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 limited postretirement health care benefits to certain retirees and postretirement life insurance benefits to certain 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, 2018 and 2017. 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
	2018			2017			2018			2017
Change in benefit obligations:
Benefit obligations — beginning of year	$	639,245		$	645,444		$	11,904		$	12,075
Service cost	8,469			9,038			147			303
Interest cost	25,358			24,394			448			460
Actuarial gain	(36,050		)	(14,575		)	(1,348		)	(512		)
Benefits paid	(25,831		)	(25,056		)	(467		)	(422		)
Benefit obligations — end of year	$	611,191		$	639,245		$	10,684		$	11,904
Change in plan assets:
Fair value of plan assets — beginning of year	$	498,080		$	463,432		$	14,771		$	13,715
Actual gain on assets	44,408			48,309			913			1,333
Employer contributions	15,079			11,395			—			85
Benefits paid	(25,831		)	(25,056		)	(335		)	(362		)
Fair value of plan assets — end of year	$	531,736		$	498,080		$	15,349		$	14,771
Funded status of the plans — end of year	$	(79,455	)	$	(141,165	)	$	4,665		$	2,867
Assets (liabilities) recorded in the balance sheet:
Assets in excess of liabilities – included in other noncurrent assets	$	—		$	—		$	6,729		$	5,382
Unfunded liabilities – included in other noncurrent liabilities	(79,455		)	(141,165		)	(2,064		)	(2,514		)
Net amount recognized	$	(79,455	)	$	(141,165	)	$	4,665		$	2,868
Amounts recorded in stockholder’s equity (pre-tax):
Prior service cost (benefit)	$	80		$	105		$	(12	)	$	(23	)
Net actuarial loss (gain)	9,490			15,106			(368		)	(46		)
Total	$	9,570		$	15,211		$	(380	)	$	(69	)
Amounts recorded in regulatory assets and liabilities (pre-tax):
Prior service cost (benefit)	$	720		$	970		$	(1,163	)	$	(1,605	)
Net actuarial loss (gain)	85,746			139,505			(135		)	1,192
Total	$	86,466		$	140,475		$	(1,298	)	$	(413	)

In Fiscal 2019, we estimate that we will amortize approximately $7,000 of net actuarial losses, primarily associated with Pension Plan, and $200 of net prior service benefits 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:	2018		2017		2016		2018		2017		2016
Discount rate – benefit obligations	4.40	%	4.00	%	3.80	%	4.40	%	4.00	%	3.80	%
Discount rate – benefit cost	4.00	%	3.80	%	4.60	%	4.00	%	3.80	%	4.70	%
Expected return on plan assets	7.40	%	7.50	%	7.55	%	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 $572,801 and $605,237 as of September 30, 2018 and 2017, respectively. Included in the end of year Pension Plan PBOs above are $60,904 at September 30, 2018, and $62,458 at September 30, 2017, relating to employees of UGI and certain of its other subsidiaries. Included in the end of year Other Postretirement Plans ABOs above are $880 at September 30, 2018, and $996 at September 30, 2017, 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
	2018			2017			2016			2018			2017			2016
Service cost	$	7,525		$	8,091		$	6,927		$	267		$	273		$	183
Interest cost	23,067			22,157			23,270			447			431			465
Expected return on assets	(31,107		)	(29,986		)	(28,668		)	(709		)	(656		)	(596		)
Amortization of:
Prior service cost (benefit)	250			325			348			(440		)	(641		)	(641		)
Actuarial loss	11,936			14,825			9,571			94			108			98
Net benefit cost (benefit)	11,671			15,412			11,448			(341		)	(485		)	(491		)
Change in associated regulatory liabilities	—			—			—			(490		)	(490		)	971
Net benefit cost (benefit) after change in regulatory liabilities	$	11,671		$	15,412		$	11,448		$	(831	)	$	(975	)	$	480

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, UGI 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 2018, Fiscal 2017 and Fiscal 2016, we made contributions to the Pension Plan of $15,079, $11,395 and $9,869, respectively. The minimum required contributions in Fiscal 2019 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, if any, is deferred for future recovery from, or refund to, ratepayers. The required contributions to the VEBA during Fiscal 2019, 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 2019	$	28,183	$	556
Fiscal 2020	29,602		544
Fiscal 2021	30,889		529
Fiscal 2022	32,166		531
Fiscal 2023	33,567		518
Fiscal 2024 - 2028	185,205		2,683

Because the postretirement health care benefit generally comprises a fixed amount per covered participant, changes in health care cost trend rates would not impact other postretirement benefit costs or the September 30, 2018, other postretirement benefit ABO.

