5. Employee Postretirement Benefits

Pension Benefits

TEC is a participant in the comprehensive retirement plans of TECO Energy, including a qualified, non-contributory defined benefit retirement plan that covers substantially all employees. Benefits are based on the employees’ age, years of service and final average earnings. Where appropriate and reasonably determinable, the portion of expenses, income, gains or losses allocable to TEC are presented. Otherwise, such amounts presented reflect the amount allocable to all participants of the TECO Energy retirement plans.

Amounts disclosed for pension benefits in the following tables and discussion also include the fully-funded obligations for the SERP, which is a non-qualified, non-contributory defined benefit retirement plan available to certain members of senior management.

Other Postretirement Benefits

TECO Energy and its subsidiaries currently provide certain postretirement health care and life insurance benefits (Other Benefits) for most employees retiring after age 50 meeting certain service requirements. Where appropriate and reasonably determinable, the portion of expenses, income, gains or losses allocable to TEC are presented. Otherwise, such amounts presented reflect the amount allocable to all participants of the TECO Energy postretirement health care and life insurance plans. Postretirement benefit levels are substantially unrelated to salary. TECO Energy reserves the right to terminate or modify the plans in whole or in part at any time.

MMA added prescription drug coverage to Medicare, with a 28% tax-free subsidy to encourage employers to retain their prescription drug programs for retirees, along with other key provisions. TECO Energy’s current retiree medical program for those eligible for Medicare (generally over age 65) includes coverage for prescription drugs. TECO Energy has determined that prescription drug benefits available to certain Medicare-eligible participants under its defined-dollar-benefit postretirement health care plan are at least “actuarially equivalent” to the standard drug benefits that are offered under Medicare Part D.

The FASB issued accounting guidance and disclosure requirements related to the MMA. The guidance requires (a) that the effects of the federal subsidy be considered an actuarial gain and recognized in the same manner as other actuarial gains and losses and (b) certain disclosures for employers that sponsor postretirement health care plans that provide prescription drug benefits.

In March 2010, the Patient Protection and Affordable Care Act and a companion bill, the Health Care and Education Reconciliation Act, collectively referred to as the Health Care Reform Acts, were signed into law. Among other things, both acts reduced the tax benefits available to an employer that receives the Medicare Part D subsidy, resulting in a write-off of any associated deferred tax asset. As a result, TEC reduced its deferred tax asset and recorded a corresponding regulatory asset in 2010. This amount was trued up in 2013. TEC is amortizing the regulatory asset over the remaining average service life at the time of 12 years. Additionally, the Health Care Reform Acts contain other provisions that may impact TECO Energy’s obligation for retiree medical benefits. In particular, the Health Care Reform Acts include a provision that imposes an excise tax on certain high-cost plans beginning in 2018, whereby premiums paid over a prescribed threshold will be taxed at a 40% rate. TECO Energy and its affiliates do not currently believe the excise tax or other provisions of the Health Care Reform Acts will materially increase the PBO. TECO Energy will continue to monitor and assess the impact of the Health Care Reform Acts, including any clarifying regulations issued to address how the provisions are to be implemented, on its future results of operations, cash flows or financial position.

Effective January 1, 2013, TECO Energy implemented an EGWP for its post-65 retiree prescription drug plan. The EGWP is a private Medicare Part D plan designed to provide benefits that are at least equivalent to Medicare Part D. The EGWP reduces net periodic benefit cost by taking advantage of rebate and discount enhancements provided under the Health Care Reform Acts, which are greater than the subsidy payments previously received by TECO Energy under Medicare Part D for its post-65 retiree prescription drug plan. Effective January 1, 2015, TECO Energy changed its post-65 retiree coverage for medical benefits to a Medicare Advantage plan insured by Aetna. This will result in a lower claims cost by taking advantage of the government subsidies available for that plan.

