Employee Benefit Plans

Pension and other postretirement benefit plans

The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. The Company uses a measurement date of December 31 for all of its pension and postretirement benefit plans.

Prior to 2013, defined pension plan benefits and accruals for all nonunion and certain union plans were frozen. On June 30, 2015, an additional union plan was frozen. As of June 30, 2015, all of the Company's defined pension plans were frozen. These employees were eligible to receive additional defined contribution plan benefits.

Effective January 1, 2010, eligibility to receive retiree medical benefits was modified at certain of the Company's businesses. Employees who had attained age 55 with 10 years of continuous service by December 31, 2010, will be provided the current retiree medical insurance benefits or can elect the new benefit, if desired, regardless of when they retire. All other current employees must meet the new eligibility criteria of age 60 and 10 years of continuous service at the time they retire. These employees will be eligible for a specified company funded Retiree Reimbursement Account. Employees hired after December 31, 2009, will not be eligible for retiree medical benefits at certain of the Company's businesses.

In 2012, the Company modified health care coverage for certain retirees. Effective January 1, 2013, post-65 coverage was replaced by a fixed-dollar subsidy for retirees and spouses to be used to purchase individual insurance through an exchange.

Changes in benefit obligation and plan assets for the years ended December 31, 2016 and 2015, and amounts recognized in the Consolidated Balance Sheets at December 31, 2016 and 2015, were as follows:



	Pension Benefits						Other Postretirement Benefits
	2016			2015			2016			2015
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	442,960		$	475,337		$	92,734		$	99,012
Service cost	—			86			1,647			1,816
Interest cost	17,218			17,141			3,688			3,607
Plan participants' contributions	—			—			1,405			1,408
Actuarial (gain) loss	1,882			(24,875		)	(3,872		)	(5,873		)
Benefits paid	(25,753		)	(24,729		)	(6,298		)	(7,236		)
Benefit obligation at end of year	436,307			442,960			89,304			92,734
Change in net plan assets:
Fair value of plan assets at beginning of year	332,667			354,363			82,593			87,586
Actual gain (loss) on plan assets	26,595			(10,879		)	4,184			258
Employer contribution	—			13,912			962			577
Plan participants' contributions	—			—			1,405			1,408
Benefits paid	(25,753		)	(24,729		)	(6,298		)	(7,236		)
Fair value of net plan assets at end of year	333,509			332,667			82,846			82,593
Funded status - under	$	(102,798	)	$	(110,293	)	$	(6,458	)	$	(10,141	)
Amounts recognized in the Consolidated Balance Sheets at December 31:
Other assets (noncurrent)	$	—		$	—		$	13,131		$	5,095
Other accrued liabilities (current)	—			—			(538		)	(421		)
Other liabilities (noncurrent)	(102,798		)	(110,293		)	(19,051		)	(14,815		)
Net amount recognized	$	(102,798	)	$	(110,293	)	$	(6,458	)	$	(10,141	)
Amounts recognized in accumulated other comprehensive (income) loss consist of:
Actuarial loss	$	198,668		$	208,671		$	17,470		$	22,484
Prior service cost (credit)	—			—			(13,003		)	(14,374		)
Total	$	198,668		$	208,671		$	4,467		$	8,110

Employer contributions and benefits paid in the preceding table include only those amounts contributed directly to, or paid directly from, plan assets. Accumulated other comprehensive (income) loss in the above table includes amounts related to regulated operations, which are recorded as regulatory assets (liabilities) and are expected to be reflected in rates charged to customers over time. For more information on regulatory assets (liabilities), see Note 4.

Unrecognized pension actuarial losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of assets are amortized over the average life expectancy of plan participants for frozen plans. The market-related value of assets is determined using a five-year average of assets.

The pension plans all have accumulated benefit obligations in excess of plan assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for these plans at December 31 were as follows:



	2016		2015
	(In thousands)
Projected benefit obligation	$	436,307	$	442,960
Accumulated benefit obligation	$	436,307	$	442,960
Fair value of plan assets	$	333,509	$	332,667

Components of net periodic benefit cost (credit) for the Company's pension and other postretirement benefit plans for the years ended December 31 were as follows:



