EMPLOYEE BENEFIT PLANS

We measure the assets and obligations of the defined benefit pension plans and other postretirement benefits plans to determine the plans’ funded status as of the end of the year as an asset or a liability on our consolidated balance sheets. We record as a component of other comprehensive income/loss or a regulatory asset the changes in funded status that occurred during the year that are not recognized as part of net periodic benefit costs.

Defined Benefit Pension Plans

We sponsor three defined benefit pension plans: the Chesapeake Pension Plan, the FPU Pension Plan and the Chesapeake SERP.

The Chesapeake Pension Plan was closed to new participants, effective January 1, 1999, and was frozen with respect to additional years of service and additional compensation, effective January 1, 2005. Benefits under the Chesapeake Pension Plan were based on each participant’s years of service and highest average compensation, prior to the freezing of the plan. Active participants on the date the Chesapeake Pension Plan was frozen were credited with two additional years of service.

The FPU Pension Plan covers eligible FPU non-union employees hired before January 1, 2005 and union employees hired before the respective union contract expiration dates in 2005 and 2006. Prior to the merger, the FPU Pension Plan was frozen with respect to additional years of service and additional compensation, effective December 31, 2009.

The Chesapeake SERP was frozen with respect to additional years of service and additional compensation as of December 31, 2004. Benefits under the Chesapeake SERP were based on each participant’s years of service and highest average compensation, prior to the freezing of the plan. Active participants on the date the date the Plan was frozen were credited with two additional years of service.

In January 2011, a former executive officer retired and received a lump-sum pension distribution from the Chesapeake Pension Plan. Based upon the funding status of the Chesapeake Pension Plan at the time, which did not meet or exceed 110 percent of the benefit obligation as required per the Department of Labor regulations, our former executive officer was required to deposit property equal to 125 percent of the restricted portion of his lump-sum distribution into an escrow. Each year, an amount equal to the value of payments that would have been paid to him if he had elected the life annuity form of distribution becomes unrestricted. Property equal to the life annuity amount is returned to him from the escrow account. These same regulations will apply to the top 20 highest compensated employees taking lump-sum distributions from the Chesapeake Pension Plan.

The following schedule sets forth the funded status at December 31, 2015 and 2014 and the net periodic cost for the years ended December 31, 2015, 2014 and 2013 for the Chesapeake and FPU Pension Plans:



	Chesapeake Pension Plan						FPU Pension Plan
At December 31,	2015			2014			2015			2014
(in thousands)
Change in benefit obligation:
Benefit obligation — beginning of year	$	11,981		$	10,268		$	68,173		$	55,876
Interest cost	407			425			2,504			2,613
Actuarial loss (gain)	(401		)	1,891			(3,374		)	12,785
Benefits paid	(486		)	(603		)	(2,868		)	(3,101		)
Benefit obligation — end of year	11,501			11,981			64,435			68,173
Change in plan assets:
Fair value of plan assets — beginning of year	9,078			8,743			45,077			44,337
Actual return on plan assets	(289		)	305			(1,464		)	1,485
Employer contributions	449			633			1,462			2,356
Benefits paid	(486		)	(603		)	(2,868		)	(3,101		)
Fair value of plan assets — end of year	8,752			9,078			42,207			45,077
Reconciliation:
Funded status	(2,749		)	(2,903		)	(22,228		)	(23,096		)
Accrued pension cost	$	(2,749	)	$	(2,903	)	$	(22,228	)	$	(23,096	)
Assumptions:
Discount rate	3.75		%	3.50		%	4.00		%	3.75		%
Expected return on plan assets	6.00		%	6.00		%	7.00		%	7.00		%



	Chesapeake Pension Plan									FPU Pension Plan
For the Years Ended December 31,	2015			2014			2013			2015			2014			2013
(in thousands)
Components of net periodic pension cost:
Interest cost	$	407		$	425		$	405		$	2,504		$	2,613		$	2,367
Expected return on assets	(530		)	(516		)	(486		)	(3,107		)	(3,089		)	(2,866		)
Amortization of prior service cost	—			—			(1		)	—			—			—
Amortization of actuarial loss	392			176			322			456			8			330
Net periodic pension cost	269			85			240			(147		)	(468		)	(169		)
Amortization of pre-merger regulatory asset	—			—			—			761			761			761
Total periodic cost	$	269		$	85		$	240		$	614		$	293		$	592
Assumptions:
Discount rate	3.50		%	4.25		%	3.50		%	3.75		%	4.75		%	3.75		%
Expected return on plan assets	6.00		%	6.00		%	6.00		%	7.00		%	7.00		%	7.00		%

