PENSION AND OTHER POSTRETIREMENT BENEFITS:

SJI has several defined benefit pension plans and other postretirement benefit plans. SJG participates in the defined benefit pension plans and other postretirement benefit plans of SJI. For non-ETG and ELK employees, participation in the Company's qualified defined benefit pension plans was closed to new employees beginning in 2003; however, employees who are not eligible for these pension plans are eligible to receive an enhanced version of SJI's defined contribution plan. As part of the Acquisition, SJI acquired the entities' existing pension and other post-employment plans. The plans include a qualified defined benefit, trusteed, pension plan covering most eligible employees that is funded in accordance with the requirements of the ERISA. Approximately 42% and 38% of SJI's and SJG's current, full-time, regular employees, respectively, will be entitled to annuity payments upon retirement. The Company also provides certain non-qualified benefit and defined contribution pensions plans for a selected group of the Company's management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, SJI provides health care and life insurance benefits for eligible retired employees through a postretirement benefit plan.

Net periodic benefit cost related to the SJI employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):



SJI (includes SJG and all other consolidated subsidiaries):	Pension Benefits
	2018			2017			2016
Service Cost	$	6,442		$	4,989		$	4,843
Interest Cost	13,778			11,772			12,125
Expected Return on Plan Assets	(18,672		)	(14,105		)	(13,508		)
Amortizations:
Prior Service Cost	116			131			212
Actuarial Loss	11,528			10,282			9,394
Net Periodic Benefit Cost	13,192			13,069			13,066
Curtailment and Special Termination Costs	7,324			—			—
Capitalized Benefit Costs	(2,243		)	(4,723		)	(4,645		)
Deferred Benefit Costs	(1,987		)	(527		)	(645		)
Total Net Periodic Benefit Expense	$	16,286		$	7,819		$	7,776



SJI (includes SJG and all other consolidated subsidiaries):	Other Postretirement Benefits
	2018			2017			2016
Service Cost	$	945		$	910		$	851
Interest Cost	2,430			2,418			2,615
Expected Return on Plan Assets	(4,286		)	(3,411		)	(3,104		)
Amortizations:
Prior Service Credits	(344		)	(344		)	(344		)
Actuarial Loss	903			1,238			1,109
Net Periodic Benefit Cost	(352		)	811			1,127
Curtailment and Special Termination Costs	1,286			(106		)	—
Capitalized Benefit Costs	(290		)	(46		)	(277		)
Deferred Benefit Costs	580			—			—
Total Net Periodic Benefit Expense	$	1,224		$	659		$	850

Curtailment and Special Termination Costs reflected in the tables above relate to the ERIP offered in 2018 as discussed in Note 1.

Net periodic benefit cost related to the SJG employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):



SJG:	Pension Benefits
	2018			2017			2016
Service Cost	$	5,073		$	4,303		$	4,144
Interest Cost	10,010			9,925			10,292
Expected Return on Plan Assets	(12,513		)	(11,366		)	(11,029		)
Amortization:
Prior Service Cost	112			127			203
Actuarial Loss	10,074			8,692			7,975
Net Periodic Benefit Cost	12,756			11,681			11,585
Capitalized Benefit Costs	(1,943		)	(4,723		)	(4,645		)
Affiliate SERP Allocations	(3,861		)	(2,235		)	(1,960		)
Deferred Benefit Costs	(1,987		)	(527		)	(644		)
Total Net Periodic Benefit Expense	$	4,965		$	4,196		$	4,336



SJG:	Other Postretirement Benefits
	2018			2017			2016
Service Cost	$	583		$	582		$	576
Interest Cost	1,698			1,897			2,120
Expected Return on Plan Assets	(3,449		)	(3,101		)	(2,823		)
Amortization:
Prior Service Credits	(257		)	(257		)	(257		)
Actuarial Loss	695			972			945
Net Periodic Benefit Cost	(730		)	93			561
Capitalized Benefit Costs	(257		)	(46		)	(277		)
Deferred Benefit Costs	580			—			—
Total Net Periodic Benefit (Income)/Expense	$	(407	)	$	47		$	284

Capitalized benefit costs reflected in the tables above relate to The Utilities construction program. Effective January 1, 2018, SJI and SJG adopted FASB ASU 2017-07 which stipulates that only the service cost component of net benefit cost is eligible for capitalization. In SJG's rate case settlement in October 2017, the BPU allowed deferral until the next base rate case of incremental expense associated with the adoption. See Note 10.

