EMPLOYEE BENEFIT PLANS

Savings Plan

The Company sponsors a 401(k) qualified defined contribution savings plan that allows participants to contribute up to 20% of pre-tax compensation. Effective January 1, 2010, the Company matches 75 cents for each dollar contributed by the employee up to a maximum Company match of 6.0% of base salary. Company contributions were $6.0 million, $5.6 million, and $5.4 million, for the years 2018, 2017, and 2016, respectively.

Pension Plans

The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The accumulated benefit obligations of the pension plan are $492.4 million and $513.6 million as of December 31, 2018 and 2017, respectively. The fair value of pension plan assets was $469.8 million and $460.9 million as of December 31, 2018 and 2017, respectively.

Prior to 2010, pension payment obligations were generally funded by the purchase of an annuity from a life insurance company. Beginning in 2010, the pension plan trust pays monthly benefits to retirees, rather than the purchase of an annuity. Expected payments to be made are $14.8 million in 2019, $16.2 million in 2020, $17.9 million in 2021, $19.8 million in 2022, and $21.4 million in 2023. The aggregate benefits expected to be paid in the 5 years 2024 through 2028 are $133.9 million. The expected benefit payments are based upon the same assumptions used to measure the Company's benefit obligation at December 31, 2018, and include estimated future employee service.

The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The unfunded supplemental executive retirement plan accumulated benefit obligations were $56.8 million and $56.7 million as of December 31, 2018 and 2017, respectively. Benefit payments under the supplemental executive retirement plan are paid currently and are included in the preceding paragraph.

The costs of the pension and retirement plans are charged to expense and utility plant. The Company makes annual contributions to fund the amounts accrued for pension cost.

Other Postretirement Plan

The Company provides substantially all active, permanent employees with medical, dental, and vision benefits through a self-insured plan. Employees retiring at or after age 58, along with their spouses and dependents, continue participation in the plan by payment of a premium. Plan assets are invested in mutual funds, short-term money market instruments and commercial paper based upon a similar asset mix to the pension plan. Retired employees are also provided with a five thousand dollar life insurance benefit.

The Company records the costs of postretirement benefits other than pensions (PBOP) during the employees' years of active service. Postretirement benefit expense recorded in 2018, 2017, and 2016, was $8.8 million, $8.5 million, and $8.9 million, respectively. The remaining net periodic benefit cost was $2.8 million at December 31, 2018, and is being recovered through future customer rates and is recorded as a regulatory asset. The expected benefit payments, net of retiree premiums and Medicare Part D subsidies, are $2.7 million in 2019, $3.0 million in 2020, $3.2 million in 2021, $3.5 million in 2022, and $3.8 million in 2023. The aggregate benefits expected to be paid in the 5 years 2024 through 2028 are $23.5 million. The expected Medicare Part D subsidies are $0.3 million in 2019, $0.3 million in 2020, $0.3 million in 2021, $0.4 million in 2022, and $0.4 million in 2023. The aggregate Medicare part D subsidies expected to be paid in the 5 years 2024 through 2028 are $2.6 million.

Benefit Plan Assets

The Company actively manages pensions and PBOP trust (Plan) assets. The Company's investment objectives are:


•	Maximize the return on the assets, commensurate with the risk that the Company deems appropriate to meet the obligations of the Plans, minimize the volatility of the pension expense, and account for contingencies;


•	Generate a rate of return for the total portfolio that equals or exceeds the actuarial investment rate assumption;

Additionally, the rate of return of the total fund is measured periodically against an index comprised of 35% of the Standard & Poor's Index, 15% of the Russell 2000 Index, 10% of the MSCI EAFE Index, and 40% of the Lehman Aggregate Bond Index. The index is consistent with the Company's rate of return objective and indicates the Company's long-term asset allocation objective.

The Company applies a risk management framework for managing the risks associated with employee benefit plan trust assets. The guiding principles of this risk management framework are the clear articulation of roles and responsibilities, appropriate delegation of authority, and proper accountability and documentation. Trust investment policies and investment manager guidelines include provisions to ensure prudent diversification, manage risk through appropriate use of physical direct asset holdings and derivative securities, and identify permitted and prohibited investments.

The Company's target asset allocation percentages for major categories of the pension plan are reflected in the table below:



	Minimum Exposure		Target		Maximum Exposure
Fixed Income	35	%	40	%	45	%
Total Domestic Equity:	40	%	50	%	60	%
Small Cap Stocks	10	%	15	%	20	%
Large Cap Stocks	30	%	35	%	45	%
Non-U.S. Equities	5	%	10	%	15	%

The fixed income category includes money market funds, short-term bond funds, and cash. The majority of fixed income investments range in maturities from less than 1 to 5 years.