Included in the net periodic costs for the FPU Pension Plan is continued amortization of the FPU pension regulatory asset, which represents the portion attributable to FPU's regulated operations for the changes in funded status that occurred but was not recognized as part of net periodic cost prior to the merger with Chesapeake Utilities in October 2009. This was previously deferred as a regulatory asset by FPU prior to the merger to be recovered through rates pursuant to an order by the Florida PSC. The unamortized balance of this regulatory asset was $2.8 million and $3.6 million at December 31, 2015 and 2014, respectively.

The following sets forth the funded status at December 31, 2015 and 2014 and the net periodic cost for the years ended December 31, 2015, 2014 and 2013 for the Chesapeake SERP:



At December 31,	2015			2014
(in thousands)
Change in benefit obligation:
Benefit obligation — beginning of year	$	2,650		$	2,210
Interest cost	91			92
Actuarial loss (gain)	(85		)	437
Benefits paid	(146		)	(89		)
Benefit obligation — end of year	2,510			2,650
Change in plan assets:
Fair value of plan assets — beginning of year	—			—
Employer contributions	146			89
Benefits paid	(146		)	(89		)
Fair value of plan assets — end of year	—			—
Reconciliation:
Funded status	(2,510		)	(2,650		)
Accrued pension cost	$	(2,510	)	$	(2,650	)
Assumptions:
Discount rate	3.75		%	3.50		%



For the Years Ended December 31,	2015			2014			2013
(in thousands)
Components of net periodic pension cost:
Interest cost	$	91		$	92		$	81
Amortization of prior service cost	9			19			19
Amortization of actuarial loss	99			47			64
Net periodic pension cost	$	199		$	158		$	164
Assumptions:
Discount rate	3.50		%	4.25		%	3.50		%

Our funding policy provides that payments to the trustee of each qualified plan shall be equal to at least the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The following schedule summarizes the assets of the Chesapeake Pension Plan and the FPU Pension Plan, by investment type, at December 31, 2015, 2014 and 2013:



	Chesapeake Pension Plan						FPU Pension Plan
At December 31,	2015		2014		2013		2015		2014		2013
Asset Category
Equity securities	48.01	%	51.42	%	54.40	%	48.56	%	52.62	%	55.02	%
Debt securities	39.62	%	37.31	%	36.54	%	41.74	%	37.69	%	36.54	%
Other	12.37	%	11.27	%	9.06	%	9.70	%	9.69	%	8.44	%
Total	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%

The investment policy of both the Chesapeake and FPU Pension Plans is designed to provide the capital assets necessary to meet the financial obligations of the plans. The investment goals and objectives are to achieve investment returns that, together with contributions, will provide funds adequate to pay promised benefits to present and future beneficiaries of the plans, earn a long-term investment return in excess of the growth of the Plans’ retirement liabilities, minimize pension expense and cumulative contributions resulting from liability measurement and asset performance, and maintain a diversified portfolio to reduce the risk of large losses.

The following allocation range of asset classes is intended to produce a rate of return sufficient to meet the Plans’ goals and objectives:



Asset Allocation Strategy
Asset Class	Minimum Allocation Percentage		Maximum Allocation Percentage
Domestic Equities (Large Cap, Mid Cap and Small Cap)	14	%	32	%
Foreign Equities (Developed and Emerging Markets)	13	%	25	%
Fixed Income (Inflation Bond and Taxable Fixed)	26	%	40	%
Alternative Strategies (Long/Short Equity and Hedge Fund of Funds)	6	%	14	%
Diversifying Assets (High Yield Fixed Income, Commodities, and Real Estate)	7	%	19	%
Cash	0	%	5	%

Due to periodic contributions and different asset classes producing varying returns, the actual asset values may temporarily move outside of the intended ranges. The investments are monitored on a quarterly basis, at a minimum, for asset allocation and performance.