Companies with publicly traded equity securities that sponsor a postretirement benefit plan are required to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans and recognize changes in the funded status in the year in which the changes occur. Changes in funded status are generally reported in Other Comprehensive Loss; however, since the Utilities recover all prudently incurred pension and postretirement benefit costs from its ratepayers, a significant portion of the charges resulting from the recording of additional liabilities under this requirement are reported as regulatory assets (see Note 11).

Details of the activity within the Regulatory Asset and AOCL associated with Pension and Other Postretirement Benefits are as follows (in thousands):



SJI (includes SJG and all other consolidated subsidiaries):	Regulatory Assets						Accumulated Other Comprehensive Loss (pre-tax)
	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Balance at January 1, 2017	$	68,450		$	17,243		$	39,590		$	2,821

Amounts Arising during the Period:
Net Actuarial Gain	2,711			(3,286		)	18,506			1,614
Prior Service Credit	—			257			—			84
Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss	(6,066		)	(972		)	(4,160		)	(1,013		)
Prior Service Cost	(126		)	—			(4		)	—

Balance at December 31, 2017	64,969			13,242			53,932			3,506

Amounts Arising during the Period:
Net Actuarial Gain (Loss)	8,637			5,662			(5,953		)	(1,819		)
Prior Service Credit	70			(3,247		)	—			(2,471		)
Other (Curtailments, Settlements, Special Termination)	—			—			—			1,586
Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss	(6,025		)	(695		)	(5,450		)	(199		)
Prior Service Cost	(112		)	257			(4		)	84

Balance at December 31, 2018	$	67,539		$	15,219		$	42,525		$	687



SJG:	Regulatory Assets						Accumulated Other Comprehensive Loss (pre-tax)
	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Balance at January 1, 2017	$	68,450		$	17,243		$	24,102		$	—

Amounts Arising during the Period:
Net Actuarial Gain	2,711			(3,286		)	17,881			—
Prior Service Credit	—			257			—			—
Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss	(6,066		)	(972		)	(2,627		)	—
Prior Service Cost	(126		)	—			—			—

Balance at December 31, 2017	64,969			13,242			39,356			—

Amounts Arising during the Period:
Net Actuarial Gain	6,590			5,071			(911		)	—
Prior Service Credit	70			(3,247		)	—			—
Other (Curtailments, Settlements, Special Termination)	—			—
Amounts Amortized to Net Periodic Costs:
Net Actuarial Loss	(6,025		)	(695		)	(4,049		)	—
Prior Service Cost	(111		)	257			—			—

Balance at December 31, 2018	$	65,493		$	14,628		$	34,396		$	—

The estimated costs that will be amortized from Regulatory Assets for SJI and SJG into net periodic benefit costs in 2019 are as follows (in thousands):



SJI and SJG (costs are the same for both entities):	Pension Benefits		Other Postretirement Benefits
Prior Service Cost/(Credit)	$	101	$	(474	)
Net Actuarial Loss	$	5,837	$	965

The estimated costs that will be amortized from for SJI and SJG AOCL into net periodic benefit costs in 2019 are as follows (in thousands):



	Pension Benefits		Other Postretirement Benefits
SJI (includes SJG and all other consolidated subsidiaries):
Prior Service Cost/(Credit)	$	4	$	(102	)
Net Actuarial Loss	$	3,801	$	120

SJG:
Prior Service Cost/(Credit)	$	—	$	—
Net Actuarial Loss	$	2,579	$	—

A reconciliation of the plans' benefit obligations, fair value of plan assets, funded status and amounts recognized in SJI's consolidated balance sheets follows (in thousands):