Obligations and Funded Status

TEC recognizes in its statement of financial position the over-funded or under-funded status of its allocated portion of TECO Energy’s postretirement benefit plans. This status is measured as the difference between the fair value of plan assets and the PBO in the case of its defined benefit plan, or the APBO in the case of its other postretirement benefit plan. Changes in the funded status are reflected, net of estimated tax benefits, in benefit liabilities and regulatory assets. The results of operations are not impacted.

The following table provides a detail of the change in TECO Energy’s benefit obligations and change in plan assets for combined pension plans (pension benefits) and TECO Energy’s Florida-based other postretirement benefit plan (other benefits).

TECO Energy	Pension Benefits						Other Benefits ⁽²⁾
Obligations and Funded Status
(millions)	2016			2015			2016			2015
Change in benefit obligation
Net benefit obligation at beginning of year	$	732.9		$	728.9		$	172.3		$	174.3
Service cost		18.8			20.9			1.8			1.9
Interest cost		30.8			30.3			7.4			7.0
Plan participants’ contributions		0.0			0.0			2.6			2.1
Plan amendments		1.2			0.0			0.0			0.0
Plan curtailment		1.3			0.0			0.0			0.0
Plan settlement		(2.1	)		0.0			0.0			0.0
Benefits paid		(69.5	)		(53.0	)		(13.9	)		(13.4	)
Actuarial loss (gain)		56.3			5.8			5.0			0.4
Net benefit obligation at end of year	$	769.7		$	732.9		$	175.2		$	172.3

Change in plan assets
Fair value of plan assets at beginning of year	$	625.4		$	648.0		$	0.0		$	0.0
Actual return on plan assets		55.3			(25.5	)		0.0			0.0
Employer contributions		37.4			55.0			(2.6	)		(2.1	)
Employer direct benefit payments		2.9			0.9			13.9			13.4
Plan participants’ contributions		0.0			0.0			2.6			2.1
Plan settlement		(2.1	)		0.0			0.0			0.0
Benefits paid		(68.7	)		(53.0	)		(13.9	)		(13.4	)
Direct benefit payments		(0.8	)		0.0			0.0			0.0
Fair value of plan assets at end of year ⁽¹⁾	$	649.4		$	625.4		$	0.0		$	0.0

(1)	The MRV of plan assets is used as the basis for calculating the EROA component of periodic pension expense. MRV reflects the fair value of plan assets adjusted for experience gains and losses (i.e. the differences between actual investment returns and expected returns) spread over five years.

(2)	Represent amounts for TECO Energy’s Florida-based other postretirement benefit plan.

At December 31, the aggregate financial position for TECO Energy pension plans and Florida-based other postretirement plans with benefit obligations in excess of plan assets was as follows:

TECO Energy	Pension Benefits						Other Benefits ⁽¹⁾
Funded Status
(millions)	2016			2015			2016			2015
Benefit obligation (PBO/APBO)	$	769.7		$	732.9		$	175.2		$	172.3
Less: Fair value of plan assets		649.4			625.4			0.0			0.0
Funded status at end of year	$	(120.3	)	$	(107.5	)	$	(175.2	)	$	(172.3	)

(1)	Represent amounts for TECO Energy’s Florida-based other postretirement benefit plan.

The accumulated benefit obligation for TECO Energy consolidated defined benefit pension plans was $723.9 million at December 31, 2016 and $686.9 million at December 31, 2015.

The amounts recognized in TEC’s Consolidated Balance Sheets for pension and other postretirement benefit obligations and plan assets at December 31 were as follows:

TEC	Pension Benefits						Other Benefits
Amounts recognized in balance sheet
(millions)	2016			2015			2016			2015
Accrued benefit costs and other current liabilities	$	(0.7	)	$	(0.6	)	$	(9.5	)	$	(9.2	)
Deferred credits and other liabilities		(80.0	)		(69.3	)		(138.8	)		(142.3	)
	$	(80.7	)	$	(69.9	)	$	(148.3	)	$	(151.5	)

Unrecognized gains and losses and prior service credits and costs are recorded in regulatory assets for TEC. The following table provides a detail of the unrecognized gains and losses and prior service credits and costs.