	Pension Benefits									Other Postretirement Benefits
	2016			2015			2014			2016			2015			2014
	(In thousands)
Components of net periodic benefit cost (credit):
Service cost	$	—		$	86		$	129		$	1,647		$	1,816		$	1,518
Interest cost	17,218			17,141			17,682			3,688			3,607			3,521
Expected return on assets	(20,924		)	(22,254		)	(21,218		)	(4,533		)	(4,795		)	(4,617		)
Amortization of prior service cost (credit)	—			36			71			(1,371		)	(1,371		)	(1,393		)
Recognized net actuarial loss	6,215			7,016			4,869			1,491			1,960			649
Curtailment loss	—			258			—			—			—			—
Net periodic benefit cost (credit), including amount capitalized	2,509			2,283			1,533			922			1,217			(322		)
Less amount capitalized	381			316			388			(52		)	120			(21		)
Net periodic benefit cost (credit)	2,128			1,967			1,145			974			1,097			(301		)
Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss:
Net (gain) loss	(3,789		)	8,257			77,238			(3,523		)	(1,336		)	15,114
Amortization of actuarial loss	(6,215		)	(7,016		)	(4,869		)	(1,491		)	(1,960		)	(649		)
Amortization of prior service (cost) credit	—			(294		)	(71		)	1,371			1,371			1,393
Total recognized in accumulated other comprehensive (income) loss	(10,004		)	947			72,298			(3,643		)	(1,925		)	15,858
Total recognized in net periodic benefit cost (credit) and accumulated other comprehensive (income) loss	$	(7,876	)	$	2,914		$	73,443		$	(2,669	)	$	(828	)	$	15,557

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2017 is $6.4 million. The estimated net loss and prior service credit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2017 are $900,000 and $1.4 million, respectively. Prior service cost is amortized on a straight line basis over the average remaining service period of active participants.

Weighted average assumptions used to determine benefit obligations at December 31 were as follows:



	Pension Benefits				Other Postretirement Benefits
	2016		2015		2016		2015
Discount rate	3.83	%	4.00	%	3.86	%	4.06	%
Expected return on plan assets	6.75	%	6.75	%	5.75	%	5.75	%
Rate of compensation increase	N/A		N/A		3.00	%	3.00	%

Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31 were as follows:



	Pension Benefits				Other Postretirement Benefits
	2016		2015		2016		2015
Discount rate	4.00	%	3.70	%	4.06	%	3.74	%
Expected return on plan assets	6.75	%	7.00	%	5.75	%	6.00	%
Rate of compensation increase	N/A		N/A		3.00	%	3.00	%

The expected rate of return on pension plan assets is based on a targeted asset allocation range determined by the funded ratio of the plan. As of December 31, 2016, the expected rate of return on pension plan assets is based on the targeted asset allocation range of 40 percent to 50 percent equity securities and 50 percent to 60 percent fixed-income securities and the expected rate of return from these asset categories. The expected rate of return on other postretirement plan assets is based on the targeted asset allocation range of 30 percent to 40 percent equity securities and 60 percent to 70 percent fixed-income securities and the expected rate of return from these asset categories. The expected return on plan assets for other postretirement benefits reflects insurance-related investment costs.

Health care rate assumptions for the Company's other postretirement benefit plans as of December 31 were as follows:



				2016					2015
Health care trend rate assumed for next year	8.6	%	–	10.7	%	4.0	%	–	8.0	%
Health care cost trend rate - ultimate				4.5	%	5.0	%	–	6.0	%
Year in which ultimate trend rate achieved				2024					2021

The Company's other postretirement benefit plans include health care and life insurance benefits for certain retirees. The plans underlying these benefits may require contributions by the retiree depending on such retiree's age and years of service at retirement or the date of retirement. The accounting for the health care plans anticipates future cost-sharing changes that are consistent with the Company's expressed intent to generally increase retiree contributions each year by the excess of the expected health care cost trend rate over six percent.

Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one percentage point change in the assumed health care cost trend rates would have had the following effects at December 31, 2016:



	1 Percentage Point Increase		1 Percentage Point Decrease
	(In thousands)
Effect on total of service and interest cost components	$	255	$	(210	)
Effect on postretirement benefit obligation	$	5,741	$	(4,834	)

Outside investment managers manage the Company's pension and postretirement assets. The Company's investment policy with respect to pension and other postretirement assets is to make investments solely in the interest of the participants and beneficiaries of the plans and for the exclusive purpose of providing benefits accrued and defraying the reasonable expenses of administration. The Company strives to maintain investment diversification to assist in minimizing the risk of large losses. The Company's policy guidelines allow for investment of funds in cash equivalents, fixed-income securities and equity securities. The guidelines prohibit investment in commodities and futures contracts, equity private placement, employer securities, leveraged or derivative securities, options, direct real estate investments, precious metals, venture capital and limited partnerships. The guidelines also prohibit short selling and margin transactions. The Company's practice is to periodically review and rebalance asset categories based on its targeted asset allocation percentage policy.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The ASC establishes a hierarchy for grouping assets and liabilities, based on the significance of inputs.