SJI (includes SJG and all other consolidated subsidiaries):	Pension Benefits						Other Postretirement Benefits
	Pension Benefits						Other Postretirement Benefits
	2018			2017			2018			2017
Change in Benefit Obligations:
Benefit Obligation at Beginning of Year	$	316,289		$	278,288		$	62,283		$	60,350
Acquisition Opening Obligation	100,362			—			13,195			—
Service Cost	6,442			4,989			945			910
Interest Cost	13,778			11,772			2,430			2,418
Actuarial Loss (Gain)	(26,274		)	32,893			(3,534		)	1,411
Retiree Contributions	—			—			265			19
Plan Amendments	7,394			—			(3,012		)	—
Benefits Paid	(15,835		)	(11,653		)	(3,061		)	(2,825		)
Benefit Obligation at End of Year	$	402,156		$	316,289		$	69,511		$	62,283

Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year	$	216,065		$	189,542		$	57,922		$	50,532
Acquisition Beginning Fair Value	94,685			—			15,659			—
Actual Return on Plan Assets	(10,399		)	25,807			(3,050		)	7,390
Employer Contributions	2,704			12,369			2,796			2,806
Retiree Contributions	—			—			265			19
Benefits Paid	(15,835		)	(11,653		)	(3,061		)	(2,825		)
Fair Value of Plan Assets at End of Year	$	287,220		$	216,065		$	70,531		$	57,922


Funded Status at End of Year:	$	(114,936	)	$	(100,224	)	$	1,020		$	(4,361	)
Amounts Related to Unconsolidated Affiliate	(147		)	135			320			518
Accrued Net Benefit Cost at End of Year	$	(115,083	)	$	(100,089	)	$	1,340		$	(3,843	)

Amounts Recognized in the Statement of Financial Position Consist of:
Current Liabilities	$	(3,631	)	$	(2,388	)	$	—		$	—
Noncurrent Liabilities	(111,452		)	(97,701		)	1,340			(3,843		)
Net Amount Recognized at End of Year	$	(115,083	)	$	(100,089	)	$	1,340		$	(3,843	)

Amounts Recognized in Regulatory Assets Consist of:
Prior Service Costs	$	162		$	428		$	(5,765	)	$	(2,775	)
Net Actuarial Loss	67,377			64,541			20,984			16,017
	$	67,539		$	64,969		$	15,219		$	13,242

Amounts Recognized in Accumulated Other Comprehensive Loss Consist of (pre-tax):
Prior Service Costs	$	268		$	47		$	(1,707	)	$	(906	)
Net Actuarial Loss	42,257			53,885			2,394			4,412
	$	42,525		$	53,932		$	687		$	3,506



SJG:							Other
	Pension Benefits						Postretirement Benefits
	2018			2017			2018			2017
Change in Benefit Obligations:
Benefit Obligation at Beginning of Year	$	269,066		$	236,356		$	49,098		$	48,549
Service Cost	5,073			4,303			583			582
Interest Cost	10,010			9,925			1,698			1,897
Actuarial Loss (Gain)	(13,009		)	27,892			(1,271		)	328
Retiree Contributions	—			—			143			15
Plan Amendments	4,169			—			(3,247		)	—
Benefits Paid	(10,486		)	(9,410		)	(2,122		)	(2,273		)
Benefit Obligation at End of Year	$	264,823		$	269,066		$	44,882		$	49,098
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year	$	174,277		$	154,729		$	52,663		$	45,948
Actual Return on Plan Assets	(6,175		)	18,666			(2,893		)	6,715
Employer Contributions	2,669			10,292			1,979			2,259
Retiree Contributions	—			—			143			14
Benefits Paid	(10,486		)	(9,410		)	(2,122		)	(2,273		)
Fair Value of Plan Assets at End of Year	$	160,285		$	174,277		$	49,770		$	52,663

Funded Status at End of Year:
Accrued Net Benefit Cost at End of Year	$	(104,538	)	$	(94,789	)	$	4,888		$	3,565
Amounts Recognized in the Statement of Financial Position Consist of:
Current Liabilities	$	(3,597	)	$	(2,353	)	$	—		$	—
Noncurrent Liabilities	(100,941		)	(92,436		)	4,888			3,565
Net Amount Recognized at End of Year	$	(104,538	)	$	(94,789	)	$	4,888		$	3,565
Amounts Recognized in Regulatory Assets Consist of:
Prior Service Costs	$	163		$	428		$	(5,765	)	$	(2,775	)
Net Actuarial Loss	65,330			64,541			20,393			16,017
Net Amount Recognized at End of Year	$	65,493		$	64,969		$	14,628		$	13,242
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:
Net Actuarial Loss	$	34,396		$	39,356		$	—		$	—