The Company's target allocation percentages for the PBOP trust is similar to the pension plan except for a larger allocation in fixed income investments and a lower allocation in equity investments.

The Company uses the following criteria to select investment funds:


•	Fund past performance;


•	Fund meets criteria of Employee Retirements Income Security Act (ERISA);


•	Timeliness and completeness of fund communications and reporting to investors;


•	Stability of fund management company;


•	Fund management fees; and


•	Administrative costs incurred by the Plan.

Plan Fair Value Measurements

The fair value measurements standard establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the standard are described below:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.

Level 2—Inputs to the valuation methodology include:


•	Quoted market prices for similar assets or liabilities in active markets;


•	Quoted prices for identical or similar assets or liabilities in inactive markets;


•	Inputs other than quoted prices that are observable for the asset or liability; and


•	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

All Plan investments are level one investments in mutual funds and are valued at the net asset value (NAV) of the shares held at December 31, 2018 and 2017:



	Pension Benefits								Other Benefits
	2018		%		2017		%		2018		%		2017		%
Fixed Income	$	188,934	40	%	$	171,403	37	%	$	45,446	44	%	$	60,438	60	%
Domestic Equity: Small Cap Stocks	68,843		15	%	73,682		16	%	—		—		—		—
Domestic Equity: Large Cap Stocks	165,862		35	%	169,661		37	%	57,179		56	%	40,125		40	%
Non U.S. Equities	46,135		10	%	46,132		10	%	—		—		—		—
Total Plan Assets	$	469,774	100	%	$	460,878	100	%	$	102,625	100	%	$	100,563	100	%

The pension benefits fixed income category includes $5.0 million and $22.5 million of money market fund investments as of December 31, 2018 and 2017, respectively. The other benefits fixed income category includes $9.9 million and $39.4 million of money market fund investments as of December 31, 2018 and 2017, respectively.

Changes in Plan Assets, Benefits Obligations, and Funded Status

The following table reconciles the funded status of the plans with the accrued pension liability and the net postretirement benefit liability as of December 31, 2018 and 2017:



	Pension Benefits						Other Benefits
	2018			2017			2018			2017
Change in projected benefit obligation:
Beginning of year	$	671,334		$	564,755		$	143,368		$	122,108
Service cost	29,027			23,801			8,317			7,152
Interest cost	23,994			23,256			4,873			4,988
Assumption change	(80,192		)	60,526			(21,672		)	15,298
Plan amendment	—			—			2,203			—
Experience loss (gain)	8,523			10,836			(8,226		)	(4,546		)
Benefits paid, net of retiree premiums	(12,765		)	(11,840		)	(1,659		)	(1,632		)
End of year	$	639,921		$	671,334		$	127,204		$	143,368
Change in plan assets:
Fair value of plan assets at beginning of year	$	460,878		$	376,549		$	100,563		$	86,578
Actual return on plan assets	(22,576		)	64,365			(4,320		)	6,508
Employer contributions	44,237			31,804			8,041			9,109
Retiree contributions and Medicare part D subsidies	—			—			2,025			1,884
Benefits paid	(12,765		)	(11,840		)	(3,684		)	(3,516		)
Fair value of plan assets at end of year	$	469,774		$	460,878		$	102,625		$	100,563
Funded status(1)	$	(170,147	)	$	(210,456	)	$	(24,579	)	$	(42,805	)
Unrecognized actuarial loss	117,973			150,545			18,618			39,796
Unrecognized prior service cost	15,290			20,342			2,326			165
Net amount recognized	$	(36,884	)	$	(39,569	)	$	(3,635	)	$	(2,844	)

_______________________________________________________________________________


(1)	The short-term portion of the pension benefits was $1.9 million as of December 31, 2018 and $2.0 million as of December 31, 2017 and is recorded as part of other accrued liabilities on the Company's 2018 and 2017 Consolidated Balance Sheets.