At December 31, 2015, the assets of the Chesapeake Pension Plan and the FPU Pension Plan were comprised of the following investments:



	Fair Value Measurement Hierarchy
Asset Category	Level 1		Level 2		Level 3		Total
(in thousands)
Equity securities
U.S. Large Cap ⁽¹⁾	$	3,641	$	4,030	$	—	$	7,671
U.S. Mid Cap ⁽¹⁾	1,577		1,609		—		3,186
U.S. Small Cap ⁽¹⁾	865		818		—		1,683
International ⁽²⁾	9,416		—		—		9,416
Alternative Strategies ⁽³⁾	2,737		—		—		2,737
	18,236		6,457		—		24,693
Debt securities
Fixed income ⁽⁴⁾	18,565		—		—		18,565
High Yield ⁽⁴⁾	2,521		—		—		2,521
	21,086		—		—		21,086
Other
Commodities ⁽⁵⁾	1,365		—		—		1,365
Real Estate ⁽⁶⁾	2,529		—		—		2,529
Guaranteed deposit ⁽⁷⁾	—		—		1,286		1,286
	3,894		—		1,286		5,180
Total Pension Plan Assets	$	43,216	$	6,457	$	1,286	$	50,959


⁽¹⁾	Includes funds that invest primarily in United States common stocks.


⁽²⁾	Includes funds that invest primarily in foreign equities and emerging markets equities.


⁽³⁾	Includes funds that actively invest in both equity and debt securities, funds that sell short securities and funds that provide long-term capital appreciation. The funds may invest in debt securities below investment grade.


⁽⁴⁾	Includes funds that invest in investment grade and fixed income securities.


⁽⁵⁾	Includes funds that invest primarily in commodity-linked derivative instruments and fixed income securities.


⁽⁶⁾	Includes funds that invest primarily in real estate.


⁽⁷⁾	Includes investment in a group annuity product issued by an insurance company.

At December 31, 2014, the assets of the Chesapeake Pension Plan and the FPU Pension Plan were comprised of the following investments:



	Fair Value Measurement Hierarchy
Asset Category	Level 1		Level 2		Level 3		Total
(in thousands)
Equity securities
U.S. Large Cap ⁽¹⁾	$	4,069	$	4,028	$	—	$	8,097
U.S. Mid Cap ⁽¹⁾	1,733		1,714		—		3,447
U.S. Small Cap ⁽¹⁾	873		821		—		1,694
International ⁽²⁾	9,621		—		—		9,621
Alternative Strategies ⁽³⁾	5,531		—		—		5,531
	21,827		6,563		—		28,390
Debt securities
Fixed income ⁽⁴⁾	17,717		—		—		17,717
High Yield ⁽⁴⁾	2,658		—		—		2,658
	20,375		—		—		20,375
Other
Commodities ⁽⁵⁾	1,819		—		—		1,819
Real Estate ⁽⁶⁾	2,427		—		—		2,427
Guaranteed deposit ⁽⁷⁾	—		—		1,144		1,144
	4,246		—		1,144		5,390
Total Pension Plan Assets	$	46,448	$	6,563	$	1,144	$	54,155


⁽¹⁾	Includes funds that invest primarily in United States common stocks.


⁽²⁾	Includes funds that invest primarily in foreign equities and emerging markets equities.


⁽³⁾	Includes funds that actively invest in both equity and debt securities, funds that sell short securities and funds that provide long-term capital appreciation. The funds may invest in debt securities below investment grade.


⁽⁴⁾	Includes funds that invest in investment grade and fixed income securities.


⁽⁵⁾	Includes funds that invest primarily in commodity-linked derivative instruments and fixed income securities.


⁽⁶⁾	Includes funds that invest primarily in real estate.


⁽⁷⁾	Includes investment in a group annuity product issued by an insurance company.

