Note 7 — 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 and nine months ended September 30, 2016, and 2015 are as follows:



	PENSION BENEFITS						OTHER BENEFITS
	SUCCESSOR			PREDECESSOR			SUCCESSOR		PREDECESSOR
(THOUSANDS)	FOR THE THREE MONTHS ENDED SEPT. 30, 2016			FOR THE THREE MONTHS ENDED SEPT. 30, 2015			FOR THE THREE MONTHS ENDED SEPT. 30, 2016		FOR THE THREE MONTHS ENDED SEPT. 30, 2015
Components of periodic benefit costs
Service cost	$	2,229		$	2,605		$	380	$	442
Interest cost	5,455			5,198			420		461
Expected return on plan assets	(6,001		)	(5,846		)	—		—
Amortizations
Prior period service (credit) cost	(18		)	(17		)	—		21
Net loss	3,365			3,457			—		174
Net periodic benefit cost	$	5,030		$	5,397		$	800	$	1,098



	PENSION BENEFITS									OTHER BENEFITS
	SUCCESSOR			PREDECESSOR						SUCCESSOR		PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - SEPT. 30, 2016			JAN. 1, 2016 - APR. 12, 2016			FOR THE NINE MONTHS ENDED SEPT. 30, 2015			APR. 13, 2016 - SEPT. 30, 2016		JAN. 1, 2016 - APR. 12, 2016		FOR THE NINE MONTHS ENDED SEPT. 30, 2015
Components of periodic benefit costs
Service cost	$	4,122		$	2,563		$	7,814		$	709	$	431	$	1,226
Interest cost	10,124			6,242			15,596			784		476		1,205
Expected return on plan assets	(11,195		)	(6,812		)	(17,536		)	—		—		—
Amortizations
Prior period service (credit) cost	(33		)	(20		)	(53		)	—		34		89
Net loss	5,211			2,798			10,371			—		181		650
Net periodic benefit cost	$	8,229		$	4,771		$	16,192		$	1,493	$	1,122	$	3,170

During the third quarter of 2016, management finalized its remeasurement of the pension plan as of April 13, 2016, associated with the Merger. On the date of the remeasurement, the discount rate decreased from 4.62% to 4.21%. Prior to the remeasurement, Cleco’s 2016 net periodic benefit cost for the pension plan was expected to be $15.9 million. Due to the remeasurement of the pension plan, Cleco’s 2016 net periodic benefit cost is now expected to be $17.5 million.

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 predecessor period January 1, 2016, through April 12, 2016, was $0.5 million. The expense of the pension plan related to Cleco’s other subsidiaries for the successor periods July 1, 2016, through September 30, 2016, and April 13, 2016, through September 30, 2016, was $0.4 million and $0.8 million, respectively. The amounts for the predecessor periods for the three and nine months ended September 30, 2015, were $0.5 million and $1.5 million, respectively.

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 and nine months ended September 30, 2016, was $0.8 million and $2.5 million, respectively. The amounts for the same periods in 2015 were $0.9 million and $2.7 million, respectively. The current and non-current portions of the other benefits liability for Cleco and Cleco Power at September 30, 2016, and December 31, 2015, are as follows:



Cleco
	SUCCESSOR		PREDECESSOR
(THOUSANDS)	AT SEPT. 30, 2016		AT DEC. 31, 2015
Current	$	3,613	$	3,613
Non-current	$	38,333	$	39,457



Cleco Power
(THOUSANDS)	AT SEPT. 30, 2016		AT DEC. 31, 2015
Current	$	3,140	$	3,140
Non-current	$	33,311	$	34,300

SERP

Certain Cleco officers are covered by SERP. SERP is a non-qualified, non-contributory, defined benefit pension plan. Generally, 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. SERP benefits are reduced by retirement 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. In connection with the completion of the Merger, three executive officers’ SERP benefits will be capped as of December 31, 2017, with regard to final compensation; however, adjustments will continue with regard to age and tenure with Cleco. 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, other than as described above. In accordance with the SERP plan document and the Merger Agreement, four executive officers received enhanced benefits, and upon termination of employment, two of these executive officers received accelerated vesting. Management will review current market trends as it evaluates Cleco’s future compensation strategy. 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 that employed the officer. Cleco Power is considered the plan sponsor and Support Group is considered the plan administrator.

