EMPLOYEE BENEFIT PLANS

Plan Terminations: In October 2014, Energen’s Board of Directors elected to freeze and terminate its qualified defined benefit pension plan. A plan amendment adopted in October 2014 closed the plan to new entrants, effective November 1, 2014, and froze benefit accruals effective December 31, 2014. Energen terminated the plan on January 31, 2015 and distributed benefits in December 2015.

Energen’s non-qualified supplemental retirement plans were terminated effective December 31, 2014. Distributions under the plans are subject to certain payment restrictions under the Internal Revenue Code and Treasury regulations and payments to plan participants were made in the first quarter of 2015 and with the remainder to be paid in the first quarter of 2016. In connection with the termination of these plans, Energen has also classified approximately $3.3 million as of December 31, 2015 of its investment in a Rabbi Trust from other long term assets to prepayments and other assets in the accompanying balance sheets to reflect its intent to utilize these assets to partially fund the estimated payments in the first quarter of 2016.

Effective April 30, 2014, Energen separated its defined benefit non-contributory pension plan and its postretirement healthcare and life insurance benefit plan into an Energen and an Alagasco plan reflecting the separation of assets and obligations in accordance with ERISA provisions. Energen remeasured the plans using current assumptions.

Benefit Obligations: The following table sets forth the combined funded status of the defined qualified and nonqualified supplemental benefit plans along with the postretirement health care and life insurance benefit plans and their reconciliation with the related amounts in Energen’s consolidated financial statements.



As of December 31, (in thousands)	2015			2014			2015			2014
	Pension						Postretirement Benefits
Accumulated benefit obligation	$	15,729		$	107,669
Benefit obligation:
Balance at beginning of period	$	107,669		$	266,294		$	11,127		$	33,224
Service cost	—			8,329			392			262
Interest cost	816			5,325			466			716
Actuarial (gain) loss	(683		)	9,078			(1,185		)	6,385
Plan amendments	—			—			(4,071		)	—
Curtailment gain	—			(8,496		)	—			—
Transfer in connection with the sale of Alagasco	—			(124,783		)	—			(28,648		)
Termination benefit charge	—			2,477			—			—
Retiree drug subsidy program	—			—			—			48
Benefits paid	(92,073		)	(50,555		)	(241		)	(860		)
Balance at end of period	$	15,729		$	107,669		$	6,488		$	11,127
Plan assets:
Fair value of plan assets at beginning of period	$	67,542		$	193,457		$	10,693		$	55,459
Actual return (loss) on plan assets	(289		)	5,359			(83		)	(331		)
Employer contributions	24,847			19,164			—			21
Transfer in connection with the sale of Alagasco	—			(99,883		)	—			(43,596		)
Benefits paid	(92,073		)	(50,555		)	(241		)	(860		)
Fair value of plan assets at end of period	$	27		$	67,542		$	10,369		$	10,693

Funded status of plans	$	(15,702	)	$	(40,127	)	$	3,881		$	(434	)



Noncurrent assets	$	—		$	—		$	3,881		$	—
Current liabilities	(15,702		)	(24,626		)	—			—
Noncurrent liabilities	—			(15,501		)	—			(434		)
Net asset (liability) recognized	$	(15,702	)	$	(40,127	)	$	3,881		$	(434	)
Amounts recognized to accumulated other comprehensive income:
Prior service credit, net of taxes	$	—		$	—		$	(2,646	)	$	—
Net actuarial loss, net of taxes	2,179			22,246			205			624
Total accumulated other comprehensive income (loss)	$	2,179		$	22,246		$	(2,441	)	$	624

Other investment assets designated for payment of the nonqualified supplemental retirement plans were as follows:



	December 31, 2015
(in thousands)	Level 1		Level 2		Total
Cash and cash equivalents	$	3,308	$	—	$	3,308
Total	$	3,308	$	—	$	3,308



	December 31, 2014
(in thousands)	Level 1		Level 2		Total
Fixed income	$	—	$	4,255	$	4,255
Cash and cash equivalents	9,929		—		9,929
Total	$	9,929	$	4,255	$	14,184

While intended for payment of the nonqualified supplemental retirement plan benefits, these assets remain subject to the claims of Energen’s creditors and are not recognized in the funded status of the plan. These assets are recorded at fair value and included in prepayments and other and other assets in the consolidated balance sheets.