At December 31, 2015 and 2014, all of the investments classified under Level 1 of the fair value measurement hierarchy were recorded at fair value based on unadjusted quoted prices in active markets for identical investments. The Level 2 investments were recorded at fair value based on net asset value per unit of the investments, which used significant observable inputs although those investments were not traded publicly and did not have quoted market prices in active markets. The Level 3 investments were recorded at fair value based on the contract value of annuity products underlining guaranteed deposit accounts, which was calculated using discounted cash flow models. The contract value of these products represented deposits made to the contract, plus earnings at guaranteed crediting rates, less withdrawals and fees.

The following table sets forth the summary of the changes in the fair value of Level 3 investments for the years ended December 31, 2015 and 2014:



	For the Year Ended December 31,
	2015			2014
(in thousands)
Balance, beginning of year	$	1,144		$	602
Purchases	1,926			1,811
Transfers in	1,900			2,390
Disbursements	(3,688		)	(3,704		)
Investment income	4			45
Balance, end of year	$	1,286		$	1,144

Other Postretirement Benefits Plans

We sponsor two defined benefit plans: the Chesapeake Postretirement Plan and the FPU Medical Plan. The following table sets forth the funded status at December 31, 2015 and 2014 and the net periodic cost for the years ended December 31, 2015, 2014, and 2013:



	Chesapeake Postretirement Plan						FPU Medical Plan
At December 31,	2015			2014			2015			2014
(in thousands)
Change in benefit obligation:
Benefit obligation — beginning of year	$	1,238		$	1,262		$	1,712		$	1,519
Interest cost	42			39			57			69
Plan participants contributions	108			106			75			97
Actuarial loss (gain)	(58		)	6			(132		)	375
Benefits paid	(177		)	(175		)	(268		)	(348		)
Benefit obligation — end of year	1,153			1,238			1,444			1,712
Change in plan assets:
Fair value of plan assets — beginning of year	—			—			—			—
Employer contributions⁽¹⁾	69			69			193			251
Plan participants contributions	108			106			75			97
Benefits paid	(177		)	(175		)	(268		)	(348		)
Fair value of plan assets — end of year	—			—			—			—
Reconciliation:
Funded status	(1,153		)	(1,238		)	(1,444		)	(1,712		)
Accrued postretirement cost	$	(1,153	)	$	(1,238	)	$	(1,444	)	$	(1,712	)
Assumptions:
Discount rate	3.75		%	3.50		%	4.00		%	3.75		%


⁽¹⁾	The Chesapeake Postretirement Plan does not receive a Medicare Part-D subsidy. The FPU Medical Plan did not receive a significant subsidy for the post-merger period.

Net periodic postretirement benefit costs for 2015, 2014, and 2013 include the following components:



	Chesapeake Postretirement Plan									FPU Medical Plan
For the Years Ended December 31,	2015			2014			2013			2015			2014			2013
(in thousands)
Components of net periodic postretirement cost:
Interest cost	$	42		$	39		$	47		$	57		$	69		$	63
Amortization of:
Actuarial loss	72			55			74			—			—			—
Prior service cost	(77		)	(77		)	(77		)	—			—			—
Net periodic cost	37			17			44			57			69			63
Amortization of pre-merger regulatory asset	—			—			—			8			8			8
Net periodic cost	$	37		$	17		$	44		$	65		$	77		$	71
Assumptions
Discount rate	3.50		%	4.25		%	3.50		%	3.75		%	4.75		%	3.75		%

Similar to the FPU Pension Plan, continued amortization of the FPU postretirement benefit regulatory asset related to the unrecognized cost prior to the merger with Chesapeake Utilities was included in the net periodic cost. The unamortized balance of this regulatory asset was $38,000 and $46,000 at December 31, 2015 and 2014, respectively.

The following table presents the amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income/loss or as a regulatory asset as of December 31, 2015:



(in thousands)	Chesapeake Pension Plan		FPU Pension Plan		Chesapeake SERP		Chesapeake Postretirement Plan			FPU Medical Plan		Total
Prior service cost (credit)	$	—	$	—	$	—	$	(755	)	$	—	$	(755	)
Net loss	4,434		20,410		866		793			99		26,602
Total	$	4,434	$	20,410	$	866	$	38		$	99	$	25,847
Accumulated other comprehensive loss pre-tax⁽¹⁾	$	4,434	$	3,878	$	866	$	38		$	19	$	9,235
Post-merger regulatory asset	—		16,532		—		—			80		16,612
Subtotal	4,434		20,410		866		38			99		25,847
Pre-merger regulatory asset	—		2,826		—		—			38		2,864
Total unrecognized cost	$	4,434	$	23,236	$	866	$	38		$	137	$	28,711


⁽¹⁾	The total amount of accumulated other comprehensive loss recorded on our consolidated balance sheet as of December 31, 2015 is net of income tax benefits of $3.7 million.

