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. Cleco does not expect to make any required or discretionary contributions to the pension plan in 2014. In January 2013, Cleco Power made $34.0 million in discretionary contributions to the pension plan designated for the 2012 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 may be 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, 2014 and 2013, are as follows:



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2014			2013			2014		2013
Components of periodic benefit cost:
Service cost	$	2,013		$	2,472		$	347	$	614
Interest cost	4,963			4,485			432		214
Expected return on plan assets	(6,127		)	(5,861		)	—		—
Amortizations:
Transition obligation	—			—			2		6
Prior period service cost (credit)	(18		)	(18		)	29		—
Net loss	1,686			3,304			147		213
Net periodic benefit cost	$	2,517		$	4,382		$	957	$	1,047



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2014			2013			2014		2013
Components of periodic benefit cost:
Service cost	$	6,038		$	7,417		$	1,157	$	1,242
Interest cost	14,888			13,455			1,357		1,176
Expected return on plan assets	(18,380		)	(17,584		)	—		—
Amortizations:
Transition obligation	—			—			12		15
Prior period service cost (credit)	(53		)	(53		)	89		—
Net loss	5,057			9,913			502		849
Net periodic benefit cost	$	7,550		$	13,148		$	3,117	$	3,282

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, 2014 was $0.4 million and $1.3 million, respectively. The amounts for the same periods in 2013 were $0.6 million and $1.9 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 at September 30, 2014 and December 31, 2013, was $3.5 million. The current portion of the other benefits liability for Cleco Power at September 30, 2014 and December 31, 2013, was $3.2 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, 2014, was $0.8 million and $2.7 million, respectively. The amounts for the same periods in 2013 were $0.9 million and $2.8 million, respectively.

SERP

Certain Cleco officers are covered by SERP. 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 cash bonuses paid during the 60 months prior to retirement, reduced by benefits received from any other defined benefit pension plan, supplemental executive retirement 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 SERP participants. Proceeds from the life insurance policies are expected to be used to pay the SERP participants’ death 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. Cleco Power is considered the plan sponsor and Support Group is considered the plan administrator. On July 24, 2014, the Board of Directors of Cleco voted to close SERP to new participants. With regard to current SERP participants, including former employees or their beneficiaries, all terms of SERP will continue. Management will look at current market trends as it evaluates Cleco’s future compensation strategy.

The components of net periodic SERP benefit cost for the three and nine months ended September 30, 2014 and 2013, are as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2014		2013		2014		2013
Components of periodic benefit cost:
Service cost	$	570	$	514	$	1,708	$	1,541
Interest cost	757		645		2,271		1,934
Amortizations:
Prior period service cost	13		13		40		40
Net loss	469		576		1,407		1,728
Net periodic benefit cost	$	1,809	$	1,748	$	5,426	$	5,243

The SERP liabilities are reported on the individual subsidiaries’ financial statements. The current portion of the SERP liability for Cleco at September 30, 2014 and December 31, 2013, was $2.8 million. The current portion of the SERP liability for Cleco Power at September 30, 2014 and December 31, 2013, was $0.9 million and $0.7 million, respectively. The expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income was $0.4 million and $1.3 million for the three and nine months ended September 30, 2014, compared to $0.4 million and $1.2 million for the same period in 2013.

401(k) Plan

Cleco’s 401(k) Plan is intended to provide active, eligible employees with voluntary, long-term savings and investment opportunities. The Plan is a defined contribution plan and is subject to the applicable provisions of the Employee Retirement Income Security Act of 1974. In accordance with the Plan, employer contributions can be in the form of Cleco Corporation stock or cash. Cash contributions are invested in proportion to the participant’s voluntary contribution investment choices. Plan participants are allowed to choose whether to have dividends on Cleco Corporation common stock distributed in cash or reinvested in additional shares of Cleco Corporation common stock. Participation in the Plan is voluntary, and active Cleco employees are eligible to participate. Cleco’s 401(k) Plan expense for the three and nine months ended September 30, 2014 and 2013 is as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2014		2013		2014		2013
401(k) Plan expense	$	1,015	$	936	$	3,585	$	3,361

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, 2014, was $0.2 million and $0.7 million, respectively. The amounts for the same periods in 2013 were $0.2 million and $0.8 million, respectively.