newly hired employees are generally not eligible for either pension or OPEB benefits; instead, these employees are eligible to receive an enhanced non-discretionary fixed employer contribution under our sponsored defined contribution savings plan.

Effective February 1, 2022, in connection with the separation, pension and OPEB obligations and the related plan assets for participants (inclusive of employees and certain former employees and their beneficiaries assigned to us from Exelon upon separation) were transferred to pension and OPEB plans established by us as the plan sponsor. We no longer account for our interest in Exelon sponsored pension and OPEB plans under the multi-employer benefit plan guidance as we are no longer participants. That previous approach historically resulted in the recognition of a net prepaid pension asset in our Consolidated Balance Sheets representing an excess of contributions over cumulative costs.

Benefit Obligations, Plan Assets, and Funded Status

As of February 1, 2022, we assumed from Exelon the PBO, APBO, and plan assets for our plan participants in connection with the separation. The defined benefit pension and OPEB plans were remeasured to determine the obligations and related plan assets to be transferred to us as of that date. The pension assets allocated to us were based on the rules prescribed by ERISA for transfers of assets in connection with a pension plan separation. A portion of the Exelon OPEB plan assets, which are held in VEBA trusts, were also allocated to us separately for each funding vehicle based on the ratio of the APBO assumed by us to the total APBO attributed to each funding vehicle.

The remeasurement completed at separation is reflected in the table below as a separation-related adjustment and resulted in the recognition of pension obligations of $953 million, net of pension plan assets of $8,267 million, and OPEB obligations of $876 million, net of OPEB plan assets of $904 million. Additionally, we recognized $2,006 million (after-tax) in Accumulated other comprehensive loss for actuarial losses and prior service costs that had accrued over the lives of the plans prior to separation, primarily based on our proportionate share of the total projected pension and OPEB obligations at Exelon prior to separation.

In connection with the acquisition of STP in the fourth quarter of 2023, Constellation recorded pension and OPEB obligations, net of plan assets, reflected in the tables below as an acquisition-related adjustment of $17 million and $14 million, respectively. Refer to Note 2 - Mergers, Acquisitions and Dispositions for additional discussion of the acquisition of STP.

We use a December 31 measurement date for our pension and OPEB obligations and the related plan assets. The actuarial losses experienced upon remeasurement as of December 31, 2023 were offset against AOCI and attributable to decreases in the discount rates used to measure the benefit obligations net of actual investment performance that was less than expected. See the table below for the actuarial loss associated with the pension valuation.

The following tables provide a rollforward of the changes in the benefit obligations and plan assets for the years ended December 31, 2023 and 2022 for all plans combined:

(a)Pension and OPEB adjustment related to the acquisition of STP in 2023. See Note 2 — Mergers, Acquisitions, and Dispositions for additional information.

(a)The balance on January 1, 2022 was reflected as a prepaid pension asset.

(b)Pension and OPEB adjustment related to the acquisition of STP in 2023. See Note 2 — Mergers, Acquisitions, and Dispositions for additional information.

We present our benefit obligations net of plan assets on our Consolidated Balance Sheets within the following line items:

The following table provides the ABO and fair value of plan assets for all pension plans with an ABO in excess of plan assets.

Components of Net Periodic Benefit (Credits) Costs

See Note 1 — Basis of Presentation for additional information on where we report the service cost and other non-service cost (credit) components for all plans.

The following table presents the components of our net periodic benefit (credits) costs, prior to capitalization and co-owner allocations, for the years ended December 31 2023, 2022 and 2021:

(a)Costs recognized for the year ended December 31, 2021 were allocated to us by Exelon under the Exelon sponsored pension and OPEB plans prior to separation.

(b)Effective February 1, 2022, these non-service (credits) costs are reflected in Other, net in the Consolidated Statements of Operations and Comprehensive Income.

(c)The pension benefit and OPEB service costs reflected in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2023 totaled $94 million. The pension benefit and OPEB non-service credits reflected in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2023 totaled ($54) million.

(d)The pension benefit and OPEB service costs reflected in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2022 totaled $131 million. The pension benefit and OPEB non-service credits reflected in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2022 totaled ($116) million. Our portion of the total net periodic benefit (credits) costs allocated to us from Exelon in January 2022 prior to separation was not material and remains in total Operating and maintenance expense.

(e)The pension benefit and OPEB service costs reflected in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2021 totaled $144 million. The pension benefit and OPEB non-service credits reflected in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2021 totaled ($50) million.