TEC	Pension Benefits				Other Benefits
Amounts recognized in regulatory assets
(millions)	2016		2015		2016			2015
Net actuarial loss (gain)	$	236.1	$	208.2	$	50.5		$	47.2
Prior service cost (credit)		0.7		0.0		(15.1	)		(17.0	)
Amount recognized	$	236.8	$	208.2	$	35.4		$	30.2

Assumptions used to determine benefit obligations at December 31:

	Pension Benefits						Other Benefits
	2016			2015			2016			2015
Discount rate		4.11	%		4.688	%		4.28	%		4.667	%
Rate of compensation increase-weighted average		2.57	%		3.87	%		2.48	%		2.50	%
Healthcare cost trend rate
Immediate rate	n/a			n/a				6.83	%		7.05	%
Ultimate rate	n/a			n/a				4.50	%		4.50	%
Year rate reaches ultimate	n/a			n/a			2038			2038

A one-percentage-point change in assumed health care cost trend rates would have the following effect on TEC’s benefit obligation:

(millions)		1% Increase				1 % Decrease
Effect on PBO		$	4.9			$	(4.2	)

The discount rate assumption used to determine the December 31, 2016 benefit obligation was based on a cash flow matching technique that matches yields from high-quality (AA-rated, non-callable) corporate bonds to TECO Energy’s projected cash flows for the plans to develop a present value that is converted to a discount rate assumption. The discount rate assumption used to determine the December 31, 2015 benefit obligation was based on a cash flow matching technique developed by outside actuaries and a review of current economic conditions. This technique constructed hypothetical bond portfolios using high-quality (AA or better by S&P) corporate bonds available from the Barclays Capital database at the measurement date to meet the plan’s year-by-year projected cash flows. The technique calculated all possible bond portfolios that produce adequate cash flows to pay the yearly benefits and then selected the portfolio with the highest yield and used that yield as the recommended discount rate. The change in the discount rate approach was a result of the Merger and done to align methodologies with Emera. The change in discount rate resulting from the different methodology used to select a discount rate did not have a material impact on TEC’s financial statements and provides consistency with Emera’s method for selecting a discount rate.

Amounts recognized in Net Periodic Benefit Cost, OCI and Regulatory Assets

TECO Energy	Pension Benefits									Other Benefits ⁽¹⁾
	2016			2015			2014			2016			2015			2014
(millions)
Service cost	$	18.8		$	20.9		$	18.3		$	1.8		$	1.9		$	2.4
Interest cost		30.8			30.3			32.0			7.4			7.0			10.4
Expected return on plan assets		(45.8	)		(43.3	)		(41.8	)		0.0			0.0			0.0
Amortization, settlement, or curtailment of:
Actuarial loss		16.4			15.1			13.5			0.2			0.0			0.2
Prior service (benefit) cost		0.3			(0.2	)		(0.4	)		(2.4	)		(2.4	)		(0.2	)
Curtailment loss (gain)		1.3			0.0			3.9			0.0			0.0			(0.2	)
Special termination benefit		0.0			0.0			0.2			0.0			0.0			0.0
Settlement loss		0.6			0.0			0.0			0.0			0.0			0.0
Net periodic benefit cost	$	22.4		$	22.8		$	25.7		$	7.0		$	6.5		$	12.6

New prior service cost	$	1.3		$	0.0		$	0.0		$	0.0		$	0.0	$	(23.2	)
Net loss (gain) arising during the year		46.8			74.5			44.1			5.0			0.4		(10.1	)
Amounts recognized as component of net periodic benefit cost:
Amortization or curtailment recognition of prior service (benefit) cost		(0.3	)		0.2		0.4				2.4			2.5		0.3
Amortization or settlement of actuarial gain (loss)		(17.1	)		(15.1	)		(13.5	)		(0.2	)		0.0		(0.2	)
Total recognized in OCI and regulatory assets	$	30.7		$	59.6		$	31.0		$	7.2		$	2.9	$	(33.2	)
Total recognized in net periodic benefit cost, OCI and regulatory assets	$	53.1		$	82.4		$	56.7		$	14.2		$	9.4	$	(20.6	)

(1)	Represent amounts for TECO Energy’s Florida-based other postretirement benefit plan.