Pursuant to a Florida PSC order, FPU continues to record as a regulatory asset a portion of the unrecognized pension and postretirement benefit costs after the merger with Chesapeake Utilities related to its regulated operations, which is included in the above table as a post-merger regulatory asset. FPU also continues to maintain and amortize a portion of the unrecognized pension and postretirement benefit costs prior to the merger with Chesapeake Utilities related to its regulated operations, which is shown as a pre-merger regulatory asset.

The amounts in accumulated other comprehensive income/loss and recorded as a regulatory asset for our pension and postretirement benefits plans that are expected to be recognized as a component of net benefit cost in 2016 are set forth in the following table:



(in thousands)	Chesapeake Pension Plan		FPU Pension Plan		Chesapeake SERP		Chesapeake Postretirement Plan			FPU Medical Plan		Total
Prior service cost (credit)	$	—	$	—	$	—	$	(77	)	$	—	$	(77	)
Net loss	$	412	$	512	$	87	$	67		$	—	$	1,078
Amortization of pre-merger regulatory asset	$	—	$	761	$	—	$	—		$	8	$	769

Assumptions

The assumptions used for the discount rate to calculate the benefit obligations of all the plans were based on the interest rates of high-quality bonds in 2015, reflecting the expected lives of the plans. In determining the average expected return on plan assets for each applicable plan, various factors, such as historical long-term return experience, investment policy and current and expected allocation, were considered. Since Chesapeake Utilities' plans and FPU’s plans have different expected plan lives, particularly in light of the lump-sum-payment option provided in the Chesapeake Pension Plan, different assumptions regarding discount rate and expected return on plan assets were selected for Chesapeake Utilities' and FPU’s plans. Since both pension plans are frozen with respect to additional years of service and compensation, the rate of assumed compensation increases is not applicable. We adopted a new mortality table (RP 2014), which was developed by the Society of Actuaries and published during 2014. In December of 2015, we adopted an updated mortality table (RP 2014 with Scale MP-2015).

The health care inflation rate for 2015 used to calculate the benefit obligation is 5.0 percent for medical and 6.0 percent for prescription drugs for the Chesapeake Postretirement Plan; and 5.0 percent for both medical and prescription drugs for the FPU Medical Plan. A one–percentage point increase in the health care inflation rate from the assumed rate would increase the accumulated postretirement benefit obligation by approximately $335,000 as of December 31, 2015, and would increase the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for 2015 by approximately $13,000. A one-percentage point decrease in the health care inflation rate from the assumed rate would decrease the accumulated postretirement benefit obligation by approximately $268,000 as of December 31, 2015, and would decrease the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for 2015 by approximately $10,000.

Estimated Future Benefit Payments

In 2016, we expect to contribute $505,000 and $1.6 million to the Chesapeake Pension Plan and FPU Pension Plan, respectively, and $151,000 to the Chesapeake SERP. We also expect to contribute $82,000 and $149,000 to the Chesapeake Postretirement Plan and FPU Medical Plan, respectively, in 2016. The schedule below shows the estimated future benefit payments for each of the plans previously described:



	Chesapeake Pension Plan⁽¹⁾		FPU Pension Plan⁽¹⁾		Chesapeake SERP⁽²⁾		Chesapeake Postretirement Plan⁽²⁾		FPU Medical Plan⁽²⁾
(in thousands)
2016	$	591	$	2,980	$	151	$	82	$	149
2017	$	717	$	3,000	$	150	$	80	$	130
2018	$	640	$	3,047	$	150	$	79	$	93
2019	$	686	$	3,129	$	148	$	79	$	100
2020	$	646	$	3,218	$	147	$	73	$	94
Years 2021 through 2025	$	4,706	$	17,469	$	960	$	322	$	424


⁽¹⁾	The pension plan is funded; therefore, benefit payments are expected to be paid out of the plan assets.


