Retirement and Post-Retirement Employee Benefit Plans

We have both funded and unfunded noncontributory defined benefit plans that together cover most of our employees. We also maintain post-retirement plans that provide health care benefits to retired employees. Finally, we sponsor a defined contribution plan that covers substantially all employees. These plans are discussed in further detail below.

As a rate regulated entity, we generally recover our pension costs in our rates over a period of up to 15 years. The amounts that have not yet been recognized in net periodic pension cost that have been recorded as regulatory assets or liabilities are as follows:



	Defined Benefit Plan			Supplemental Executive Retirement Plans		Postretirement Plans			Total
	(In thousands)
September 30, 2018
Unrecognized prior service (credit) cost	$	(1,047	)	$	—	$	1,298		$	251
Unrecognized actuarial (gain) loss	(2,310		)	33,912		(100,966		)	(69,364		)
	$	(3,357	)	$	33,912	$	(99,668	)	$	(69,113	)
September 30, 2017
Unrecognized prior service (credit) cost	$	(1,278	)	$	—	$	1,309		$	31
Unrecognized actuarial (gain) loss	62,388			42,170		(87,196		)	17,362
	$	61,110		$	42,170	$	(85,887	)	$	17,393

Defined Benefit Plans

Employee Pension Plan

As of September 30, 2018, we maintained one defined benefit plan, the Atmos Energy Corporation Pension Account Plan (the Plan). The assets of the Plan are held within the Atmos Energy Corporation Master Retirement Trust (the Master Trust). The Plan is a cash balance pension plan that was established effective January 1999 and covers most of the employees of Atmos Energy that were hired on or before September 30, 2010. The plan was closed to new participants effective October 1, 2010.

Opening account balances were established for participants as of January 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Plan credits an allocation to each participant’s account at the end of each year according to a formula based on the participant’s age, service and total pay (excluding incentive pay). In addition, at the end of each year, a participant’s account is credited with interest on the employee’s prior year account balance. Participants are fully vested in their account balances after three years of service and may choose to receive their account balances as a lump sum or an annuity.

Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974, including the funding requirements under the Pension Protection Act of 2006 (PPA). However, additional voluntary contributions are made from time to time as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

During fiscal 2018 and 2017 we contributed $7.0 million and $5.0 million in cash to the Plan to achieve a desired level of funding while maximizing the tax deductibility of this payment. Based upon market conditions at September 30, 2018, the current funded position of the Plan and the funding requirements under the PPA, we do not anticipate a minimum required contribution for fiscal 2019. However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels.

We make investment decisions and evaluate performance of the assets in the Master Trust on a medium-term horizon of at least three to five years. We also consider our current financial status when making recommendations and decisions regarding the Master Trust’s assets. Finally, we strive to ensure the Master Trust’s assets are appropriately invested to maintain an acceptable level of risk and meet the Master Trust’s long-term asset investment policy adopted by the Board of Directors.

To achieve these objectives, we invest the Master Trust’s assets in equity securities, fixed income securities, interests in commingled pension trust funds, other investment assets and cash and cash equivalents. Investments in equity securities are diversified among the market’s various subsectors in an effort to diversify risk and maximize returns. Fixed income securities are invested in investment grade securities. Cash equivalents are invested in securities that either are short term (less than 180 days) or readily convertible to cash with modest risk.

The following table presents asset allocation information for the Master Trust as of September 30, 2018 and 2017.



	Targeted Allocation Range	Actual Allocation September 30
Security Class	Targeted Allocation Range	2018	2017
Domestic equities	35%-55%	44.3%	43.9%
International equities	10%-20%	15.4%	17.2%
Fixed income	5%-30%	16.9%	10.6%
Company stock	0%-15%	12.7%	11.8%
Other assets	0%-20%	10.7%	16.5%

At September 30, 2018 and 2017, the Plan held 716,700 shares of our common stock which represented 12.7 percent and 11.8 percent of total Plan assets. These shares generated dividend income for the Plan of approximately $1.4 million and $1.7 million during fiscal 2018 and 2017.