TEC’s portion of the net periodic benefit costs for pension benefits was $13.3 million, $13.5 million and $14.8 million for 2016, 2015 and 2014, respectively. TEC’s portion of the net periodic benefit costs for other benefits was $6.4 million, $5.7 million and $10.4 million for 2016, 2015 and 2014, respectively.

The estimated net loss for the defined benefit pension plans that will be amortized by TEC from regulatory assets into net periodic benefit cost over the next fiscal year is $12.7 million. There will be an estimated $1.8 million prior service credit that will be amortized from regulatory assets into net periodic benefit cost in 2017 for the other postretirement benefit plan.

TEC’s postretirement benefit plans were not explicitly impacted by the Merger. However, as a result of the Merger, TECO Energy remeasured its postretirement benefits plans on the Merger effective date, July 1, 2016. As a result of the remeasurements, TEC’s net periodic benefit cost increased by $1.0 million for pension benefits and $0.4 million for other postretirement plan benefits for the six months ended December 31, 2016. Additionally, a curtailment loss for the SERP of $1.3 million was recognized by TECO Energy in 2016 as a result of retirements due to the Merger. TEC was not impacted by the curtailment loss.

Assumptions used to determine net periodic benefit cost for years ended December 31:

	Pension Benefits									Other Benefits
	2016			2015			2014 ⁽¹⁾			2016			2015			2014
Discount rate		4.688	%		4.258	%	5.118%/4.277%/4.331%			4.667%/3.85%				4.206	%		5.096	%
Expected long-term return on plan assets		7.00	%		7.00	%	7.25%/7.00%/7.00%			N/A			N/A			N/A
Rate of compensation increase		2.59	%		3.87	%		3.73	%		2.50	%		3.86	%		3.71	%
Healthcare cost trend rate
Initial rate	n/a			n/a			n/a				7.05	%		7.00	%		7.25	%
Ultimate rate	n/a			n/a			n/a				4.50	%		4.50	%		4.50	%
Year rate reaches ultimate	n/a			n/a			n/a			2038			2025			2025

(1)	TECO Energy performed a valuation as of January 1, 2014. TECO Energy remeasured its Retirement Plan on September 2, 2014 for the acquisition of NMGC and on October 31, 2014 for the expected curtailment of TECO Coal, resulting in the respective updated discount rates and EROAs.

The discount rate assumption used to determine the benefit cost from the Merger date to December 31, 2016 was based on a cash flow matching technique that matches yields from high-quality (AA-rated, non-callable) corporate bonds to TECO Energy’s projected cash flows for the plans to develop a present value that is converted to a discount rate assumption. The discount rate assumption used to determine the January 1, 2016 through June 30, 2016 and the 2015 benefit cost was based on a cash flow matching technique developed by outside actuaries and a review of current economic conditions. This technique constructed hypothetical bond portfolios using high-quality (AA or better by S&P) corporate bonds available from the Barclays Capital database at the measurement date to meet the plan’s year-by-year projected cash flows. The technique calculated all possible bond portfolios that produce adequate cash flows to pay the yearly benefits and then selected the portfolio with the highest yield and uses that yield as the recommended discount rate. The change in the discount rate approach was a result of the Merger and done to align methodologies with Emera. The change in discount rate resulting from the different methodology used to select a discount rate did not have a material impact on TEC’s financial statements and provides consistency with Emera’s method for selecting a discount rate.