Amounts recognized on the balance sheet consist of:



	Pension Benefits						Other Benefits
	2018			2017			2018			2017
(Accrued) benefit costs	$	62		$	60		$	(2,802	)	$	(3,461	)
Accrued benefit liability	(170,147		)	(210,456		)	(24,579		)	(42,805		)
Regulatory asset	133,201			170,827			23,746			43,422
Net amount recognized	$	(36,884	)	$	(39,569	)	$	(3,635	)	$	(2,844	)

Valuation Assumptions

Below are the actuarial assumptions used in determining the benefit obligation for the benefit plans:



	Pension Benefits				Other Benefits
	2018		2017		2018		2017
Weighted average assumptions as of December 31:
Discount rate	4.20	%	3.60	%	4.25	%	3.65	%
Long-term rate of return on plan assets	6.50	%	6.50	%	5.50	%	5.50	%
Rate of compensation increases - pension plan	3.25	%	3.25	%	—		—
Rate of compensation increases - SERP	3.75	%	3.75	%	—		—
Cost of living adjustment	2.50	%	2.50	%	—		—

The discount rate was derived from the FTSE Pension Discount Curve using the expected payouts for the plan. The long-term rate of return assumption is the expected rate of return on a balanced portfolio invested roughly 60% in equities and 40% in fixed income securities. Returns on equity investments were estimated based on estimates of dividend yield and real earnings added to a 2.50% long-term inflation rate. For the pension and other benefit plans, the assumed returns were 7.62% for domestic equities and 8.73% for foreign equities. Returns on fixed-income investments were projected based on investment maturities and credit spreads added to a 2.50% long-term inflation rate. For the pension and other benefit plans, the assumed returns were 4.78% for fixed income investments and 2.90% for short-term cash investments. The average return for the pension and other benefit plans for the last 5 and 10 years was 5.00% and 8.20%, respectively. The Company is using a long-term rate of return of 6.50% for the pension plan and 5.50% for the other benefit plan, which is between the 25th and 75th percentile of expected results.

In 2018, the Company used the Society of Actuaries 2014 Mortality Tables Report (RP-2014) and Mortality Improvement Scale (MP-2018 with modifications) for measuring retirement plan obligations. The RP-2014 mortality table and improvement scale extended the assumed life expectancy of plan participants which resulted in an increase in the Company's accrued benefit obligation as of December 31, 2018.

Components of Net Periodic Benefit Cost

Net periodic benefit costs for the pension and other postretirement plans for the years ended December 31, 2018, 2017, and 2016 included the following components:



	Pension Plan									Other Benefits
	2018			2017			2016			2018			2017			2016
Service cost	$	29,027		$	23,801		$	20,971		$	8,317		$	7,152		$	6,513
Interest cost	23,994			23,256			22,226			4,873			4,988			4,863
Expected return on plan assets	(27,702		)	(24,119		)	(21,826		)	(5,639		)	(4,875		)	(4,129		)
Net amortization and deferral	16,233			12,962			11,990			1,281			1,186			1,660
Net periodic benefit cost	$	41,552		$	35,900		$	33,361		$	8,832		$	8,451		$	8,907

Service cost portion of the pension plan and other postretirement benefits is recognized in administrative and general within the Consolidated Statements of Income. Other components of net periodic benefit costs include interest costs, expected return on plan assets, amortization of prior service costs, and recognized net actuarial loss and are reported together as other components of net periodic benefit cost within the Consolidated Statements of Income (see Note 2).

Below are the actuarial assumptions used in determining the net periodic benefit costs for the benefit plans, which uses the end of the prior year as the measurement date:



	Pension Benefits				Other Benefits
	2018		2017		2018		2017
Weighted average assumptions as of December 31:
Discount rate	3.60	%	4.15	%	3.65	%	4.25	%
Long-term rate of return on plan assets	6.50	%	6.50	%	5.50	%	5.50	%
Rate of compensation increases - pension plan	3.25	%	3.25	%	—		—
Rate of compensation increases - SERP	3.75	%	3.75	%	—		—
Cost of living adjustment	2.50	%	2.50	%

The health care cost trend rate assumption has a significant effect on the amounts reported. For 2018 measurement purposes, the Company assumed a 6.3% annual rate of increase in the per capita cost of covered benefits with the rate decreasing to 5.5% by 2020, then gradually grading down to 4.5% over the next 50 years. A 1-percentage point change in assumed health care cost trends is estimated to have the following effect:



	1-Percentage Point Increase		1-Percentage Point (Decrease)
Effect on total service and interest costs	$	4,213	$	(3,017	)
Effect on accumulated postretirement benefit obligation	$	29,286	$	(22,137	)

The Company intends to make annual contributions that meet the funding requirements of ERISA. The Company estimates in 2019 that the annual contribution to the pension plans will be $20.7 million and the annual contribution to the other postretirement plan will be $9.4 million.