⁽²⁾	Benefit payments are expected to be paid out of our general funds.

Retirement Savings Plan

For the years ended December 31, 2015, 2014 and 2013, we sponsored a Retirement Savings Plan. Prior to January 1, 2014, we also sponsored a 401(k) SERP non-qualified supplemental executive retirement savings plan. That plan was merged with the Deferred Compensation Plan on January 1, 2014 to form the Non-Qualified Deferred Compensation Plan, which is described in the following section.

Our 401(k) plan is offered to all eligible employees who have completed three months of service, except for employees represented by a collective bargaining agreement that does not specifically provide for participation in the plan, non-resident aliens with no U.S. source income and individuals classified as consultants, independent contractors or leased employees. Effective January 1, 2011, we match 100 percent of eligible participants’ pre-tax contributions to the Retirement Savings Plan up to a maximum of six percent of eligible compensation. In addition, we may make a discretionary supplemental contribution to participants in the plan, without regard to whether or not they make pre-tax contributions. Beginning January 1, 2011, the employer matching contribution is made in cash and is invested based on a participant’s investment directions. Any supplemental employer contribution is generally made in our common stock. With respect to the employer match and supplemental employer contribution, employees are 100 percent vested after two years of service or upon reaching 55 years of age while still employed by us. Employees with one year of service are 20 percent vested and will become 100 percent vested after two years of service. Employees who do not make an election to contribute or do not opt out of the Retirement Savings Plan will be automatically enrolled at a deferral rate of three percent, and the automatic deferral rate will increase by one percent per year up to a maximum of six percent. All contributions and matched funds can be invested among the mutual funds available for investment.

Contributions to all of our retirement savings plans totaled $4.1 million, $4.1 million and $3.7 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there are 843,037 shares of our common stock reserved to fund future contributions to the Retirement Savings Plan.

Non-Qualified Deferred Compensation Plan

Effective January 1, 2014, our 401(k) SERP was amended, restated and renamed as the Chesapeake Utilities Corporation Non-Qualified Deferred Compensation Plan. In addition, the Deferred Compensation Plan was consolidated into this plan. As a result of these actions, the 401(k) SERP and the Deferred Compensation Plan are now administered as a single plan.

Members of our Board of Directors and executive officers designated by the Compensation Committee are eligible to participate in the Non-Qualified Deferred Compensation Plan. Directors can elect to defer any portion of their cash or stock compensation. Executive officers can defer up to 80 percent of their base compensation, cash bonuses or any amount of their stock bonuses (net of required withholdings). Executive officers may receive a matching contribution on their cash compensation deferrals up to six percent of their compensation, provided it does not duplicate a match they receive in the qualified 401(k) plan. Stock bonuses are not eligible for matching contributions. Participants are able to elect the payment of benefits to begin on a specified future date after the election is made in the form of a lump sum or annual installments for two to 15 years.

All obligations arising under the Non-Qualified Deferred Compensation Plan are payable from our general assets, although we have established a Rabbi Trust to informally fund the plan. Deferrals of cash compensation may be invested by the participants in various mutual funds (the same options that are available in the qualified plan). The participants are credited with gains or losses on those investments. Deferred stock compensation may not be diversified. The participants are credited with dividends on our common stock in the same amount that is received by all other stockholders. Such dividends are assumed to be reinvested into our common stock. Assets held in the Rabbi Trust had a fair value of $3.6 million and $3.7 million at December 31, 2015 and 2014, respectively. (See Note 9, Investments, for further details). The assets of the Rabbi Trust are at all times subject to the claims of our general creditors.

Deferrals of executive base compensation and bonuses and directors’ retainers and fees are paid in cash. All deferrals of executive performance shares, which represent deferred stock units, and directors’ stock retainers are paid in shares of our common stock, except that cash is paid in lieu of fractional shares. The value of our stock held in the Rabbi Trust is classified within the stockholders’ equity section of the consolidated balance sheet and has been accounted for in a manner similar to treasury stock. The amounts recorded under the Deferred Compensation Plan totaled $1.9 million and $1.3 million at December 31, 2015 and 2014, respectively.