Components of AOCI

We recognize the overfunded or underfunded status of defined benefit pension and OPEB plans as an asset or liability on our balance sheet, with offsetting entries to AOCI. The following tables provide the pre-tax components of AOCI for the years ended December 31, 2023 and 2022, for all plans combined:

The following table provides the components of gross accumulated other comprehensive loss that have not been recognized as components of periodic benefit cost as of December 31, 2023 and 2022, for all plans combined:

Average Remaining Service Period

For pension benefits, we amortize the unrecognized prior service (credits) costs and certain actuarial gains and losses reflected in AOCI, as applicable, based on participants’ average remaining service periods.

For OPEB, we amortize the unrecognized prior service (credits) costs reflected in AOCI over participants’ average remaining service period to benefit eligibility age, and amortize certain actuarial gains and losses reflected in AOCI over participants’ average remaining service period to expected retirement.

The resulting average remaining service periods for pension and OPEB were as follows as of December 31, 2023 and 2022:

Assumptions

The measurement of the plan obligations and costs of providing benefits under our defined benefit pension and OPEB plans involves various factors, including the development of valuation assumptions and inputs and accounting policy elections. The measurement of benefit obligations and costs is impacted by several assumptions and inputs, as shown below, among other factors. When developing the required assumptions, we consider historical information as well as future expectations.

Discount Rate. The discount rates are determined by developing a spot rate curve based on the yield to maturity of a universe of high-quality non-callable (or callable with make whole provisions) bonds with similar maturities to the related pension and OPEB obligations. The spot rates are used to discount the estimated future benefit distribution amounts under the pension and OPEB plans. The discount rate is the single level rate that produces the same result as the spot rate curve. We utilize an analytical tool developed by our actuaries to determine the discount rates.

Expected Rate of Return. In determining the EROA, we consider historical economic indicators (including inflation and GDP growth) that impact asset returns, as well as expectation regarding future long-term capital market performance, weighted by our target asset class allocations.

Mortality. The mortality assumption is composed of a base table that represents the current expectation of life expectancy of the population adjusted by an improvement scale that attempts to anticipate future improvements in life expectancy. Upon remeasurement as of December 31, 2023 and December 31, 2022, we utilized the mortality tables and projection scales released by the SOA.

The following assumptions were used to determine the benefit obligations for the plans as of December 31, 2023 and December 31, 2022. Assumptions used to determine year-end benefit obligations are the assumptions used to estimate the subsequent year’s net periodic benefit costs.

(a)The discount rates above represent the blended rates used to calculate the majority of Constellation's pension and OPEB costs.

(b)The investment crediting rate above represents a weighted average rate.

(c)Includes 4.25% average for the 5 year period (2024-2028) and 3.75% average thereafter.

The following assumptions were used to determine the net periodic benefit cost for the plans for the years ended December 31, 2023 and 2022.

(a)The discount rates above represent the blended rates used to calculate the majority of Constellation's pension and OPEB costs.

(b)The investment crediting rate above represents a weighted average rate.

(c)Applicable to our pension and OPEB plans with plan assets, with the OPEB rate representing a weighted average.

Contributions

We consider various factors when making qualified pension funding decisions, including actuarially determined minimum contribution requirements under ERISA, contributions required to avoid benefit restrictions and at-risk status as defined by the Pension Protection Act, and management of the pension obligation. The Pension Protection Act requires the attainment of certain funding levels to avoid benefit restrictions (such as an inability to pay lump sums or to accrue benefits prospectively), and at-risk status (which triggers higher minimum contribution requirements and participant notification). The projected contributions below reflect a funding strategy to make levelized annual contributions with the objective of achieving 100% funded status over time. This level funding strategy helps minimize the volatility of future period required pension contributions. Based on this funding strategy and current market conditions, which are both subject to change, we made our annual qualified pension contribution in July 2023.

Our non-qualified pension plans are not funded given that they are not subject to statutory minimum contribution requirements. OPEB plans are also not subject to statutory minimum contribution requirements, though we have funded certain plans. For our funded OPEB plans, we consider several factors in determining the level of contributions to these plans, including liabilities management and levels of benefit claims paid.

The following table provides our contributions paid to our qualified pension plans, non-qualified pension plans, and OPEB plans for the years ended December 31, 2023, 2022, and 2021:

(a)In 2023 and 2022, our annual qualified pension contributions were $21 million and $192 million, respectively. The benefit payments to the non-qualified pension plans in 2023 and 2022 were not material.