The estimated fair values of the Company's pension plans' assets are determined using the market approach.

The carrying value of the pension plans' Level 2 cash equivalents approximates fair value and is determined using observable inputs in active markets or the net asset value of shares held at year end, which is determined using other observable inputs including pricing from outside sources.

The estimated fair value of the pension plans' Level 1 equity securities is based on the closing price reported on the active market on which the individual securities are traded.

The estimated fair value of the pension plans' Level 1 and Level 2 collective and mutual funds are based on the net asset value of shares held at year end, based on either published market quotations on active markets or other known sources including pricing from outside sources.

The estimated fair value of the pension plans' Level 2 corporate and municipal bonds is determined using other observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers, future cash flows and other reference data.

The estimated fair value of the pension plans' Level 1 U.S. Government securities are valued based on quoted prices on an active market.

The estimated fair value of the pension plans' Level 2 U.S. Government securities are valued mainly using other observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers, to be announced prices, future cash flows and other reference data. Some of these securities are valued using pricing from outside sources.

Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value. For the years ended December 31, 2016 and 2015, there were no transfers between Levels 1 and 2.

The fair value of the Company's pension plans' assets (excluding cash) by class were as follows:



	Fair Value Measurements at December 31, 2016, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2016
	(In thousands)
Assets:
Cash equivalents	$	—	$	6,347	$	—	$	6,347
Equity securities:
U.S. companies	11,348		—		—		11,348
International companies	1,584		—		—		1,584
Collective and mutual funds*	162,055		64,052		—		226,107
Corporate bonds	—		68,677		—		68,677
Municipal bonds	—		11,002		—		11,002
U.S. Government securities	4,352		2,044		—		6,396
Total assets measured at fair value	$	179,339	$	152,122	$	—	$	331,461


*	Collective and mutual funds invest approximately 29 percent in common stock of international companies, 21 percent in corporate bonds, 20 percent in common stock of large-cap U.S. companies, 8 percent in cash equivalents, 7 percent in U.S. Government securities and 15 percent in other investments.



	Fair Value Measurements at December 31, 2015, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2015
	(In thousands)
Assets:
Cash equivalents	$	—	$	8,379	$	—	$	8,379
Equity securities:
U.S. companies	15,135		—		—		15,135
International companies	2,332		—		—		2,332
Collective and mutual funds*	154,400		63,568		—		217,968
Corporate bonds	—		62,145		—		62,145
Municipal bonds	—		11,680		—		11,680
U.S. Government securities	5,288		6,823		—		12,111
Total assets measured at fair value	$	177,155	$	152,595	$	—	$	329,750


*	Collective and mutual funds invest approximately 29 percent in common stock of international companies, 19 percent in common stock of large-cap U.S. companies, 16 percent in corporate bonds, 16 percent in cash equivalents, 6 percent in common stock of mid-cap U.S. companies and 14 percent in other investments.

The estimated fair values of the Company's other postretirement benefit plans' assets are determined using the market approach.

The estimated fair value of the other postretirement benefit plans' Level 2 cash equivalents is valued at the net asset value of shares held at year end, based on published market quotations on active markets, or using other known sources including pricing from outside sources.

The estimated fair value of the other postretirement benefit plans' Level 1 equity securities is based on the closing price reported on the active market on which the individual securities are traded.

The estimated fair value of the other postretirement benefit plans' Level 2 insurance contract is based on contractual cash surrender values that are determined primarily by investments in managed separate accounts of the insurer. These amounts approximate fair value. The managed separate accounts are valued based on other observable inputs or corroborated market data.

The fair value of the Company's other postretirement benefit plans' assets (excluding cash) by asset class were as follows:



	Fair Value Measurements at December 31, 2016, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2016
	(In thousands)
Assets:
Cash equivalents	$	—	$	250	$	—	$	250
Equity securities:
U.S. companies	2,328		—		—		2,328
International companies	5		—		—		5
Insurance contract*	—		80,263		—		80,263
Total assets measured at fair value	$	2,333	$	80,513	$	—	$	82,846


*	The insurance contract invests approximately 38 percent in corporate bonds, 25 percent in common stock of large-cap U.S. companies, 20 percent in U.S. Government securities, 9 percent in mortgage-backed securities and 8 percent in other investments.



