PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

The Company has defined qualified benefit plans covering the majority of its employees. Qualified plan assets are comprised of United States equities consisting of mutual and commingled funds with varying strategies, global equities consisting of mutual funds, alternative investments of limited partnerships and commingled mutual funds and fixed income investments.

During the prior year and part of the current year, the Company participated in employee benefit plans with Energen. Effective April 30, 2014, Energen Corporation separated one of its defined benefit non-contributory pension plans into an Energen plan and a separate Alagasco plan. The separation of plan assets and obligations was completed in accordance with ERISA provisions. Also effective April 30, 2014, Energen separated its postretirement health care and life insurance benefit plans into separate plans established for Energen and the Company’s employees in accordance with ERISA provisions. Energen and the Company remeasured all of the aforementioned respective plans using current assumptions.

The prior year figures in the following tables, unless explicitly stated otherwise, represent the combined financial information of the defined qualified and nonqualified supplemental benefit plans along with the postretirement health care and life insurance benefit plans prior to the separation of the plans between the Company and Energen.

Pension costs in the transition period ended September 30, 2014 and the calendar years ended December 31, 2013 and 2012 amounted to $16.8, $26.6, and $16.4, respectively.

The net periodic pension costs include the following components:



	Nine Months Ended			Calendar Year Ended December 31,
($ Millions)	September 30, 2014			2013			2012
Pension Plans
Components of net periodic benefit cost:
Service cost	$	5.1		$	14.2		$	10.5
Interest cost	4.1			11.2			10.8
Expected long-term return on assets	(5.2		)	(14.7		)	(14.1		)
Prior service cost amortization	0.1			0.5			0.6
Actuarial loss amortization	2.2			14.0			8.6
Amortization of prior regulatory assets and liabilities	0.4			—			—
Settlement charge	10.1			1.4			—
Net periodic expense	$	16.8		$	26.6		$	16.4

Postretirement Benefit Plans
Components of net periodic benefit cost:
Service cost	$	0.4		$	1.7		$	1.9
Interest cost	1.9			3.5			4.2
Expected long-term return on assets	(3.6		)	(5.0		)	(4.4		)
Actuarial (gain) loss amortization	(1.0		)	(0.1		)	—
Transition obligation amortization	—			1.3			1.9
Amortization of prior regulatory assets and liabilities	(0.2		)	—			—
Curtailment gain	—			(1.2		)	—
Net periodic expense	$	(2.5	)	$	0.2		$	3.6

Obligations recognized in other comprehensive income were as follows:



	Nine Months Ended			Calendar Year Ended December 31,
($ Millions)	September 30, 2014			2013			2012
Pension Plans
Net actuarial (gain) loss experienced during the year	$	1.5		$	(14.1	)	$	28.7
Net actuarial loss recognized as expense	—			(8.9		)	(4.9		)
Prior service cost recognized as expense	—			(0.3		)	(0.3		)
	1.5			(23.3		)	23.5
Transfer to regulatory assets (liabilities)	(1.5		)	—			—
Other Comprehensive Income	$	—		$	(23.3	)	$	23.5

Postretirement Benefit Plans
Net actuarial (gain) loss experienced during the year	$	1.1		$	(8.1	)	$	(1.8	)
Net actuarial gain recognized as expense	—			0.6			—
Transition obligation recognized as expense	—			(0.3		)	(0.3		)
	1.1			(7.8		)	(2.1		)
Transfer to regulatory assets (liabilities)	(1.1		)	—			—
Other Comprehensive Income	$	—		$	(7.8	)	$	(2.1	)

After the Acquisition, the Company began amortizing its existing regulatory assets and liabilities attributable to the pension and postretirement benefits over the average remaining service for active participants as of the date of the Acquisition. Therefore, any new regulatory asset or liability is attributable to the pension or postretirement benefit plans after the date of the Acquisition. The Company recognized a regulatory asset of $72.5 and a regulatory liability of $28.5, when the plans were remeasured at September 1, 2014.

During the transition period ended September 30, 2014 and calendar 2013 the Company incurred settlement charges of $0.0 and $0.5 respectively for the payment of lump sums from the nonqualified supplemental retirement plans, of which $0.0 and $0.1 respectively was expensed and $0.0 and $0.4 was recognized as a pension and postretirement asset in regulatory assets at the Company.

