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Employee benefit plans

12 Months Ended

Dec. 31, 2017

Pension and other postretirement benefit plans

The Company has noncontributory qualified 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, 2017 and 2016, and amounts recognized in the Consolidated Balance Sheets at December 31, 2017 and 2016, were as follows:



	Pension Benefits						Other Postretirement Benefits
	2017			2016			2017			2016
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	436,307		$	442,960		$	89,304		$	92,734
Service cost	—			—			1,508			1,647
Interest cost	16,207			17,218			3,265			3,688
Plan participants' contributions	—			—			1,368			1,405
Actuarial (gain) loss	19,119			1,882			1,781			(3,872		)
Benefits paid	(25,710		)	(25,753		)	(6,020		)	(6,298		)
Benefit obligation at end of year	445,923			436,307			91,206			89,304
Change in net plan assets:
Fair value of plan assets at beginning of year	333,509			332,667			82,846			82,593
Actual gain on plan assets	45,473			26,595			9,612			4,184
Employer contribution	1,112			—			933			962
Plan participants' contributions	—			—			1,368			1,405
Benefits paid	(25,710		)	(25,753		)	(6,020		)	(6,298		)
Fair value of net plan assets at end of year	354,384			333,509			88,739			82,846
Funded status - under	$	(91,539	)	$	(102,798	)	$	(2,467	)	$	(6,458	)
Amounts recognized in the Consolidated Balance Sheets at December 31:
Deferred charges and other assets - other	$	—		$	—		$	19,114		$	13,131
Other accrued liabilities	—			—			612			538
Deferred credits and other liabilities - other	91,539			102,798			20,969			19,051
Benefit obligation liabilities - net amount recognized	$	(91,539	)	$	(102,798	)	$	(2,467	)	$	(6,458	)
Amounts recognized in accumulated other comprehensive (income) loss or regulatory assets (liabilities) consist of:
Actuarial loss	$	186,486		$	198,668		$	13,423		$	17,470
Prior service credit	—			—			(11,632		)	(13,003		)
Total	$	186,486		$	198,668		$	1,791		$	4,467

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:



	2017		2016
	(In thousands)
Projected benefit obligation	$	445,923	$	436,307
Accumulated benefit obligation	$	445,923	$	436,307
Fair value of plan assets	$	354,384	$	333,509

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
	2017			2016			2015			2017			2016			2015
	(In thousands)
Components of net periodic benefit cost (credit):
Service cost	$	—		$	—		$	86		$	1,508		$	1,647		$	1,816
Interest cost	16,207			17,218			17,141			3,265			3,688			3,607
Expected return on assets	(20,528		)	(20,924		)	(22,254		)	(4,641		)	(4,533		)	(4,795		)
Amortization of prior service cost (credit)	—			—			36			(1,371		)	(1,371		)	(1,371		)
Recognized net actuarial loss	6,355			6,215			7,016			857			1,491			1,960
Curtailment loss	—			—			258			—			—			—
Net periodic benefit cost (credit), including amount capitalized	2,034			2,509			2,283			(382		)	922			1,217
Less amount capitalized	310			381			316			(370		)	(52		)	120
Net periodic benefit cost (credit)	1,724			2,128			1,967			(12		)	974			1,097
Other changes in plan assets and benefit obligations recognized in accumulated comprehensive (income) loss or regulatory assets (liabilities):
Net (gain) loss	(5,827		)	(3,789		)	8,257			(3,190		)	(3,523		)	(1,336		)
Amortization of actuarial loss	(6,355		)	(6,215		)	(7,016		)	(857		)	(1,491		)	(1,960		)
Amortization of prior service (cost) credit	—			—			(294		)	1,371			1,371			1,371
Total recognized in accumulated other comprehensive (income) loss or regulatory assets (liabilities)	(12,182		)	(10,004		)	947			(2,676		)	(3,643		)	(1,925		)
Total recognized in net periodic benefit cost (credit), accumulated other comprehensive (income) loss and regulatory assets (liabilities)	$	(10,458	)	$	(7,876	)	$	2,914		$	(2,688	)	$	(2,669	)	$	(828	)

