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Benefit Plans
12 Months Ended
Dec. 31, 2012
Compensation and Retirement Disclosure [Abstract]  
Pension and Other Postretirement Benefits Disclosure
Benefit Plans
Pension Plans
San Jose Water Company sponsors a noncontributory defined benefit pension plan (the “Pension Plan”) for its eligible union and nonunion employees. Employees hired before March 31, 2008 are entitled to receive retirement benefits using a formula based on the employee’s three highest years of compensation (whether or not consecutive). For employees hired on or after March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest credits for each employee.
The Pension Plan is administered by a committee that is composed of an equal number of Company and union representatives (the “Committee”). The Committee has retained an investment consultant, presently Wells Fargo Advisors Financial Network, LLC, to assist it with, among other things, asset allocation strategy, investment policy advice, performance monitoring, and manager due diligence. Investment decisions have been delegated by the Committee to investment managers. Investment guidelines provided in the Investment Policy Statement require that at least 25% of plan assets be invested in fixed income securities. As of December 31, 2012, the plan assets consist of approximately 45% bonds, 8% cash equivalents, and 47% equities. Furthermore, equities are to be diversified by industry groups and selected to achieve a balance of long-term growth and income combined with a goal of long-term preservation of capital. Except as provided for in the prospectus of any co-mingled investments, investment managers may not invest in commodities and futures contracts, private placements, options, letter stock, speculative securities, nor may they hold more than 5% of assets of any one private corporation. Except as provided for in the prospectus of any co-mingled investments, fixed income assets may only be invested in bonds, commercial paper, and money market funds with acceptable ratings by Moody’s or Standard & Poor’s as defined by the Investment Policy Statement. The investment manager performance is reviewed regularly by the investment consultant who provides quarterly reports to the Committee for review.
Plan assets are marked to market at each measurement date, resulting in unrealized actuarial gains or losses. Unrealized actuarial gains and losses on pension assets are amortized over the expected future working lifetime of participants of 12.45 years for actuarial expense calculation purposes. Market losses in 2011 increased pension expense by approximately $649 in 2012 and market gains in 2010 decreased pension expense by approximately $303 in 2011.
Since the Pension Plan’s inception in 1984, the plan has achieved an 11.1% return on its investments while the applicable benchmark was 10.3% for the same period. The applicable benchmark is a weighted-average of returns for those benchmarks shown in the table below. For the 2012 fiscal year, the investment managers, following the required investment guidelines, achieved a 12.6% return on their investments, while the applicable benchmark was 11.5% for the same period.
Generally, it is expected of the investment managers that the performance of the assets held in the Pension Plan, computed on a total annual rate of return basis, should meet or exceed specific performance standards over a three-to-five-year period and/or full market cycle. These standards include a specific absolute and risk-adjusted performance standards over a three-to-five-year period and/or full market cycle.
San Jose Water Company calculates the market-related value of our defined benefit pension plan assets, which is defined under FASB ASC Topic 715—“Compensation—Retirement Benefits” as a balance used to calculate the expected return on plan assets, using fair value. Fair value for San Jose Water Company is based on quoted prices in active markets for identical assets and significant observable inputs.
San Jose Water Company has an Executive Supplemental Retirement Plan, which is a defined benefit plan under which San Jose Water Company will pay supplemental pension benefits to key executives in addition to the amounts received under the retirement plan. The annual cost of this plan has been included in the determination of the net periodic benefit cost shown below. The plan, which is unfunded, had a projected benefit obligation of $13,130 and $11,726 as of December 31, 2012 and 2011, respectively, and net periodic pension cost of $1,386, $1,241 and $1,209 for 2012, 2011 and 2010, respectively.
Other Postretirement Benefits
In addition to providing pension and savings benefits, San Jose Water Company provides health care and life insurance benefits for retired employees. The plan is a flat dollar plan which is unaffected by variations in health care costs.
Flexible Spending Plan
Effective February 1, 2004, San Jose Water Company established a Flexible Spending Account for its employees for the purpose of providing eligible employees with the opportunity to choose from among the fringe benefits available under the plan. The flexible spending plan is intended to qualify as a cafeteria plan under the provisions of the Internal Revenue Code Section 125. The flexible spending plan allows employees to save pre-tax income in a Health Care Spending Account (“HCSA”) and/or a Dependent Care Spending Account (“DCSA”) to help defray the cost of out-of-pocket medical and dependent care expenses. The annual maximum limit under the HCSA and DCSA plans is $2.5 and $5, respectively.
Medicare
In December 2003, federal legislation was passed reforming Medicare and introducing the Medicare Part D prescription drug program. San Jose Water Company determined that the legislation had no impact on its postretirement benefit plan under ASC Topic 715. Because San Jose Water Company has a union contract with its employees whereby San Jose Water Company provides medical benefits at a fixed cost to its retirees, San Jose Water Company’s medical costs for postretirement benefits is not affected by cost fluctuations resulting from the Medicare Part D prescription drug program.
Deferral Plan
San Jose Water Company sponsors a salary deferral plan that allows employees to defer and contribute a portion of their earnings to the plan. Contributions, not to exceed set limits, are matched by San Jose Water Company. San Jose Water Company contributions were $1,044, $1,001 and $962 in 2012, 2011 and 2010, respectively.
Special Deferral Election Plan and Deferral Election Program
SJW Corp. maintains a Special Deferral Election Plan allowing certain executives and a Deferral Election Program allowing non-employee directors to defer a portion of their earnings each year and to realize an investment return on those funds during the deferral period. Executives and non-employee directors have to make an election on the distribution and payment method of the deferrals before services are rendered. San Jose Water Company records the investment return on the deferred funds as compensation expense once the deferrals are made. Executives and non-employee directors had deferred $2,501, $2,306 and $2,103 to the plan as of December 31, 2012, 2011 and 2010, respectively. San Jose Water Company recorded an investment return of $88, $117 and $98 as of December 31, 2012, 2011 and 2010, respectively, on the deferred funds as compensation expense.
Assumptions Utilized on Actuarial Calculations
Net periodic cost for the defined benefit plans and other postretirement benefits was calculated using the following weighted-average assumptions:

 
Pension Benefits
 
Other Benefits
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
%
  
%
  
%
 
%
 
%
 
%
Discount rate
4.34
 
5.48
 
5.92/5.51
*
4.25
 
5.40
 
5.83
Expected return on plan assets
7.00
 
7.00
 
8.00/7.00
*
7.00
 
7.00
 
8.00
Rate of compensation increase
4.00
  
4.00
  
4.00
 
N/A
 
N/A
 
N/A

* San Jose Water Company updated its expected return on plan assets assumption in November 2010 to reflect the approved redistribution of investments held between equity and fixed income securities in the plan asset portfolio. As a result, San Jose Water Company remeasured the plan assets and benefit obligation as of that date and the discount rate applied was updated accordingly.
The expected rate of return on plan assets was determined based on a review of historical returns, both for the Pension Plan and for medium- to large-sized defined benefit pension funds with similar asset allocations. This review generated separate expected returns for each asset class. These expected future returns were then blended based on the Pension Plan's target asset allocation.
Benefit obligations for the defined benefit plans and other postretirement benefits were calculated using the following weighted-average assumptions as of December 31:

 
Pension Benefits
 
Other Benefits
 
2012
 
2011
 
2012
 
2011
 
%
 
%
 
%
 
%
Discount rate
3.92
 
4.34
 
3.80
 
4.25
Rate of compensation increase
4.00
 
4.00
 
N/A
 
N/A


San Jose Water Company utilized each plan's projected benefit stream in conjunction with the Citigroup Pension Discount Curve in determining the discount rate used in calculating the pension and other postretirement benefits liabilities at the measurement date.

