11 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 seventy-five cents for each dollar contributed by the employee up to a maximum Company match of 6.0% of base salary. Company contributions were $4,473, $4,338, and $4,029, for the years 2014, 2013, and 2012, 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 $390,593 and $287,894 as of December 31, 2014 and 2013, respectively. The fair value of pension plan assets was $306,344 and $266,178 as of December 31, 2014 and 2013, respectively.

Prior to 2010, pension payment obligations were generally funded by the purchase of an annuity from a life insurance company. In 2010, the pension plan trust paid monthly benefits to retirees, rather than the purchase of an annuity. Payments are expected to be made in each year from 2015 to 2019 are $8,791, $10,030, $11,387, $12,840, and $14,413, respectively. The aggregate benefits expected to be paid in the five years 2020 through 2024 are $95,861. The expected benefit payments are based upon the same assumptions used to measure the Company's benefit obligation at December 31, 2014, 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 $40,189 and $31,360 as of December 31, 2014 and 2013, 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 pension (PBOP) during the employees' years of active service. Postretirement benefit expense recorded in 2014, 2013, and 2012, was $8,402, $8,977, and $8,131, respectively. The remaining net periodic benefit cost was $9,790 at December 31, 2006, 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, for the years from 2015 to 2019 are $2,197, $2,402, $2,603, $2,903, and $3,133, respectively. The Medicare Part D subsidies for the years from 2015 to 2019 are $275, $309, $347, $386, and $435.

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 of the Plan, commensurate with the risk that the Company deem appropriate to, meet the obligations of the Plan, 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 shall be measured periodically against a special 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 special index is consistent with the 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 one to five 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.

We use 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.

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 by the Plan at December 31, 2014 and 2013:

	Pension Benefits										Other Benefits
	2014		%			2013		%			2014		%			2013		%
Fixed Income	$	119,814		39	%	$	102,288		38	%	$	36,313		61	%	$	31,019		62	%

Domestic Equity
Small Cap Stocks		47,798					40,757					—					—
Large Cap Stocks		108,163					96,512					23,528					18,920

Total Domestic Equity		155,961		51	%		137,269		52	%		23,528		39	%		18,920		38	%

Non U.S. Equities		30,569		10	%		26,621		10	%		—		0	%		—		0	%

Total Plan Assets	$	306,344		100	%	$	266,178		100	%	$	59,841		100	%	$	49,939		100	%

The pension benefits fixed income category includes $3,642 and $1,287 of money market fund investments as of December 31, 2014 and 2013, respectively. The other benefits fixed income category includes $22,115 and $19,214 of money market fund investments as of December 31, 2014 and 2013.

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, 2014 and 2013:

	Pension Benefits						Other Benefits
	2014			2013			2014			2013
Change in projected benefit obligation:
Beginning of year	$	383,198		$	402,121		$	79,066		$	84,421
Service cost		15,964			17,780			5,205			5,374
Interest cost		18,920			16,354			4,455			3,556
Assumption change		89,692			(53,887	)		37,021			(14,366	)
Experience loss		2,158			6,021			11,020			1,455
Benefits paid, net of retiree premiums		(7,347	)		(5,191	)		(1,534	)		(1,374	)

End of year	$	502,585		$	383,198		$	135,233		$	79,066

Change in plan assets:
Fair value of plan assets at beginning of year	$	266,178		$	202,947		$	49,939		$	37,408
Actual return on plan assets		19,374			36,637			2,376			4,270
Employer contributions		28,139			31,785			9,060			9,635
Retiree contributions and Medicare part D subsidies		—			—			1,535			1,299
Benefits paid		(7,347	)		(5,191	)		(3,069	)		(2,673	)

Fair value of plan assets at end of year	$	306,344		$	266,178		$	59,841		$	49,939

Funded status(1)	$	(196,241	)	$	(117,020	)	$	(75,392	)	$	(29,127	)
Unrecognized actuarial loss		138,609			53,882			70,279			23,311
Unrecognized prior service cost		30,390			36,116			295			340
Unrecognized transition obligation		—			—			—			—

Net amount recognized	$	(27,242	)	$	(27,022	)	$	(4,818	)	$	(5,476	)

(1)	The short-term portion of the pension benefits was $1,786 and $1,751 as of December 31, 2014 and 2013, respectively.

