11 EMPLOYEE BENEFIT PLANS

Savings Plan

The Company sponsors a 401(k) qualified, defined contribution savings plan that allows participants to contribute up to 20% of pre-tax compensation. Effective January 1, 2010, the Company matches seventy-five cents for each dollar contributed by the employee up to a maximum Company match of 6.0% of base salary. In the prior year, the Company matched fifty cents for each dollar contributed up to a maximum Company match of 4.0% of base salary. Company contributions were $4,338, $4,029, and $3,499, for the years 2013, 2012, and 2011, respectively.

Pension Plans

The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The accumulated benefit obligations of the pension plan are $287,894 and $307,197 as of December 31, 2013 and 2012, respectively. The fair value of pension plan assets was $266,178 and $202,947 as of December 31, 2013 and 2012, respectively.

Prior to 2010, pension payment obligations were generally funded by the purchase of an annuity from a life insurance company. In 2010, the pension plan trust paid monthly benefits to retirees, rather than the purchase of an annuity. Payments are expected to be made in each year from 2014 to 2018 are $7,611, $8,703, $10,066, 11,539, and $13,064, respectively. The aggregate benefits expected to be paid in the five years 2019 through 2023 are $91,303. The expected benefit payments are based upon the same assumptions used to measure the Company's benefit obligation at December 31, 2013, and include estimated future employee service.

The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The unfunded supplemental executive retirement plan accumulated benefit obligations were $31,360 and $31,696 as of December 31, 2013 and 2012, respectively. Benefit payments under the supplemental executive retirement plan are paid currently and are included in the preceding paragraph.

The costs of the pension and retirement plans are charged to expense and utility plant. The Company makes annual contributions to fund the amounts accrued for pension cost.

Other Postretirement Plan

The Company provides substantially all active, permanent employees with medical, dental, and vision benefits through a self-insured plan. Employees retiring at or after age 58, along with their spouses and dependents, continue participation in the plan by payment of a premium. Plan assets are invested in mutual funds, short-term money market instruments and commercial paper based upon the same asset mix as the pension plan. Retired employees are also provided with a five thousand dollar life insurance benefit.

The Company records the costs of postretirement benefits other than pension (PBOP) during the employees' years of active service. Postretirement benefit expense recorded in 2013, 2012, and 2011, was $8,977, $8,131, and $6,291, respectively. The remaining net periodic benefit cost was $9,790 at December 31, 2006, and is being recovered through future customer rates and is recorded as a regulatory asset. The expected benefit payments, net of retiree premiums and Medicare part D subsidies, for the years from 2014 to 2018 are $1,612, $1,827, $1,998, $2,189, and $2,444, respectively. The Medicare Part D subsidies for the years from 2014 to 2018 are $267, $307, $345, $387, and $432.

Benefit Plan Assets

The Company actively manages pensions and PBOP trust (Plan) assets. The Company's investment objectives are:

•

Maximize the return on the assets of the Plan, commensurate with the risk that the Company deem appropriate to, meet the obligations of the Plan, minimize the volatility of the pension expense, and account for contingencies;

•

Generate a rate of return for the total portfolio that equals or exceeds the actuarial investment rate assumption;

•

Additionally, the rate of return of the total fund shall be measured periodically against a special index comprised of 35% of the Standard & Poor's Index, 15% of the Russell 2000 Index, 10% of the MSCI EAFE Index, and 40% of the Lehman Aggregate Bond Index. The special index is consistent with the rate of return objective and indicates the Company's long-term asset allocation objective.

The Company applies a risk management framework for managing the risks associated with employee benefit plan trust assets. The guiding principles of this risk management framework are the clear articulation of roles and responsibilities, appropriate delegation of authority, and proper accountability and documentation. Trust investment policies and investment manager guidelines include provisions to ensure prudent diversification, manage risk through appropriate use of physical direct asset holdings and derivative securities, and identify permitted and prohibited investments.

The Company's target asset allocation percentages for major categories of the pension plan are reflected in the table below:



Fixed Income	35	%	40	%	45	%
Total Domestic Equity	40	%	50	%	60	%
Small Cap Stocks	10	%	15	%	20	%
Large Cap Stocks	30	%	35	%	45	%
Non-U.S. Equities	5	%	10	%	15	%

The fixed income category includes money market funds, short-term bond funds, and cash. The majority of fixed income investments range in maturities from less than one to five years.

