EMPLOYEE BENEFIT PLANS

In October 2014, Energen’s Board of Directors elected to freeze and terminate its qualified defined benefit pension plan. A plan amendment adopted in October 2014 closes the plan to new entrants, effective November 1, 2014, and freezes benefit accruals after December 31, 2014. Energen intends to terminate the plan on January 31, 2015. We anticipate distributing benefits under the plan in late 2015 or early 2016 pending receipt of a determination letter from the Internal Revenue Service and completion of certain administrative actions.

The Company’s non-qualified supplemental retirement plans will also be amended to terminate effective December 31, 2014. Distributions under the plans are subject to certain payment restrictions under the Internal Revenue Code and Treasury regulations and payments to plan participants will be made in each of the first quarters of 2015 and 2016. In connection with the termination of these plans, the Company has also reclassified approximately $17.1 million as of September 30, 2014 of its investment in a Rabbi Trust from other long term assets to prepayments and other assets in the accompanying balance sheets to reflect its intent to utilize these assets to fund the estimated payments in the first quarter of 2015.

In October 2014, Energen’s Board of Directors amended and restated the Employee Saving Plan to make certain benefit design changes effective January 1, 2015. The benefit design changes are expected to include an increase in the percentage of Company match and other contributions.

Effective April 30, 2014, Energen Corporation separated one of its defined benefit non-contributory pension plans into an Energen and an Alagasco plan reflecting the separation of assets and obligations in accordance with ERISA provisions. Energen remeasured our plans using current assumptions.

The components of net periodic benefit cost for Energen’s defined benefit non-contributory pension plan and certain nonqualified supplemental pension plans were as follows:



	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2014			2013			2014			2013
Components of net periodic benefit cost:
Service cost	$	1,902		$	1,326		$	5,157		$	3,980
Interest cost	1,157			1,093			3,974			3,269
Expected long-term return on assets	(1,157		)	(1,321		)	(4,067		)	(3,966		)
Actuarial loss	1,296			1,760			4,115			5,417
Prior service cost amortization	63			62			177			185
Settlement charge	370			18			4,043			161
Net periodic expense	$	3,631		$	2,938		$	13,399		$	9,046

Energen is required to make approximately $7.7 million in contributions for 2014 to the qualified pension plans. This estimate includes required contributions for the Alagasco pension plans through August 31, 2014. In January 2014, we made a $3.0 million contribution and have utilized funding credits, as established under Internal Revenue Code Section 430(f), to meet the remaining required funding. We also made an additional discretionary contribution of $10 million to the Energen qualified pension plan in October 2014. We do not anticipate that the funded status of the qualified pension plans will fall below statutory thresholds requiring accelerated funding or constraints on benefit levels or plan administration. We may also make additional discretionary contributions to the qualified pension plan depending on the amount and timing of employee retirements and market conditions. For the three months and nine months ended September 30, 2014, Energen made benefit payments aggregating $74,000 and $1.0 million, respectively, to retirees from the non-qualified supplemental retirement plans and expects to make additional benefit payments of approximately $5.2 million through the remainder of 2014. In the third quarter of 2014, Energen incurred a settlement charge of $26,000 for the payment of lump sums from the non-qualified supplemental retirement plans. Also in the third quarter of 2014, Energen incurred settlement charges of $0.3 million for the payment of lump sums from the qualified defined benefit pension plan. In the second quarter of 2014, Energen incurred settlement charges of $0.4 million for the payment of lump sums from the qualified defined benefit pension plans. In the first quarter of 2014, Energen incurred settlement charges of $6.9 million for the payment of lump sums from the qualified defined benefit pension plans of which $3.7 million is included in discontinued operations. Also in the first quarter of 2014, Energen incurred a settlement charge of $0.4 million for the payment of lump sums from the non-qualified supplemental retirement plans. In the third quarter of 2013, Energen incurred a settlement charge of $18,000 for the payment of lump sums from the non-qualified supplemental retirement plans. In the first quarter of 2013, Energen incurred a settlement charge of $0.1 million for the payment of lump sums from the non-qualified supplemental retirement plans.

Also effective April 30, 2014, Energen Corporation separated its postretirement health care and life insurance benefit plans into separate plans established for Energen and Alagasco employees in accordance with ERISA provisions. Energen remeasured our plan using current assumptions.

The components of net periodic postretirement benefit expense for Energen’s postretirement benefit plan were as follows:



	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2014			2013			2014			2013
Components of net periodic benefit cost:
Service cost	$	87		$	111		$	206		$	334
Interest cost	137			175			587			526
Expected long-term return on assets	(246		)	(212		)	(1,016		)	(638		)
Actuarial gain	(151		)	—			(572		)	—
Transition amortization	9			63			39			189
Net periodic (income) expense	$	(164	)	$	137		$	(756	)	$	411

There are no required contributions to the postretirement benefit plan during 2014.