7.	Employee Benefit Plans

Pensions

The Company maintains a general and administrative and a union-represented defined benefit pension plan covering all of its employees hired prior to May 1, 2010. Employees hired after May 1, 2010 are eligible for an enhanced 401(k) plan rather than a defined benefit plan. The benefits under the defined benefit plans are based upon years of service and compensation near retirement. The Company amended its defined benefit pension plans in 2014, generally limiting the years of eligible service under the plans to 30 years. The Company's funding policy is to contribute annually the amount permitted by the PPUC to be collected from customers in rates, but in no case less than the minimum Employee Retirement Income Security Act (ERISA) required contribution.

The following table sets forth the plans' funded status as of December 31, 2017 and 2016. The measurement of assets and obligations of the plans is as of December 31, 2017 and 2016.

Obligations and Funded Status At December 31	2017			2016

Change in Benefit Obligation
Pension benefit obligation beginning of year	$	40,754		$	39,469
Service cost		1,080			1,018
Interest cost		1,592			1,599
Actuarial (gain) loss		2,645			(43	)
Benefit payments		(1,435	)		(1,289	)
Pension benefit obligation end of year		44,636			40,754

Change in Plan Assets
Fair value of plan assets beginning of year		35,467			31,835
Actual return on plan assets		5,107			2,621
Employer contributions		2,300			2,300
Benefits paid		(1,435	)		(1,289	)
Fair value of plan assets end of year		41,439			35,467

Funded Status of Plans at End of Year	$	(3,197	)	$	(5,287	)

The accounting standards require that the funded status of defined benefit pension plans be fully recognized on the balance sheets. They also call for the unrecognized actuarial gain or loss, the unrecognized prior service cost and the unrecognized transition costs to be adjustments to shareholders' equity (accumulated other comprehensive income). Due to a rate order granted by the PPUC, the Company is permitted under the accounting standards to defer the charges otherwise recorded in accumulated other comprehensive income as a regulatory asset. Management believes these costs will be recovered in future rates charged to customers. The liability for the funded status of the Company's pension plans is recorded in "Deferred employee benefits" on its balance sheets.

In 2017, the plans recognized a significant actuarial loss. The Company adopted the new mortality improvement scale (MP-2017) and recognized a 50 basis point decrease in the discount rate. In 2016, the plans recognized a small actuarial gain. The Company adopted the new mortality improvement scale (MP-2016), but recognized a 20 basis point decrease in the discount rate and lowered the expected long-term return on plan assets from 7.00% to 6.75%. The Company uses the corridor method to amortize actuarial gains and losses. Gains and losses over 10% of the greater of pension benefit obligation or the market value of assets are amortized over the average future service of plan participants expected to receive benefits.

Changes in plan assets and benefit obligations recognized in regulatory assets are as follows:

	2017			2016
Net gain arising during the period	$	(66	)	$	(432	)
Recognized net actuarial loss		(493	)		(561	)
Recognized prior service credit		13			13
Total changes in regulatory asset during the year	$	(546	)	$	(980	)

Amounts recognized in regulatory assets that have not yet been recognized as components of net periodic benefit cost consist of the following at December 31:

	2017			2016
Net loss	$	8,895		$	9,454
Prior service credit		(101	)		(114	)
Regulatory asset	$	8,794		$	9,340

Components of net periodic benefit cost are as follows:

	2017			2016			2015
Service cost	$	1,080		$	1,018		$	1,166
Interest cost		1,592			1,599			1,515
Expected return on plan assets		(2,395	)		(2,233	)		(2,229	)
Amortization of loss		493			561			705
Amortization of prior service credit		(13	)		(13	)		(13	)
Rate-regulated adjustment		1,543			1,368			1,156
Net periodic benefit cost	$	2,300		$	2,300		$	2,300

The rate-regulated adjustment set forth above is required in order to reflect pension expense for the Company in accordance with the method used in establishing water rates. The Company is permitted by rate order of the PPUC to expense pension costs to the extent of contributions and defer the remaining expense to regulatory assets to be collected in rates at a later date as additional contributions are made. During 2017, the deferral decreased by $1,543.

The estimated costs for the defined benefit pension plans relating to the December 31, 2017 balance sheet that will be amortized from regulatory assets into net periodic benefit cost over the next fiscal year are as follows:

Net loss	$	453
Net prior service credit		(13	)
		440

The Company plans to contribute $2,300 to the plans in 2018.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in each of the next five years and the subsequent five years in the aggregate:

2018				2019				2020				2021				2022						2023-2027
	$	1,714			$	1,852			$	1,865			$	1,928			$	2,007			$	11,717

The following tables show the projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets as of December 31:

	2017		2016
Projected benefit obligation	$	44,636	$	40,754
Fair value of plan assets		41,439		35,467

	2017		2016
Accumulated benefit obligation	$	41,390	$	37,822
Fair value of plan assets		41,439		35,467

Weighted-average assumptions used to determine benefit obligations at December 31:

	2017	2016
Discount rate	3.50%	4.00%
Rate of compensation increase	2.50% - 3.00%	2.50% - 3.00%

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:

	2017	2016	2015
Discount rate	4.00%	4.20%	3.80%
Expected long-term return on plan assets	6.75%	6.75%	7.00%
Rate of compensation increase	2.50% - 3.00%	2.50% - 3.00%	3.00%

The selected long-term rate of return on plan assets was primarily based on the asset allocation of each of the plan's assets (approximately 50% to 70% equity securities and 30% to 50% fixed income securities). Analysis of the historic returns of these asset classes and projections of expected future returns were considered in setting the long-term rate of return.