The components of net periodic benefit cost from continuing operations were as follows:



Years ended December 31, (in thousands)	2015			2014			2013
Pension Plans
Components of net periodic benefit cost:
Service cost	$	—		$	6,808		$	5,196
Interest cost	816			4,498			4,496
Expected long-term return on assets	—			(4,386		)	(5,225		)
Prior service cost amortization	—			202			246
Actuarial loss amortization	737			4,995			6,919
Termination benefit charge	—			2,477			—
Settlement charge	29,767			4,082			161
Curtailment expense (gain)	—			254			(4		)
Net periodic expense	$	31,320		$	18,930		$	11,789
Postretirement Benefit Plans
Components of net periodic benefit cost:
Service cost	$	392		$	253		$	386
Interest cost	466			661			645
Expected long-term return on assets	(457		)	(1,122		)	(787		)
Actuarial gain amortization	—			(653		)	(28		)
Transition obligation amortization	—			44			229
Net periodic (income) expense	$	401		$	(817	)	$	445

Other changes in plan assets and projected benefit obligations recognized in other comprehensive income were as follows:



Years ended December 31, (in thousands)	2015			2014			2013
Pension Plans
Net actuarial (gain) loss experienced during the year	$	(394	)	$	10,495		$	(14,138	)
Net actuarial loss recognized as expense	(30,478		)	(25,433		)	(8,934		)
Prior service cost recognized as expense	—			(246		)	(311		)
Curtailment loss	—			(8,749		)	—
Total recognized in other comprehensive income (loss)	(30,872		)	(23,933		)	(23,383		)
Postretirement Benefit Plans
Net actuarial (gain) loss experienced during the year	$	(645	)	$	7,649		$	(8,057	)
Prior service credit during the year	(4,071		)	—			—
Net actuarial gain recognized as expense	—			1,908			550
Transition obligation recognized as expense	—			(48		)	(283		)
Total recognized in other comprehensive income (loss)	$	(4,716	)	$	9,509		$	(7,790	)

In the year ended December 31, 2015, Energen incurred settlement charges of $27.3 million for the payment of lump sums from the qualified defined benefit pension plans. Also in the first quarter of 2015, Energen incurred a settlement charge of $2.5 million for the payment of lump sums from the non-qualified supplemental retirement plans.

During the year ended December 31, 2014, Energen incurred settlement charges of $7.6 million for the payment of lump sums from the qualified defined benefit pension plans of which $3.7 million is included in discontinued operations. Also during 2014, Energen incurred settlement charges of $0.4 million for the payment of lump sums from the non-qualified supplemental retirement plans. In the fourth quarter of 2014, Energen incurred a settlement charge of $1.8 million for the payment of lump sums from the non-qualified supplemental retirement plans which is included in discontinued operations. In the fourth quarter of 2014, Energen recognized a termination benefit charge of $2.5 million to provide for early retirement of certain non-highly compensated employees. In conjunction with the sale of Alagasco, Energen recognized a curtailment loss of $0.3 million in the fourth quarter of 2014.

For the year ended December 31, 2013, Energen incurred settlement charges of $0.6 million for the payment of lump sums from the nonqualified supplemental retirement plans, of which $0.2 million was expensed and $0.4 million was recognized as a regulatory asset at Alagasco. In conjunction with the sale of its Black Warrior Basin coalbed methane properties in Alabama, Energen recognized a curtailment gain of $1.2 million in the fourth quarter of 2013.

Estimated amounts to be amortized, including settlement charges, from accumulated other comprehensive income into pension cost during 2016 are included in the table below.



(in thousands)
Amortization of net actuarial loss	$	3,352

Estimated amounts to be amortized from accumulated other comprehensive income into postretirement benefit cost during 2016 are included in the table below.



(in thousands)
Amortization of prior service credit	$	(515	)

Energen has a long-term disability plan covering most employees. Energen had expense of $0.2 million for each of the years ended December 31, 2015, 2014 and 2013.

Assumptions: The weighted average rate assumptions to determine net periodic benefit costs were as follows:



Years ended December 31,	2015		2014		2013
Pension Plans
Discount rate	0.96	%	3.66	%	3.63	%
Expected long-term return on plan assets	—	%	7.00	%	7.00	%
Rate of compensation increase for pay-related plans	—	%	3.63	%	3.71	%
Postretirement Benefit Plans
Discount rate	4.25	%	4.88	%	4.36	%
Expected long-term return on plan assets	6.20	%	7.00	%	7.00	%
Rate of compensation increase	—	%	3.60	%	3.70	%