The expected return on assets assumption was based on historical returns, fixed income spreads and equity premiums consistent with the portfolio and asset allocation. A change in asset allocations could have a significant impact on the expected return on assets. Additionally, expectations of long-term inflation, real growth in the economy and a provision for active management and expenses paid were incorporated in the assumption. For the year ended December 31, 2016, TECO Energy’s pension plan’s assets increased approximately 9.2%.

The compensation increase assumption was based on the same underlying expectation of long-term inflation together with assumptions regarding real growth in wages and company-specific merit and promotion increases.

A one-percentage-point change in assumed health care cost trend rates would have the following effect on TEC’s expense:

(millions)		1% Increase				1% Decrease
Effect on net periodic benefit cost		$	0.2			$	(0.2	)

Pension Plan Assets

Pension plan assets (plan assets) are invested in a mix of equity and fixed income securities. TECO Energy’s investment objective is to obtain above-average returns while minimizing volatility of expected returns and funding requirements over the long term. TECO Energy’s strategy is to hire proven managers and allocate assets to reflect a mix of investment styles, emphasize preservation of principal to minimize the impact of declining markets, and stay fully invested except for cash to meet benefit payment obligations and plan expenses.

TECO Energy	2016 Target Allocation			Actual Allocation, End of Year
Asset Category				2016			2015
Equity securities	52%-58%				56	%		53	%
Fixed income securities	42%-48%				44	%		47	%
Total		100	%		100	%		100	%

TECO Energy reviews the plan’s asset allocation periodically and re-balances the investment mix to maximize asset returns, optimize the matching of investment yields with the plan’s expected benefit obligations, and minimize pension cost and funding. TECO Energy, Inc. expects to take additional steps to more closely match plan assets with plan liabilities.

The plan’s investments are held by a trust fund administered by JP Morgan Chase Bank, N.A. (JP Morgan). Investments are valued using quoted market prices on an exchange when available. Such investments are classified Level 1. In some cases where a market exchange price is available but the investments are traded in a secondary market, acceptable practical expedients are used to calculate fair value.

If observable transactions and other market data are not available, fair value is based upon third-party developed models that use, when available, current market-based or independently-sourced market parameters such as interest rates, currency rates or option volatilities. Items valued using third-party generated models are classified according to the lowest level input or value driver that is most significant to the valuation. Thus, an item may be classified in Level 3 even though there may be significant inputs that are readily observable.

As required by the fair value accounting standards, the investments are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The plan’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. For cash equivalents, the cost approach was used in determining fair value. For bonds and U.S. government agencies, the income approach was used. For other investments, the market approach was used. The following table sets forth by level within the fair value hierarchy the plan’s investments as of December 31, 2016 and 2015.

Pension Plan Investments

TECO Energy	At Fair Value as of December 31, 2016
(millions)
	Level 1			Level 2			Level 3		NAV ⁽¹⁾		Total
Cash	$	2.1		$	0.0		$	0.0	$	0.0	$	2.1
Accounts receivable		27.4			0.0			0.0		0.0		27.4
Accounts payable		(58.9	)		0.0			0.0		0.0		(58.9	)
Cash collateral		1.0			0.0			0.0		0.0		1.0
Short-term investment funds (STIFs)		11.6			0.0			0.0		0.0		11.6
Common stocks		44.0			0.0			0.0		0.0		44.0
Real estate investment trusts (REITs)		3.4			0.0			0.0		0.0		3.4
Mutual funds		181.1			0.0			0.0		0.0		181.1
Municipal bonds		0.0			2.6			0.0		0.0		2.6
Government bonds		0.0			32.2			0.0		0.0		32.2
Corporate bonds		0.0			39.2			0.0		0.0		39.2
Asset backed securities (ABS)		0.0			0.3			0.0		0.0		0.3
Mortgage-backed securities (MBS)		0.0			8.4			0.0		0.0		8.4
Collateralized mortgage obligations (CMOs)		0.0			1.3			0.0		0.0		1.3
Swaps		0.0			1.0			0.0		0.0		1.0
Purchase options (swaptions)		0.0			1.7			0.0		0.0		1.7
Written options (swaptions)		0.0			(2.0	)		0.0		0.0		(2.0	)
Miscellaneous (open position)		0.0			0.1			0.0		0.0		0.1
Investments not utilizing the practical expedient		211.7			84.8			0.0		0.0		296.5
Mutual fund ⁽¹⁾		0.0			0.0			0.0		82.7		82.7
Common and collective trusts ⁽¹⁾		0.0			0.0			0.0		270.2		270.2
Total investments	$	211.7		$	84.8			0.0	$	352.9	$	649.4

