Actuarial Assumptions Pension OPEB 2022 2021 2020 (2) 2022 2021 2020 (2) Assumptions Related to Benefit Obligations: Discount rate 5.23 % 3.02 % 2.67 % 5.16 % 2.84 % 2.45 % Rate of compensation increase 4.30 % 4.10 % 4.10 % N/A N/A N/A Cash balance weighted average interest crediting rate 4.04 % 2.57 % 2.57 % N/A N/A N/A Assumptions Related to Benefit Costs:(1) Effective rate for interest on benefit obligations 2.44 % 1.94 % 2.89%/2.48% 2.18 % 1.66 % 2.71%/2.30% Effective rate for service costs 3.28 % 3.10 % 3.60%/3.24% 3.41 % 3.03 % 3.63%/3.29% Effective rate for interest on service costs 2.96 % 2.58 % 3.27%/2.90% 3.24 % 2.83 % 3.43%/3.06% Expected return on plan assets 7.50 % 7.50 % 7.50 % 7.50 % 7.50 % 7.50 % Rate of compensation increase 4.10 % 4.10 % 4.10 % N/A N/A N/A Assumed Health Care Cost Trend Rates: Health care cost trend rate assumed (pre/postMedicare) N/A N/A N/A 6.00%- 5.50% 5.75%- 5.25% 6.00%- 5.50% Rate to which the cost trend rate is assumed to decline (ultimate trend rate) N/A N/A N/A 4.50 % 4.50 % 4.50 % Year that the rate reaches the ultimate trend rate N/A N/A N/A 2029 2028 2028 (1) Excludes impact of pension and OPEB mark-to-market adjustment. (2) As a result of the interim plan remeasurement during 2020 there were different rates in effect from January 1, 2020, through February 26, 2020 compared to February 27, 2020 through December 31, 2020. Discount Rate - In selecting an assumed discount rate, FirstEnergy considers currently available rates of return on high-quality fixed income investments expected to be available during the period to maturity of the pension and OPEB obligations. The assumed rates of return on plan assets consider historical market returns and economic forecasts for the types of investments held by FirstEnergy’s pension trusts. The long-term rate of return is developed considering the portfolio’s asset allocation strategy. FirstEnergy utilizes a spot rate approach in the estimation of the components of benefit cost by applying specific spot rates along the full yield curve to the relevant projected cash flows. Expected Return on Plan Assets - FirstEnergy’s assumed rate of return on pension plan assets considers historical market returns and economic forecasts for the types of investments held by the pension trusts. In 2022, FirstEnergy’s qualified pension and OPEB plan assets experienced losses of $1,830 million or (19.1)%, compared to gains of $689 million, or 7.9% in 2021, and gains of $1,225 million, or 14.7% in 2020 and assumed a 7.50% rate of return on plan assets in 2022, 2021 and 2020, which generated $696 million, $688 million and $651 million of expected returns on plan assets, respectively. The expected return on pension and OPEB assets is based on input from investment consultants, including the trusts’ asset allocation targets, the historical performance of risk-based and fixed income securities and other factors. The gains or losses generated as a result of the difference between expected and actual returns on plan assets is recognized as a pension and OPEB mark-to-market adjustment in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for remeasurement. Mortality Rates - During 2022, the Society of Actuaries elected not to release a new mortality improvement scale due to data available being severely impacted by COVID-19. It was determined that the Pri-2012 mortality table with projection scale MP-2021, actuarially adjusted to reflect increased mortality due to the ongoing impact of COVID-19 was most appropriate and such was utilized to determine the obligation as of December 31, 2022, for the FirstEnergy pension and OPEB plans. This adjustment acknowledges COVID-19 cannot be eradicated and assumes reductions in other causes will not offset future COVID-19 deaths enough to produce a normal level of improvements. The impact of using the Pri-2012 mortality table with projection scale MP-2021 (adjusted by FirstEnergy's actuary for COVID-19 impacts) resulted in a decrease to the projected benefit obligation of approximately $23 million for the pension plans and was included in the 2022 pension and OPEB mark-tomarket adjustment. Net Periodic Benefit Costs (Credits) - In addition to service costs, interest on obligations, expected return on plan assets, and prior service costs, FirstEnergy recognizes in net periodic benefit costs a pension and OPEB mark-to-market adjustment for the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement. Service costs, net of capitalization, are reported within Other operating expenses on FirstEnergy’s Consolidated Statements of Income. Non-service costs, other than the pension and OPEB mark-to-market adjustment, which is separately shown, are reported within Miscellaneous income, net, within Other Income (Expense) on FirstEnergy’s Consolidated Statements of Income. 92
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