(b)Prior to separation, Exelon allocated contributions related to its legacy Exelon sponsored pension and OPEB plans to its subsidiaries based on accounting cost or employee participation (both active and retired).

The following table provides our planned contributions to our qualified pension plans, non-qualified pension plans, and OPEB plans in 2024 (including our benefit payments related to unfunded plans):

Estimated Future Benefit Payments

Estimated future benefit payments to participants over the next ten years in all pension and OPEB plans as of December 31, 2023 are as follows:

Plan Assets

On a regular basis, we evaluate our investment strategy to ensure that plan assets will be sufficient to pay plan benefits when due. We have developed and implemented a liability hedging investment strategy for our qualified pension plans that has reduced the volatility of these pension assets relative to the associated pension obligations. We are likely to continue to gradually increase the liability hedging portfolio as the funded status of the plans improve. The overall objective is to achieve attractive risk-adjusted returns that will balance with the liquidity requirements of the plans’ liabilities while striving to minimize the risk of significant losses. Trust assets for our OPEB plans are managed in a diversified investment strategy that prioritizes maximizing liquidity and returns while minimizing asset volatility.

Actual asset returns have an impact on the costs reported for the pension and OPEB plans. The actual asset returns across our pension and OPEB plans for the year ended December 31, 2023 were 6.50% and 9.50%, respectively, compared to an expected long-term return assumption of 6.50% and 6.50%, respectively. We used an EROA of 6.50% to estimate both our 2024 pension and OPEB costs.

Our pension and OPEB plan target asset allocations as of December 31, 2023 and 2022 were as follows:

(a)Alternative investments include private equity, hedge funds, real estate, and private credit.

We evaluated our pension and OPEB plans’ asset portfolios for the existence of significant concentrations of credit risk as of December 31, 2023. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of December 31, 2023, our pension and OPEB plans held no credit risk concentrations surpassing 10% of plan assets.

Fair Value Measurements

The following table presents pension and OPEB plan assets measured and recorded at fair value as a net component of Pension obligations and Non-pension postretirement benefit obligations in our Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2023 and 2022:

(a)See Note 18 — Fair Value of Financial Assets and Liabilities for a description of levels within the fair value hierarchy.

(b)Includes derivative instruments of $31 million and $6 million for the years ended December 31, 2023 and 2022, respectively, which have total notional amounts of $1,986 million and $1,879 million as of December 31, 2023 and 2022, respectively. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the fiscal years ended and do not represent the amount of the company’s exposure to credit or market loss.

(c)Excludes net liabilities of $263 million and $43 million as of December 31, 2023 and 2022, respectively, which include certain derivative assets that have notional amounts of $15 million and $41 million as of December 31, 2023 and 2022, respectively. These items are required to reconcile to the fair value of net plan assets and consist primarily of receivables or payables related to pending securities sales and purchases, and interest and dividends receivable.

The following table presents the reconciliation of Level 3 assets and liabilities measured at fair value for pension and OPEB plans for the years ended December 31, 2023 and 2022:

(a)Represents cash settlements only.

(b)Includes certain private equity investments previously measured at fair value using NAV or its equivalent as a practical expedient at separation transferred to Level 3 primarily due to changes in market liquidity or data.

Valuation Techniques Used to Determine Fair Value

The techniques used to fair value the pension and OPEB assets invested in cash equivalents, equities, fixed income, derivatives, private equity, real estate, and private credit investments are the same as the valuation techniques for these types of investments in NDT funds. See Cash Equivalents and NDT Fund Investments in Note 18 — Fair Value of Financial Assets and Liabilities for further information.

Pension and OPEB assets also include investments in hedge funds. Hedge fund investments include those that employ a broad range of strategies to enhance returns and provide additional diversification. The fair value of hedge funds is determined using NAV or its equivalent as a practical expedient, and therefore, hedge funds are not classified within the fair value hierarchy. We have the ability to redeem these investments at NAV or its equivalent subject to certain restrictions which may include a lock-up period or a gate.

Defined Contribution Savings Plan

We sponsor the Constellation Employee Savings Plan, a 401(k) defined contribution savings plan. The plan allows employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. We match a percentage of the employee contributions up to certain limits. In addition, certain employees are eligible for a fixed non-discretionary employer contribution in lieu of a pension benefit. The employer contributions to the savings plan were $106 million, $90 million and $53 million for the years ended December 31, 2023, 2022, and 2021, respectively.