Our employee pension plan expenses and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data. We review the estimates and assumptions underlying our employee pension plans annually based upon a September 30 measurement date. The development of our assumptions is fully described in our significant accounting policies in Note 2. The actuarial assumptions used to determine the pension liability for the Plan was determined as of September 30, 2018 and 2017 and the actuarial assumptions used to determine the net periodic pension cost for the Plan was determined as of September 30, 2017, 2016 and 2015. On October 23, 2018, the Society of Actuaries released its annually-updated mortality improvement scale for pension plans incorporating new assumptions surrounding life expectancies in the United States. As of September 30, 2018, we updated our assumed mortality rates to incorporate the updated mortality table.

Additional assumptions are presented in the following table:



	Pension Liability				Pension Cost
	2018		2017		2018		2017		2016
Discount rate	4.38	%	3.89	%	3.89	%	3.73	%	4.55	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%
Expected return on plan assets	6.75	%	6.75	%	6.75	%	7.00	%	7.00	%

The following table presents the Plan’s accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2018 and 2017:



	2018			2017
	(In thousands)
Accumulated benefit obligation	$	478,750		$	505,355
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	533,455		$	545,480
Service cost	17,264			18,109
Interest cost	20,803			20,443
Actuarial (gain) loss	(29,087		)	(16,347		)
Benefits paid	(37,716		)	(34,230		)
Benefit obligation at end of year	504,719			533,455
Change in plan assets:
Fair value of plan assets at beginning of year	508,244			473,950
Actual return on plan assets	54,163			63,524
Employer contributions	7,000			5,000
Benefits paid	(37,716		)	(34,230		)
Fair value of plan assets at end of year	531,691			508,244
Reconciliation:
Funded status	26,972			(25,211		)
Unrecognized prior service cost	—			—
Unrecognized net loss	—			—
Net amount recognized	$	26,972		$	(25,211	)

Net periodic pension cost for the Plan for fiscal 2018, 2017 and 2016 is recorded as operating expense and included the following components:



	Fiscal Year Ended September 30
	2018			2017			2016
	(In thousands)
Components of net periodic pension cost:
Service cost	$	17,264		$	18,109		$	16,419
Interest cost	20,803			20,443			23,193
Expected return on assets	(27,666		)	(27,975		)	(27,522		)
Amortization of prior service credit	(231		)	(231		)	(226		)
Recognized actuarial loss	9,114			12,744			10,693
Net periodic pension cost	$	19,284		$	23,090		$	22,557

The following table sets forth by level, within the fair value hierarchy, the Plan's assets at fair value as of September 30, 2018 and 2017. As required by authoritative accounting literature, assets are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The methods used to determine fair value for the assets held by the Plan are fully described in Note 2. Investments in our common/collective trusts and limited partnerships that are measured at net asset value per share equivalent are not classified in the fair value hierarchy. The net asset value amounts presented are intended to reconcile the fair value hierarchy to the total investments. In addition to the assets shown below, the Plan had net accounts receivable of $2.0 million and $0.6 million at September 30, 2018 and 2017, which materially approximates fair value due to the short-term nature of these assets.



	Assets at Fair Value as of September 30, 2018
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Common stocks	$	197,577	$	—	$	—	$	197,577
Money market funds	—		19,153		—		19,153
Registered investment companies	50,895		—		—		50,895
Government securities:
Mortgage-backed securities	—		18,821		—		18,821
U.S. treasuries	23,071		868		—		23,939
Corporate bonds	—		46,498		—		46,498
Total investments at fair value	$	271,543	$	85,340	$	—	356,883
Investments measured at net asset value:
Common/collective trusts ⁽¹⁾							108,391
Limited partnerships ⁽¹⁾							64,399
Total investments at fair value							$	529,673



	Assets at Fair Value as of September 30, 2017
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Common stocks	$	164,910	$	—	$	—	$	164,910
Money market funds	—		9,588		—		9,588
Registered investment companies	64,102		—		—		64,102
Government securities:
Mortgage-backed securities	—		15,664		—		15,664
U.S. treasuries	5,129		822		—		5,951
Corporate bonds	—		32,314		—		32,314
Total assets in the fair value hierarchy	$	234,141	$	58,388	$	—	292,529
Investments measured at net asset value:
Common/collective trusts ⁽¹⁾							150,976
Limited partnerships ⁽¹⁾							64,135
Total investments at fair value							$	507,640


(1)	The fair value of our common/collective trusts and limited partnerships are measured using the net asset value per share practical expedient. There are no redemption restrictions, redemption notice periods or unfunded commitments for these investments. The redemption frequency is daily.

