Employee Benefits

Retirement Plans

The Company’s Retirement Income Plan (the "Retirement Plan") is a qualified noncontributory defined benefit plan. Upon retirement or death of a vested plan participant, assets of the Retirement Plan are used to pay benefit obligations under the Retirement Plan. Contributions from the Company are based on various factors such as the minimum funding amounts required by the Internal Revenue Service ("IRS"), state and federal regulatory requirements, amounts collected from customers in the Company's Texas and New Mexico jurisdictions and the annual cost of the Retirement Plan, as actuarially calculated. The assets of the Retirement Plan are primarily invested in common collective trusts which hold equity securities, debt securities and cash equivalents and are managed by a professional investment manager appointed by the Company.

The Company has two non-qualified retirement plans that are non-funded defined benefit plans. The Company's Supplemental Retirement Plan covers certain former employees and directors of the Company. The Excess Benefit Plan, was adopted in 2004 and covers certain active and former employees of the Company. The benefit cost for the non-qualified retirement plans are based on substantially the same actuarial methods and economic assumptions as those used for the Retirement Plan.

During the quarter ended March 31, 2014, the Company implemented certain amendments to the Retirement Plan and Excess Benefit Plan. In the first quarter of 2014, the Company offered a cash balance pension plan as an alternative to its current final average pay pension plan for employees hired prior to January 1, 2014. The cash balance pension plan also included an enhanced employer matching contribution to the employee’s respective 401(k) Defined Contribution Plan (discussed below). For employees that elected the new cash balance feature of the plans, the pension benefit earned under the existing final average pay feature of the plans was frozen as of March 31, 2014. Employees hired after January 1, 2014 were automatically enrolled in the cash balance pension plan. The amendments to the plans were effective April 1, 2014. As a result of these actions, the Company remeasured the assets and liabilities of the plans, based on actuarially determined estimates, using the close of the alternative choice election period of February 28, 2014, as the remeasurement date.

Prior to December 31, 2013, employees who completed one year of service with the Company and worked at least a minimum number of hours each year were covered by the final average pay formula of the plan. For participants that continue to be covered by the final average pay formula, retirement benefits are based on the employee’s final average pay and years of service. The cash balance pension plan covers employees beginning on their employment commencement date or re-employment commencement date in any plan year in which the employee completes at least a minimum number of hours of service. Retirement benefits under the cash balance pension plan are based on the employee’s cash balance account, consisting of pay credits and interest credits.

The Company complies with the FASB guidance on disclosure for pension and other post-retirement plans that requires disclosure of investment policies and strategies, categories of investment and fair value measurements of plan assets, and significant concentrations of risk.

The obligations and funded status of the plans are presented below (in thousands):



	December 31,
	2016						2015
	Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans
Change in projected benefit obligation:
Benefit obligation at end of prior year	$	325,706		$	26,958		$	341,133		$	28,397
Service cost	7,705			296			8,530			262
Interest cost	12,161			878			13,477			1,018
Actuarial (gain) loss	7,988			1,267			(19,290		)	(810		)
Benefits paid	(15,792		)	(1,937		)	(18,144		)	(1,909		)
Benefit obligation at end of year	337,768			27,462			325,706			26,958
Change in plan assets:
Fair value of plan assets at end of prior year	260,035			—			272,939			—
Actual return (loss) on plan assets	18,223			—			(3,760		)	—
Employer contribution	7,300			1,937			9,000			1,909
Benefits paid	(15,792		)	(1,937		)	(18,144		)	(1,909		)
Fair value of plan assets at end of year	269,766			—			260,035			—
Funded status at end of year	$	(68,002	)	$	(27,462	)	$	(65,671	)	$	(26,958	)

Amounts recognized in the Company's balance sheets consist of the following (in thousands):



	December 31,
	2016						2015
	Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans
Current liabilities	$	—		$	(2,696	)	$	—		$	(2,102	)
Noncurrent liabilities	(68,002		)	(24,766		)	(65,671		)	(24,856		)
Total	$	(68,002	)	$	(27,462	)	$	(65,671	)	$	(26,958	)

