Note 6 — Pension Plan and Employee Benefits

Pension Plan and Other Benefits Plan

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 did not make any required or discretionary contributions to the pension plan in 2015 and does not expect to make any in 2016. 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 months ended March 31, 2016, and 2015 are as follows:



	FOR THE THREE MONTHS ENDED MAR. 31,
	2016			2015			2016		2015
(THOUSANDS)	PENSION BENEFITS						OTHER BENEFITS
Components of periodic benefit costs:
Service cost	$	2,262		$	2,526		$	380	$	395
Interest cost	5,507			5,127			420		401
Expected return on plan assets	(6,010		)	(5,834		)	—		—
Amortizations:
Prior period service (credit) cost	(18		)	(18		)	30		30
Net loss	2,469			3,346			160		210
Net periodic benefit cost	$	4,210		$	5,147		$	990	$	1,036

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 both the three months ended March 31, 2016, and 2015 was $0.4 million.

Cleco Holdings 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 expense related to other benefits reflected in Cleco Power’s Condensed Consolidated Statements of Income for the three months ended March 31, 2016, and 2015 was $0.8 million and $0.9 million, respectively. The current and non-current portions of the other benefits liability for Cleco and Cleco Power at March 31, 2016, and December 31, 2015, are as follows:



(THOUSANDS)	AT MAR. 31, 2016		AT DEC. 31, 2015
Cleco
Current	$	3,613	$	3,613
Non-current	$	38,887	$	39,457
Cleco Power
Current	$	3,140	$	3,140
Non-current	$	33,801	$	34,300

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 (a) the highest base salary paid out over the last five calendar years and (b) the average of the three highest cash bonuses paid during the 60 months prior to retirement, which sum is 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. Market conditions could have a significant impact on the cash surrender value of the life insurance policies. 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. In 2014, SERP was closed to new participants; however, with regard to current SERP participants, including former employees or their beneficiaries, all terms of SERP will continue. Management will review current market trends as it evaluates Cleco’s future compensation strategy.

In accordance with the SERP plan document and the Merger Agreement, four executives received enhanced benefits, and upon termination of employment, two of these executives received accelerated vesting.

The components of net periodic benefit cost related to SERP for the three months ended March 31, 2016, and 2015 are as follows:



	FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS)	2016		2015
Components of periodic benefit costs:
Service cost	$	583	$	630
Interest cost	731		758
Amortizations:
Prior period service cost	13		13
Net loss	655		726
Net periodic benefit cost	$	1,982	$	2,127

The expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income was $0.4 million for the three months ended March 31, 2016, compared to $0.5 million for the same period in 2015.

Liabilities relating to SERP are reported on the individual subsidiaries’ financial statements. The current and non-current portions of the SERP liability for Cleco and Cleco Power at March 31, 2016, and December 31, 2015, are as follows:



(THOUSANDS)	AT MAR. 31, 2016		AT DEC. 31, 2015
Cleco
Current	$	3,238	$	3,238
Non-current	$	69,632	$	69,049
Cleco Power
Current	$	1,000	$	1,000
Non-current	$	21,371	$	21,321

401(k) Plan

Cleco’s 401(k) Plan is intended to provide active, eligible employees with voluntary, long-term savings and investment opportunities. The 401(k) 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 401(k) Plan, employer contributions can be in the form of cash. Cash contributions are invested in proportion to the participant’s voluntary contribution investment choices. Prior to the close of the Merger on April 13, 2016, employer contributions could also be in the form of Cleco Corporation common stock. Plan participants were allowed to choose whether to have the dividends on Cleco Corporation common stock distributed in cash or reinvested in additional shares of Cleco Corporation common stock. Participation in the 401(k) Plan is voluntary, and active Cleco employees are eligible to participate. Cleco’s 401(k) Plan expense for the three months ended March 31, 2016, and 2015 is as follows:



	FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS)	2016		2015
401(k) Plan expense	$	1,374	$	1,425

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 each of the three months ended March 31, 2016, and 2015 was $0.3 million.