12) Employee Benefit Plans

Defined Contribution Plans

The Partnership has several 401(k) and other defined contribution plans that cover eligible non-union and union employees, and makes employer contributions to these plans, subject to IRS limitations. These plans provide for each participant to contribute from 0% to 60% of compensation, subject to IRS limitations. The Partnership’s aggregate contributions to the 401(k) plans during fiscal 2016, 2015, and 2014, were $6.0 million, $5.7 million, and $5.2 million, respectively. The Partnership’s aggregate contribution to the other defined contribution plans for fiscal years 2016, 2015, and 2014, were $0.7 million, $0.6 million and $0.5 million, respectively.

Management Incentive Compensation Plan

The Partnership has a Management Incentive Compensation Plan. The long-term compensation structure is intended to align the employee’s performance with the long-term performance of our unitholders. Under the Plan, certain named employees who participate shall be entitled to receive a pro rata share of an amount in cash equal to:

•

50% of the distributions (“Incentive Distributions”) of Available Cash in excess of the minimum quarterly distribution of $0.0675 per unit otherwise distributable to Kestrel Heat pursuant to the Partnership Agreement on account of its general partner units; and

•

50% of the cash proceeds (the “Gains Interest”) which Kestrel Heat shall receive from the sale of its general partner units (as defined in the Partnership Agreement), less expenses and applicable taxes.

The pro rata share payable to each participant under the Plan is based on the number of participation points as described under “Fiscal 2015 Compensation Decisions—Management Incentive Compensation Plan.” The amount paid in Incentive Distributions is governed by the Partnership Agreement and the calculation of Available Cash.

To fund the benefits under the Plan, Kestrel Heat has agreed to forego receipt of the amount of Incentive Distributions that are payable to plan participants. For accounting purposes, amounts payable to management under this Plan will be treated as compensation and will reduce net income. Kestrel Heat has also agreed to contribute to the Partnership, as a contribution to capital, an amount equal to the Gains Interest payable to participants in the Plan by the Partnership. The Partnership is not required to reimburse Kestrel Heat for amounts payable pursuant to the Plan.

The Plan is administered by the Partnership’s Chief Financial Officer under the direction of the Board or by such other officer as the Board may from time to time direct. In general, no payments will be made under the Plan if the Partnership is not distributing cash under the Incentive Distributions described above.

Effective as of July 19, 2012, the Board of Directors adopted certain amendments (the “Plan Amendments”) to the Plan. Under the Plan Amendments, the number and identity of the Plan participants and their participation interests in the Plan have been frozen at the current levels. In addition, under the Plan Amendments, the plan benefits (to the extent vested) may be transferred upon the death of a participant to his or her heirs. A participant’s vested percentage of his or her plan benefits will be 100% during the time a participant is an employee or consultant of the Partnership. Following the termination of such positions, a participant’s vested percentage shall be equal to 20% for each full or partial year of employment or consultation with the Partnership starting with the fiscal year ended September 30, 2012 (33 1/3% in the case of the Partnership’s chief executive officer at that time).

The Partnership distributed to management and the general partner Incentive Distributions of approximately $795,000 during fiscal 2016, $605,000 during fiscal 2015, and $447,000 during fiscal 2014. Included in these amounts for fiscal 2016, 2015, and 2014, were distributions under the management incentive compensation plan of $397,000, $302,000, and $223,000, respectively, of which named executive officers received approximately $177,034 during fiscal 2016, $135,000 during fiscal 2015, and $100,000 during fiscal 2014. With regard to the Gains Interest, Kestrel Heat has not given any indication that it will sell its general partner units within the next twelve months. Thus the Plan’s value attributable to the Gains Interest currently cannot be determined.

Multiemployer Pension Plans

At September 30, 2016, approximately 41% of our employees were covered by collective bargaining agreements and approximately 17% of our employees are in collective bargaining agreements that are up for renewal within the next fiscal year. We contribute to various multiemployer union administered pension plans under the terms of collective bargaining agreements that provide for such plans for covered union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in that assets contributed are pooled and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the remaining participating employers may be required to bear the unfunded obligations of the plan. If we choose to stop participating in a multiemployer plan, we may be required to pay a withdrawal liability in part based on the underfunded status of the plan.

The following table outlines our participation and contributions to multiemployer pension plans for the periods ended September 30, 2016, 2015 and 2014. The EIN/Pension Plan Number column provides the Employer Identification Number (“EIN”) and the three-digit plan number. The most recent Pension Protection Act Zone Status for 2016 and 2015 relates to the plans’ two most recent fiscal year-ends, based on information received from the plans as reported on their Form 5500 Schedule MB. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. Certain plans have been aggregated in the All Other Multiemployer Pension Plans line of the following table, as our participation in each of these individual plans is not significant.

