(G) PENSION AND OTHER BENEFITS

Disclosures pertaining to UIL Holdings' pension and other postretirement benefit plans (the Plans) are in accordance with ASC 715 Compensation-Retirement Benefits. UIL Holdings has an investment policy addressing the oversight and management of pension assets and procedures for monitoring and control. UIL Holdings has engaged State Street Bank as the trustee and investment manager to assist in areas of asset allocation and rebalancing, portfolio strategy implementation, and performance monitoring and evaluation.

The goals of the asset investment strategy are to:

·	Achieve long-term capital growth while maintaining sufficient liquidity to provide for current benefit payments and UIL Holdings' pension plan operating expenses.

·	Provide a total return that, over the long term, provides sufficient assets to fund UIL Holdings' pension plan liabilities subject to an appropriate level of risk, contributions and pension expense.

·	Optimize the return on assets, over the long term, by investing primarily in a diversified portfolio of equities and additional asset classes with differing rates of return, volatility and correlation.

·	Diversify investments within asset classes to maximize preservation of principal and minimize over-exposure to any one investment, thereby minimizing the impact of losses in single investments.

The Plans seek to maintain compliance with the Employee Retirement Income Security Act of 1974 (ERISA) as amended, and any applicable regulations and laws.

The Retirement Benefits Plans Investment Committee of the Board of Directors oversees the investment of the Plans assets in conjunction with management and has conducted a review of the investment strategies and policies of the Plans. This review included an analysis of the strategic asset allocation, including the relationship of Plan assets to Plan liabilities, and portfolio structure. The 2012 target asset allocations, which may be revised by the Retirement Benefits Plans Investment Committee, are approximately as follows: 50% Equity securities, 40% Debt securities and 10% Other securities, which consist primarily of real assets, hedge funds and high yield securities. In the event that the relationship of Plan assets to Plan liabilities changes, the Retirement Benefits Plans Investment Committee will consider changes to the investment allocations. The other postretirement employee benefit fund assets are invested in a balanced mutual fund and, accordingly, the asset allocation mix of the balanced mutual fund may differ from the target asset allocation mix from time to time.

The funding policy for the Plans is to make annual contributions that satisfy the minimum funding requirements of ERISA but that do not exceed the maximum deductible limits of the Internal Revenue Code. These amounts are determined each year as a result of an actuarial valuation of the Plans. UIL Holdings has a minimum funding requirement for 2012 currently estimated at $40 million. Depending upon final actuarial calculations, the 2012 contribution may ultimately range between $50 million and $60 million.

Following the acquisition of the gas companies, UIL Holdings implemented consistent estimation techniques regarding its actuarial assumptions, where appropriate, across the pension and postretirement plans of its operating subsidiaries. The most significant of such changes was in the estimation technique utilized to develop the discount rate for its pension and postretirement benefit plans. The estimation technique is based upon the settlement of such liabilities as of December 31, 2011 utilizing a hypothetical portfolio of actual, high quality bonds, which would generate cash flows required to settle the liabilities. UIL Holdings believes such a change results in an estimate of the discount rate that more accurately reflects the settlement value for plan obligations than the different yield curve methodologies used in prior years. It results in cash flows which closely match the expected payments to participants.

As a result of the change described above, UIL Holdings is utilizing a discount rate of 5.30% as of December 31, 2011 for all of its qualified pension plans, compared to rates ranging from 5.00% to 5.35% in 2010. The discount rate for non-qualified pension plans as of December 31, 2011 was 5.05% compared to a range of 5.10% to 5.15% in 2010.

The discount rate for UIL Holdings' postretirement benefits plans reflects the differing plan requirements and expected future cash flows. For the UI postretirement plan, the discount rate at December 31, 2011 and 2010 was 5.30%. For the Gas Company postretirement plans, the December 31, 2011 discount rate was a composite rate of 5.05%, weighted by expected future cash outflows, compared to 5.15% for the previous year.

The December 31, 2011 discount rate was selected based on the yield of a portfolio of high quality corporate bonds that could be purchased as of the measurement date to produce cash flows matching the expected plan disbursements within reasonable tolerances.