The Company's target allocation percentages for the PBOP trust is similar to the pension plan except for a larger allocation in fixed income investments and a lower allocation in equity investments.

We use the following criteria to select investment funds:

•

Fund past performance;

•

Fund meets criteria of Employee Retirements Income Security Act (ERISA);

•

Timeliness and completeness of fund communications and reporting to investors;

•

Stability of fund management company;

•

Fund management fees; and

•

Administrative costs incurred by the Plan.

The fair value measurements standard establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the standard are described below:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.

Level 2—Inputs to the valuation methodology include:
- •
  
  Quoted market prices for similar assets or liabilities in active markets;
  
  •
  
  Quoted prices for identical or similar assets or liabilities in inactive markets;
  
  •
  
  Inputs other than quoted prices that are observable for the asset or liability; and

- •
  
  Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
- If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

All Plan investments are level 1 investments in mutual funds and are valued at the net asset value (NAV) of the shares held by the Plan at December 31, 2013 and 2012:

	Pension Benefits										Other Benefits

	2013		%			2012		%			2013		%			2012		%
Fixed Income	$	102,288		38	%	$	79,391		39	%	$	31,019		62	%	$	22,845		61	%


Domestic Equity
Small Cap Stocks		40,757					33,949					—					—
Large Cap Stocks		96,512					69,406					18,920					14,563


Total Domestic Equity		137,269		52	%		103,355		51	%		18,920		38	%		14,563		39	%


Non U.S. Equities		26,621		10	%		20,201		10	%		—		0	%		—		0	%


Total Plan Assets	$	266,178		100	%	$	202,947		100	%	$	49,939		100	%	$	37,408		100	%

The pension benefits fixed income category includes $1,287 and $26,069 of money market fund investments as of December 31, 2013 and 2012, respectively. The other benefits fixed income category includes $19,214 and $14,159 of money market fund investments as of December 31, 2013 and 2012.

The following table reconciles the funded status of the plans with the accrued pension liability and the net postretirement benefit liability as of December 31, 2013 and 2012:

	Pension Benefits						Other Benefits

	2013			2012			2013			2012
Change in projected benefit obligation:
Beginning of year	$	402,121		$	346,305		$	84,421		$	69,107
Service cost		17,780			15,450			5,374			4,399
Interest cost		16,354			15,287			3,556			3,139
Assumption change		(53,887	)		24,269			(14,366	)		7,673
Experience loss		6,021			4,833			1,455			1,250
Benefits paid, net of retiree premiums		(5,191	)		(4,023	)		(1,374	)		(1,147	)


End of year	$	383,198		$	402,121		$	79,066		$	84,421


Change in plan assets:
Fair value of plan assets at beginning of year	$	202,947		$	155,749		$	37,408		$	26,978
Actual return on plan assets		36,637			21,979			4,270			2,788
Employer contributions		31,785			29,242			9,635			8,789
Retiree contributions and Medicare part D subsidies		—			—			1,299			1,255
Benefits paid		(5,191	)		(4,023	)		(2,673	)		(2,402	)


Fair value of plan assets at end of year	$	266,178		$	202,947		$	49,939		$	37,408


Funded status(1)	$	(117,020	)	$	(199,174	)	$	(29,127	)	$	(47,013	)
Unrecognized actuarial loss		53,882			133,579			23,311			40,449
Unrecognized prior service cost		36,116			41,972			340			421
Unrecognized transition obligation		—			—			—			9


Net amount recognized	$	(27,022	)	$	(23,623	)	$	(5,476	)	$	(6,134	)

(1): The short-term portion of the pension benefits was $1,751 and $1,286 as of December 31, 2013 and 2012, respectively.