Amounts recognized on the balance sheet consist of:

	Pension Benefits						Other Benefits
	2014			2013			2014			2013
(Accrued) benefit costs	$	—		$	—		$	(5,476	)	$	(6,219	)
Accrued benefit liability		(196,241	)		(117,020	)		(75,392	)		(29,127	)
Regulatory asset		168,999			89,998			76,050			29,870

Net amount recognized	$	(27,242	)	$	(27,022	)	$	(4,818	)	$	(5,476	)

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

	Pension Benefits						Other Benefits
	2014			2013			2014			2013
Weighted average assumptions as of December 31:
Discount rate		4.00	%		5.00	%		4.00	%		5.00	%
Long-term rate of return on plan assets		6.50	%		6.75	%		5.50	%		6.00	%
Rate of compensation increases		3.25	%		4.00	%		—			—
Cost of living adjustment		2.50	%		3.00	%		—			—

The discount rate was derived from the Citigroup 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 8.26% for domestic equities and 8.83% 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 4.98% for fixed income investments and 3.16% for short-term cash investments. The average return for the pension and other benefit plans for the last five and ten years was 9.70% and 6.30%, 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 2014, the Company adopted the Society of Actuaries 2014 Mortality Tables Report (RP-2014) and Mortality Improvement Scale (MP-2014 with modifications), which updated the mortality assumptions used for measuring retirement plan obligations. This new mortality table and improvement scale extends the assumed life expectancy of plan participants, resulting in an increase in the Company's accrued benefit cost as of December 31, 2014.

Changes to the pension benefits actuarial assumptions can significantly affect pension costs, regulatory assets, and liabilities. The following table reflects the sensitivity of pension amounts reported for the year ended December 31, 2014, to changes in actuarial assumptions:

	Increase/(Decrease) in Pension Actuarial Assumption			Increase/(Decrease) in 2014 Net Periodic Pension Benefit Cost			Increase/(Decrease) in Projected Pension Benefit Obligation as of December 31, 2014
Discount rate		(0.5	)%	$	4,426		$	53,420
Long-term rate of return on plan assets		(0.5	)%		1,230			—
Rate of compensation increases		(0.5	)%		(2,016	)		(13,522	)
Cost of living adjustment		(0.5	)%		(3,461	)		(33,374	)
Discount rate		0.5	%		(3,938	)		(46,318	)
Long-term rate of return on plan assets		0.5	%		(1,229	)		—
Rate of compensation increases		0.5	%		2,176			14,539

Net periodic benefit costs for the pension and other postretirement plans for the years ended December 31, 2014, 2013, and 2012 included the following components:

	Pension Plan									Other Benefits
	2014			2013			2012			2014			2013			2012
Service cost	$	15,964		$	17,780		$	15,450		$	5,205		$	5,374		$	4,399
Interest cost		18,920			16,354			15,287			4,455			3,556			3,139
Expected return on plan assets		(16,599	)		(14,252	)		(11,558	)		(3,119	)		(2,394	)		(1,832	)
Net amortization and deferral		10,074			15,302			14,283			1,861			2,441			2,425

Net periodic benefit cost	$	28,359		$	35,184		$	33,462		$	8,402		$	8,977		$	8,131

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
	2014			2013			2014			2013
Weighted average assumptions as of December 31:
Discount rate		5.00	%		4.10	%		5.00	%		4.20	%
Long-term rate of return on plan assets		6.75	%		7.00	%		6.00	%		6.00	%
Rate of compensation increases		4.00	%		3.50	%		—			—

The health care cost trend rate assumption has a significant effect on the amounts reported. For 2014 measurement purposes, the Company assumed a 7.8% annual rate of increase in the per capita cost of covered benefits with the rate decreasing to 5.7% by 2018, then gradually grading down to 4.5% over the next 50 years. A one-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	$	2,633	$	(1,950	)
Effect on accumulated postretirement benefit obligation	$	37,120	$	(27,219	)

The Company intends to make annual contributions to the plans up to the amount deductible for tax purposes. The Company estimates in 2015 that the annual contribution to the pension plans will be $33,032 and the annual contribution to the other postretirement plan will be $14,991.