(1)

In accordance with accounting standards, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts in this table are to permit reconciliation of the fair value hierarchy to amounts presented in the Consolidated Balance Sheet.

TECO Energy	At Fair Value as of December 31, 2015
(millions)
	Level 1				Level 2			Level 3		NAV⁽¹⁾			Total
Cash	$	1.9			$	0.0		$	0.0	$	0.0		$	1.9
Accounts receivable		14.3				0.0			0.0		0.0			14.3
Accounts payable		(27.2	)			0.0			0.0		0.0			(27.2	)
Money markets		0.0				0.2			0.0		0.0			0.2
Discounted notes		0.0				0.7			0.0		0.0			0.7
STIFs		12.4		⁽²⁾		0.0			0.0		0.0			12.4
Common stocks		90.9				0.0			0.0		0.0			90.9
ADRs		5.7				0.0			0.0		0.0			5.7
REITs		4.8				0.0			0.0		0.0			4.8
Mutual funds		175.6		⁽²⁾		0.0			0.0		0.0			175.6
Municipal bonds		0.0				5.0			0.0		0.0			5.0
Government bonds		0.0				56.2			0.0		0.0			56.2
Corporate bonds		0.0				32.2			0.0		0.0			32.2
ABS		0.0				0.3			0.0		0.0			0.3
MBS, net short sales		0.0				8.7			0.0		0.0			8.7
CMOs		0.0				1.5			0.0		0.0			1.5
Purchased options (swaptions)		0.0				1.1			0.0		0.0			1.1
Miscellaneous		0.0				0.1			0.0		0.0			0.1
Long futures		0.0				(0.9	)		0.0		0.0			(0.9	)
Written options (swaptions)		0.0				(1.0	)		0.0		0.0			(1.0	)
Investments not utilizing the practical expedient		278.4				104.1			0.0		0.0			382.5
Common and collective trusts ⁽¹⁾		0.0				0.0			0.0		171.6	⁽²⁾		171.6
Mutual fund ⁽¹⁾		0.0				0.0			0.0		71.3			71.3
Total investments	$	278.4			$	104.1		$	0.0	$	242.9		$	625.4

(1)

(2)

STIFs and mutual funds were presented in the prior year as using NAV as a practical expedient in the determination of fair value. Common and collective trust investments of $53.7 million were presented in the prior year in the level 2 column. The presentation has been updated based on additional information that became available in 2016.

The following list details the pricing inputs and methodologies used to value the investments in the pension plan:

•

Cash collateral is valued at cash posted due to its short-term nature.

•

The STIF is valued at net asset value (NAV). The fund is an open-end investment, resulting in a readily-determinable fair value. Additionally, shares may be redeemed any business day at the NAV calculated after the order is accepted. The NAV is validated with purchases and sales at NAV. These factors make the STIF a level 1 asset.

•

The primary pricing inputs in determining the fair value of the Common stocks and REITs are closing quoted prices in active markets.

•

The primary pricing inputs in determining the level 1 mutual funds are the mutual funds’ NAVs. The funds are registered open-ended mutual funds and the NAVs are validated with purchases and sales at NAV. Since the fair values are determined and published, they are considered readily-determinable fair values and therefore Level 1 assets.

