EMPLOYEE RETIREMENT PLANS

Defined Benefit Pension and Other Postretirement Plans. We sponsor a 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”). Pension Plan benefits are based on years of service, age and employee compensation. We also provide postretirement health care benefits to certain retirees and postretirement life insurance benefits to nearly all active and retired employees (“Other Postretirement Plans”).

The following table provides a reconciliation of the projected benefit obligations (“PBOs”) of the Pension Plan, the accumulated benefit obligations (“ABOs”) of the Other Postretirement Plans, plan assets and the funded status of the Pension Plan and Other Postretirement Plans as of September 30, 2016 and 2015. 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
	2016			2015			2016			2015
Change in benefit obligations:
Benefit obligations — beginning of year	$	563,621		$	539,725		$	10,676		$	11,136
Service cost	7,772			7,863			198			220
Interest cost	25,733			24,656			483			511
Actuarial loss (gain)	72,418			14,667			1,117			(835		)
Benefits paid	(24,100		)	(23,290		)	(399		)	(356		)
Benefit obligations — end of year	$	645,444		$	563,621		$	12,075		$	10,676
Change in plan assets:
Fair value of plan assets — beginning of year	$	430,789		$	442,465		$	12,523		$	12,848
Actual gain (loss) on assets	46,874			483			1,347			(95		)
Employer contributions	9,869			11,131			98			126
Benefits paid	(24,100		)	(23,290		)	(253		)	(356		)
Fair value of plan assets — end of year	$	463,432		$	430,789		$	13,715		$	12,523
Funded status of the plans — end of year	$	(182,012	)	$	(132,832	)	$	1,640		$	1,847
Assets (liabilities) recorded in the balance sheet:
Assets in excess of liabilities — included in other noncurrent assets	$	—		$	—		$	4,139		$	4,011
Unfunded liabilities — included in other noncurrent liabilities	(182,012		)	(132,832		)	(2,499		)	(2,164		)
Net amount recognized	$	(182,012	)	$	(132,832	)	$	1,640		$	1,847
Amounts recorded in stockholder’s equity (pre-tax):
Prior service cost (credit)	$	138		$	178		$	(35	)	$	(48	)
Net actuarial loss (gain)	19,866			15,757			(1		)	(158		)
Total	$	20,004		$	15,935		$	(36	)	$	(206	)
Amounts recorded in regulatory assets and liabilities (pre-tax):
Prior service cost (credit)	$	1,262		$	1,570		$	(2,247	)	$	(2,890	)
Net actuarial loss	180,964			138,440			2,425			2,289
Total	$	182,226		$	140,010		$	178		$	(601	)

In Fiscal 2017, we estimate that we will amortize approximately $16,500 of net actuarial losses, primarily associated with Pension Plan, and $500 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’s 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 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:	2016		2015		2014		2016		2015		2014
Discount rate - benefit obligations	3.80	%	4.60	%	4.60	%	3.80	%	4.70	%	4.60	%
Discount rate - benefit cost	4.60	%	4.60	%	5.20	%	4.70	%	4.60	%	5.10% - 5.40%
Expected return on plan assets	7.55	%	7.75	%	7.75	%	5.00	%	5.00	%	5.00	%
Rate of increase in salary levels	3.25	%	3.25	%	3.25	%	3.25	%	3.25	%	3.25	%

The ABOs for the Pension Plan were $601,255 and $523,704 as of September 30, 2016 and 2015, respectively. Included in the end of year Pension Plan PBOs above are $63,847 at September 30, 2016, and $57,595 at September 30, 2015, relating to employees of UGI and certain of its other subsidiaries. Included in the end of year Other Postretirement Plans ABOs above are $951 at September 30, 2016, and $863 at September 30, 2015, 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
	2016			2015			2014			2016			2015			2014
Service cost	$	6,927		$	6,962		$	6,492		$	183		$	202		$	162
Interest cost	23,270			22,511			22,885			465			479			488
Expected return on assets	(28,668		)	(28,898		)	(26,599		)	(596		)	(612		)	(557		)
Amortization of:
Prior service cost (benefit)	348			348			348			(641		)	(641		)	(641		)
Actuarial loss	9,571			8,793			6,642			98			122			116
Net benefit cost (income)	11,448			9,716			9,768			(491		)	(450		)	(432		)
Change in associated regulatory liabilities	—			—			—			971			3,740			3,704
Net benefit cost after change in regulatory liabilities	$	11,448		$	9,716		$	9,768		$	480		$	3,290		$	3,272

Pension Plan assets are held in trust and consist principally of publicly traded, diversified equity and fixed income mutual funds and, to a much lesser extent, smallcap common stocks and UGI Corporation Common Stock. 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 2016, Fiscal 2015 and Fiscal 2014, we made contributions to the Pension Plan of $9,869, $11,131 and $19,227, respectively. The minimum required contributions in Fiscal 2017 are not expected to be material.