The following table sets forth the reconciliation of the beginning and ending balances of the pension benefit obligation:



	September 30,			December 31,			September 30,			December 31,
	2014			2013			2014			2013
($ MIllions)	Pension						Postretirement Benefits
Accumulated benefit obligation	$	129.6		$	253.0
Benefit obligation:
Balance at beginning of period	293.4			323.5			63.6			85.8
Energen portion of liability divested	(144.7		)	—			(13.3		)	—
Liability loss due to estimated allocation	16.9			—			7.7			—
Service cost	5.1			14.2			0.4			1.7
Interest cost	4.1			11.2			1.9			3.5
Actuarial (gain) loss	7.8			(28.3		)	4.3			(21.7		)
Curtailment gain	—			(4.2		)	—			(1.3		)
Retiree drug subsidy program	—			—			0.3			0.3
Benefits paid	(33.8		)	(23.0		)	(4.0		)	(4.7		)
Balance at end of period	$	148.8		$	293.4		$	60.9		$	63.6

The following table sets forth the reconciliation of the beginning and ending balances of the fair value of plan assets:



	September 30,			December 31,			September 30,			December 31,
	2014			2013			2014			2013
($ Millions)	Pension						Postretirement Benefits
Plan assets:
Fair value of plan assets at beginning of period	$	219.5		$	209.3		$	98.9		$	87.1
Energen portion of assets divested	(90.9		)	—			(22.0		)	—
Asset gain due to estimated allocation	15.0			—			11.0			—
Actual return on plan assets	7.8			23.0			1.4			14.9
Employer contributions	1.6			10.2			0.3			1.6
Benefits paid	(33.8		)	(23.0		)	(4.0		)	(4.7		)
Fair value of plan assets at end of period	$	119.2		$	219.5		$	85.6		$	98.9
(Unfunded) funded status of plan	$	(29.6	)	$	(73.8	)	$	24.7		$	35.4

The following table sets forth the amounts recognized in the Balance Sheets:



	September 30,			December 31,			September 30,		December 31,
	2014			2013			2014		2013
($ Millions)	Pension						Postretirement Benefits
Noncurrent assets	$	—		$	—		$	24.7	$	35.4
Current liabilities	—			(6.1		)	—		—
Noncurrent liabilities	(29.6		)	(67.7		)	—		—
Net asset (liability) recognized	$	(29.6	)	$	(73.8	)	$	24.7	$	35.4

A summary of the Company's allocated share of the benefit plans described above is presented below as of the transition period and calendar year end, respectively:



	September 30,			December 31,			September 30,			December 31,
	2014			2013			2014			2013
($ MIllions)	Pension						Postretirement Benefits
Net benefit asset noncurrent	$	—		$	—		$	24.7		$	26.5
Net benefit liability noncurrent	(29.6		)	(20.2		)	—			—
Regulatory asset	67.8			58.5			4.7			—
Regulatory liability	$	(1.9	)	$	—		$	(26.6	)	$	(26.2	)

The pension regulatory assets and liabilities are allowed to be recovered or refunded through rates in subsequent years.

Assumptions are used based on the unique set of characteristics for each of the individual pension and postretirement plans.



	Nine Months Ended		Calendar Years Ended December 31,
	September 30, 2014		2013		2012
Pension Plans
Discount rate	4.00% & 4.05%		3.63	%	4.52	%
Expected long-term return on plan assets	7.25% & 7.00%		7.00	%	7.00	%
Rate of compensation increase for pay-related plans	2.92	%	3.71	%	3.59	%

Postretirement Benefit Plans
Discount rate	4.25	%	4.26	%	4.95	%
Expected long-term return on plan assets	7.25% & 4.75%		7.00	%	7.00	%

The weighted average rate assumptions used to determine the projected benefit obligations at the measurement date were as follows:



	September 30, 2014		December 31, 2013
Pension Plans
Discount rate	4.15% & 4.25%		4.30	%
Rate of compensation increase for pay-related plans	2.92	%	3.60	%

Postretirement Benefit Plans
Discount rate	4.40	%	5.00	%

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



	September 30, 2014		December 31, 2013
Health care cost trend rate assumed for next year	7.25	%	6.50	%
Rate to which the cost trend rate is assumed to decline	5.00	%	5.00	%
Year that rate reaches ultimate rate	2020		2020

Assumed health care cost trend rates used in determining the accumulated postretirement benefit obligation have an effect on the amounts reported. For example, revising the weighted average health care cost trend rate by 1 percentage point would have the following effects:



($ Millions)	1-Percentage Point Decrease			1-Percentage Point Increase
Effect on total of service and interest cost	$	—		$	—
Effect on net postretirement benefit obligation	(0.7		)	0.7

Following are the targeted and actual plan assets by asset category:



	Pension						Postretirement Benefits
	Target		September 30, 2014		December 31, 2013		Target		September 30, 2014		December 31, 2013
Asset category:
Equity securities	41.0	%	51.0	%	34.0	%	60.0	%	60.0	%	61.0	%
Debt securities	38.0	%	36.0	%	28.0	%	40.0	%	40.0	%	39.0	%
Other	21.0	%	13.0	%	38.0	%	—	%	—	%	—	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

The Company employs 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.

