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 (“Pension Plan”). In addition, we provide postretirement health care benefits to certain retirees and postretirement life insurance benefits to nearly all active and retired employees.

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, 2013 and 2012. 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
	2013			2012			2013			2012
Change in benefit obligations:
Benefit obligations — beginning of year	$	543,605		$	456,714		$	14,560		$	13,333
Service cost	9,385			8,063			223			162
Interest cost	22,784			24,095			587			665
Actuarial (gain) loss	(69,112		)	74,676			(1,881		)	1,464
Plan amendments	993			—			(1,836		)	—
Benefits paid	(21,187		)	(19,943		)	(965		)	(1,064		)
Benefit obligations — end of year	$	486,468		$	543,605		$	10,688		$	14,560
Change in plan assets:
Fair value of plan assets — beginning of year	$	351,543		$	289,764		$	11,205		$	9,805
Actual gain on assets	45,450			50,550			1,117			1,741
Employer contributions	22,365			31,172			366			723
Benefits paid	(21,187		)	(19,943		)	(965		)	(1,064		)
Fair value of plan assets — end of year	$	398,171		$	351,543		$	11,723		$	11,205
Funded status of the plans — end of year	$	(88,297	)	$	(192,062	)	$	1,035		$	(3,355	)
(Liabilities) recorded in the balance sheet:
Assets in excess of liabilities — included in other noncurrent assets	$	—		$	—		$	3,252		$	—
Unfunded liabilities — included in other current liabilities	(17,885		)	(15,802		)	(372		)	(654		)
Unfunded liabilities — included in other noncurrent liabilities	(70,412		)	(176,260		)	(1,844		)	(2,701		)
Net amount recognized	$	(88,297	)	$	(192,062	)	$	1,036		$	(3,355	)
Amounts recorded in stockholder’s equity (pre-tax):
Prior service cost (credit)	$	222		$	152		$	(74	)	$	(79	)
Net actuarial loss (gain)	9,113			18,099			(222		)	164
Total	$	9,335		$	18,251		$	(296	)	$	85
Amounts recorded in regulatory assets and liabilities (pre-tax):
Prior service cost (credit)	$	2,223		$	1,550		$	(4,286	)	$	(2,766	)
Net actuarial loss	91,275			184,464			3,586			5,815
Total	$	93,498		$	186,014		$	(700	)	$	3,049

In Fiscal 2014, we estimate that we will amortize approximately $6,800 of net actuarial losses, primarily associated with Pension Plan, and $300 of prior service credits from stockholder’s equity and regulatory assets.

Actuarial assumptions are described below. 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 Benefits						Other Postretirement Benefits
Weighted-average assumptions:	2013		2012		2011 (a)		2013		2012		2011
Discount rate - benefit obligations	5.20	%	4.20	%	5.30	%	5.10% - 5.40%		4.10% - 4.30%		5.30	%
Discount rate - benefit cost	4.20	%	5.30	%	5.00	%	4.10% - 4.30%		5.30	%	5.00	%
Expected return on plan assets	7.75	%	7.75	%	8.00	%	5.00	%	5.20	%	5.50	%
Rate of increase in salary levels	3.25	%	3.25	%	3.50	%	3.25	%	3.25	%	3.50	%

(a) Effective December 31, 2010, we merged our then-existing two U.S. defined benefit pension plans (“Pension Plans Merger”) to form the Pension Plan. 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 Plans Merger) and 5.5% for the remainder of Fiscal 2011.

The ABOs for the Pension Plan were $451,228 and $496,395 as of September 30, 2013 and 2012, respectively. Included in the end of year Pension Plan PBOs above are $44,161 at September 30, 2013, and $48,570 at September 30, 2012, relating to employees of UGI and certain of its other subsidiaries. Included in the end of year other postretirement plans ABOs above are $787 at September 30, 2013, and $869 at September 30, 2012, relating to employees of UGI and certain of its other subsidiaries.

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



	Pension Benefits									Other Postretirement Benefits
	2013			2012			2011			2013			2012			2011
Service cost	$	8,211		$	7,025		$	7,176		$	205		$	152		$	202
Interest cost	20,783			22,376			22,047			557			639			678
Expected return on assets	(24,791		)	(23,762		)	(23,937		)	(529		)	(481		)	(523		)
Curtailment gain	—			—			—			—			—			(3,245		)
Amortization of:
Prior service cost (benefit)	249			249			302			(420		)	(422		)	(694		)
Actuarial loss	13,463			7,853			6,838			336			355			427
Net benefit cost (income)	17,915			13,741			12,426			149			243			(3,155		)
Change in associated regulatory liabilities	—			—			—			3,302			3,188			3,138
Benefit cost (income) after change in regulatory liabilities	$	17,915		$	13,741		$	12,426		$	3,451		$	3,431		$	(17	)

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 2013, Fiscal 2012 and Fiscal 2011, we made contributions to the Pension Plan of $22,365, $31,172 and $18,718, respectively. We believe that in Fiscal 2014 we will be required to make contributions to the Pension Plan of approximately $17,900.