	Fair Value Measurements at December 31, 2015, Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2015
	(In thousands)
Assets:
Cash equivalents	$	—	$	3,261	$	—	$	3,261
Equity securities:
U.S. companies	2,274		—		—		2,274
International companies	9		—		—		9
Insurance contract*	—		77,044		—		77,044
Total assets measured at fair value	$	2,283	$	80,305	$	—	$	82,588


*	The insurance contract invests approximately 36 percent in corporate bonds, 22 percent in U.S. Government securities, 19 percent in common stock of large-cap U.S. companies, 10 percent in mortgage-backed securities and 13 percent in other investments.

The Company expects to contribute approximately $2.0 million to its defined benefit pension plans and approximately $900,000 to its postretirement benefit plans in 2017.

The following benefit payments, which reflect future service, as appropriate, and expected Medicare Part D subsidies are as follows:



Years	Pension Benefits		Other Postretirement Benefits		Expected Medicare Part D Subsidy
			(In thousands)
2017	$	24,798	$	5,410	$	168
2018	25,054		5,573		165
2019	25,271		5,603		160
2020	25,616		5,500		154
2021	25,987		5,511		146
2022 - 2026	132,224		27,956		568

Nonqualified benefit plans

In addition to the qualified plan defined pension benefits reflected in the table at the beginning of this note, the Company also has unfunded, nonqualified benefit plans for executive officers and certain key management employees that generally provide for defined benefit payments at age 65 following the employee's retirement or, upon death, to their beneficiaries for a 15-year period. In February 2016, the Company froze the unfunded, nonqualified defined benefit plans to new participants and eliminated benefit increases. Vesting for participants not fully vested was retained. The Company's net periodic benefit cost for these plans was $1.8 million, $7.1 million and $6.6 million in 2016, 2015 and 2014, respectively, which reflects a curtailment gain of $3.3 million in the first quarter of 2016 . The total projected benefit obligation for these plans was $101.8 million and $110.8 million at December 31, 2016 and 2015, respectively. The accumulated benefit obligation for these plans was $101.8 million and $104.6 million at December 31, 2016 and 2015, respectively. A weighted average discount rate of 3.56 percent and 3.77 percent at December 31, 2016 and 2015, respectively, and a rate of compensation increase of 4.00 percent at December 31, 2015, were used to determine benefit obligations. No rate of compensation increase was used to determine the benefit obligation at December 31, 2016, due to the plans being froze. A discount rate of 3.77 percent and 3.51 percent for the years ended December 31, 2016 and 2015, respectively, and a rate of compensation increase of 4.00 percent and 4.00 percent for the years ended December 31, 2016 and 2015, respectively, were used to determine net periodic benefit cost.

The amount of benefit payments for the unfunded, nonqualified benefit plans are expected to aggregate $6.7 million in 2017; $7.1 million in 2018; $7.3 million in 2019; $7.7 million in 2020; $7.7 million in 2021 and $36.4 million for the years 2022 through 2026.

In 2012, the Company established a nonqualified defined contribution plan for certain key management employees. Expenses incurred under this plan for 2016, 2015 and 2014 were $395,000, $207,000 and $104,000, respectively.

The Company had investments of $111.0 million and $105.2 million at December 31, 2016 and 2015, respectively, consisting of equity securities of $62.5 million and $54.2 million, respectively, life insurance carried on plan participants (payable upon the employee's death) of $35.5 million and $34.3 million, respectively, and other investments of $13.0 million and $16.7 million, respectively. The Company anticipates using these investments to satisfy obligations under these plans.

Defined contribution plans

The Company sponsors various defined contribution plans for eligible employees and the costs incurred under these plans were $40.9 million in 2016, $36.8 million in 2015 and $34.4 million in 2014.

Multiemployer plans

The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:


•	Assets contributed to the MEPP by one employer may be used to provide benefits to employees of other participating employers


•	If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers


•	If the Company chooses to stop participating in some of its MEPPs, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability

The Company's participation in these plans is outlined in the following table. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2016 and 2015 is for the plan's year-end at December 31, 2015, and December 31, 2014, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded.



