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 ten 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. In January 2013, Cleco Power made $34.0 million in discretionary contributions to the pension plan designated for the 2012 plan year. Cleco does not expect to make any additional discretionary contributions to the pension plan for the remainder of the year. During 2012, Cleco made no discretionary or required contributions to the pension plan. 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, 2013 and 2012, are as follows:



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2013			2012			2013		2012
Components of periodic benefit cost:
Service cost	$	2,472		$	2,078		$	614	$	303
Interest cost	4,485			4,563			214		334
Expected return on plan assets	(5,861		)	(5,201		)	—		—
Amortizations:
Transition obligation	—			—			6		5
Prior period service credit	(18		)	(18		)	—		—
Net loss	3,304			2,087			213		112
Net periodic benefit cost	$	4,382		$	3,509		$	1,047	$	754



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2013			2012			2013		2012
Components of periodic benefit cost:
Service cost	$	7,417		$	6,234		$	1,242	$	1,096
Interest cost	13,455			13,690			1,176		1,287
Expected return on plan assets	(17,584		)	(15,604		)	—		—
Amortizations:
Transition obligation	—			—			15		15
Prior period service credit	(53		)	(53		)	—		—
Net loss	9,913			6,259			849		512
Net periodic benefit cost	$	13,148		$	10,526		$	3,282	$	2,910

Because 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, 2013, was $0.6 million and $1.9 million, respectively. The amounts for the same periods in 2012 were $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, 2013. The amount at December 31, 2012, was also $3.1 million. The current portion of the other benefits liability for Cleco Power was $2.9 million at September 30, 2013. The amount at December 31, 2012, 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, 2013, was $0.9 million and $2.8 million, respectively. The amounts for the same periods in 2012 were $0.7 million and $2.5 million, respectively.

SERP

Certain Cleco 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 plus 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, because SERP is a non-qualified plan, the assets of the trust could be used to satisfy general creditors of Cleco Power 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 nine months ended September 30, 2013 or 2012. Cleco Power is considered the plan sponsor and Support Group is considered the plan administrator. The components of net periodic SERP benefit cost for the three and nine months ended September 30, 2013 and 2012, are as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2013		2012		2013		2012
Components of periodic benefit cost:
Service cost	$	514	$	372	$	1,541	$	1,115
Interest cost	645		632		1,934		1,895
Amortizations:
Prior period service cost	13		13		40		40
Net loss	576		441		1,728		1,324
Net periodic benefit cost	$	1,748	$	1,458	$	5,243	$	4,374

The SERP liabilities are reported on the individual subsidiaries’ financial statements. At September 30, 2013 and December 31, 2012, the current portion of the SERP liability for Cleco was $2.7 million and $2.5 million, respectively. The current portion of the SERP liability for Cleco Power was $0.8 million at September 30, 2013. The amount at December 31, 2012, 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 $1.2 million for the three and nine months ended September 30, 2013, compared to $0.4 million and $1.1 million for the same period in 2012.

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, 2013 and 2012 is as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2013		2012		2013		2012
401(k) Plan expense	$	936	$	963	$	3,361	$	3,303

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, 2013, was $0.2 million and $0.8 million, respectively. The amounts for the same periods in 2012 were also $0.2 million and $0.8 million, respectively.