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 2017 and does not expect to make any contributions in 2018. 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 assumed discount rate, changes in the funding regulations, and actual returns on fund assets. Cleco Power is the plan sponsor and Support Group is the plan administrator.

Cleco’s retirees may be eligible to receive Other Benefits. Dependents of Cleco’s retirees may also be eligible to receive Other Benefits with the exception of life insurance benefits. Cleco recognizes expected costs of Other Benefits during the periods in which the benefits are earned.

The non-service components of net periodic pension and Other Benefits cost are included in Other expense within Cleco and Cleco Power’s Condensed Consolidated Statements of Income. Net periodic pension and Other Benefits cost for the three and six months ended June 30, 2018, and 2017 were as follows:



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE THREE MONTHS ENDED JUNE 30,						FOR THE THREE MONTHS ENDED JUNE 30,
(THOUSANDS)	2018			2017			2018		2017
Components of periodic benefit costs
Service cost	$	2,361		$	2,295		$	338	$	385
Interest cost	5,472			5,467			357		402
Expected return on plan assets	(5,938		)	(5,895		)	—		—
Amortizations
Prior period service credit	(18		)	(18		)	—		—
Net loss (gain)	2,960			2,591			5		(2		)
Net periodic benefit cost	$	4,837		$	4,440		$	700	$	785



	PENSION BENEFITS						OTHER BENEFITS
	FOR THE SIX MONTHS ENDED JUNE 30,						FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2018			2017			2018		2017
Components of periodic benefit costs
Service cost	$	4,753		$	4,520		$	675	$	770
Interest cost	10,654			10,824			715		805
Expected return on plan assets	(11,875		)	(12,032		)	—		—
Amortizations
Prior period service credit	(36		)	(36		)	—		—
Net loss (gain)	5,921			5,004			10		(5		)
Net periodic benefit cost	$	9,417		$	8,280		$	1,400	$	1,570

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 six months ended June 30, 2018, was $0.5 million and $1.0 million, respectively. The expense of the pension plan related to Cleco’s other subsidiaries for the three and six months ended June 30, 2017, was $0.5 million and $0.9 million, respectively.

Cleco Holdings is the plan sponsor for the Other Benefits 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 six months ended June 30, 2018, was $0.8 million and $1.6 million, respectively. The expense related to Other Benefits reflected in Cleco Power’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017, was $0.9 million and $1.7 million, respectively. The current and non-current portions of the Other Benefits liability for Cleco and Cleco Power at June 30, 2018, and December 31, 2017, were as follows:



Cleco
(THOUSANDS)	AT JUNE 30, 2018		AT DEC. 31, 2017
Current	$	4,061	$	4,061
Non-current	$	38,270	$	39,142



Cleco Power
(THOUSANDS)	AT JUNE 30, 2018		AT DEC. 31, 2017
Current	$	3,525	$	3,525
Non-current	$	33,302	$	34,033

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 executive officers’ SERP benefits were 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 years 2016 and 2017 for the average incentive award portion of their SERP benefit calculation. A third executive officer’s SERP benefit amount will be set at a specified amount based upon the year of separation. 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 the plan sponsor and Support Group is the plan administrator.

The non-service components of net periodic benefit cost related to SERP are included in Other expense within Cleco and Cleco Power’s Condensed Consolidated Statements of Income. Net periodic benefit cost related to SERP for the three and six months ended June 30, 2018, and 2017 were as follows:



	FOR THE THREE MONTHS ENDED JUNE 30,						FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2018			2017			2018			2017
Components of periodic benefit costs
Service cost	$	166		$	102		$	271		$	247
Interest cost	1,004			820			1,764			1,620
Amortizations
Prior period service credit	(47		)	(29		)	(81		)	(68		)
Net loss	647			624			1,232			1,025
Net periodic benefit cost	1,770			1,517			3,186			2,824
Special/contractual termination benefits	—			—			—			315
Total benefit cost	$	1,770		$	1,517		$	3,186		$	3,139

There was a remeasurement of SERP in March 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.

The total expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2018, was $0.4 million and $0.7 million, respectively. The total expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017, was $0.3 million and $0.6 million, 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 June 30, 2018, and December 31, 2017, were as follows:



Cleco
(THOUSANDS)	AT JUNE 30, 2018		AT DEC. 31, 2017
Current	$	4,471	$	4,471
Non-current	$	79,487	$	79,868



Cleco Power
(THOUSANDS)	AT JUNE 30, 2018		AT DEC. 31, 2017
Current	$	929	$	929
Non-current	$	12,934	$	16,589

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 six months ended June 30, 2018, and 2017 was as follows:



	FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2018		2017		2018		2017
401(k) Plan expense	$	1,229	$	1,204	$	3,292	$	2,872

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 six months ended June 30, 2018, and 2017 was as follows:



	FOR THE THREE MONTHS ENDED JUNE 30,				FOR THE SIX MONTHS ENDED JUNE 30,
(THOUSANDS)	2018		2017		2018		2017
401(k) Plan expense	$	209	$	198	$	611	$	477