For the Westchester Teamsters Pension Fund and Local 553 Pension Fund, we provided more than 5 percent of the total plan contributions from all employers for 2016, and for the Westchester Teamsters Pension Fund, Local 553 Pension Fund and Local 463 Pension Fund, we provided more than 5 percent of the total plan contributions from all employers for 2015 and 2014, as disclosed in the respective plan’s Form 5500. The collective bargaining agreements of these plans require contributions based on the hours worked and there are no minimum contributions required.

Pension Protection Act
Zone Status

FIP / RP
Status

Partnership
Contributions
(in thousands)

Pension Fund

EIN
/ Pension
Plan
Number

2016

2015

Pending /
Implemented

2016

2015

2014

Surcharge
Imposed

Expiration Date of
Collective-
Bargaining
Agreements

New England Teamsters and Trucking Industry Pension Fund

04-6372430
/ 001

Red

Yes /
Implemented

2,507

3,183

2,868

03/31/17 to
09/30/18

Westchester Teamsters Pension Fund

13-6123973
/ 001

Green

N/A

865

877

855

01/31/19 to

12/31/19

Local 553 Pension Fund

13-6637826
/ 001

Green

N/A

2,645

2,838

2,649

12/15/16 to

01/15/17

Local 463 Pension Fund

11-1800729
/ 001

Green

N/A

148

171

156

02/28/17 to
06/30/19

All Other Multiemployer Pension Plans

2,218

2,149

1,846

Total Contributions

8,383

9,218

8,374

Agreement with the New England Teamsters and Trucking Industry Pension Fund

In September 2015, the Teamsters ratified an agreement among certain subsidiaries of the Partnership and the New England Teamsters and Trucking Industry Pension Fund (“the NETTI Fund”), a multiemployer pension plan in which such subsidiaries participate, providing for the Partnership’s participating subsidiaries to withdraw from the NETTI Fund’s original employer pool and enter the NETTI Fund’s new employer pool. The withdrawal from the original employer pool triggered an undiscounted withdrawal obligation of $48.0 million that is to be paid in equal monthly installments over 30 years, or $1.6 million per year. The annual after tax cash impact of entering into this agreement is a reduction of approximately $0.9 million.

We recorded in the fourth quarter of fiscal 2015, a $17.8 million charge in order to establish a withdrawal liability on our consolidated balance sheet, which represents the present value of the $48.0 million future payment obligation at a discount rate of 8.22%. In addition we recorded a non-cash deferred tax benefit of approximately $7.0 million. The net result of these two non-cash items reduced our net income for fiscal 2015 by $10.8 million.

The NETTI Fund includes over two hundred of our current employees and has been classified as carrying “red zone” status, meaning that the value of NETTI Fund’s assets are less than 65% of the actuarial value of the NETTI Fund’s benefit obligations.

As of September 30, 2016, we had $0.2 million and $17.5 million balances included in the captions accrued expenses and other current liabilities and other long-term liabilities, respectively, on our consolidated balance sheet representing the remaining balance of the NETTI withdrawal liability. Based on the borrowing rates currently available to the Partnership for long-term financing of a similar maturity, the fair value of the NETTI withdrawal liability as of September 30, 2016 was $20.7 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

Our status in the newly-established pool of the NETTI Fund is accounted for as participation in a new multiemployer pension plan, and therefore we recognize expense based on the contractually-required contribution for each period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period.

Defined Benefit Plans

The Partnership accounts for its two frozen defined benefit pension plans (“the Plan”) in accordance with FASB ASC 715-10-05 Compensation-Retirement Benefits. The Partnership has no post-retirement benefit plans.

Effective September 30, 2016, the Partnership adopted the Society of Actuaries 2016 Mortality Tables Report and Mortality Improvement Scale, which updated the mortality assumptions that private defined benefit retirement plans in the United States use in the actuarial valuations that determine a plan sponsor’s pension obligations. The updated mortality data reflects lower mortality improvement than assumed in the Society of Actuaries 2015 Mortality Table Report and Improvement Scale, and affected plans generally expect the value of the actuarial obligations to decrease, depending on the specific demographic characteristics of the plan participants and the types of benefits.

The following table provides the net periodic benefit cost for the period, a reconciliation of the changes in the Plan assets, projected benefit obligations, and the amounts recognized in other comprehensive income and accumulated other comprehensive income at the dates indicated using a measurement date of September 30 (in thousands):


																Gross Pension
	Net Periodic						Fair									Related
	Pension						Value of									Accumulated
	Cost in						Pension			Projected			Other			Other
	Income						Plan			Benefit			Comprehensive			Comprehensive
Debit / (Credit)	Statement			Cash			Assets			Obligation			(Income) / Loss			Income
Fiscal Year 2014
Beginning balance							$	60,028		$	(64,305	)				$	25,528