The accumulated benefit obligation in excess of plan assets is as follows (in thousands):



	December 31,
	2016						2015
	Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans
Projected benefit obligation	$	(337,768	)	$	(27,462	)	$	(325,706	)	$	(26,958	)
Accumulated benefit obligation	(314,071		)	(25,550		)	(302,446		)	(25,785		)
Fair value of plan assets	269,766			—			260,035			—

Pre-tax amounts recognized in accumulated other comprehensive income consist of the following (in thousands):



	Years Ended December 31,
	2016						2015
	Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans
Net loss	$	121,052		$	10,073		$	118,963		$	9,592
Prior service benefit	(23,877		)	(185		)	(27,344		)	(224		)
Total	$	97,175		$	9,888		$	91,619		$	9,368

The following are the weighted-average actuarial assumptions used to determine the benefit obligations:



	December 31,
	2016						2015
			Non-Qualified						Non-Qualified
	Retirement Income Plan		Supplemental Retirement Plan		Excess Benefit Plan		Retirement Income Plan		Supplemental Retirement Plan		Excess Benefit Plan
Discount rate	4.29	%	3.76	%	4.34	%	4.57	%	3.99	%	4.59	%
Rate of compensation increase	4.5	%	N/A		4.5	%	4.5	%	N/A		4.5	%

The Company reassesses various actuarial assumptions at least on an annual basis. The discount rate is reviewed at each measurement date. The discount rate used to measure the fiscal year end obligation is based on a segmented spot rate yield curve that matches projected future payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. A 1% increase in the discount rate would decrease the December 31, 2016 retirement plans' projected benefit obligation by 11.5%. A 1% decrease in the discount rate would increase the December 31, 2016 retirement plans' projected benefit obligation by 14.1%.

The components of net periodic benefit cost are presented below (in thousands):



	Years Ended December 31,
	2016						2015						2014
	Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans
Service cost	$	7,705		$	296		$	8,530		$	262		$	8,284		$	303
Interest cost	12,161			878			13,477			1,018			14,001			1,041
Expected return on plan assets	(18,879		)	—			(19,795		)	—			(18,699		)	—
Amortization of:
Net loss	6,554			785			9,710			937			8,178			675
Prior service benefit	(3,467		)	(39		)	(3,467		)	(39		)	(2,889		)	(17		)
Net periodic benefit cost	$	4,074		$	1,920		$	8,455		$	2,178		$	8,875		$	2,002

In 2016, the Company changed the method used to estimate the service and interest components of net periodic benefit cost for pension benefits. This change, compared to the previous method, resulted in a decrease in the service cost and interest cost components in 2016, and is expected to result in a decrease in the service cost and interest cost components in future periods. Historically, the Company estimated service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. In 2016, the Company elected to utilize a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plan’s liability cash flows to the corresponding spot rates on the yield curve. The Company accounted for this change as a change in accounting estimate and accordingly, accounted for this prospectively. The change in estimate decreased the service and interest components of net periodic benefit cost in 2016 by approximately $2.9 million.

The changes in benefit obligations recognized in other comprehensive income are presented below (in thousands):



	Years Ended December 31,
	2016						2015						2014
	Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans			Retirement Income Plan			Non-Qualified Retirement Plans
Net (gain) loss	$	8,644		$	1,266		$	4,266		$	(811	)	$	47,324		$	3,508
Prior service benefit	—			—			—			—			(33,700		)	(500		)
Amortization of:
Net loss	(6,554		)	(785		)	(9,710		)	(937		)	(8,178		)	(675		)
Prior service benefit	3,467			39			3,467			39			2,889			17
Total recognized in other comprehensive income	$	5,557		$	520		$	(1,977	)	$	(1,709	)	$	8,335		$	2,350

The total amount recognized in net periodic benefit costs and other comprehensive income are presented below (in thousands):



	Years Ended December 31,
	2016				2015				2014
	Retirement Income Plan		Non-Qualified Retirement Plans		Retirement Income Plan		Non-Qualified Retirement Plans		Retirement Income Plan		Non-Qualified Retirement Plans
Total recognized in net periodic benefit cost and other comprehensive income	$	9,631	$	2,440	$	6,478	$	469	$	17,210	$	4,352