Net Periodic Pension Costs
Net periodic costs for the defined benefit plans and other postretirement benefits for the years ended December 31 was as follows:

 
Pension Benefits
 
Other Benefits
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
4,288

 
3,516

 
3,171

 
$
339

 
273

 
229

Interest cost
5,349

 
5,313

 
5,231

 
452

 
467

 
433

Expected return on assets
(4,442
)
 
(4,289
)
 
(3,599
)
 
(151
)
 
(129
)
 
(130
)
Amortization of transition obligation

 

 

 
1

 
57

 
57

Amortization of prior service cost
414

 
450

 
470

 
197

 
197

 
197

Recognized actuarial loss
3,857

 
2,147

 
2,129

 
195

 
96

 
48

Net periodic benefit cost
$
9,466

 
7,137

 
7,402

 
$
1,033

 
961

 
834



Reconciliation of Funded Status
For the defined benefit plans and other postretirement benefits, the benefit obligation is the projected benefit obligation and the accumulated benefit obligation, respectively. The actuarial present value of benefit obligations and the funded status of San Jose Water Company’s defined benefit pension and other postretirement plans as of December 31 were as follows:

 
Pension Benefits
 
Other Benefits
 
2012
 
2011
 
2012
 
2011
Change in benefit obligation
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
123,904

 
102,783

 
$
10,796

 
8,731

Service cost
4,288

 
3,516

 
339

 
273

Interest cost
5,349

 
5,313

 
452

 
467

Actuarial loss
11,090

 
15,732

 
994

 
1,641

Benefits paid
(3,632
)
 
(3,440
)
 
(338
)
 
(316
)
Benefit obligation at end of year
$
140,999

 
123,904

 
$
12,243

 
10,796

Change in plan assets
 
 
 
 
 
 
 
Fair value of assets at beginning of year
$
62,763

 
58,761

 
$
2,321

 
1,993

Actual return on plan assets
6,645

 
(27
)
 
838

 
(20
)
Employer contributions
9,766

 
7,469

 
596

 
567

Benefits paid
(3,632
)
 
(3,440
)
 
(277
)
 
(219
)
Fair value of plan assets at end of year
75,542

 
62,763

 
3,478

 
2,321

Funded status at end of year
$
(65,457
)
 
(61,141
)
 
$
(8,765
)
 
(8,475
)


The amounts recognized on the balance sheet as of December 31 were as follows:

 
Pension Benefits
 
Other Benefits
 
2012
 
2011
 
2012
 
2011
Current liabilities
$
737

 
705

 
$
60

 
56

Noncurrent liabilities
64,720

 
60,436

 
8,705

 
8,419

 
$
65,457

 
61,141

 
$
8,765

 
8,475



San Jose Water Company recorded a regulatory asset, including a gross-up for taxes, on the projected benefit obligation of the postretirement benefit plans as follows:

 
2012
 
2011
Funded status of obligation
$
74,222

 
69,616

Accrued benefit cost
(6,904
)
 
(6,827
)
Amount to be recovered in future rates
67,318

 
62,789

Tax gross-up
46,315

 
43,199

Regulatory asset
$
113,633

 
105,988



The estimated amortization for the year ended December 31, 2013 is as follows:

 
Pension Benefits
 
Other Benefits
Amortization of prior service cost
$
376

 
197

Amortization of loss
3,920

 
219

Total
$
4,296

 
416



Plan Assets
Plan assets for the years ended December 31 were as follows:

 
Pension Benefits
 
Other Benefits
 
2012
 
2011
 
2012
 
2011
Fair value of assets at end of year:
 
 
 
 
 
 
 
Debt securities
$
33,922

 
26,271

 
$
1,168

 
938

 
45
%
 
42
%
 
33
%
 
40
%
Equity securities
35,352

 
32,653

 
1,522

 
921

 
47
%
 
52
%
 
44
%
 
40
%
Cash and equivalents
6,268

 
3,839

 
788

 
462

 
8
%
 
6
%
 
23
%
 
20
%
Total
$
75,542

 
62,763

 
$
3,478

 
2,321



The following tables summarize the fair values of plan assets by major categories as of December 31, 2012 and 2011:

 
 
 
 
 
Fair Value Measurements at December 31, 2012
Asset Category
Benchmark
 
Total
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
 
 
$
7,056

 
$
7,056

 
$

 
$

Actively Managed (a):
 