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 2014 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 2014	$	23,021	$	1,006
Fiscal 2015	24,095		813
Fiscal 2016	25,238		769
Fiscal 2017	26,451		706
Fiscal 2018	27,744		676
Fiscal 2019 - 2023	155,907		3,156

The assumed health care cost trend rates for Fiscal 2013 are 7.0% decreasing to 5.0% in Fiscal 2017. The assumed health care cost trend rates as of September 30, 2013, are 7.5% decreasing to 5.0% in Fiscal 2019. A one percentage point change in these assumed health care cost trend rates would not have had a material impact on Fiscal 2013 other postretirement benefit cost or the September 30, 2013, other postretirement benefit ABO.

We also sponsor unfunded and non-qualified supplemental executive retirement income plans. At September 30, 2013 and 2012, the projected benefit obligations of these plan were $3,550 and $2,507, respectively. We recorded expense for these plans of $498 in Fiscal 2013, $255 in Fiscal 2012 and $583 in Fiscal 2011.

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:	2013		2012		Allocation		Range
Equity investments:
Domestic	57.5	%	53.5	%	52.5	%	40.0% - 65.0%
International	11.1	%	10.5	%	12.5	%	7.5% - 17.5%
Total	68.6	%	64.0	%	65.0	%	60.0% - 70.0%
Fixed income funds & cash equivalents	31.4	%	36.0	%	35.0	%	30.0% - 40.0%
Total	100.0	%	100.0	%	100.0	%



					Target
	Actual				Asset		Permitted
VEBA:	2013		2012		Allocation		Range
Domestic equity investments	65.6	%	68.5	%	65.0	%	60.0% - 70.0%
Fixed income funds & cash equivalents	34.4	%	31.5	%	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 seek to track performance of companies primarily in developed markets. The fixed income investments comprise investments designed to match the performance and duration of the Barclays U.S. Aggregate 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 8.2% and 7.5% of Pension Plan assets at September 30, 2013 and 2012, respectively.

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, 2013 and 2012, 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, 2013:
Domestic equity investments:
S&P 500 Index equity mutual funds	$	141,774	$	—	$	—	$	141,774
Small and Midcap equity mutual funds	54,528		—		—		54,528
UGI Corporation Common Stock	32,551		—		—		32,551
Total domestic equity investments	228,853		—		—		228,853
International index equity mutual funds	44,452		—		—		44,452
Fixed income investments:
Bond index mutual funds	120,906		—		—		120,906
Cash equivalents	—		3,960		—		3,960
Total fixed income investments	120,906		3,960		$	—	124,866
Total	$	394,211	$	3,960	$	—	$	398,171
September 30, 2012:
Equity investments:
S&P 500 Index equity mutual funds	$	118,922	$	—	$	—	$	118,922
Small and Midcap equity mutual funds	42,876		—		—		42,876
UGI Corporation Common Stock	26,445		—		—		26,445
Total domestic equity investments	188,243		—		—		188,243
International index equity mutual funds	36,908		—		—		36,908
Fixed income investments:
Bond index mutual funds	123,332		—		—		123,332
Cash equivalents	—		3,060		—		3,060
Total fixed income investments	123,332		3,060		—		126,392
Total	$	348,483	$	3,060	$	—	$	351,543

The fair values of the VEBA trust assets at September 30, 2013 and 2012, 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, 2013:
S&P 500 Index equity mutual fund	$	7,693	$	—	$	—	$	7,693
Bond index mutual fund	3,794		—		—		3,794
Cash equivalents	—		236		—		236
Total	$	11,487	$	236	$	—	$	11,723
September 30, 2012:
S&P 500 Index equity mutual fund	$	7,678	$	—	$	—	$	7,678
Bond index mutual fund	3,366		—		—		3,366
Cash equivalents	—		161		—		161
Total	$	11,044	$	161	$	—	$	11,205

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 $1,762 in Fiscal 2013, $1,690 in Fiscal 2012 and $1,820 in Fiscal 2011.