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 2016 and does not expect to make any in 2017. 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, 2017, and 2016 were as follows:



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE THREE MONTHS ENDED SEPT. 30,						FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2017			2016			2017			2016
Components of periodic benefit costs
Service cost	$	2,260		$	2,229		$	314		$	380
Interest cost	5,412			5,455			372			420
Expected return on plan assets	(6,016		)	(6,001		)	—			—
Amortizations
Prior period service credit	(18		)	(18		)	—			—
Net loss (gain)	2,502			3,365			(32		)	—
Net periodic benefit cost	$	4,140		$	5,030		$	654		$	800



	PENSION BENEFITS									OTHER BENEFITS
	SUCCESSOR						PREDECESSOR			SUCCESSOR					PREDECESSOR
(THOUSANDS)	FOR THE NINE MONTHS ENDED SEPT. 30, 2017			APR. 13, 2016 - SEPT. 30, 2016			JAN. 1, 2016 - APR. 12, 2016			FOR THE NINE MONTHS ENDED SEPT. 30, 2017			APR. 13, 2016 - SEPT. 30, 2016		JAN. 1, 2016 - APR. 12, 2016
Components of periodic benefit costs
Service cost	$	6,779		$	4,122		$	2,563		$	1,084		$	709	$	431
Interest cost	16,235			10,124			6,242			1,176			784		476
Expected return on plan assets	(18,048		)	(11,195		)	(6,812		)	—			—		—
Amortizations
Prior period service (credit) cost	(53		)	(33		)	(20		)	—			—		34
Net loss (gain)	7,506			5,211			2,798			(37		)	—		181
Net periodic benefit cost	$	12,419		$	8,229		$	4,771		$	2,223		$	1,493	$	1,122

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 months ended September 30, 2017, and 2016 was $0.5 million and $0.4 million, respectively. The amount for the predecessor period January 1, 2016, through April 12, 2016, was $0.5 million. The expense for the successor periods for the nine months ended September 30, 2017, and April 13, 2016, through September 30, 2016, was $1.4 million and $0.8 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, 2017, was $0.8 million and $2.5 million, respectively. The amounts for the three and nine months ended September 30, 2016, were also $0.8 million and $2.5 million, respectively. The current and non-current portions of the other benefits liability for Cleco and Cleco Power at September 30, 2017, and December 31, 2016, were as follows:



Cleco
(THOUSANDS)	AT SEPT. 30, 2017		AT DEC. 31, 2016
Current	$	3,854	$	3,854
Non-current	$	39,296	$	40,196



Cleco Power
(THOUSANDS)	AT SEPT. 30, 2017		AT DEC. 31, 2016
Current	$	3,345	$	3,345
Non-current	$	34,147	$	34,892

SERP

Certain Cleco officers are covered by SERP. 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 below. 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 amount the employee would have received under the terms of the original 401(k) Plan. 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. Another executive officer received enhanced SERP benefits, net of other postretirement benefits, as part of a separation agreement. Two current 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. Additionally, these executive officers had their annual bonuses set at target rather than actual awards for the year 2016 and will have their annual bonuses set at target rather than actual awards for the year 2017 for the average incentive award portion of their SERP benefit calculation. A third executive officer’s SERP calculation will use a fixed salary amount for 2017 and will exclude any compensation exceeding this amount. 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. The life insurance policies issued on SERP participants designate the rabbi trust as the beneficiary. 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, 2017, and 2016, were as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2017			2016
Components of periodic benefit costs
Service cost	$	123		$	213
Interest cost	810			839
Amortizations
Prior period service credit	(57		)	(9		)
Net loss	536			511
Total benefit cost	$	1,412		$	1,554



	SUCCESSOR						PREDECESSOR
(THOUSANDS)	FOR THE NINE MONTHS ENDED SEPT. 30, 2017			APR. 13, 2016 - SEPT. 30, 2016			JAN. 1, 2016 - APR. 12, 2016
Components of periodic benefit costs
Service cost	$	370		$	277		$	702
Interest cost	2,430			1,543			900
Amortizations
Prior period service (credit) cost	(124		)	(42		)	17
Net loss	1,560			1,120			574
Net periodic benefit cost	4,236			2,898			2,193
Curtailment charge	—			—			3,602
Special/contractual termination benefits	315			—			3,222
Total benefit cost	$	4,551		$	2,898		$	9,017

There was a remeasurement of SERP on March 30, 2017, to reflect a special termination benefit resulting from an executive officer’s separation agreement. On the date of the remeasurement, the discount rate decreased from 4.22% to 4.08%. This remeasurement resulted in a special termination benefit for the executive officer of $0.3 million.

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 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 total expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income was $0.3 million and $0.9 million for the three and nine months ended September 30, 2017, respectively, compared to $0.3 million and $1.1 million for the three and nine months ended September 30, 2016, respectively.

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, 2017, and December 31, 2016, were as follows:



Cleco
(THOUSANDS)	AT SEPT. 30, 2017		AT DEC. 31, 2016
Current	$	4,431	$	4,308
Non-current	$	76,870	$	73,738



Cleco Power
(THOUSANDS)	AT SEPT. 30, 2017		AT DEC. 31, 2016
Current	$	939	$	885
Non-current	$	15,999	$	15,145

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. 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, 2017, and 2016, was as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2017		2016
401(k) Plan expense	$	1,386	$	1,331



	SUCCESSOR				PREDECESSOR
(THOUSANDS)	FOR THE NINE MONTHS ENDED SEPT. 30, 2017		APR. 13, 2016 - SEPT. 30, 2016		JAN. 1, 2016 - APR. 12, 2016
401(k) Plan expense	$	4,259	$	2,440	$	1,593

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, 2017, and 2016, was as follows:



	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2017		2016
401(k) Plan expense	$	234	$	204



	SUCCESSOR				PREDECESSOR
(THOUSANDS)	FOR THE NINE MONTHS ENDED SEPT. 30, 2017		APR. 13, 2016 - SEPT. 30, 2016		JAN. 1, 2016 - APR. 12, 2016
401(k) Plan expense	$	710	$	378	$	319