•

The primary pricing inputs in determining the fair value of Municipal bonds are benchmark yields, historical spreads, sector curves, rating updates, and prepayment schedules. The primary pricing inputs in determining the fair value of Government bonds are the U.S. treasury curve, CPI, and broker quotes, if available. The primary pricing inputs in determining the fair value of Corporate bonds are the U.S. treasury curve, base spreads, YTM, and benchmark quotes. ABS and CMOs are priced using to-be-announced (TBA) prices, treasury curves, swap curves, cash flow information, and bids and offers as inputs. MBS are priced using TBA prices, treasury curves, average lives, spreads, and cash flow information.

•

Swaps are valued using benchmark yields, swap curves, and cash flow analyses.

•

Options are valued using the bid-ask spread and the last price.

•

The primary pricing input in determining the fair value of the mutual fund utilizing the practical expedient is its NAV. It is an unregistered open-ended mutual fund. The fund holds primarily corporate bonds, debt securities and other similar instruments issued by U.S. and non-U.S. public- or private-sector entities. The fund may purchase or sell securities on a when-issued basis. These transactions are made conditionally because a security has not yet been issued in the market, although it is authorized. A commitment is made regarding these transactions to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. Since this mutual fund is a closed-end mutual fund and the prices are not published to an external source, it uses NAV as a practical expedient.

•

The common collective trusts are private funds valued at NAV. The NAVs are calculated based on bid prices of the underlying securities. Since the prices are not published to external sources, NAV is used as a practical expedient. Certain funds invest primarily in equity securities of domestic and foreign issuers while others invest in long duration U.S. investment-grade fixed income assets and seeks to increase return through active management of interest rate and credit risks. The funds honor subscription and redemption activity regularly.

•

Discounted notes are valued at amortized cost.

•

Treasury bills are valued using benchmark yields, reported trades, broker dealer quotes, and benchmark securities.

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Futures are valued using futures data, cash rate data, swap rates, and cash flow analyses.

Additionally, the unqualified SERP had $40.8 million and $43.5 million of assets as of December 31, 2016 and 2015, respectively. Since the plan is unqualified, its assets are included in the “Deferred charges and other assets” line item in TEC’s Consolidated Balance Sheets rather than being netted with the related liability. The unqualified trust holds investments in a money market fund. The fund is an open-end investment, resulting in a readily-determinable fair value. Additionally, shares may be redeemed any business day at the NAV calculated after the order is accepted. The NAV is validated with purchases and sales at NAV. These factors make it a level 1 asset. The SERP was fully funded as of December 31, 2016.

Other Postretirement Benefit Plan Assets

There are no assets associated with TECO Energy’s Florida-based other postretirement benefits plan.

Contributions

The Pension Protection Act became effective January 1, 2008 and requires companies to, among other things, maintain certain defined minimum funding thresholds (or face plan benefit restrictions), pay higher premiums to the PBGC if they sponsor defined benefit plans, amend plan documents and provide additional plan disclosures in regulatory filings and to plan participants.

WRERA was signed into law on December 23, 2008. WRERA grants plan sponsors relief from certain funding requirements and benefits restrictions, and also provides some technical corrections to the Pension Protection Act. There are two primary provisions that impact funding results for TECO Energy. First, for plans funded less than 100%, required shortfall contributions will be based on a percentage of the funding target until 2013, rather than the funding target of 100%. Second, one of the technical corrections, referred to as asset smoothing, allows the use of asset averaging subject to certain limitations in the determination of funding requirements. TECO Energy utilizes asset smoothing in determining funding requirements.

In August 2014, HAFTA was signed into law, which modified MAP-21. HAFTA and MAP-21 provide funding relief for pension plan sponsors by stabilizing discount rates used in calculating the required minimum pension contributions and increasing PBGC premium rates to be paid by plan sponsors. TECO Energy expects the required minimum pension contributions to be lower than the levels previously projected; however, TECO Energy plans on funding at levels above the required minimum pension contributions under HAFTA and MAP-21. In November 2015, the Bipartisan Budget Act of 2015 was signed into law, which extended pension funding relief of MAP-21 and HAFTA through 2022.