The PBO and ABO of SJI's qualified employee pension plans were $329.2 million and $309.4 million, respectively, as of December 31, 2018; and $243.9 million and $227.3 million, respectively, as of December 31, 2017. The ABO of these plans exceeded the value of the plan assets as of December 31, 2018 and 2017. The value of these assets were $287.2 million and $216.1 million as of December 31, 2018 and 2017, respectively, and can be seen in the table above. The PBO and ABO for SJI's non-funded SERP were $73.0 million and $69.5 million, respectively, as of December 31, 2018; and $72.4 million and $63.9 million, respectively, as of December 31, 2017. SJI's SERP obligation is reflected in the tables above and has no assets.

The PBO and ABO of SJG's qualified employee pension plans were $188.1 million and $176.8 million, respectively, as of December 31, 2018; and $197.0 million and $183.5 million, respectively, as of December 31, 2017. The ABO of these plans exceeded the value of the plan assets as of December 31, 2018 and 2017. The value of these assets were $160.3 million and $174.3 million as of December 31, 2018 and 2017, respectively, and can be seen in the tables above. The PBO and ABO for SJG's non-funded SERP were $72.6 million and $69.1 million, respectively, as of December 31, 2018; and $72.0 million and $63.6 million, respectively, as of December 31, 2017. SJG's SERP obligation is reflected in the tables above and has no assets.

The weighted-average assumptions used to determine benefit obligations for SJI and SJG at December 31 were:



	Pension Benefits				Other Postretirement Benefits
	2018		2017		2018		2017
Discount Rate	4.39	%	3.73	%	3.63	%	3.63	%
Rate of Compensation Increase	3.50	%	3.50	%	3.50	%	3.50	%

The weighted-average assumptions used to determine net periodic benefit cost for SJI and SJG for the years ended December 31 were:



	Pension Benefits						Other Postretirement Benefits
	2018		2017		2016		2018		2017		2016
Discount Rate	3.73	%	4.30	%	4.83	%	4.13	%	4.13	%	4.73	%
Expected Long-Term Return on Plan Assets	7.25	%	7.25	%	7.50	%	6.75	%	6.50	%	6.50	%
Rate of Compensation Increase	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%

In 2014, the SOA released new mortality tables (RP-2014), which the Company adopted as of December 31, 2014. Since then, the SOA has updated the mortality projection on an annual basis. The Company utilizes the most current projection tables available. The obligations as of December 31, 2018, 2017 and 2016, disclosed herein, reflect the use of the updated projection tables applicable to those years.

The discount rates used to determine the benefit obligations at December 31, 2018 and 2017, which are used to determine the net periodic benefit cost for the subsequent year, were based on a portfolio model of high-quality investments with maturities that match the expected benefit payments under our pension and other postretirement benefit plans.

The expected long-term return on plan assets (“return”) has been determined by applying long-term capital market projections provided by our pension plan Trustee to the asset allocation guidelines, as defined in SJI's and SJG's investment policy, to arrive at a weighted average return. For certain other equity securities held by an investment manager outside of the control of the Trustee, the return has been determined based on historic performance in combination with long-term expectations. The return for the other postretirement benefits plan is determined in the same manner as discussed above; however, the expected return is reduced based on the taxable nature of the underlying trusts.

PLAN ASSETS - SJI's and SJG's overall investment strategy for pension plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans. SJI and SJG have implemented this diversification strategy primarily with commingled common/collective trust funds. The target allocations for pension plan assets are40-70 percent U.S. equity securities, 10-25 percent international equity securities, 25-60 percent fixed income investments, and 0-20 percent to all other types of investments. Equity securities include investments in commingled common/collective trust funds as well as large-cap and mid-cap companies. Fixed income securities include commingled common/collective trust funds, group annuity contracts for pension payments, and hedge funds. Other types of investments include investments in private equity funds and real estate funds that follow several different strategies.