Supplemental Executive Retirement Plans

We have three nonqualified supplemental plans which provide additional pension, disability and death benefits to our officers, division presidents and certain other employees of the Company.

The first plan is referred to as the Supplemental Executive Benefits Plan (SEBP) and covers our officers, division presidents and certain other employees of the Company who were employed on or before August 12, 1998. The SEBP is a defined benefit arrangement which provides a benefit equal to 75 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SEBP.

In August 1998, we adopted the Supplemental Executive Retirement Plan (SERP) (formerly known as the Performance-Based Supplemental Executive Benefits Plan), which covers all officers or division presidents selected to participate in the plan between August 12, 1998 and August 5, 2009 and any corporate officer who was appointed to the Management Committee through December 31, 2016. The SERP is a defined benefit arrangement which provides a benefit equal to 60 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SERP.

Effective August 5, 2009, we adopted a new defined benefit Supplemental Executive Retirement Plan (the 2009 SERP), for corporate officers, division presidents or any other employees selected at the discretion of the Board. Under the 2009 SERP, a nominal account has been established for each participant, to which the Company contributes at the end of each calendar year an amount equal to ten percent (25 percent for members of the Management Committee appointed on or after January 1, 2017) of the total of each participant’s base salary and cash incentive compensation earned during each prior calendar year, beginning December 31, 2009. The benefits vest after three years of service and attainment of age 55 and earn interest credits at the same annual rate as the Company’s Pension Account Plan (currently 4.69%).

Due to the retirement of certain executives, during fiscal 2018 we recognized a one-time settlement charge of $4.2 million associated with our SERP and paid $13.9 million in lump sums in relation to the retirements.

Similar to our employee pension plans, we review the estimates and assumptions underlying our supplemental plans annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for the supplemental plans were determined as of September 30, 2018 and 2017 and the actuarial assumptions used to determine the net periodic pension cost for the supplemental plans were determined as of September 30, 2017, 2016 and 2015. These assumptions are presented in the following table:



	Pension Liability				Pension Cost
	2018		2017		2018		2017		2016
Discount rate⁽¹⁾	4.38	%	3.89	%	4.08	%	3.73	%	4.55	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%


(1)	Reflects a weighted average discount rate for pension cost for fiscal 2018 due to settlements during the year.

The following table presents the supplemental plans’ accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2018 and 2017:



	2018			2017
	(In thousands)
Accumulated benefit obligation	$	116,943		$	130,070
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	134,480		$	142,574
Service cost	1,332			2,756
Interest cost	4,988			4,744
Actuarial (gain) loss	(1,020		)	(2,452		)
Benefits paid	(4,523		)	(4,588		)
Settlements	(13,887		)	(8,554		)
Benefit obligation at end of year	121,370			134,480
Change in plan assets:
Fair value of plan assets at beginning of year	—			—
Employer contribution	18,410			13,142
Benefits paid	(4,523		)	(4,588		)
Settlements	(13,887		)	(8,554		)
Fair value of plan assets at end of year	—			—
Reconciliation:
Funded status	(121,370		)	(134,480		)
Unrecognized prior service cost	—			—
Unrecognized net loss	—			—
Accrued pension cost	$	(121,370	)	$	(134,480	)

Assets for the supplemental plans are held in separate rabbi trusts. At September 30, 2018 and 2017, assets held in the rabbi trusts consisted of available-for-sale securities of $46.5 million and $42.9 million, which are included in our fair value disclosures in Note 14.