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss and regulatory assets into net periodic benefit cost in 2018 is $7.0 million. The estimated net loss and prior service credit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss and regulatory assets into net periodic benefit cost in 2018 are $800,000 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
	2017		2016		2017		2016
Discount rate	3.38	%	3.83	%	3.41	%	3.86	%
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
	2017		2016		2017		2016
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	%

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, 2017, 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 20 percent to 25 percent equity securities and 75 percent to 80 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:



				2017					2016
Health care trend rate assumed for next year	7.5	%	–	8.5	%	8.6	%	–	10.7	%
Health care cost trend rate - ultimate				4.5	%				4.5	%
Year in which ultimate trend rate achieved				2024					2024

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, 2017:



	1 Percentage Point Increase		1 Percentage Point Decrease
	(In thousands)
Effect on total of service and interest cost components	$	306	$	(247	)
Effect on postretirement benefit obligation	$	5,433	$	(4,551	)

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, 2017 and 2016, 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, 2017, 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, 2017
	(In thousands)
Assets:
Cash equivalents	$	—	$	3,814	$	—	$	3,814
Equity securities:
U.S. companies	13,345		—		—		13,345
International companies	1,766		—		—		1,766
Collective and mutual funds*	171,822		67,749		—		239,571
Corporate bonds	—		74,956		—		74,956
Municipal bonds	—		16,839		—		16,839
U.S. Government securities	1,038		—		—		1,038
Total assets measured at fair value	$	187,971	$	163,358	$	—	$	351,329


*	Collective and mutual funds invest approximately 31 percent in common stock of international companies, 28 percent in corporate bonds, 19 percent in common stock of large-cap U.S. companies, 7 percent in cash equivalents, 1 percent in U.S. Government securities and 14 percent in other investments.



	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.

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, 2017, 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, 2017
	(In thousands)
Assets:
Cash equivalents	$	—	$	4,815	$	—	$	4,815
Equity securities:
U.S. companies	2,316		—		—		2,316
International companies	4		—		—		4
Insurance contract*	3		81,601		—		81,604
Total assets measured at fair value	$	2,323	$	86,416	$	—	$	88,739


*	The insurance contract invests approximately 38 percent in corporate bonds, 23 percent in common stock of large-cap U.S. companies, 21 percent in U.S. Government securities, 9 percent in mortgage-backed securities and 9 percent in other investments.



	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.

The Company expects to contribute approximately $17.7 million to its defined benefit pension plans and approximately $800,000 to its postretirement benefit plans in 2018.

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)
2018	$	25,111	$	5,490	$	152
2019	25,280		5,525		147
2020	25,587		5,396		141
2021	25,866		5,391		132
2022	26,185		5,470		123
2023 - 2027	130,994		27,106		454

Nonqualified benefit plans

In addition to the qualified defined pension benefit plans 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 $4.7 million, $1.8 million and $7.1 million in 2017, 2016 and 2015, 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 $102.5 million and $101.8 million at December 31, 2017 and 2016, respectively. The accumulated benefit obligation for these plans was $102.5 million and $101.8 million at December 31, 2017 and 2016, respectively. A weighted average discount rate of 3.20 percent and 3.56 percent at December 31, 2017 and 2016, respectively, was used to determine the benefit obligation. No rate of compensation increase was used to determine the benefit obligation at December 31, 2017 and 2016, due to the plans being froze. A discount rate of 3.56 percent and 3.77 percent for the years ended December 31, 2017 and 2016, respectively, and a rate of compensation increase of 4.00 percent for the year ended 2016 was used to determine net periodic benefit cost.