The strategy recognizes that risk and volatility are present to some degree with all types of investments. SJI and SJG seek to avoid high levels of risk at the total fund level through diversification by asset class, style of manager, and sector and industry limits. Specifically prohibited investments include, but are not limited to, venture capital, margin trading, commodities and securities of companies with less than $250.0 million capitalization (except in the small-cap portion of the fund where capitalization levels as low as $50.0 million are permissible). These restrictions are only applicable to individual investment managers with separately managed portfolios and do not apply to mutual funds or commingled trusts.

SJI evaluated its pension and other postretirement benefit plans' asset portfolios for the existence of significant concentrations of credit risk as of December 31, 2018. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of December 31, 2018, there were no significant concentrations (defined as greater than 10 percent of plan assets) of risk in SJI's pension and other postretirement benefit plan assets.

GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. This hierarchy groups assets into three distinct levels, as fully described in Note 17, which will serve as the basis for presentation throughout the remainder of this Note.

The fair values of SJI's and SJG's pension plan assets at December 31, 2018 and 2017 by asset category are as follows (in thousands):



SJI (includes SJG and all other consolidated subsidiaries):
Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2018
Cash / Cash Equivalents:
Cash	$	92,224	$	92,224	$	—	$	—
STIF-Type Instrument (a)	1,653		—		1,653		—
Equity securities:
U.S. Large-Cap (b)	13,684		13,684		—		—
U.S. Mid-Cap (b)	1,502		1,502		—		—
International (b)	2,327		2,327		—		—
Fixed Income:
Guaranteed Insurance Contract (c)	8,453		—		—		8,453
Subtotal Fair Value	$	119,843	$	109,737	$	1,653	$	8,453

Measured at net asset value practical expedient (g):
Private Equity Fund (d)	$	8,867
Common/Collective Trust Funds - Real Estate (e)	9,737
	18,604
Other Common/Collective Trust Funds (f):
Cash/Cash Equivalents	696
Equity Securities - U.S.	63,418
Equity Securities - International	33,391
Fixed Income	51,268
	148,773
Subtotal measured at net asset value practical expedient	$	167,377

Total Fair Value	$	287,220



Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2017
Cash / Cash Equivalents:
Cash	$	72	$	72	$	—	$	—
STIF-Type Instrument (a)	1,522		—		1,522		—
Equity securities:
U.S. Large-Cap (b)	13,526		13,526		—		—
U.S. Mid-Cap (b)	1,701		1,701		—		—
U.S. Small-Cap (b)	490		490		—		—
International (b)	3,260		3,260		—		—
Fixed Income:
Guaranteed Insurance Contract (c)	9,211		—		—		9,211
Subtotal Fair Value	$	29,782	$	19,049	$	1,522	$	9,211

Measured at net asset value practical expedient (g):
Private Equity Fund (d)	$	7,111
Common/Collective Trust Funds - Real Estate (e)	9,813
	16,924
Other Common/Collective Trust Funds (f):
Cash/Cash Equivalents	477
Equity Securities - U.S.	75,699
Equity Securities - International	39,077
Fixed Income	54,106
	169,359
Subtotal measured at net asset value practical expedient	$	186,283

Total Fair Value	$	216,065



SJG:
Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2018:
Cash / Cash Equivalents:
Cash	$	19	$	19	$	—	$	—
STIF-Type Instrument (a)	1,359		—		1,359		—
Equity securities:
U.S. Large-Cap (b)	11,247		11,247		—		—
U.S. Mid-Cap (b)	1,234		1,234		—		—
International (b)	1,912		1,912		—		—
Fixed Income:
Guaranteed Insurance Contract (c)	6,947		—		—		6,947
Subtotal Fair Value	$	22,718	$	14,412	$	1,359	$	6,947

Measured at net asset value practical expedient (g):
Private Equity Fund (d)	$	7,288
Common/Collective Trust Funds - Real Estate (e)	8,003
	15,291
Other Common/Collective Trust Funds (f):
Cash/Cash Equivalents	572
Equity Securities - U.S.	52,123
Equity Securities - International	27,444
Fixed Income	42,137
	122,276
Subtotal measured at net asset value practical expedient	$	137,567

