Note 6 — Pension Plan and Employee Benefits

Pension Plan and Other Benefits Plan

Most employees hired before August 1, 2007, are covered by a non-contributory, defined benefit pension plan. Benefits under the plan reflect an employee’s years of service, age at retirement, and highest total average compensation for any consecutive five calendar years during the last 10 years of employment with Cleco. Cleco’s policy is to base its contributions to the employee pension plan upon actuarial computations utilizing the projected unit credit method, subject to the IRS’s full funding limitation. During the first nine months of 2012, Cleco made no discretionary or required contributions to the pension plan and does not expect to make required or discretionary contributions to the pension plan for the remainder of the year. During 2011, Cleco made $60.0 million in discretionary contributions to the pension plan, with $40.1 million designated for the 2010 plan year and the remaining $19.9 million designated for the 2011 plan year. The required contributions are driven by liability funding target percentages set by law which could cause the required contributions to be uneven among the years. The ultimate amount and timing of the contributions may be affected by changes in the discount rate, changes in the funding regulations, and actual returns on fund assets. Cleco Power is considered the plan sponsor, and Support Group is considered the plan administrator.

Cleco’s retirees and their dependents are eligible to receive medical, dental, vision, and life insurance benefits (other benefits). Cleco recognizes the expected cost of these other benefits during the periods in which the benefits are earned.

The components of net periodic pension and other benefit cost for the three and nine months ended September 30, 2012 and 2011, are as follows:



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2012			2011			2012		2011
Components of periodic benefit cost:
Service cost	$	2,078		$	2,097		$	303	$	390
Interest cost	4,563			4,407			334		443
Expected return on plan assets	(5,201		)	(6,161		)	—		—
Amortizations:
Transition obligation	—			—			5		5
Prior period service cost	(18		)	(18		)	—		(51		)
Net loss	2,087			1,389			112		246
Net periodic benefit cost	$	3,509		$	1,714		$	754	$	1,033



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2012			2011			2012		2011
Components of periodic benefit cost:
Service cost	$	6,234		$	6,292		$	1,096	$	1,149
Interest cost	13,690			13,222			1,287		1,364
Expected return on plan assets	(15,604		)	(18,484		)	—		—
Amortizations:
Transition obligation	—			—			15		15
Prior period service cost	(53		)	(54		)	—		(154		)
Net loss	6,259			4,167			512		758
Net periodic benefit cost	$	10,526		$	5,143		$	2,910	$	3,132

Since Cleco Power is the pension plan sponsor and the related trust holds the assets, the net unfunded status of the pension plan is reflected at Cleco Power. The liability of Cleco’s other subsidiaries is transferred, with a like amount of assets, to Cleco Power monthly. The expense of the pension plan related to Cleco’s other subsidiaries for the three and nine months ended September 30, 2012, was $0.5 million and $1.6 million, respectively. Amounts for the same periods in 2011 were also $0.5 million and $1.6 million, respectively.

Cleco Corporation is the plan sponsor for the other benefit plans. There are no assets set aside in a trust, and the liabilities are reported on the individual subsidiaries’ financial statements. The current portion of the other benefits liability for Cleco was $3.1 million at September 30, 2012. The amount at December 31, 2011, was also $3.1 million. The current portion of the other benefits liability for Cleco Power was $2.9 million at September 30, 2012. The amount at December 31, 2011, was also $2.9 million. The expense related to other benefits reflected in Cleco Power’s Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2012, was $0.7 million and $2.5 million, respectively. Amounts for the same periods in 2011 were $0.9 million and $2.7 million, respectively.

In March 2010, the President signed the PPACA, a comprehensive health care law, which was upheld by the U.S. Supreme Court on June 28, 2012. While all provisions of the PPACA are not effective immediately, the provisions could increase the Registrants’ retiree medical unfunded liability and related expenses before the effective date. Management will continue to monitor this law and its possible impact on the Registrants.

SERP

Certain Cleco executive officers are covered by the SERP. The SERP is a non-qualified, non-contributory, defined benefit pension plan. Benefits under the plan reflect an employee’s years of service, age at retirement, and the sum of the highest base salary paid out of the last five calendar years and the average of the three highest bonuses paid during the 60 months prior to retirement, reduced by benefits received from any other defined benefit pension plan, SERP Plan, or Cleco contributions under the enhanced 401(k) Plan to the extent such contributions exceed the limits of the 401(k) Plan. Cleco does not fund the SERP liability but instead pays for current benefits out of the general funds available. Cleco Power has formed a Rabbi Trust designated as the beneficiary for life insurance policies issued on the SERP participants. Proceeds from the life insurance policies are expected to be used to pay the SERP participants’ life insurance benefits, as well as future SERP payments. However, since SERP is a non-qualified plan, the assets of the trust could be used to satisfy general creditors of Cleco in the event of insolvency. All SERP benefits are paid out of the general cash available of the respective companies from which the officer retired. No contributions to the SERP were made during the three and nine months ended September 30, 2012 or 2011. Cleco Power is considered the plan sponsor, and Support Group is considered the plan administrator.



	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2012		2011		2012		2011
Components of periodic benefit cost:
Service cost	$	372	$	392	$	1,115	$	1,175
Interest cost	632		526		1,895		1,578
Amortizations:
Prior period service cost	13		13		40		40
Net loss	441		234		1,324		705
Net periodic benefit cost	$	1,458	$	1,165	$	4,374	$	3,498

The SERP liabilities are reported on the individual subsidiaries’ financial statements. At September 30, 2012 and December 31, 2011, the current portion of the SERP liability for Cleco was $2.5 million and $2.2 million, respectively. The current portion of the SERP liability for Cleco Power was $0.8 million at September 30, 2012. The amount at December 31, 2011, was also $0.8 million. The expense related to the SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income was $0.4 million and $1.1 million for the three and nine months ended September 30, 2012, respectively, compared to $0.3 million and $0.9 million for the same periods in 2011.

401(k) Plan

Most employees are eligible to participate in the 401(k) Plan. Under the 401(k) Plan, Cleco makes matching contributions and funds dividend reinvestments with cash. Cleco’s 401(k) Plan expense for the three and nine months ended September 30, 2012 and 2011 is as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2012		2011		2012		2011
401(k) Plan expense	$	963	$	945	$	3,303	$	2,998

Cleco Power is the plan sponsor for the 401(k) Plan. The expense of the 401(k) Plan related to Cleco’s other subsidiaries for the three and nine months ended September 30, 2012, was $0.2 million and $0.8 million, respectively. Amounts for the same periods in 2011 were $0.2 million and $0.7 million, respectively.