The following are amounts in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit cost during 2017 (in thousands):



	Retirement Income Plan			Non-Qualified Retirement Plans
Net loss	$	7,530		$	825
Prior service benefit	(3,470		)	(40		)

The following are the weighted-average actuarial assumptions used to determine the net periodic benefit cost for the twelve months ended December 31:



	2016						2015						2014 (a)
			Non-Qualified						Non-Qualified						Non-Qualified
	Retirement Income Plan		Supplemental Retirement Plan		Excess Benefit Plan		Retirement Income Plan		Supplemental Retirement Plan		Excess Benefit Plan		Retirement Income Plan		Supplemental Retirement Plan		Excess Benefit Plan
Discount rate
Benefit obligation	4.57	%	3.99	%	4.63	%	4.0	%	3.4	%	4.1	%	4.9	%	3.9	%	4.9	%
Service cost	4.83	%	N/A		4.87	%	4.0	%	N/A		4.1	%	4.9	%	N/A		4.9	%
Interest cost	3.86	%	3.04	%	3.9	%	4.0	%	3.4	%	4.1	%	4.9	%	3.9	%	4.9	%
Expected long-term return on plan assets	7.0	%	N/A		N/A		7.5	%	N/A		N/A		7.5	%	N/A		N/A
Rate of compensation increase	4.5	%	N/A		4.5	%	4.5	%	N/A		4.5	%	4.75	%	N/A		4.75	%

_____________________


(a)	The Retirement Plan and the Excess Benefit Plan were remeasured on February 28, 2014 due to the above mentioned plan amendment. The discount rate used to remeasure the benefit obligation was 4.6% for the Retirement Plan and 4.5% for the Excess Benefit Plan, compared to 4.9% for both plans as of January 1, 2014. All other assumptions remained consistent with assumptions used at January 1, 2014.

The Company’s overall expected long-term rate of return on assets is 7.0% effective January 1, 2016 and January 1, 2017, which is both a pre-tax and after-tax rate as pension funds are generally not subject to income tax. The expected long-term rate of return is based on the weighted average of the expected returns on investments based upon the target asset allocation of the pension fund. The Company’s target allocations for the plan’s assets are presented below:



	December 31, 2016
Equity securities	50	%
Fixed income	40	%
Alternative investments	10	%
Total	100	%

The Retirement Plan invests the majority of its plan assets in common collective trusts which includes a diversified portfolio of domestic and international equity securities and fixed income securities. Alternative investments of the Retirement Plan are comprised of a real estate limited partnership and equity securities of real estate companies. The expected rate of returns for the funds are assessed annually and are based on long-term relationships among major asset classes and the level of incremental returns that can be earned by the successful implementation of different active investment management strategies. Equity and real estate equity returns are based on estimates of long-term inflation rate, real rate of return, 10-year Treasury bond premium over cash, an expected equity risk premium, as well as other economic factors. Fixed income returns are based on maturity, long-term inflation, real rate of return and credit spreads. These assumptions also capture the expected correlation of returns between these asset classes over the long term.

The FASB guidance on disclosure for pension plans requires disclosure of fair value measurements of plan assets. To increase consistency and comparability in fair value measurements, the FASB guidance on fair value measurements established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•

Level 1 – Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Prices of securities held in the mutual funds and underlying portfolios of the Retirement Plan are primarily obtained from independent pricing services. These prices are based on observable market data. The Common Collective Trusts are valued using the NAV provided by the administrator of the fund. The NAV price is quoted on a restrictive market although the underlying investments are traded on active markets. During the third quarter of 2016, the Company concluded that the NAV used for determining the fair value of the investments in the Common Collective Trusts have readily determinable fair values. Accordingly, such fund values have been re-categorized from Level 2 to Level 1 hierarchy.

Level 2 – Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. The fair value of these investments are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.


•	Level 3 – Unobservable inputs using data that is not corroborated by market data.