The amount of benefit payments for the unfunded, nonqualified benefit plans are expected to aggregate $7.1 million in 2018; $7.3 million in 2019; $7.7 million in 2020; $7.7 million in 2021; $7.0 million in 2022 and $37.0 million for the years 2023 through 2027.

In 2012, the Company established a nonqualified defined contribution plan for certain key management employees. Expenses incurred under this plan for 2017, 2016 and 2015 were $736,000, $395,000 and $207,000, respectively.

The Company had investments of $122.9 million and $111.0 million at December 31, 2017 and 2016, respectively, consisting of equity securities of $68.3 million and $62.5 million, respectively, life insurance carried on plan participants (payable upon the employee's death) of $36.5 million and $35.5 million, respectively, and other investments of $18.1 million and $13.0 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 $41.2 million in 2017, $40.9 million in 2016 and $36.8 million in 2015.

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 2017 and 2016 is for the plan's year-end at December 31, 2016, and December 31, 2015, 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		2017	2016		2017		2016		2015
					(In thousands)
Alaska Laborers-Employers Retirement Fund	91-6028298-001	Yellow as of 6/30/2017	Yellow as of 6/30/2016	Implemented	$	690	$	766	$	917	No	12/31/2018
Edison Pension Plan	93-6061681-001	Green	Green	No	12,725		6,242		5,517		No	6/30/2019
IBEW Local No. 82 Pension Plan	31-6127268-001	Green as of 6/30/2017	Green as of 6/30/2016	No	1,757		2,560		2,252		No	12/1/2019
IBEW Local 212 Pension Trust Fund	31-6127280-001	Green as of 4/30/2016	Yellow as of 4/30/2015	No	1,312		1,146		937		No	6/2/2019
IBEW Local No. 357 Pension Plan A	88-6023284-001	Green	Green	No	3,286		3,016		1,896		No	5/31/2018
IBEW Local 648 Pension Plan	31-6134845-001	Red as of 2/28/2017	Red as of 2/29/2016	Implemented	2,254		773		745		No	9/2/2018
Idaho Plumbers and Pipefitters Pension Plan	82-6010346-001	Green as of 5/31/2017	Green as of 5/31/2016	No	1,156		1,221		1,169		No	9/30/2019
Minnesota Teamsters Construction Division Pension Fund	41-6187751-001	Green as of 11/30/2016	Green as of 11/30/2015	No	826		690		737		No	4/30/2019
National Automatic Sprinkler Industry Pension Fund	52-6054620-001	Red	Red	Implemented	718		775		677		No	7/31/2018- 3/31/2021
National Electrical Benefit Fund	53-0181657-001	Green	Green	No	8,891		6,366		5,271		No	10/31/2017- 3/31/2021
Sheet Metal Workers' Pension Plan of Southern CA, AZ and NV	95-6052257-001	Yellow	Red	Implemented	1,016		1,087		714		No	6/30/2018
Southwest Marine Pension Trust	95-6123404-001	Red	Red	Implemented	48		50		26		No	1/31/2019
Other funds					22,066		19,835		18,254
Total contributions					$	56,745	$	44,527	$	39,112

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	2016 and 2015
IBEW Local 82 Pension Plan	2016 and 2015
IBEW Local 124 Pension Trust Fund	2016 and 2015
IBEW Local 212 Pension Trust Fund	2016 and 2015
IBEW Local 357 Pension Plan A	2016 and 2015
IBEW Local 648 Pension Plan	2016 and 2015
Idaho Plumbers and Pipefitters Pension Plan	2016 and 2015
International Union of Operating Engineers Local 701 Pension Trust Fund	2016 and 2015
Minnesota Teamsters Construction Division Pension Fund	2016 and 2015
Pension and Retirement Plan of Plumbers and Pipefitters Local 525	2016 and 2015

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 in the fourth quarter of 2016.

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 $51.7 million, $36.1 million and $31.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Amounts contributed in 2017, 2016 and 2015 to defined contribution multiemployer plans were $32.2 million, $23.8 million and $19.5 million, respectively.