We also sponsor unfunded and non-qualified supplemental executive defined benefit retirement income plans. At September 30, 2018 and 2017, the PBOs of these plans were $3,803 and $4,222, respectively. We recorded expense for these plans of $355 in Fiscal 2018, $605 in Fiscal 2017 and $353 in Fiscal 2016.

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 index 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:



	Actual				Target Asset	Permitted
Pension Plan:	2018		2017		Allocation	Range
Equity investments:
Domestic	58.2	%	55.2	%	52.5%	40.0% – 65.0%
International	11.8	%	12.4	%	12.5%	7.5% – 17.5%
Total	70.0	%	67.6	%	65.0%	60.0% – 70.0%
Fixed income funds & cash equivalents	30.0	%	32.4	%	35.0%	30.0% – 40.0%
Total	100.0	%	100.0	%	100.0%



	Actual				Target Asset	Permitted
VEBA:	2018		2017		Allocation	Range
Domestic equity investments	65.6	%	63.1	%	65.0%	60.0% – 70.0%
Fixed income funds & cash equivalents	34.4	%	36.9	%	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 mid- and small-cap index 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 8.5% and 7.7% of Pension Plan assets at September 30, 2018 and 2017, 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 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, 2018 and 2017 are as follows:



	Pension Plan
	Level 1		Level 2		Level 3		Other^(a)		Total
September 30, 2018:
Domestic equity investments:
S&P 500 Index equity mutual funds	$	188,437	$	—	$	—	$	—	$	188,437
Small and midcap equity mutual funds	75,675		—		—		—		75,675
UGI Corporation Common Stock	45,152		—		—		—		45,152
Total domestic equity investments	309,264		—		—		—		309,264
International index equity mutual funds	62,907		—		—		—		62,907
Fixed income investments:
Bond index mutual funds	154,345		—		—		—		154,345
Cash equivalents	—		—		—		5,198		5,198
Total fixed income investments	154,345		—		—		5,198		159,543
Total	$	526,516	$	—	$	—	$	5,198	$	531,714
September 30, 2017:
Equity investments:
S&P 500 Index equity mutual funds	$	171,600	$	—	$	—	$	—	$	171,600
Small and midcap equity mutual funds	65,167		—		—		—		65,167
UGI Corporation Common Stock	38,137		—		—		—		38,137
Total domestic equity investments	274,904		—		—		—		274,904
International index equity mutual funds	61,613		—		—		—		61,613
Fixed income investments:
Bond index mutual funds	156,228		—		—		—		156,228
Cash equivalents	—		—		—		5,332		5,332
Total fixed income investments	156,228		—		—		5,332		161,560
Total	$	492,745	$	—	$	—	$	5,332	$	498,077



	VEBA
	Level 1		Level 2		Level 3		Other^(a)		Total
September 30, 2018:
S&P 500 Index equity mutual fund	$	10,074	$	—	$	—	$	—	$	10,074
Bond index mutual fund	4,973		—		—		—		4,973
Cash equivalents	—		—		—		301		301
Total	$	15,047	$	—	$	—	$	301	$	15,348
September 30, 2017:
S&P 500 Index equity mutual fund	$	9,318	$	—	$	—	$	—	$	9,318
Bond index mutual fund	5,044		—		—		—		5,044
Cash equivalents	—		—		—		409		409
Total	$	14,362	$	—	$	—	$	409	$	14,771


(a)	Assets measured at net asset value (“NAV”) and therefore excluded from the fair value hierarchy.

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 $3,391 in Fiscal 2018, $2,829 in Fiscal 2017 and $2,409 in Fiscal 2016. 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 2018, Fiscal 2017 and Fiscal 2016.