EMPLOYEE RETIREMENT PLANS

Defined Benefit Pension and Other Postretirement Plans

We currently sponsor one defined benefit pension plan for employees hired prior to January 1, 2009, of UGI, UGI Utilities, PNG, CPG and certain of UGI's other domestic wholly owned subsidiaries. In addition, we provide postretirement health care benefits to certain retirees and postretirement life insurance benefits to nearly all active and retired employees. Effective December 31, 2010, we merged our then-existing two defined benefit pension plans ("Pension Plan Merger"). The Company's two pension plans prior to the Pension Plan Merger, and the remaining pension plan after the Pension Plan Merger, are hereafter referred to as the "Pension Plan.”

As a result of the Pension Plan Merger and in accordance with GAAP relating to accounting for retirement benefits, the Company remeasured the combined plan's assets and benefit obligations as of December 31, 2010, which decreased pension and postretirement obligations by $46,672; decreased associated regulatory assets by $43,150; and increased pre-tax other comprehensive income by $3,522.

The following table provides a reconciliation of the projected benefit obligations (“PBOs”) of the Pension Plan, the accumulated benefit obligations (“ABOs”) of our other postretirement benefit plans, plan assets and the funded status of the Pension Plan and other postretirement plans as of September 30, 2012 and 2011. ABO is the present value of benefits earned to date with benefits based upon current compensation levels. PBO is ABO increased to reflect future compensation.



	Pension Benefits						Other Postretirement Benefits
	2012			2011			2012			2011
Change in benefit obligations:
Benefit obligations — beginning of year	$	456,714		$	464,977		$	13,333		$	15,140
Service cost	8,063			8,151			162			217
Interest cost	24,095			23,815			665			701
Actuarial loss (gain)	74,676			(20,772		)	1,464			(1,516		)
Plan amendments	—			—			—			(126		)
Benefits paid	(19,943		)	(19,457		)	(1,064		)	(1,083		)
Benefit obligations — end of year	$	543,605		$	456,714		$	14,560		$	13,333
Change in plan assets:
Fair value of plan assets — beginning of year	$	289,764		$	287,902		$	9,805		$	10,007
Actual gain on assets	50,550			2,601			1,741			149
Employer contributions	31,172			18,718			723			732
Benefits paid	(19,943		)	(19,457		)	(1,064		)	(1,083		)
Fair value of plan assets — end of year	$	351,543		$	289,764		$	11,205		$	9,805
Funded status of the plans — end of year	$	(192,062	)	$	(166,950	)	$	(3,355	)	$	(3,528	)
(Liabilities) recorded in the balance sheet:
Unfunded liabilities — included in other current liabilities	$	(15,802	)	$	(27,600	)	$	(654	)	$	(628	)
Unfunded liabilities — included in other noncurrent liabilities	(176,260		)	(139,350		)	(2,701		)	(2,898		)
Net amount recognized	$	(192,062	)	$	(166,950	)	$	(3,355	)	$	(3,526	)
Amounts recorded in stockholder’s equity (pre-tax):
Prior service cost (credit)	$	152		$	174		$	(79	)	$	(91	)
Net actuarial loss (gain)	18,099			14,452			164			(168		)
Total	$	18,251		$	14,626		$	85		$	(259	)
Amounts recorded in regulatory assets and liabilities (pre-tax):
Prior service cost (credit)	$	1,550		$	1,775		$	(2,766	)	$	(3,188	)
Net actuarial loss	184,464			146,899			5,815			6,294
Total	$	186,014		$	148,674		$	3,049		$	3,106

In Fiscal 2013, we estimate that we will amortize approximately $15,200 of net actuarial losses and $200 of prior service credits from stockholder’s equity and regulatory assets.

Actuarial assumptions are described below. The discount rates at September 30 are used to measure the year-end benefit obligations and the earnings effects for the subsequent year. The discount rate assumption was determined by selecting a hypothetical portfolio of high quality corporate bonds appropriate to provide for the projected benefit payments of the Company postretirement plans. The discount rate was then developed as the single rate that equates the market value of the bonds purchased to the discounted value of the benefit payments. The expected rate of return on assets assumption is based on the current and expected asset allocations as well as historical and expected returns on various categories of plan assets as further described below.