Net periodic pension cost for the supplemental plans for fiscal 2018, 2017 and 2016 is recorded as operating expense and included the following components:



	Fiscal Year Ended September 30
	2018		2017		2016
	(In thousands)
Components of net periodic pension cost:
Service cost	$	1,332	$	2,756	$	2,371
Interest cost	4,988		4,744		5,185
Recognized actuarial loss	3,079		4,251		2,586
Settlements	4,159		2,685		—
Net periodic pension cost	$	13,558	$	14,436	$	10,142

Estimated Future Benefit Payments

The following benefit payments for our defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years:



	Pension Plan		Supplemental Plans
	(In thousands)
2019	$	32,603	$	10,475
2020	33,509		24,778
2021	35,838		4,597
2022	37,176		20,882
2023	38,684		12,735
2024-2028	206,563		43,070

Postretirement Benefits

We sponsor the Retiree Medical Plan for Retirees and Disabled Employees of Atmos Energy Corporation (the Atmos Retiree Medical Plan). This plan provides medical and prescription drug protection to all qualified participants based on their date of retirement. The Atmos Retiree Medical Plan provides different levels of benefits depending on the level of coverage chosen by the participants and the terms of predecessor plans; however, we generally pay 80 percent of the projected net claims and administrative costs and participants pay the remaining 20 percent. Effective January 1, 2015, for employees who had not met the participation requirements by September 30, 2009, the contribution rates for the Company are limited to a three percent cost increase in claims and administrative costs each year, with the participant responsible for the additional costs.

Generally, our funding policy is to contribute annually an amount in accordance with the requirements of ERISA. However, additional voluntary contributions are made annually as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We expect to contribute between $10 million and $20 million to our postretirement benefits plan during fiscal 2019.

We maintain a formal investment policy with respect to the assets in our postretirement benefits plan to ensure the assets funding the postretirement benefit plan are appropriately invested to maintain an acceptable level of risk. We also consider our current financial status when making recommendations and decisions regarding the postretirement benefits plan.

We currently invest the assets funding our postretirement benefit plan in diversified investment funds which consist of common stocks, preferred stocks and fixed income securities. The diversified investment funds may invest up to 75 percent of assets in common stocks and convertible securities. The following table presents asset allocation information for the postretirement benefit plan assets as of September 30, 2018 and 2017.



	Actual Allocation September 30
Security Class	2018	2017
Diversified investment funds	97.5%	97.5%
Cash and cash equivalents	2.5%	2.5%

Similar to our employee pension and supplemental plans, we review the estimates and assumptions underlying our postretirement benefit plan annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for our postretirement plan were determined as of September 30, 2018 and 2017 and the actuarial assumptions used to determine the net periodic pension cost for the postretirement plan were determined as of September 30, 2017, 2016 and 2015. The assumptions are presented in the following table:



	Postretirement Liability				Postretirement Cost
	2018		2017		2018		2017		2016
Discount rate	4.38	%	3.89	%	3.89	%	3.73	%	4.55	%
Expected return on plan assets	5.33	%	4.29	%	4.29	%	4.45	%	4.45	%
Initial trend rate	6.50	%	7.00	%	7.00	%	7.50	%	7.50	%
Ultimate trend rate	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%
Ultimate trend reached in	2022		2022		2022		2022		2021

The following table presents the postretirement plan’s benefit obligation and funded status as of September 30, 2018 and 2017:



	2018			2017
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	274,098		$	279,222
Service cost	12,078			12,436
Interest cost	10,907			10,679
Plan participants’ contributions	4,720			4,936
Actuarial gain	(17,252		)	(21,750		)
Benefits paid	(18,565		)	(13,970		)
Plan amendments	—			2,545
Benefit obligation at end of year	265,986			274,098
Change in plan assets:
Fair value of plan assets at beginning of year	184,790			158,977
Actual return on plan assets	10,997			21,160
Employer contributions	17,419			13,687
Plan participants’ contributions	4,720			4,936
Benefits paid	(18,565		)	(13,970		)
Fair value of plan assets at end of year	199,361			184,790
Reconciliation:
Funded status	(66,625		)	(89,308		)
Unrecognized transition obligation	—			—
Unrecognized prior service cost	—			—
Unrecognized net loss	—			—
Accrued postretirement cost	$	(66,625	)	$	(89,308	)

Net periodic postretirement cost for fiscal 2018, 2017 and 2016 is recorded as operating expense and included the components presented below.