Total Fair Value	$	160,285



Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2017:
Cash / Cash Equivalents:
Cash	$	58	$	58	$	—	$	—
STIF-Type Instrument (a)	1,228		—		1,228		—
Equity securities:
U.S. Large-Cap (b)	10,910		10,910		—		—
U.S. Mid-Cap (b)	1,372		1,372		—		—
U.S. Small-Cap (b)	395		395		—		—
International (b)	2,629		2,629		—		—
Fixed Income:
Guaranteed Insurance Contract (c)	7,429		—		—		7,429
Subtotal Fair Value	$	24,021	$	15,364	$	1,228	$	7,429

Measured at net asset value practical expedient (g):
Private Equity Fund (d)	$	5,735
Common/Collective Trust Funds - Real Estate (e)	7,920
	13,655
Other Common/Collective Trust Funds (f):
Cash/Cash Equivalents	385
Equity Securities - U.S.	61,057
Equity Securities - International	31,519
Fixed Income	43,640
	136,601
Subtotal measured at net asset value practical expedient	$	150,256

Total Fair Value	$	174,277

(a)

This category represents short-term investment funds held for the purpose of funding disbursement payment arrangements. Underlying assets are valued based on quoted prices in active markets, or where quoted prices are not available, based on models using observable market information. Since not all values can be obtained from quoted prices in active markets, these funds are classified as Level 2 investments.


(b)	This category of equity investments represents a managed portfolio of common stock investments in five sectors: telecommunications, electric utilities, gas utilities, water and energy. These common stocks are actively traded on exchanges and price quotes for these shares are readily available. These common stocks are classified as Level 1 investments.

(c)

This category represents SJI’s Group Annuity contracts with a nationally recognized life insurance company. The contracts are the assets of the plan, while the underlying assets of the contracts are owned by the contract holder. Valuation is based on a formula and calculation specified within the contract. Since the valuation is based on the reporting entity’s own assumptions, these contracts are classified as Level 3 investments.

(d)

This category represents a limited partnership which includes several investments in U.S. leveraged buyout, venture capital, and special situation funds. Fund valuations are reported on a 90 to 120 day lag and, therefore, the value reported herein represents the market value as of June or September 30, 2018 and 2017, respectively, with cash flow changes through December applied. The fund’s investments are stated at fair value, which is generally based on the valuations provided by the general partners or managers of such investments. See (g) below.


(e)	This category represents real estate common/collective trust fund investments through a commingled employee benefit trust. These commingled funds are part of a direct investment in a pool of real estate properties. These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications. See (g) below.

(f)

(g)

Subsequent to the issuance of SJI’s and SJG’s 2017 financial statements, management determined that certain investments classified as Level 2 and Level 3 investments as of December 31, 2017 should have been excluded from the fair value hierarchy table and classified as “investments measured at net asset value practical expedient” as a result of adopting ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” on January 1, 2017. As a result, the table above has been revised to reclassify these investments from Level 2 and Level 3 investments as of December 31, 2017 to investments measured at net asset value practical expedient. The correction of this classification resulted in a decrease in previously reported Level 2 and Level 3 investments as of December 31, 2017 of $169.4 million and $17.1 million for SJI, respectively, and $136.6 million and $13.7 million for SJG, respectively, and an increase in the classified investments measured at net asset value practical expedient. The correction of this classification had no effect on SJI’s and SJG’s financial statements.

Fair Value Measurement Using Significant

Unobservable Inputs (Level 3)

(In thousands)



SJI (includes SJG and all other consolidated subsidiaries):	Guaranteed			Private
	Insurance			Equity		Real
	Contract			Funds (A)		Estate (A)		Total

Balance at January 1, 2017	$	9,714		$	—	$	—	$	9,714
Actual return on plan assets:
Relating to assets still held at the reporting date	245			—		—		245
Relating to assets sold during the period	12			—		—		12
Purchases, Sales and Settlements	(760		)	—		—		(760		)
Balance at December 31, 2017	9,211			—		—		9,211
Actual return on plan assets:				—		—		—
Relating to assets still held at the reporting date	(53		)	—		—		(53		)
Relating to assets sold during the period	13			—		—		13
Purchases, Sales and Settlements	(718		)	—		—		(718		)
Balance at December 31, 2018	$	8,453		$	—	$	—	$	8,453