 
 
 
 
 
 
 
 
U.S. Large Cap Equity
Russell 1000, Russell 1000 Growth, Russell 1000 Value
 
22,749

 
22,749

 

 

U.S. Mid Cap Equity
Russell Mid Cap,
Russell Mid Cap Growth, Russell Mid Cap Value
 
3,989

 
3,989

 

 

U.S. Small Cap Equity
Russell 2000, Russell 2000 Growth, Russell 2000 Value
 
2,174

 
2,174

 

 

Non-U.S. Large Cap Equity
MSCI EAFE
 
4,169

 
4,169

 

 

REIT
NAREIT—Equity REIT’s
 
3,792

 

 
3,792

 

Fixed Income (b)
(b)
 
35,091

 

 
35,091

 

Total
 
 
$
79,020

 
$
40,137

 
$
38,883

 
$

___________________________________
The Plan has a current target allocation of 55% invested in a diversified array of equity securities to provide long-term capital appreciation and 45% invested in a diversified array of fixed income securities to provide preservation of capital plus generation of income.
(a)
Actively managed portfolio of securities with the goal to exceed the stated benchmark performance.
(b)
Actively managed portfolio of fixed income securities with the goal to exceed the Barclays 1-5 Year Government/Credit, Barclays Intermediate Government/Credit, and Merrill Lynch Preferred Stock Fixed Rate.

 
 
 
 
 
Fair Value Measurements at December 31, 2011
Asset Category
Benchmark
 
Total
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
 
 
$
4,301

 
$
4,301

 
$

 
$

Actively Managed (a):
 
 
 
 
 
 
 
 
 
U.S. Large Cap Equity
Russell 1000 Growth
 
3,716

 
3,716

 

 

U.S. Small Mid Cap Equity
Russell 2500
 
1,814

 
1,814

 

 

U.S. Small Cap Equity
Russell 2000
 
6,303

 
6,303

 

 

Emerging Market Equity
MSCI Emerging
Markets Net
 
3,547

 
3,547

 

 

Non-U.S. Large Cap Equity
MSCI EAFE Net
 
4,271

 
4,271

 

 

Passive Index Fund ETFs (b):
 
 
 
 
 
 
 
 
 
U.S. Large Cap Equity
S&P 500/Russell 1000 Growth
 
5,525

 
5,525

 

 

U.S. Mid Cap Equity
Russell Mid Cap
 
69

 
69

 

 

U.S. Small Mid Cap Equity
Russell 2500
 
617

 
617

 

 

U.S. Small Cap Equity
Russell 2000
 
143

 
143

 

 

Non-U.S. Large Cap Equity
MSCI EAFE Net
 
4,356

 
4,356

 

 

REIT
Nareit—Equity REITS
 
3,213

 

 
3,213

 

Fixed Income (c)
(c)
 
27,209

 

 
27,209

 

Total
 
 
$
65,084

 
$
34,662

 
$
30,422

 
$

___________________________________
The Plan has a current target allocation of 55% invested in a diversified array of equity securities to provide long-term capital appreciation and 45% invested in a diversified array of fixed income securities to provide preservation of capital plus generation of income.
(a)
Actively managed portfolio of securities with the goal to exceed the stated benchmark performance.
(b)
Open-ended fund of securities with the goal to track the stated benchmark performance.
(c)
Actively managed portfolio of fixed income securities with the goal to exceed the Barclays Capital Aggregate Bond, Barclays Capital 1-3 Year Government/Credit, and Merrill Lynch High Yield Master II performance.

In 2013, San Jose Water Company expects to make required and discretionary cash contributions of up to $10,300 to the pension plan and other post retirement benefit plan.
Benefits expected to be paid in the next five years and in the aggregate for the five years thereafter are:

 
Pension Plan
 
Other Postretirement
Benefit Plan
2013
$
4,523

 
$
416

2014
4,697

 
441

2015
4,914

 
475

2016
5,185

 
511

2017
5,458

 
544

2018 - 2022
31,438

 
3,193