The pension and other postretirement benefits plans assumptions may be revised over time as economic and market conditions change. Changes in those assumptions could have a material impact on pension and other postretirement expenses. For example, if there had been a 0.25% change in the discount rate assumed for the pension plans, the 2011 pension expense would have increased or decreased inversely by $2.4 million. If there had been a 1% change in the expected return on assets assumed for the pension plans, the 2011 pension expense would have increased or decreased inversely by $6 million. If there had been a 0.25% change in the discount rate assumed for the other postretirement benefits plans, the 2011 other postretirement benefits plan expenses would have increased or decreased inversely by $0.3 million. If there had been a 1% change in the expected return on assets assumed for the other postretirement benefits plans, the 2011 other postretirement benefits plan expenses would have increased or decreased inversely by $0.4 million.

Pension Plans

The United Illuminating Company Pension Plan (the UI Pension Plan) covers the majority of employees of UIL Holdings and UI. UI also has a non-qualified supplemental pension plan for certain employees and a non-qualified retiree-only pension plan for certain early retirement benefits.

The Gas Companies have multiple qualified pension plans covering substantially all of their union and management employees. These entities also have non-qualified supplemental pension plans for certain employees. The qualified pension plans (Gas Companies' Plans) are traditional defined benefit plans or cash balance plans for those hired on or after specified dates. In some cases, neither of these plans is offered to new employees and have been replaced with enhanced 401(k) plans for those hired on or after specified dates.

UI has established a supplemental retirement benefit trust and through this trust purchased life insurance policies on certain officers of UIL Holdings and UI to fund the future liability under the non-qualified supplemental plan. The cash surrender value of these policies is included in “Other investments” on the Consolidated Balance Sheet.

In addition, regarding the non-qualified plans, UIL Holdings has several rabbi trusts which were established to provide a supplemental retirement benefit for certain officers and directors of the Gas Companies.

Other Postretirement Benefits Plans

In addition to providing pension benefits, UI also provides other postretirement benefits, consisting principally of health care and life insurance benefits, for retired employees and their dependents. UI does not provide prescription drug benefits for Medicare-eligible employees in its other postretirement health care plans. Non-union employees who are 55 years of age and whose sum of age and years of service at time of retirement is equal to or greater than 65 are eligible for benefits partially subsidized by UI. The amount of benefits subsidized by UI is determined by age and years of service at retirement. For funding purposes, UI established a 401(h) account in connection with the UI Pension Plan and Serial Voluntary Employee Benefit Association Trust (VEBA) accounts for the years 2007 through 2020 to fund other postretirement benefits for UI's non-union employees who retire on or after January 1, 1994. These VEBA accounts were approved by the IRS and UI contributed $4.5 million to fund the Serial VEBA accounts in 2007. UI does not expect to make a contribution in 2012 to fund OPEB for non-union employees.

Union employees whose sum of age and years of service at the time of retirement is equal to or greater than 85 (or who are 62 with at least 20 years of service) are eligible for benefits partially subsidized by UI. The amount of benefits subsidized by UI is determined by age and years of service at retirement. For funding purposes, UI established a VEBA to fund other postretirement benefits for UI's union employees. The funding strategy for the VEBA is to select funds that most clearly mirror the pension allocation strategy. Approximately 38% of UI's employees are represented by Local 470-1, Utility Workers Union of America, AFL-CIO, for collective bargaining purposes. Plan assets for the union VEBA consist primarily of equity and fixed-income securities. UI does not expect to make a contribution in 2012 to fund other postretirement benefits for union employees.

SCG and CNG also have plans providing other postretirement benefits for substantially all of their employees. These benefits consist primarily of health care, prescription drug and life insurance benefits, for retired employees and their dependents. The eligibility for these benefits is determined by the employee's date of hire, number of years of service, age and whether the employee belongs to a certain group, such as a union.Dependents are also eligible at the employee's date of retirement provided the retired participant pays the necessary contribution. These plans are contributory with the level of participant's contributions evaluated annually. Benefits payments under these plans include annual caps for CNG participants hired after 1993 and SCG participants hired after 1996. SCG non-union employees hired after November 1995 are not eligible for these benefits. Union employees hired after April 1, 2010 and December 1, 2009 at SCG and CNG, respectively, are not eligible for these benefits. As such, Gas Company OPEB liabilities are not especially sensitive to increases in the healthcare trend rate. These plans are funded through a combination of 401(h) accounts and Voluntary Employee Benefit Association Trust (VEBA) accounts. UIL Holdings did not make any contributions to these plans in 2011, nor does it currently plan to make a contribution in 2012.