SJG:	Guaranteed Insurance Contract			Private Equity Funds (A)		Real Estate (A)		Total
Balance at January 1, 2017	$	7,930		$	—	$	—	$	7,930
Actual return on plan assets:
Relating to assets still held at the reporting date	103			—		—		103
Relating to assets sold during the period	9			—		—		9
Purchases, Sales and Settlements	(613		)	—		—		(613		)
Balance at December 31, 2017	$	7,429		$	—	$	—	$	7,429
Actual return on plan assets:
Relating to assets still held at the reporting date	98			—		—		98
Relating to assets sold during the period	11			—		—		11
Purchases, Sales and Settlements	(591		)	—		—		(591		)
Balance at December 31, 2018	$	6,947		$	—	$	—	$	6,947

(A) The 2017 amounts have been reclassified to NAV as per (g) above.

As with the pension plan assets, SJI's and SJG's overall investment strategy for post-retirement benefit plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans. SJI and SJG have implemented this diversification strategy with a mix of common/collective trust funds, mutual funds and Company-owned life insurance policies. The target allocations for post-retirement benefit plan assets are 55-75 percent U.S. equity securities, 10-20 percent international equity securities, 25-45 percent fixed income investments and 0-7 percent to all other types of investments. Equity securities include investments in large-cap, mid-cap and small-cap companies within mutual funds or common/collective trust funds. Fixed income securities within the common/collective trust fund include primarily investment grade, U.S. Government and mortgage-backed financial instruments. The insurance policies are backed by a series of commingled trust investments held by the insurance carrier.

The fair values of SJI's and SJG's other postretirement benefit plan assets at December 31, 2018 and 2017 by asset category are as follows (in thousands):



SJI (includes SJG and all other consolidated subsidiaries):
Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2018:
Cash	$	16,720	$	16,720	$	—	$	—
Other Types of Investments:
Mutual Funds - REITS (a)	822		822		—		—
Subtotal Fair Value	$	17,542	$	17,542	$	—	$	—

Measured at net asset value practical expedient (c):
Common/Collective Trust Funds (b):
Equity Securities - U.S.	$	14,069
Equity Securities - International	9,720
Fixed Income	15,315
Company Owned Life Insurance (b)	13,885
Subtotal measured at net asset value practical expedient	$	52,989

Total Fair Value	$	70,531

Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2017:
Other Types of Investments:
Mutual Funds - REITS (a)	$	864	$	864	$	—	$	—
Subtotal Fair Value	$	864	$	864	$	—	$	—

Measured at net asset value practical expedient (c):
Common/Collective Trust Funds (b):
Equity Securities - U.S.	$	15,101
Equity Securities - International	11,378
Fixed Income	15,272
Company Owned Life Insurance (b)	15,307
Subtotal measured at net asset value practical expedient	$	57,058

Total Fair Value	$	57,922



SJG:
Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2018
Cash	$	859	$	859	$	—	$	—
Other Types of Investments:
Mutual Funds - REITS (a)	740		740		—		—
Subtotal Fair Value	$	1,599	$	1,599	$	—	$	—

Measured at net asset value practical expedient (c):
Common/Collective Trust Funds (b):
Equity Securities - U.S.	$	12,645
Equity Securities - International	8,735
Fixed Income	13,764
Company Owned Life Insurance (b)	13,027
Subtotal measured at net asset value practical expedient	$	48,171

Total Fair Value	$	49,770

Asset Category	Total		Level 1		Level 2		Level 3
As of December 31, 2017
Other Types of Investments:
Mutual Funds - REITS (a)	$	777	$	777	$	—	$	—
Subtotal Fair Value	$	777	$	777	$	—	$	—

Measured at net asset value practical expedient (c):
Common/Collective Trust Funds (b):
Equity Securities - U.S.	$	13,572
Equity Securities - International	10,226
Fixed Income	13,726
Company Owned Life Insurance (b)	14,362
Subtotal measured at net asset value practical expedient	$	51,886

Total Fair Value	$	52,663


(a)	This category represents mutual fund investments. The mutual funds are actively traded on exchanges and price quotes for the shares are readily available. These mutual funds are classified as Level 1 investments.