The pension benefit obligation as of December 31, 2014 represents the present value of the estimated cost of settling the benefit obligation of the plan. For our defined benefit pension plan, we discounted the estimated termination liability using the one year spot rate of 0.70 percent. For the year ended December 31, 2015, the discount rate shown above represents the weighted average for the nonqualified supplemental retirement plan. The discount rate shown below represents the weighted average for both the defined qualified and nonqualified supplemental retirement plans for the year ended December 31, 2014. For the year ended December 31, 2015, the expected long-term return on plan assets no longer applies for our defined benefit pension plan as the assets of the nonqualified supplemental retirement plan are not considered qualifying assets. As the plans were frozen as of December 31, 2014, the rate of compensation increase no longer applies for any of the plans. The weighted average assumptions used to determine the benefit obligations at the measurement date were as follows:



Years ended December 31,	2015		2014
Pension Plans
Discount rate	3.90	%	0.96	%
Postretirement Benefit Plans
Discount rate	4.70	%	4.25	%

The assumed post-65 health care cost trend rates used to determine the postretirement benefit obligation at the measurement date were as follows:



As of December 31,	2015		2014
Health care cost trend rate assumed for next year	7.75	%	7.25	%
Rate to which the cost trend rate is assumed to decline	5.00	%	5.00	%
Year that rate reaches ultimate rate	2026		2021

Health care costs trend rates will not have a material impact to the accumulated postretirement benefit obligation due to the separation of assets and obligations of the postretirement healthcare and life insurance benefit plan into an Energen and an Alagasco plan. Employees remaining at Energen will receive a fixed postretirement benefit.

Investment Strategy: For our postretirement benefit plan assets, we continue to employ a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets with a prudent level of risk. Risk tolerance is established through consideration of plan liabilities, plan funded status, corporate financial condition and market conditions.

Energen seeks to maintain an appropriate level of diversification to minimize the risk of large losses in a single asset class. Accordingly, plan assets for the postretirement health care and life insurance benefit plan do not have a concentration of assets in a single entity, industry, commodity or class of investment fund.

The Company’s weighted average plan asset allocations by asset category were as follows:



	Pension						Postretirement Benefits
As of December 31,	Target		2015		2014		Target		2015		2014
Asset category:
Equity securities	—	%	—	%	—	%	56	%	56	%	60	%
Debt securities	—	%	—	%	—	%	44	%	44	%	40	%
Cash and cash equivalents	100	%	100	%	100	%	—	%	—	%	—	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

Equity securities for postretirement benefits do not include the Company’s common stock.

Plan assets included in the funded status of the pension plans were as follows:



	December 31, 2015
(in thousands)	Level 1		Level 2		Total
Cash and cash equivalents	27		$	—	$	27
Total	$	27	$	—	$	27



	December 31, 2014
(in thousands)	Level 1		Level 2		Total
Cash and cash equivalents	$	67,542	$	—	$	67,542
Total	$	67,542	$	—	$	67,542

Plan assets included in the funded status of the postretirement benefit plans were as follows:



	December 31, 2015
(in thousands)	Level 1		Level 2		Total
United States equities	$	4,185	$	—	$	4,185
Global equities	1,650		—		1,650
Fixed income	—		4,534		4,534
Total	$	5,835	$	4,534	$	10,369



	December 31, 2014
(in thousands)	Level 1		Level 2		Total
United States equities	$	4,715	$	—	$	4,715
Global equities	1,711		—		1,711
Fixed income	—		4,267		4,267
Total	$	6,426	$	4,267	$	10,693

Energen had no Level 3 postretirement benefit plan assets. United States equities consists of mutual funds with varying strategies. These funds invest largely in medium to large capitalized companies with exposure blending growth, market-oriented and value styles. Additional fund investments include small capitalization companies, and certain of these funds utilize tax-sensitive management approaches. Global equities are mutual funds that invest in non-United States securities broadly diversified across most developed markets with exposure blending growth, market-oriented and value styles. Fixed income securities are high-quality short-duration securities including investment-grade market sectors with tactical investments in non-investment grade sectors.

Cash Flows: The Company expects to make benefit payments, which will be partially funded by the Rabbi Trust, of approximately $14.6 million during 2016 with respect to the termination of the nonqualified supplemental retirement plans.

Due to restructuring of our plans, Energen no longer qualifies for benefits related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The following benefit payments, which reflect expected future service, as appropriate, are anticipated to be paid as follows:



(in thousands)	Pension Benefits	Postretirement Benefits
2016	$14,606	$198
2017	$117	$213
2018	$114	$245
2019	$110	$258
2020	$107	$289
2021-2025	$472	$1,769