PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS

9 Months Ended

Sep. 30, 2012

PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS

NOTE 6. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company has a defined benefit pension plan covering substantially all regular full-time employees at Avista Utilities. Individual benefits under this plan are based upon the employee’s years of service, date of hire and average compensation as specified in the plan. The Company’s funding policy is to contribute at least the minimum amounts that are required to be funded under the Employee Retirement Income Security Act, but not more than the maximum amounts that are currently deductible for income tax purposes. The Company contributed $26 million in cash to the pension plan in 2011. The Company contributed $44 million in cash to the pension plan in 2012 (with no further contributions planned for the remainder of 2012).

The Company also has a Supplemental Executive Retirement Plan (SERP) that provides additional pension benefits to executive officers of the Company. The SERP is intended to provide benefits to executive officers whose benefits under the pension plan are reduced due to the application of Section 415 of the Internal Revenue Code of 1986 and the deferral of salary under deferred compensation plans. The liability and expense for this plan are included as pension benefits in the tables included in this Note.

The Company provides certain health care and life insurance benefits for substantially all of its retired employees. The Company accrues the estimated cost of postretirement benefit obligations during the years that employees provide services.

The Company has a Health Reimbursement Arrangement to provide employees with tax-advantaged funds to pay for allowable medical expenses upon retirement. The amount earned by the employee is fixed on the retirement date based on the employee’s years of service and the ending salary. The liability and expense of this plan are included as other postretirement benefits.

The Company provides death benefits to beneficiaries of executive officers who die during their term of office or after retirement. Under the plan, an executive officer’s designated beneficiary will receive a payment equal to twice the executive officer’s annual base salary at the time of death (or if death occurs after retirement, a payment equal to twice the executive officer’s total annual pension benefit). The liability and expense for this plan are included as other postretirement benefits.

The Company uses a December 31 measurement date for its pension and other postretirement benefit plans. The following table sets forth the components of net periodic benefit costs for the three and nine months ended September 30 (dollars in thousands):

	Pension Benefits						Other Post- retirement Benefits
	2012			2011			2012			2011
Three months ended September 30:
Service cost	$	3,891		$	3,303		$	689		$	433
Interest cost		6,084			6,017			1,256			1,005
Expected return on plan assets		(5,950	)		(5,775	)		(375	)		(400	)
Transition obligation recognition		—			—			125			125
Amortization of prior service cost		75			125			(37	)		(37	)
Net loss recognition		3,019			2,506			1,250			960
Net periodic benefit cost	$	7,119		$	6,176		$	2,908		$	2,086
Nine months ended September 30:
Service cost	$	11,573		$	9,548		$	2,067		$	1,299
Interest cost		18,277			18,143			3,793			3,015
Expected return on plan assets		(17,900	)		(17,141	)		(1,125	)		(1,200	)
Transition obligation recognition		—			—			375			375
Amortization of prior service cost		225			369			(111	)		(111	)
Net loss recognition		8,797			6,909			3,814			2,634
Net periodic benefit cost	$	20,972		$	17,828		$	8,813		$	6,012