(b)

This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets. Also included in these funds are interest rate swaps, asset backed securities, mortgage backed securities and other investments with observable market values. This category also represents Company-owned life insurance policies with a nationally known life insurance company. The value of these policies is backed by a series of common/collective trust funds held by the insurance carrier.

(c)

Subsequent to the issuance of SJI’s and SJG’s 2017 financial statements, management determined that certain investments classified as Level 2 investments as of December 31, 2017 should have been excluded from the fair value hierarchy table and classified as “investments measured at net asset value practical expedient” as a result of adopting ASU 2015-07 on January 1, 2017. As a result, the table above has been revised to reclassify these investments from Level 2 investments as of December 31, 2017 to investments measured at net asset value practical expedient. The correction of this classification resulted in a decrease in previously reported Level 2 investments as of December 31, 2017 of $57.1 million for SJI and $51.9 million for SJG and an increase in the classified investments measured at net asset value practical expedient. The correction of this classification had no effect on SJI’s and SJG’s financial statements.

FUTURE BENEFIT PAYMENTS - The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (in thousands):



SJI (includes SJG and all other consolidated subsidiaries):	Pension Benefits		Other Postretirement Benefits
2019	$	21,690	$	5,873
2020	$	22,382	$	5,853
2021	$	22,517	$	5,811
2022	$	23,108	$	5,728
2023	$	23,883	$	5,561
2024 - 2028	$	122,192	$	24,069



SJG:	Pension Benefits		Other Postretirement Benefits
2019	$	12,777	$	3,879
2020	$	13,265	$	3,888
2021	$	13,674	$	3,817
2022	$	14,207	$	3,739
2023	$	14,788	$	3,639
2024 - 2028	$	79,003	$	15,444

CONTRIBUTIONS - SJI contributed $10.0 million to the pension plans in January 2017, of which SJG contributed $8.0 million. SJI and SJG did not make contributions to its employee pension plans in 2018 or 2016. Payments related to the unfunded SERP plan for SJI and SJG in 2018, 2017 and 2016 were $2.7 million, $2.4 million and $2.3 million, respectively. SERP payments for SJI and SJG are expected to approximate $3.6 million in 2019. Prior to the base rate case settlement in October 2017, SJG also had a regulatory obligation to contribute approximately $3.6 million annually to its other postretirement benefit plans’ trusts, less direct costs incurred. The October 2017 rate case settlement allows SJG to modify the future requirement level up to a limit that represents full funding of its obligation and to the maximum tax deduction allowed.

As part of the Acquisition, SJI acquired the existing pension and other post-employment benefit plans. The plans include a qualified defined benefit, trusteed, pension plan covering most eligible employees. The qualified pension plan is funded in accordance with requirements of the ERISA. The Company also provides certain non-qualified defined benefit and defined contribution pension plans for a selected group of the Company's management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, the entities also have a postretirement benefit plan, which provides certain medical care and life insurance benefits for eligible retired employees through a postretirement benefit plan. In 2018, SJI's Pension and Other Postretirement Benefits Liabilities balance was increased by $3.2 million, which is the fair value value of the acquired ETG and ELK Pension and Other Postretirement Benefits Liabilities at the time of the acquisition. The value of ETG and ELK's Pension and Other Postretirement Benefits Liabilities as of December 31, 2018 is $5.1 million.

DEFINED CONTRIBUTION PLAN - SJI and SJG offer a Savings Plan to eligible employees. For employees eligible for participation in the defined benefit pension plan, SJI and SJG match 50% of participants' contributions up to 6% of base compensation. For employees who are not eligible for participation in the defined benefit pension plans, SJI and SJG match 50% of participants' contributions up to 8% of base compensation. Employees not eligible for the pension plans also receive a year-end contribution of $1,500, if 10 or fewer years of service, or $2,000, if more than 10 years of service. The amount expensed and contributed for the matching provision of the Savings Plan for SJI approximated 3.3 million, $2.6 million and $2.3 million for the years ended December 31, 2018, 2017 and 2016, respectively, and $1.8 million, $1.6 million and $1.3 million for SJG for the years ended December 31, 2018, 2017 and 2016, respectively.