The components of net periodic benefit cost related to SERP for the three and nine months ended September 30, 2016, and 2015 are as follows:



	SUCCESSOR			PREDECESSOR
(THOUSANDS)	FOR THE THREE MONTHS ENDED SEPT. 30, 2016			FOR THE THREE MONTHS ENDED SEPT. 30, 2015
Components of periodic benefit costs
Service cost	$	213		$	676
Interest cost	839			764
Amortizations
Prior period service (credit) cost	(9		)	14
Net loss	511			743
Total benefit cost	$	1,554		$	2,197



	SUCCESSOR			PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - SEPT. 30, 2016			JAN. 1, 2016 - APR. 12, 2016		FOR THE NINE MONTHS ENDED SEPT. 30, 2015
Components of periodic benefit costs
Service cost	$	277		$	702	$	2,029
Interest cost	1,543			900		2,292
Amortizations
Prior period service (credit) cost	(42		)	17		40
Net loss	1,120			574		2,230
Net periodic benefit cost	2,898			2,193		6,591
Curtailment charge	—			3,602		—
Special/contractual termination benefits	—			3,222		—
Total benefit cost	$	2,898		$	9,017	$	6,591

There was a remeasurement of SERP at April 13, 2016, to reflect change in control benefits as a result of the Merger. On the date of the remeasurement, the discount rate decreased from 4.60% to 4.15%. This remeasurement resulted in a $3.6 million curtailment charge and $3.2 million of special/contractual termination benefits. The curtailments and special/contractual termination benefits are included in Merger transaction and commitment costs on Cleco’s Condensed Consolidated Statements of Income. There was an additional remeasurement of SERP at August 31, 2016, to reflect changes to the plan relating to three executive officers’ SERP benefits being capped as of December 31, 2017, with regard to final compensation. On the date of the remeasurement, the discount rate decreased from 4.15% to 3.47%.

The expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income was $0.3 million and $1.1 million for the three and nine months ended September 30, 2016, respectively, compared to $0.6 million and $1.7 million for the same periods 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 September 30, 2016, and December 31, 2015, are as follows:



Cleco
	SUCCESSOR		PREDECESSOR
(THOUSANDS)	AT SEPT. 30, 2016		AT DEC. 31, 2015
Current	$	4,389	$	3,238
Non-current	$	82,143	$	69,049



Cleco Power
(THOUSANDS)	AT SEPT. 30, 2016		AT DEC. 31, 2015
Current	$	905	$	1,000
Non-current	$	18,188	$	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 are made 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. Participation in the 401(k) Plan is voluntary, and all active Cleco employees are eligible to participate. Cleco’s 401(k) Plan expense for the three and nine months ended September 30, 2016, and 2015 is as follows:



	SUCCESSOR		PREDECESSOR
(THOUSANDS)	FOR THE THREE MONTHS ENDED SEPT. 30, 2016		FOR THE THREE MONTHS ENDED SEPT. 30, 2015
401(k) Plan expense	$	1,331	$	1,090



	SUCCESSOR		PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - SEPT. 30, 2016		JAN. 1, 2016 - APR. 12, 2016		FOR THE NINE MONTHS ENDED SEPT 30, 2015
401(k) Plan expense	$	2,440	$	1,593	$	3,783

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, 2016, and 2015 is as follows:



	SUCCESSOR		PREDECESSOR
(THOUSANDS)	FOR THE THREE MONTHS ENDED SEPT. 30, 2016		FOR THE THREE MONTHS ENDED SEPT. 30, 2015
401(k) Plan expense	$	204	$	205



	SUCCESSOR		PREDECESSOR
(THOUSANDS)	APR. 13, 2016 - SEPT. 30, 2016		JAN. 1, 2016 - APR. 12, 2016		FOR THE NINE MONTHS ENDED SEPT 30, 2015
401(k) Plan expense	$	378	$	319	$	736