Purchase Accounting and Other Accounting Matters

In accordance with ASC 805, when an entity that sponsors a single-employer defined benefit plan or postretirement plan is purchased, the purchaser must assign part of the purchase price to a liability if the projected benefit obligation exceeds plan assets. The measurement of such liability eliminates any existing unrecognized components which are charged to accumulated other comprehensive income (AOCI). As of December 31, 2010, as a result of the application of purchase accounting to the Gas Companies' pension and other postretirement benefits plans, UIL Holdings recognized $213.0 million in previously unrecognized losses and prior service costs related to these plans. For regulatory purposes, the amortization of these unrecognized amounts has historically been recovered in rates as a component of pension and postretirement expenses. As such, UIL Holdings has recorded a regulatory asset to reflect future recovery of these costs.

Exclusive of the purchase accounting described above, ASC 715 requires an employer that sponsors one or more defined benefit pension or other postretirement plans to recognize an asset or liability for the overfunded or underfunded status of the plan. For a pension plan, the asset or liability is the difference between the fair value of the plan's assets and the projected benefit obligation. For any other postretirement benefit plan, the asset or liability is the difference between the fair value of the plan's assets and the accumulated postretirement benefit obligation. UIL Holdings reflects all unrecognized prior service costs and credits and unrecognized actuarial gains and losses as regulatory assets rather than in accumulated other comprehensive income, as management believes it is probable that such items are recoverable through the ratemaking process in future periods. As of December 31, 2011 and 2010, UIL Holdings has recorded regulatory assets of $146.6 million and $136.2 million, respectively.

In accordance with ASC 715, UIL Holdings utilizes an alternative method to amortize prior service costs and unrecognized gains and losses. UI Holdings amortizes prior service costs for both the pension and other postretirement benefits plans on a straight-line basis over the average remaining service period of participants expected to receive benefits. UIL Holdings utilizes an alternative method to amortize unrecognized actuarial gains and losses related to the pension and other postretirement benefits plans over the lesser of the average remaining service period or 10 years. For ASC 715 purposes, UIL Holdings does not recognize gains or losses until there is a variance in an amount equal to at least 5% of the greater of the projected benefit obligation or the market-related value of assets. There is no such allowance for a variance in capturing the amortization of other postretirement benefits unrecognized gains and losses.

The following table represents the change in benefit obligation, change in plan assets and the respective funded status of UIL Holdings' pension and other postretirement plans as of December 31, 2011 and 2010. Plan assets and obligations have been measured as of December 31, 2011 and 2010.

	Pension Benefits						Other Post-Retirement Benefits
	2011			2010			2011			2010
Change in Benefit Obligation:	(In Thousands)
Benefit obligation at beginning of year	$	776,131		$	371,802		$	130,633		$	69,415
Net transfer in due to acquistion of the Gas Companies		-			383,233			-			57,180
Service cost		12,574			7,675			2,164			1,450
Interest cost		40,484			22,702			6,634			4,285
Participant contributions		-			-			3,020			1,520
Actuarial (gain) loss		5,492			14,336			(9,072	)		1,665
Benefits paid (including expenses)		(42,580	)		(23,617	)		(10,997	)		(4,882	)
Benefit obligation at end of year	$	792,101		$	776,131		$	122,382		$	130,633

Change in Plan Assets:
Fair value of plan assets at beginning of year	$	502,327		$	231,308		$	40,762		$	22,194
Net transfer in due to acquistion of the Gas Companies		-			236,682			-			18,422
Actual return on plan assets		13,848			49,937			501			2,662
Employer contributions		74,542			8,017			-			846
Participant contributions		-			-			3,020			1,520
Benefits paid (including expenses)		(42,596	)		(23,617	)		(6,711	)		(4,882	)
Fair value of plan assets at end of year	$	548,121		$	502,327		$	37,572		$	40,762