	EIN/Pension Plan Number	Pension Protection Act Zone Status		FIP/RP Status Pending/Implemented	Contributions						Surcharge Imposed	Expiration Date of Collective Bargaining Agreement
Pension Fund		2016	2015		2016		2015		2014
					(In thousands)
Alaska Laborers-Employers Retirement Fund	91-6028298-001	Yellow as of 6/30/2016	Yellow as of 6/30/2015	Implemented	$	766	$	917	$	666	No	12/31/2016
Edison Pension Plan	93-6061681-001	Green as of 12/31/2016	Green as of 12/31/2015	No	6,242		5,517		9,061		No	12/31/2017
IBEW Local No. 82 Pension Plan	31-6127268-001	Green as of 6/30/2016	Red as of 6/30/2015	Implemented	2,560		2,252		1,392		No	12/1/2019
IBEW Local No. 357 Pension Plan A	88-6023284-001	Green	Green	No	3,016		1,896		3,575		No	5/31/2018
IBEW Local 648 Pension Plan	31-6134845-001	Red as of 2/29/2016	Red as of 2/28/2015	Implemented	773		745		1,110		No	9/2/2018
Idaho Plumbers and Pipefitters Pension Plan	82-6010346-001	Green as of 5/31/2016	Green as of 5/31/2015	No	1,221		1,169		1,125		No	9/30/2019
Local Union 212 IBEW Pension Trust Fund	31-6127280-001	Yellow as of 4/30/2016	Yellow as of 4/30/2015	Implemented	1,146		937		568		No	6/2/2019
National Automatic Sprinkler Industry Pension Fund	52-6054620-001	Red as of 12/31/2016	Red as of 12/31/2015	Implemented	775		677		608		No	7/31/2018- 3/31/2021
National Electrical Benefit Fund	53-0181657-001	Green	Green	No	6,366		5,271		6,476		No	1/1/2017- 5/31/2020
Operating Engineers Local 800 & WY Contractors Association, Inc. Pension Plan for Wyoming**	83-6011320-001	Red as of 12/31/2016	Red as of 12/31/2015	Implemented	—		—		68		No	10/31/2005*
Sheet Metal Workers' Pension Plan of Southern CA, AZ and NV	95-6052257-001	Red as of 12/31/2016	Red as of 12/31/2015	Implemented	1,087		714		676		No	6/30/2017
Southwest Marine Pension Trust	95-6123404-001	Red	Red	Implemented	50		26		31		No	1/31/2019
Other funds					20,525		18,991		17,461
Total contributions					$	44,527	$	39,112	$	42,817


*	Plan includes collective bargaining agreements which have expired. The agreements contain provisions that automatically renew the existing contracts in lieu of a new negotiated collective bargaining agreement.


**	The Company withdrew from the plan as of October 26, 2014, as discussed later.

The Company was listed in the plans' Forms 5500 as providing more than 5 percent of the total contributions for the following plans and plan years:



Pension Fund	Year Contributions to Plan Exceeded More Than 5 Percent of Total Contributions (as of December 31 of the Plan's Year-End)
Edison Pension Plan	2015 and 2014
IBEW Local No. 82 Pension Plan	2015 and 2014
Local Union No. 124 IBEW Pension Trust Fund	2015 and 2014
Local Union 212 IBEW Pension Trust Fund	2015 and 2014
IBEW Local Union No. 357 Pension Plan A	2015 and 2014
IBEW Local 573 Pension Plan	2014
IBEW Local 648 Pension Plan	2015 and 2014
Idaho Plumbers and Pipefitters Pension Plan	2015 and 2014
Minnesota Teamsters Construction Division Pension Fund	2015 and 2014
Operating Engineers Local 800 & WY Contractors Association, Inc. Pension Plan for Wyoming*	2014
Pension and Retirement Plan of Plumbers and Pipefitters Union Local No. 525	2015 and 2014


*	The Company withdrew from the plan as of October 26, 2014, as discussed later.

On September 24, 2014, Knife River provided notice to the Operating Engineers Local 800 & WY Contractors Association, Inc. Pension Plan for Wyoming that it was withdrawing from the plan effective October 26, 2014. In the fourth quarter of 2016, Knife River and the plan entered into a settlement agreement whereby the plan administrator assessed Knife River’s final withdrawal liability with quarterly payments of approximately $42,000 until all benefits are satisfied. Knife River discounted the expected future payments. Based on this calculation, Knife River adjusted its liability accrual from $16.4 million to $5.2 million.

The Company also contributes to a number of multiemployer other postretirement plans under the terms of collective-bargaining agreements that cover its union-represented employees. These plans provide benefits such as health insurance, disability insurance and life insurance to retired union employees. Many of the multiemployer other postretirement plans are combined with active multiemployer health and welfare plans. The Company's total contributions to its multiemployer other postretirement plans, which also includes contributions to active multiemployer health and welfare plans, were $36.1 million, $31.4 million and $34.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Amounts contributed in 2016, 2015 and 2014 to defined contribution multiemployer plans were $23.8 million, $19.5 million and $22.0 million, respectively.