	Pension Plan								Other Postretirement Benefits
Weighted-average assumptions:	2012		2011(a)		2010		2009		2012		2011		2010		2009
Discount rate	4.20	%	5.30	%	5.00	%	5.50	%	4.20	%	5.30	%	5.00	%	5.50	%
Expected return on plan assets	7.75	%	8.00	%	8.50	%	8.50	%	5.20	%	5.50	%	5.50	%	5.50	%
Rate of increase in salary levels	3.25	%	3.50	%	3.75	%	3.75	%	3.25	%	3.50	%	3.75	%	3.75	%

(a) The discount rates used during Fiscal 2011 to calculate pension expense were rates of 5.0% through December 31, 2010 (the date of the Pension Plan Merger) and 5.5% for the remainder of Fiscal 2011.

The ABOs for the Pension Plan were $496,395 and $414,985 as of September 30, 2012 and 2011, respectively. Included in the end of year Pension Plan PBOs above are $48,570 at September 30, 2012, and $40,908 at September 30, 2011, relating to employees of UGI and certain of its other subsidiaries. Included in the end of year other postretirement plans ABOs above are $869 at September 30, 2012, and $675 at September 30, 2011, relating to employees of UGI and certain of its other subsidiaries.

Net periodic pension expense and other postretirement benefit costs relating to the Company’s employees include the following components:



	Pension Benefits									Other Postretirement Benefits
	2012			2011			2010			2012			2011			2010
Service cost	$	7,025		$	7,176		$	6,980		$	152		$	202		$	175
Interest cost	22,376			22,047			21,137			639			678			752
Expected return on assets	(23,762		)	(23,937		)	(23,433		)	(481		)	(523		)	(508		)
Curtailment gain	—			—			—			—			(3,245		)	—
Amortization of:
Prior service cost (benefit)	249			302			36			(422		)	(694		)	(406		)
Actuarial loss	7,853			6,838			5,331			355			427			231
Net benefit cost (income)	13,741			12,426			10,051			243			(3,155		)	244
Change in associated regulatory liabilities	—			—			—			3,188			3,138			3,137
Benefit cost (income) after change in regulatory liabilities	$	13,741		$	12,426		$	10,051		$	3,431		$	(17	)	$	3,381

Pension Plan assets are held in trust. It is our general policy to fund amounts for Pension Plan benefits equal to at least the minimum contribution required by ERISA. From time to time we may, at our discretion, contribute additional amounts. During Fiscal 2012, Fiscal 2011 and Fiscal 2010, we made contributions to the Pension Plan of $31,172, $18,718 and $3,353, respectively. We believe that in Fiscal 2013 we will be required to make contributions to the Pension Plan of approximately $15,802.

UGI Utilities has established a Voluntary Employees’ Beneficiary Association (“VEBA”) trust to pay retiree health care and life insurance benefits by depositing into the VEBA the annual amount of postretirement benefits costs determined under GAAP. The difference between such amounts calculated under GAAP and the amounts included in UGI Gas’ and Electric Utility’s rates is deferred for future recovery from, or refund to, ratepayers. The required contribution to the VEBA during Fiscal 2013 is not expected to be material.

Expected payments for pension benefits and other postretirement welfare benefits are as follows:



	Pension Benefits		Other Postretirement Benefits
Fiscal 2013	$	21,974	$	1,491
Fiscal 2014	23,031		1,501
Fiscal 2015	24,172		1,490
Fiscal 2016	25,403		1,457
Fiscal 2017	26,661		1,401
Fiscal 2018 - 2022	151,374		6,510

The assumed health care cost trend rates are 7.0% for Fiscal 2013, decreasing to 5.0% in Fiscal 2017. A one percentage point change in the assumed health care cost trend rate would not have had a material impact on Fiscal 2012 other postretirement benefit cost or the September 30, 2012, other postretirement benefit ABO.

We also sponsor an unfunded and non-qualified supplemental executive retirement income plan. At September 30, 2012 and 2011, the projected benefit obligations of this plan were $2,507 and $2,232, respectively. We recorded expense for this plan of $255 in Fiscal 2012, $583 in Fiscal 2011 and $249 in Fiscal 2010.

Pension Plan and VEBA Assets. The assets of the Pension Plan and the VEBA are held in trust. The investment policies and asset allocation strategies for the assets in these trusts are determined by an investment committee comprising officers of UGI and UGI Utilities. The overall investment objective of the Pension Plan and the VEBA is to achieve the best long-term rates of return within prudent and reasonable levels of risk. To achieve the stated objective, investments are made principally in publicly traded, diversified equity and fixed income mutual funds and UGI Common Stock.