Interest cost		2,761									(2,761	)
Actual return on plan assets		(7,614	)					7,614
Employer contributions					(2,014	)		2,014
Benefit payments								(4,277	)		4,277
Investment and other expenses		(262	)								262
Difference between actual and expected return on plan assets		4,472												(4,472	)
Anticipated expenses		300									(300	)
Actuarial gain											(7,655	)		7,655
Amortization of unrecognized net actuarial loss		2,113												(2,113	)

Annual cost/change	$	1,770		$	(2,014	)		5,351			(6,177	)	$	1,070			1,070

Ending balance							$	65,379		$	(70,482	)				$	26,598

Funded status at the end of the year										$	(5,103	)

Fiscal Year 2015
Interest cost		2,762									(2,762	)
Actual return on plan assets		(679	)					679
Employer contributions					(1,743	)		1,743
Benefit payments								(4,013	)		4,013
Investment and other expenses		(577	)								577
Difference between actual and expected return on plan assets		(2,259	)											2,259
Anticipated expenses		327									(327	)
Actuarial loss											1,860			(1,860	)
Amortization of unrecognized net actuarial loss		2,226												(2,226	)

Annual cost/change	$	1,800		$	(1,743	)		(1,591	)		3,361		$	(1,827	)		(1,827	)

Ending balance							$	63,788		$	(67,121	)				$	24,771

Funded status at the end of the year										$	(3,333	)

Fiscal Year 2016
Interest cost		2,622									(2,622	)
Actual return on plan assets		(8,595	)					8,595
Employer contributions					(17	)		17
Benefit payments								(4,124	)		4,124
Investment and other expenses		(362	)								362
Difference between actual and expected return on plan assets		5,579												(5,579	)
Anticipated expenses		319									(319	)
Actuarial loss											(5,103	)		5,103
Amortization of unrecognized net actuarial loss		2,591												(2,591	)

Annual cost/change	$	2,154		$	(17	)		4,488			(3,558	)	$	(3,067	)		(3,067	)

Ending balance							$	68,276		$	(70,679	)				$	21,704

Funded status at the end of the year										$	(2,403	)

At September 30, 2016 and 2015, the amounts included on the balance sheet in other long-term liabilities were $2.4 million and $3.3 million, respectively.

The $21.7 million net actuarial loss balance at September 30, 2016 for the two frozen defined benefit pension plans in accumulated other comprehensive income will be recognized and amortized into net periodic pension costs as an actuarial loss in future years. The estimated amount that will be amortized from accumulated other comprehensive income into net periodic pension cost over the next fiscal year is $2.1 million.


	September 30,
Weighted-Average Assumptions Used in the Measurement of the Partnership’s Benefit Obligation	2016			2015			2014
Discount rate at year end date		3.30	%		4.05	%		4.05	%
Expected return on plan assets for the year ended		5.50	%		5.50	%		5.75	%
Rate of compensation increase		N/A			N/A			N/A

The expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market-related value of plan assets determined using fair value.

The Partnership’s expected long-term rate of return on plan assets is updated at least annually, taking into consideration our asset allocation, historical returns on the types of assets held, and the current economic environment. For fiscal year 2017, the Partnership’s assumption for return on plan assets will be 4.80% per annum.

The discount rate used to determine net periodic pension expense for fiscal year 2016, 2015, and 2014 was 3.30%, 4.05%, and 4.45%, respectively. The discount rate used by the Partnership in determining pension expense and pension obligations reflects the yield of high quality (AA or better rating by a recognized rating agency) corporate bonds whose cash flows are expected to match the timing and amounts of projected future benefit payments.

The Plan’s objectives are to have the ability to pay benefit and expense obligations when due, to maintain the funded ratio of the Plan, to maximize return within reasonable and prudent levels of risk in order to minimize contributions and charges to the profit and loss statement, and to control costs of administering the Plan and managing the investments of the Plan. The target asset allocation of the Plan (currently 80% domestic fixed income, 15% domestic equities and 5% international equities) is based on a long-term perspective, and as the Plan gets closer to being fully funded, the allocations have been adjusted to lower volatility from equity holdings.

The Partnership had no Level 2 or Level 3 pension plan assets during the three years ended September 30, 2016. The fair values and percentage of the Partnership’s pension plan assets by asset category are as follows (in thousands):


	September 30,
	2016					2015
			Concentration					Concentration
Asset Category	Level 1		Percentage			Level 1		Percentage
Corporate and U.S. government bond fund (1)	$	54,267		79	%	$	51,477		81	%
U.S. large-cap equity (1)		10,207		15	%		8,932		14	%
International equity (1)		3,118		5	%		2,832		4	%
Cash		684		1	%		547		1	%

Total	$	68,276		100	%	$	63,788		100	%

(1) Represent investments in Vanguard funds that seek to replicate the asset category description.

The Partnership is not obligated to make a minimum required contribution in fiscal year 2017, but expects to make a $2.0 million optional pension contribution.

Expected benefit payments over each of the next five years will total approximately $4.6 million per year. Expected benefit payments for the five years thereafter will aggregate approximately $20.0 million.