The investment objective of the Company's defined benefit pension plans is that of Growth and Income. The weighted-average target asset allocations are 50% to 70% equity securities, 30% to 50% fixed income securities, and 0% to 10% reserves (cash and cash equivalents). Within the equity category, the Company's target allocation is approximately 60-95% large cap, 0-25% mid cap, 0-10% small cap, 0-25% International Developed Nations, and 0-10% International Emerging Nations. Within the fixed income category, its target allocation is approximately 15-55% U.S. Treasuries, 0–22% Federal Agency securities, 0-40% corporate bonds, 15-55% mortgage-backed securities, 0-20% international, and 0-20% high yield bonds. The Company's investment performance objectives over a three to five year period are to exceed the annual rate of inflation as measured by the Consumer Price Index by 3%, and to exceed the annualized total return of specified benchmarks applicable to the funds within the asset categories.

Further guidelines within equity securities include: (1) holdings in any one company cannot exceed 5% of the portfolio; (2) a minimum of 20 individual stocks must be included in the domestic stock portfolio; (3) a minimum of 30 individual stocks must be included in the international stock portfolio; (4) equity holdings in any one industry cannot exceed 20-25% of the portfolio; and (5) only U.S.-denominated currency securities are permitted.

Further guidelines for fixed income securities include: (1) fixed income holdings in a single issuer are limited to 5% of the portfolio; (2) acceptable investments include money market securities, U.S. Government and its agencies and sponsored entities' securities, mortgage-backed and asset-backed securities, corporate securities and mutual funds offering high yield bond portfolios; (3) purchases must be limited to investment grade or higher; (4) non-U.S. dollar denominated securities are not permissible; and (5) high risk derivatives are prohibited.

The fair values of the Company's pension plan assets at December 31, 2017 and 2016 by asset category and fair value hierarchy level are as follows. The majority of the valuations are based on quoted prices on active markets (Level 1), with the remaining valuations based on broker/dealer quotes, active market makers, models, and yield curves (Level 2).

	Total Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)
Asset Category	2017		2016		2017		2016		2017		2016
Cash and Money Market Funds (a)	$	1,968	$	635	$	1,968	$	635	$	-	$	-
Equity Securities:
Common Equity Securities (b)		2,606		2,969		2,606		2,969		-		-
Equity Mutual Funds (c)		23,416		21,107		23,416		21,107		-		-
Fixed Income Securities:
U.S. Treasury Obligations		1,106		853		-		-		1,106		853
Corporate and Foreign Bonds (d)		5,153		3,439		-		-		5,153		3,439
Fixed Income Mutual Funds (e)		7,190		6,464		7,190		6,464		-		-
Total Plan Assets	$	41,439	$	35,467	$	35,180	$	31,175	$	6,259	$	4,292

(a)

The portfolios are designed to keep up to one year of distributions in immediately available funds. The Company was more heavily-weighted in cash as of December 31, 2017 due to the timing of employer contributions.

(b)

This category includes investments in U.S. common stocks and foreign stocks trading in the U.S. widely distributed among consumer discretionary, consumer staples, healthcare, information technology, financial services, telecommunications, industrials, materials, and energy. The individual stocks are primarily large cap stocks which track with the S&P 500.

(c)

This category currently includes a majority of investments in closed-end mutual funds as well as domestic equity mutual funds and international mutual funds which give the portfolio exposure to mid and large cap index funds as well as international diversified index funds.

(d)

This category currently includes only U.S. corporate bonds and notes widely distributed among consumer discretionary, consumer staples, healthcare, information technology and financial services.

(e)

This category includes fixed income investments in mutual funds which include government, corporate and mortgage securities of both the U.S. and other countries. The mortgage-backed securities and non-U.S. corporate and sovereign investments add further diversity to the fixed income portion of the portfolio.

Defined Contribution Plan

The Company has a savings plan pursuant to the provisions of section 401(k) of the Internal Revenue Code. For employees hired before May 1, 2010, this plan provides for elective employee contributions of up to 15% of compensation and Company matching contributions of 100% of the participant's contribution, up to a maximum annual Company contribution of $2.8 for each employee.

Employees hired after May 1, 2010 are entitled to an enhanced feature of the plan. This feature provides for elective employee contributions of up to 15% of compensation and Company matching contributions of 100% of the participant's contribution, up to a maximum of 4% of the employee's compensation. In addition, the Company will make an annual contribution of $1.2 to each employee's account whether or not they defer their own compensation. Employees eligible for this enhanced 401(k) plan feature are not eligible for the defined benefit plans. As of December 31, 2017, thirty employees were participating in the enhanced feature of the plan. The Company's contributions to both portions of the plan amounted to $266 in 2017, $261 in 2016, and $262 in 2015.

Deferred Compensation

The Company has non-qualified deferred compensation and supplemental retirement agreements with certain members of management. The future commitments under these arrangements are offset by corporate-owned life insurance policies. At December 31, 2017 and 2016, the present value of the future obligations was approximately $3,981 and $3,894, respectively. The insurance policies included in other assets had a total cash value of approximately $3,152 and $2,830 at December 31, 2017 and 2016, respectively. The Company's net expenses under the plans amounted to $252 in 2017, $557 in 2016 and $380 in 2015.

Other

The Company has a retiree life insurance program which pays the beneficiary of a retiree $2 upon the retiree's death. At December 31, 2017 and 2016, the present value of the future obligations was approximately $120 and $103, respectively. There is no trust or insurance covering this future liability, instead the Company will pay these benefits out of its general assets. The Company's net (income) expenses under the plan amounted to $19 in 2017, $9 in 2016 and $(4) in 2015.