	Fiscal Year Ended September 30
	2018			2017			2016
	(In thousands)
Components of net periodic postretirement cost:
Service cost	$	12,078		$	12,436		$	10,823
Interest cost	10,907			10,679			12,424
Expected return on assets	(8,006		)	(7,185		)	(6,264		)
Amortization of transition obligation	—			—			82
Amortization of prior service cost (credit)	11			(1,644		)	(1,644		)
Recognized actuarial gain	(6,473		)	(2,827		)	(2,167		)
Net periodic postretirement cost	$	8,517		$	11,459		$	13,254

Assumed health care cost trend rates have a significant effect on the amounts reported for the plan. A one-percentage point change in assumed health care cost trend rates would have the following effects on the latest actuarial calculations:



	One-Percentage Point Increase		One-Percentage Point Decrease
	(In thousands)
Effect on total service and interest cost components	$	4,228	$	(3,377	)
Effect on postretirement benefit obligation	$	38,633	$	(31,872	)

We are currently recovering other postretirement benefits costs through our regulated rates in substantially all of our service areas under accrual accounting as prescribed by accounting principles generally accepted in the United States. Other postretirement benefits costs have been specifically addressed in rate orders in each jurisdiction served by our Kentucky/Mid-States, West Texas, Mid-Tex and Mississippi Divisions as well as our Kansas jurisdiction and Atmos Pipeline – Texas or have been included in a rate case and not disallowed. Management believes that this accounting method is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses.

The following tables set forth by level, within the fair value hierarchy, the Retiree Medical Plan’s assets at fair value as of September 30, 2018 and 2017. The methods used to determine fair value for the assets held by the Retiree Medical Plan are fully described in Note 2.



	Assets at Fair Value as of September 30, 2018
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Money market funds	$	—	$	5,003	$	—	$	5,003
Registered investment companies	194,358		—		—		194,358
Total investments at fair value	$	194,358	$	5,003	$	—	$	199,361



	Assets at Fair Value as of September 30, 2017
	Level 1		Level 2		Level 3		Total
	(In thousands)
Investments:
Money market funds	$	—	$	4,534	$	—	$	4,534
Registered investment companies	180,256		—		—		180,256
Total investments at fair value	$	180,256	$	4,534	$	—	$	184,790

Estimated Future Benefit Payments

The following benefit payments paid by us, retirees and prescription drug subsidy payments for our postretirement benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years. Company payments for fiscal 2018 include contributions to our postretirement plan trusts.



	Company Payments		Retiree Payments		Subsidy Payments		Total Postretirement Benefits
	(In thousands)
2019	$	14,407	$	3,532	$	—	$	17,939
2020	13,363		3,742		—		17,105
2021	13,572		3,975		—		17,547
2022	14,503		4,412		—		18,915
2023	15,405		4,832		—		20,237
2024-2028	88,120		29,514		—		117,634

Defined Contribution Plan

The Atmos Energy Corporation Retirement Savings Plan and Trust (the Retirement Savings Plan) covers substantially all employees and is subject to the provisions of Section 401(k) of the Internal Revenue Code. Effective January 1, 2007, employees automatically become participants of the Retirement Savings Plan on the date of employment. Participants may elect a salary reduction up to a maximum of 65 percent of eligible compensation, as defined by the Plan, not to exceed the maximum allowed by the Internal Revenue Service. New participants are automatically enrolled in the Plan at a contribution rate of four percent of eligible compensation, from which they may opt out. We match 100 percent of a participant’s contributions, limited to four percent of the participant’s salary. Participants are eligible to receive matching contributions after completing one year of service, in which they are immediately vested. Participants are also permitted to take out a loan against their accounts subject to certain restrictions. Employees hired on or after October 1, 2010 participate in the enhanced plan in which participants receive a fixed annual contribution of four percent of eligible earnings to their Retirement Savings Plan account. Participants will continue to be eligible for company matching contributions of up to four percent of their eligible earnings and will be fully vested in the fixed annual contribution after three years of service.

Matching and fixed annual contributions to the Retirement Savings Plan are expensed as incurred and amounted to $16.2 million, $15.4 million and $15.8 million for fiscal years 2018, 2017 and 2016. At September 30, 2018 and 2017, the Retirement Savings Plan held 3.2 percent and 3.7 percent of our outstanding common stock.