The qualified pension plan’s actuarial value of assets, including credit balance, was 119.5% of the Pension Protection Act funded target as of January 1, 2016 and is estimated at 118.0% of the Pension Protection Act funded target as of January 1, 2017.

TECO Energy’s policy is to fund the qualified pension plan at or above amounts determined by its actuaries to meet ERISA guidelines for minimum annual contributions and minimize PBGC premiums paid by the plan. TEC’s contribution is first set equal to its service cost. If a contribution in excess of service cost for the year is made, TEC’s portion is based on TEC’s proportion of the TECO Energy unfunded liability. TECO Energy made contributions to this plan in 2016 and 2015, which met the minimum funding requirements for both 2016 and 2015. TEC’s portion of the contribution in 2016 was $30.9 million and in 2015 was $43.9 million. These amounts are reflected in the “Other” line on the Consolidated Statements of Cash Flows. TEC estimates its portion of the 2017 contribution to be $36.3 million. TEC estimates its portion of annual contributions from 2018 to 2021 will range from $0.5 to $29.5 million per year based on current assumptions. The amounts TECO Energy expects to make are in excess of the minimum funding required under ERISA guidelines.

TEC’s portion of the contributions to the SERP in 2016 and 2015 were zero and $14.9 million, respectively. TEC’s contribution in 2015 to the SERP’s trust was made in order to fully fund its SERP obligation following the signing of the Merger Agreement with Emera. The execution of the Merger Agreement constituted a potential change in control under the trust; therefore, TECO Energy is required to maintain such funding as of the end of each calendar year, including 2016. The fully-funded amount is equal to the aggregate present value of all benefits then in pay status under the SERP plus the current value of benefits that would become payable under the SERP to current participants. Since the SERP is fully funded, TECO Energy does not expect to make significant contributions to this plan in 2017.

The other postretirement benefits are funded annually to meet benefit obligations. TECO Energy’s contribution toward health care coverage for most employees who retired after the age of 55 between January 1, 1990 and June 30, 2001 is limited to a defined dollar benefit based on service. TECO Energy’s contribution toward pre-65 and post-65 health care coverage for most employees retiring on or after July 1, 2001 is limited to a defined dollar benefit based on an age and service schedule. In 2017, TEC expects to make a contribution of about $9.5 million. Postretirement benefit levels are substantially unrelated to salary.

Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Expected Benefit Payments

TECO Energy			Other
(including projected service and net of employee contributions)	Pension		Postretirement
	Benefits		Benefits
(millions)
2017	$	78.3	$	11.0
2018		51.8		11.2
2019		55.6		11.5
2020		56.1		11.6
2021		58.7		11.7
2022-2026		312.4		58.9

Defined Contribution Plan

TECO Energy has a defined contribution savings plan covering substantially all employees of TECO Energy and its subsidiaries that enables participants to save a portion of their compensation up to the limits allowed by IRS guidelines. TECO Energy and its subsidiaries match up to 6% of the participant’s payroll savings deductions. Effective January 1, 2015, the employer matching contributions were 70% of eligible participant contributions with additional incentive match of up to 30% of eligible participant contributions based on the achievement of certain operating company financial goals. During the period from April 2013 to December 2014, employer matching contributions were 67% of eligible participant contributions with additional incentive match of up to 35% of eligible participant contributions based on the achievement of certain operating company financial goals. Prior to this, the employer matching contributions were 60% of eligible participant contributions with an additional incentive match of up to 40% of eligible participant contributions based on the achievement of certain operating company financial goals. For the years ended December 31, 2016, 2015 and 2014, TEC’s portion of expense totaled $8.3 million, $7.5 million and $10.2 million for 2016, 2015 and 2014, respectively, related to the matching contributions made to this plan.