The targets, target ranges and actual allocations for the Pension Plan and VEBA trust assets at September 30 are as follows:



					Target
	Actual				Asset		Permitted
Pension Plan:	2012		2011		Allocation		Range
Equity investments:
Domestic	53.5	%	49.4	%	52.5	%	40.0% - 65.0%
International	10.5	%	10.7	%	12.5	%	7.5% - 17.5%
Total	64.0	%	60.1	%	65.0	%	60.0% - 70.0%
Fixed income funds & cash equivalents	36.0	%	39.9	%	35.0	%	30.0% - 40.0%
Total	100.0	%	100.0	%	100.0	%



					Target
	Actual				Asset		Permitted
VEBA:	2012		2011		Allocation		Range
Domestic equity investments	68.5	%	62.2	%	65.0	%	60.0% - 70.0%
Fixed income funds & cash equivalents	31.5	%	37.8	%	35.0	%	30.0% - 40.0%
Total	100.0	%	100.0	%	100.0	%

Domestic equity investments include investments in large-cap mutual funds indexed to the S&P 500 and actively managed mid- and small-cap mutual funds. Investments in international equity mutual funds are indexed to various Morgan Stanley Composite indices. The fixed income investments comprise investments designed to match the duration of the Barclays Capital Aggregate Bond Index. According to statute, the aggregate holdings of all qualifying employer securities may not exceed 10% of the fair value of trust assets at the time of purchase. UGI Common Stock represented 7.5% and 7.6% of Pension Plan assets at September 30, 2012 and 2011, respectively. At September 30, 2012, there were no significant concentrations of risk (defined as greater than 10% of the fair value of total assets) associated with any individual company, industry sector or international geographic region.

GAAP establishes a hierarchy that prioritizes fair value measurements based upon the inputs and valuation techniques used to measure fair value. This fair value hierarchy groups assets into three levels, as described in Note 2. We maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The fair values of Pension Plan and VEBA trust assets are derived from quoted market prices as substantially all of these instruments have active markets. Cash equivalents are valued at the fund’s unit net asset value as reported by the trustee.

The fair values of the Pension Plan's assets at September 30, 2012 and 2011, by asset class are as follows:



	Pension Plan
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
September 30, 2012:
Equity investments:
Domestic	$	188,243	$	—	$	—	$	188,243
International	36,908		—		—		36,908
Fixed income	123,332		—		—		123,332
Cash equivalents	—		3,060		—		3,060
Total	$	348,483	$	3,060	$	—	$	351,543
September 30, 2011:
Equity investments:
Domestic	$	143,119	$	—	$	—	$	143,119
International	31,030		—		—		31,030
Fixed income	113,592		—		—		113,592
Cash equivalents	—		2,023		—		2,023
Total	$	287,741	$	2,023	$	—	$	289,764

The fair values of the VEBA trust assets at September 30, 2012 and 2011, by asset class are as follows:



	VEBA
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
September 30, 2012:
Domestic equity	$	7,678	$	—	$	—	$	7,678
Fixed income	3,366		—		—		3,366
Cash equivalents	—		161		—		161
Total	$	11,044	$	161	$	—	$	11,205
September 30, 2011:
Domestic equity	$	6,098	$	—	$	—	$	6,098
Fixed income	3,320		—		—		3,320
Cash equivalents	—		388		—		388
Total	$	9,418	$	388	$	—	$	9,806

The expected long-term rates of return on Pension Plan and VEBA trust assets have been developed using a best estimate of expected returns, volatilities and correlations for each asset class. The estimates are based on historical capital market performance data and future expectations provided by independent consultants. Future expectations are determined by using simulations that provide a wide range of scenarios of future market performance. The market conditions in these simulations consider the long-term relationships between equities and fixed income as well as current market conditions at the start of the simulation. The expected rate begins with a risk-free rate of return with other factors being added such as inflation, duration, credit spreads and equity risk premiums. The rates of return derived from this process are applied to our target asset allocation to develop a reasonable return assumption.

Defined Contribution Plan

We sponsor a 401(k) savings plan for eligible employees (“Utilities Savings Plan”). Generally, participants in the Utilities Savings Plan may contribute a portion of their compensation on a before-tax and after-tax basis. The Utilities Savings Plan provides for employer matching contributions. Those employees hired after December 31, 2008, who are not eligible to participate in the Pension Plan receive employer matching contributions at a higher rate. The cost of benefits under the Utilities Savings Plan totaled $1,690 in Fiscal 2012, $1,820 in Fiscal 2011 and $1,663 in Fiscal 2010.