The fair value of the Company’s Retirement Plan assets at December 31, 2016 and 2015, and the level within the three levels of the fair value hierarchy defined by the FASB guidance on fair value measurements are presented in the table below (in thousands):



Description of Securities	Fair Value as of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and Cash Equivalents	$	932	$	932	$	—	$	—
Common Collective Trusts (a)
Equity funds	144,081		144,081		—		—
Fixed income funds	109,356		109,356		—		—
Real Estate Funds	8,406		8,406		—		—
Total Common Collective Trusts	261,843		261,843		—		—
Limited Partnership Interest in Real Estate (b)(c)	6,991
Total Plan Investments	$	269,766	$	262,775	$	—	$	—



Description of Securities	Fair Value as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and Cash Equivalents	$	1,266	$	1,266	$	—	$	—
Common Collective Trusts (a)
Equity funds	144,279		144,279		—		—
Fixed income funds	103,877		103,877		—		—
Real Estate Funds	2,025		2,025		—		—
Total Common Collective Trusts	250,181		250,181		—		—
Limited Partnership Interest in Real Estate (b)(c)	8,588
Total Plan Investments	$	260,035	$	251,447	$	—	$	—

_____________________


(a)	The Common Collective Trusts are invested in equity and fixed income securities, or a combination thereof. The investment objective of each fund is to produce returns in excess of, or commensurate with, its predefined index.

(b)

This investment is a commercial real estate partnership that purchases land, develops limited infrastructure, and sells it for commercial development. The Company was restricted from selling its partnership interest during the life of the partnership, which spanned 7 years. Return on investment is realized as land is sold. The fair value of the limited partnership interest in real estate is based on the NAV of the partnership which reflects the appraised value of the land. The partnership term expired on June 30, 2016. Upon expiration, dissolution of the partnership commenced and, as a result, the general partner of the partnership is attempting to sell the remaining inventory as soon as possible at the highest pricing possible.

(c)

In the first quarter of 2016, the Company implemented ASU 2015-07, Fair Value Measurement (Topic 820) which eliminates the requirement to categorize investments in the fair value hierarchy if the fair value is measured at NAV per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. ASU 2015-07 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.

The table below reflects the changes in the fair value of investments in the real estate limited partnership during the period (in thousands):



	Fair Value of Investments in Real Estate
Balances at December 31, 2014	$	8,748
Unrealized loss in fair value	(160		)
Balances at December 31, 2015	8,588
Sale of land	(775		)
Unrealized loss in fair value	(822		)
Balances at December 31, 2016	$	6,991

There were no transfers in or out of Level 1 and Level 2 fair value measurements categories due to changes in observable inputs during the twelve month periods ending December 31, 2016 and 2015. There were no purchases, issuances, and settlements related to the assets in the Level 3 fair value measurement category during the twelve month periods ending December 31, 2016 and 2015.

The Company adheres to the traditional capital market pricing theory which maintains that over the long term, the risk of owning equities should be rewarded with a greater return than available from fixed income investments. The Company seeks to minimize the risk of owning equity securities by investing in funds that pursue risk minimization strategies and by diversifying its investments to limit its risks during falling markets. The investment manager has full discretionary authority to direct the investment of plan assets held in trust within the guidelines prescribed by the Company through the plan’s investment policy statement including the ability to hold cash equivalents. The investment guidelines of the investment policy statement are in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA") and Department of Labor ("DOL") regulations.

The Company contributes at least the minimum funding amounts required by the IRS for the Retirement Plan, as actuarially calculated. The Company expects to contribute at least $10.0 million to its retirement plans in 2017.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):



	Retirement Income Plan		Non-Qualified Retirement Plans
2017	$	16,113	$	2,698
2018	19,080		2,060
2019	18,771		2,025
2020	18,923		1,957
2021	19,755		1,907
2022-2026	107,916		8,949

401(k) Defined Contribution Plans

The Company sponsors 401(k) defined contribution plans covering substantially all employees. Annual matching contributions made to the savings plans for the years 2016, 2015 and 2014 were $4.1 million, $3.9 million, and $3.0 million, respectively. Historically, the Company had provided a 50 percent matching contribution up to 6 percent of the employee’s compensation subject to certain other limits and exclusions. Effective April 1, 2014, for employees who enrolled in the cash balance pension plan (discussed above), the Company provided a 100 percent matching contribution up to 6 percent of the employee's compensation subject to certain other limits and exclusions.