Amounts recognized on the balance sheet consist of:

	Pension Benefits						Other Benefits

	2013			2012			2013			2012
(Accrued) benefit costs	$	—		$	—		$	(6,219	)	$	(6,723	)
Accrued benefit liability		(117,020	)		(199,174	)		(29,127	)		(47,013	)
Regulatory asset		89,998			175,551			29,870			47,602


Net amount recognized	$	(27,022	)	$	(23,623	)	$	(5,476	)	$	(6,134	)

Below are the actuarial assumptions used in determining the benefit obligation for the benefit plans:

	Pension Benefits						Other Benefits

	2013			2012			2013			2012
Weighted average assumptions as of December 31:
Discount rate		5.00	%		4.10	%		5.00	%		4.20	%
Long-term rate of return on plan assets		6.75	%		7.00	%		6.00	%		6.00	%
Rate of compensation increases		4.00	%		3.50	%		—			—
Cost of living adjustment		3.00	%		3.00	%		—			—

The discount rate was derived from the Citigroup Pension Discount Curve using the expected payouts for the plan. The long-term rate of return assumption is the expected rate of return on a balanced portfolio invested roughly 60% in equities and 40% in fixed income securities. Returns on equity investments were estimated based on estimates of dividend yield and real earnings added to a 3% long-term inflation rate. For the pension and other benefit plans, the assumed returns were 8.93% for domestic equities and 9.07% for foreign equities. Returns on fixed-income investments were projected based on investment maturities and credit spreads added to a 3% long-term inflation rate. For the pension and other benefit plans, the assumed returns were 5.20% for fixed income investments and 3.52% for short-term cash investments. The average return for the pension and other benefit plans for the last five and ten years was 11.4% and 6.9%, respectively. The company is using a long-term rate of return of 6.75% for the pension plan and 6.00% for the other benefit plan, which is between the 25th and 75th percentile of expected results.

Changes to the pension benefits actuarial assumptions can significantly affect pension costs, regulatory assets, and liabilities. The following table reflects the sensitivity of pension amounts reported for the year ended December 31, 2013, to changes in actuarial assumptions:

			Increase/(Decrease) in 2013 Net Periodic Pension Benefit Cost			Increase/(Decrease) in Projected Pension Benefit Obligation as of December 31, 2013

Discount rate	(0.5	)%	$	4,899		$	35,752
Long-term rate of return on plan assets	(0.5	)%		1,018			—
Rate of compensation increases	(0.5	)%		(2,181	)		(10,186	)
Cost of living adjustment	(0.5	)%		(3,685	)		(22,029	)
Discount rate	0.5	%		(4,334	)		(31,486	)
Long-term rate of return on plan assets	0.5	%		(1,018	)		—
Rate of compensation increases	0.5	%		2,364			10,908

Net periodic benefit costs for the pension and other postretirement plans for the years ended December 31, 2013, 2012, and 2011 included the following components:

	Pension Plan									Other Benefits

	2013			2012			2011			2013			2012			2011
Service cost	$	17,780		$	15,450		$	11,713		$	5,374		$	4,399		$	3,199
Interest cost		16,354			15,287			14,683			3,556			3,139			2,872
Expected return on plan assets		(14,252	)		(11,558	)		(8,949	)		(2,394	)		(1,832	)		(1,372	)
Net amortization and deferral		15,302			14,283			10,387			2,441			2,425			1,592


Net periodic benefit cost	$	35,184		$	33,462		$	27,834		$	8,977		$	8,131		$	6,291

Below are the actuarial assumptions used in determining the net periodic benefit costs for the benefit plans, which uses the end of the prior year as the measurement date:

	Pension Benefits						Other Benefits

	2013			2012			2013			2012
Weighted average assumptions as of December 31:
Discount rate		4.10	%		4.40	%		4.20	%		4.50	%
Long-term rate of return on plan assets		7.00	%		7.00	%		6.00	%		6.25	%
Rate of compensation increases		3.50	%		3.50	%		—			—

The health care cost trend rate assumption has a significant effect on the amounts reported. For 2013 measurement purposes, the Company assumed an 9.2% annual rate of increase in the per capita cost of covered benefits with the rate decreasing to 6.1% by 2018, then gradually grading down to 5.0% over the next 50 years. A one-percentage point change in assumed health care cost trends is estimated to have the following effect:

	1-Percentage Point Increase		1-Percentage Point (Decrease)

Effect on total service and interest costs	$	2,656	$	(1,936	)
Effect on accumulated postretirement benefit obligation	$	18,085	$	(13,805	)

The Company intends to make annual contributions to the plans up to the amount deductible for tax purposes. The Company estimates in 2014 that the annual contribution to the pension plans will be $28,286 and the annual contribution to the other postretirement plan will be $9,568.