The Company has developed an investment strategy that focuses on asset allocation, diversification and quality guidelines. The investment goals are to obtain an adequate level of return to meet future obligations of the plan by providing above average risk-adjusted returns with a risk exposure in the mid-range of comparable funds. Investment managers are retained by the Company to manage separate pools of assets. Funds are allocated to such managers in order to achieve an appropriate, diversified, and balanced asset mix. Comparative market and peer group benchmarks are utilized to ensure that investment managers are performing satisfactorily.

The Company 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 pension plans and the postretirement health care and life insurance benefit plan do not have a concentration of assets in a single entity, industry, country, commodity or class of investment fund.

Equity securities for pension and postretirement benefits do not include the Laclede Group's common stock.

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



	September 30, 2014
($ Millions)	Level 1		Level 2		Level 3		Total
United States equities (1)	$	30.4	$	13.6	$	—	$	44.0
Global equities (2)	12.3		0.0		—		12.3
Fixed income (3)	11.5		31.9		—		43.4
Alternative investments (4)	—		17.6		—		17.6
Cash and cash equivalents	0.3		1.6		—		1.9
Total	$	54.5	$	64.7	$	—	$	119.2

	December 31, 2013
($ Millions)	Level 1		Level 2		Level 3		Total
United States equities (1)	$	34.1	$	8.1	$	—	$	42.2
Global equities (2)	20.1		13.3		—		33.4
Fixed income (3)	—		61.1		—		61.1
Alternative investments (4)	—		37.3		—		37.3
Cash and cash equivalents	6.0		39.5		—		45.5
Total	$	60.2	$	159.3	$	—	$	219.5

(1) United States equities consist of mutual and commingled funds with varying strategies. Such strategies include stock investments across market capitalizations and investment styles.

(2) Global equities consist of mutual funds and a limited partnership that invest in United States and non-United States securities broadly diversified across mostly developed markets but with some tactical exposure to emerging markets.

(3) Fixed income securities consist of mutual funds and separate accounts. Fixed income securities are well diversified with allocations to investment grade and non-investment grade issues and issues that provide both intermediate and longer duration exposure.

(4) Alternative investments consist of limited partnerships and commingled and mutual funds with varying investment strategies. Alternative investments are meant to serve as a risk reducer at the total portfolio level as they provide asset class exposures not found elsewhere in the portfolio.

The following is a reconciliation of plan assets in Level 3 of the fair value hierarchy:



	Nine Months Ending September 30,		Calendar Year Ending December 31,
($ Millions)	2014		2013
Balance at beginning of period	$	—	$	14.5
Transfer out of level 3	—		(14.5		)
Balance at end of period	$	—	$	—

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



	September 30, 2014
($ Millions)	Level 1		Level 2		Total
United States equities (1)	$	43.9	$	—	$	43.9
Global equities (2)	7.2		—		7.2
Fixed income (3)	—		34.4		34.4
Cash and cash equivalents	0.1		—		0.1
Total	$	51.2	$	34.4	$	85.6



	December 31, 2013
($ Millions)	Level 1		Level 2		Total
United States equities	$	43.1	$	—	$	43.1
Global equities	17.0		—		17.0
Fixed income	—		38.8		38.8
Cash and cash equivalents	—		—		—
Total	$	60.1	$	38.8	$	98.9

(1) 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.

(2) 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.

(3)Fixed income securities are high-quality short-duration securities including investment-grade market sectors with tactical investments in non-investment grade sectors.

The following benefit payments, which reflect expected future service, as appropriate, are anticipated to be paid as follows. In addition, the following benefits reflect the expected prescription drug subsidy related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act). The Act includes a prescription drug benefit under Medicare Part D as well as a federal subsidy which began in 2007:



($ Millions)	Pension Benefits		Postretirement Benefits		Postretirement Benefits – Prescription Drug Subsidy
2015	$	9.9	$	3.8	$	(0.2	)
2016	10.2		3.8		(0.2		)
2017	10.6		3.8		(0.2		)
2018	10.6		3.8		(0.2		)
2019	11.2		3.8		(0.3		)
2020-2024	58.7		18.6		(1.3		)

There are no required contributions to the qualified pension plans during 2015. Additionally, it is not anticipated that the funded status of the qualified pension plans will fall below statutory thresholds requiring accelerated funding or constraints on benefit levels or plan administration. During fiscal 2015 the Company may make additional discretionary contributions to the qualified pension plans depending on the amount and timing of employee retirements and market conditions.