Funded Status at December 31:
Projected benefits (less than) greater than plan assets	$	243,980		$	273,804		$	84,810		$	89,871

Amounts Recognized in the Statement of Financial Position consist of:
Non-current assets	$	-		$	456		$	-		$	-
Current liabilities	$	914		$	917		$	194		$	216
Non-current liabilities	$	243,065		$	273,343		$	84,615		$	89,654

Amounts Recognized as a Regulatory Asset consist of:
Transition obligation (asset)	$	-		$	-		$	392		$	1,411
Prior service cost		1,506			2,132			(23	)		(125	)
Net (gain) loss		134,838			114,346			9,847			18,464
Total recognized as a regulatory asset	$	136,344		$	116,478		$	10,216		$	19,750

Information on Pension Plans with an Accumulated Benefit Obligation in excess of Plan Assets:
Projected benefit obligation	$	776,133		$	760,658			N/A			N/A
Accumulated benefit obligation	$	709,235		$	697,081			N/A			N/A
Fair value of plan assets	$	532,595		$	486,398			N/A			N/A

The following weighted average actuarial assumptions were used in calculating the benefit obligations at December 31:
Discount rate (Qualified Plans)		5.30	%		5.00-5.35	%		N/A			N/A
Discount rate (Non-Qualified Plans)		5.05	%		5.10-5.15	%		N/A			N/A
Discount rate (Other Post-Retirement Benefits)		N/A			N/A			5.05-5.30	%		5.15-5.30	%
Average wage increase		3.50-3.80	%		3.80-4.00	%		N/A			N/A
Health care trend rate (current year)		N/A			N/A			8.00	%		7.80-9.00	%
Health care trend rate (2019-2028 forward)		N/A			N/A			5.00	%		4.50-5.00	%

The components of net periodic benefit cost are:

	For the Year Ended December 31,
	Pension Benefits									Other Post-Retirement Benefits
	2011			2010			2009			2011			2010			2009
	(In Thousands)
Components of net periodic benefit cost:
Service cost	$	12,574		$	7,675		$	6,133		$	2,164		$	1,450		$	1,334
Interest cost		40,484			22,702			20,928			6,634			4,285			4,138
Expected return on plan assets		(42,588	)		(20,739	)		(17,113	)		(2,965	)		(1,910	)		(1,640	)
Amortization of:											-			-
Prior service costs		643			646			697			(101	)		(103	)		(101	)
Transition obligation (asset)		-			-			-			1,020			1,058			1,058
Actuarial (gain) loss		14,032			(23,978	)		14,425			2,008			690			2,686
Net periodic benefit cost (1)	$	25,145		$	(13,694	)	$	25,070		$	8,760		$	5,470		$	7,475

Other Changes in Plan Assets and Benefit Obligations Recognized as a Regulatory Asset:
Net (gain) loss	$	34,524		$	21,425		$	(5,590	)	$	(6,608	)	$	2,173		$	(4,670	)
Amortization of:
Prior service costs		-			-			(697	)		(1,020	)		(1,058	)		101
Transition obligation (asset)		(626	)		(646	)					101			103			(1,058	)
Actuarial (gain) loss		(14,032	)		23,978			(14,425	)		(2,008	)		(690	)		(2,686	)
Total recognized as regulatory asset	$	19,866		$	44,757		$	(20,712	)	$	(9,535	)	$	528		$	(8,313	)

Total recognized in net periodic benefit costs and regulatory asset	$	45,011		$	31,063		$	4,358		$	(775	)	$	5,998		$	(838	)

Estimated Amortizations from Regulatory Assets into Net Periodic Benefit Cost for the period January 1, 2011 - December 31, 2011:
Amortization of transition obligation	$	-		$	-		$	-		$	392		$	1,020		$	1,059
Amortization of prior service cost		647			643			645			(69	)		(101	)		(103	)
Amortization of net (gain) loss		13,173			14,032			12,309			965			2,008			1,950
Total estimated amortizations	$	13,820		$	14,675		$	12,954		$	1,288		$	2,927		$	2,906