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, if any, determined under GAAP. The difference between such amount and the amounts included in UGI Gas’ and Electric Utility’s rates is deferred for future recovery from, or refund to, ratepayers. The required contributions to the VEBA during Fiscal 2017, if any, are not expected to be material.

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



	Pension Benefits		Other Postretirement Benefits
Fiscal 2017	$	25,980	$	588
Fiscal 2018	27,254		577
Fiscal 2019	28,555		575
Fiscal 2020	29,902		561
Fiscal 2021	31,168		545
Fiscal 2021 - 2025	174,070		2,719

The assumed health care cost trend rates at September 30 are as follows:



	2016		2015
Health care cost trend rate assumed for next year	7.25	%	7.5	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	5.0	%	5.0	%
Fiscal year that the rate reaches the ultimate trend rate	2026		2026

A one percentage point change in these assumed health care cost trend rates would not have had a material impact on Fiscal 2016 other postretirement benefit cost or the September 30, 2016, other postretirement benefit ABO.

We also sponsor unfunded and non-qualified supplemental executive defined benefit retirement income plans. At September 30, 2016 and 2015, the PBOs of these plans were $3,628 and $2,835, respectively. We recorded expense for these plans of $353 in Fiscal 2016, $445 in Fiscal 2015 and $372 in Fiscal 2014.

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, to a much lesser extent, smallcap common stocks 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:	2016		2015		Allocation		Range
Equity investments:
Domestic	54.1	%	56.2	%	52.5	%	40.0% - 65.0%
International	10.2	%	10.2	%	12.5	%	7.5% - 17.5%
Total	64.3	%	66.4	%	65.0	%	60.0% - 70.0%
Fixed income funds & cash equivalents	35.7	%	33.6	%	35.0	%	30.0% - 40.0%
Total	100.0	%	100.0	%	100.0	%



					Target
	Actual				Asset		Permitted
VEBA:	2016		2015		Allocation		Range
Domestic equity investments	69.9	%	67.4	%	65.0	%	60.0% - 70.0%
Fixed income funds & cash equivalents	30.1	%	32.6	%	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, and a separately managed account comprising small-cap common stocks. 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% and 10.1% of Pension Plan assets at September 30, 2016 and 2015, respectively.

The fair values of the 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 U.S. Pension Plan and VEBA trust assets by asset class and level within the fair value hierarchy, as described in Note 2, as of September 30, 2016 and 2015 are as follows:



	Pension Plan
	Level 1		Level 2		Level 3		Total
September 30, 2016:
Domestic equity investments:
S&P 500 Index equity mutual funds	$	158,906	$	—	$	—	$	158,906
Small and midcap equity mutual funds	43,170		—		—		43,170
Smallcap common stocks	11,414		—		—		11,414
UGI Corporation Common Stock	37,013		—		—		37,013
Total domestic equity investments	250,503		—		—		250,503
International index equity mutual funds	47,324		—		—		47,324
Fixed income investments:
Bond index mutual funds	147,794		—		—		147,794
Cash equivalents	—		17,811		—		17,811
Total fixed income investments	147,794		17,811		—		165,605
Total	$	445,621	$	17,811	$	—	$	463,432
September 30, 2015:
Equity investments:
S&P 500 Index equity mutual funds	$	147,266	$	—	$	—	$	147,266
Small and midcap equity mutual funds	40,625		—		—		40,625
Smallcap common stocks	10,727		—		—		10,727
UGI Corporation Common Stock	43,419		—		—		43,419
Total domestic equity investments	242,037		—		—		242,037
International index equity mutual funds	43,906		—		—		43,906
Fixed income investments:
Bond index mutual funds	140,776		—		—		140,776
Cash equivalents	—		4,070		—		4,070
Total fixed income investments	140,776		4,070		—		144,846
Total	$	426,719	$	4,070	$	—	$	430,789



	VEBA
	Level 1		Level 2		Level 3		Total
September 30, 2016:
S&P 500 Index equity mutual fund	$	9,583	$	—	$	—	$	9,583
Bond index mutual fund	4,019		—		—		4,019
Cash equivalents	—		113		—		113
Total	$	13,602	$	113	$	—	$	13,715
September 30, 2015:
S&P 500 Index equity mutual fund	$	8,434	$	—	$	—	$	8,434
Bond index mutual fund	3,832		—		—		3,832
Cash equivalents	—		257		—		257
Total	$	12,266	$	257	$	—	$	12,523

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 $2,409 in Fiscal 2016, $2,162 in Fiscal 2015 and $1,916 in Fiscal 2014. We also sponsor a nonqualified supplemental defined contribution executive retirement plan. This plan generally provides supplemental benefits to certain executives that would otherwise be provided under retirement plans but are prohibited due to limitations imposed by the Internal Revenue Code. Costs associated with this plan were not material in Fiscal 2016, Fiscal 2015 or Fiscal 2014.