The following actuarial weighted average assumptions were used in calculating net periodic benefit cost:
Discount rate		5.10-5.35	%		5.00-5.35	%		6.20	%		5.15-5.30	%		5.00-5.30	%		6.10	%
Average wage increase		3.50-3.80	%		3.80-4.00	%		3.80	%		N/A			N/A			N/A
Return on plan assets		8.25-8.50	%		8.25-8.50	%		8.50	%		5.86-8.25	%		5.89-8.25	%		8.50	%
Health care trend rate (current year)		N/A			N/A			N/A			7.80-8.50	%		8.10-8.50	%		10.00	%
Health care trend rate (2019 forward)		N/A			N/A			N/A			4.50-5.00	%		4.50-5.00	%		5.00	%

(1)	For the year ended December 31, 2009, UI recorded $8.3 million of pension expense and $1.9 million of OPEBexpense as a regulatory asset. These amounts were approved by PURA to address the actual increase in pension and postretirement expense for 2009 (see Note (C), Regulatory Proceedings).

A one percentage point change in the assumed health care cost trend rate would have the following effects:

	1% Increase		1% Decrease
	(In Thousands)
Aggregate service and interest cost components	$	936	$	(763	)
Accumulated post-retirement benefit obligation	$	10,777	$	(8,983	)

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Year	Pension Benefits		Other Postretirement Benefits
	(In Thousands)
2012	$	42,406	$	7,616
2013	$	47,270	$	7,816
2014	$	44,744	$	7,884
2015	$	47,002	$	7,984
2016	$	48,409	$	8,029
2017-2021	$	262,764	$	40,860

Defined Contribution Retirement Plans/401(k)

Since 2005, new UIL Holdings and UI employees do not participate in the UI Pension Plan or receive retiree medical plan benefits. These employees participate in a different retirement plan, which is a “defined contribution plan,” consisting of the current provisions of UI's 401(k)/Employee Stock Ownership Plan (KSOP) plus the following benefits:

·	An additional cash contribution of 4.0% of total annual compensation (as defined in the KSOP Plan) to a separate account in the KSOP of new hires.

·	An additional cash contribution of $1,000 per year (pro rata per pay period) into a separate Retiree Medical Fund within the KSOP account for new hires.

·	New employees do not need to contribute to the KSOP to receive these additional cash contribution amounts; they only need to be enrolled in the KSOP Plan.

·	Both additional cash contributions to the KSOP vest 100% after five years of service.

The KSOP, in which substantially all of UIL Holdings' and UI's employees are eligible to participate, enables employees to defer receipt of a portion of their compensation, up to statutory limits, and to invest such funds in a number of investment alternatives. Matching contributions are made to the KSOP, in the form of UIL Holdings' common stock, based on each employee's salary deferrals in the KSOP. For union employees, the matching contribution to the KSOP is 100% of the first 3% of employee compensation deferred and 50% of the next 2% deferred. The maximum match is 4% of annual salary. For non-union employees, the matching contribution to the KSOP is 100% of the first 2% of employee compensation deferred. All matching contributions are made in the form of UIL Holdings' common stock. Matching contributions to the KSOP during 2011, 2010 and 2009 were $2.6 million, $2.4 million and $2.5 million, respectively. UIL Holdings pays dividends on the shares of stock in the KSOP to the participant and UIL Holdings receives a tax deduction for the dividends paid. Effective February 12, 2012, the matching contribution to the KSOP for non-union employees was amended such that 100% of the first 2% of employee compensation deferred and 50% of the next 2% deferred is matched.

The Gas Companies have several 401(k) plans in which substantially all of its employees are eligible to participate. Employees may defer a portion of the compensation and invest in various investment alternatives. Matching contributions are made in the form of cash and are dependent on the specific provisions of each of the plans. The matching expense related to the Gas Companies for UIL Holdings for 2011 was $2.0 million and was immaterial for the post-acquisition period in 2010.