Other Post-retirement Benefits

The Company provides certain health care benefits for retired employees and their eligible dependents and life insurance benefits for retired employees only. Substantially all of the Company’s employees may become eligible for those benefits if they retire while working for the Company. Contributions from the Company are based on various factors such as the Plan's funded status, the IRS tax deductible limit, state and federal regulatory requirements, amounts collected from customers in the Company's Texas and New Mexico jurisdictions and the annual cost of the Plan, as actuarially calculated. The assets of the plan are primarily invested in institutional funds which hold equity securities, debt securities, and cash equivalents and are managed by a professional investment manager appointed by the Company.

The following table contains a reconciliation of the change in the benefit obligation, the fair value of plan assets, and the funded status of the plan (in thousands):



	December 31,
	2016			2015
Change in benefit obligation:
Benefit obligation at end of prior year	$	92,643		$	100,700
Service cost	2,769			3,454
Interest cost	3,167			4,035
Actuarial loss (gain)	10,751			(11,423		)
Amendment (a) (b)	(32,697		)	(824		)
Benefits paid	(4,428		)	(4,544		)
Retiree contributions	1,310			1,245
Benefit obligation at end of year	73,515			92,643
Change in plan assets:
Fair value of plan assets at end of prior year	38,090			41,358
Actual return (loss) on plan assets	2,443			(469		)
Employer contribution	1,700			500
Benefits paid	(4,428		)	(4,544		)
Retiree contributions	1,310			1,245
Fair value of plan assets at end of year	39,115			38,090
Funded status at end of year	$	(34,400	)	$	(54,553	)

_____________________

(a)

During October 2016, the Company approved and communicated a plan amendment that resulted in a remeasurement of the Company's Other Post-retirement Benefit Plan. Effective January 1, 2017, retirees and dependents that are less than 65 years of age are offered a choice between a $1,000 and $2,250 deductible plan. Additionally, retirees and dependents that are 65 years of age or greater were covered by a fully insured Medicare advantage plan.


(b)	Amendment relates to modification of the Company's Other Post-retirement Benefit Plan which increased mail order co-payments for post age 65. The amendment was approved in 2015 and became effective January 1, 2016.

Amounts recognized in the Company's balance sheets consist of the following (in thousands):



	December 31,
	2016			2015
Current liabilities	$	—		$	—
Noncurrent liabilities	(34,400		)	(54,553		)
Total	$	(34,400	)	$	(54,553	)

Pre-tax amounts recognized in accumulated other comprehensive income consist of the following (in thousands):



	December 31,
	2016			2015
Net gain	$	(26,285	)	$	(38,802	)
Prior service benefit	(41,009		)	(12,213		)
Total	$	(67,294	)	$	(51,015	)

The following are the weighted-average actuarial assumptions used to determine the accrued post-retirement benefit obligations:



	December 31,
	2016		2015
Discount rate at end of year	4.36	%	4.59	%
Health care cost trend rates:
Initial
Pre-65 medical	6.50	%	7.00	%
Post-65 medical	4.50	%	7.00	%
Pre-65 drug	7.50	%	7.00	%
Post-65 drug	10.50	%	7.00	%
Ultimate	4.50	%	4.50	%
Year ultimate reached (a)	2026		2026

_____________________ (a) Pre-65 medical reaches the ultimate trend rate in 2025. Additionally, the Post-65 medical trend is assumed to be 4.50% for all years into the future.

The discount rate is reviewed at each measurement date. The discount rate used to measure the fiscal year end obligation is based on a segmented spot rate yield curve that matches projected future payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. A 1% increase in the discount rate would decrease the December 31, 2016 accumulated post-retirement benefit obligation by 13.1%. A 1% decrease in the discount rate would increase the December 31, 2016 accumulated post-retirement benefit obligation by 16.7%.

Net periodic benefit cost is made up of the components listed below (in thousands):



	Years Ended December 31,
	2016			2015			2014
Service cost	$	2,769		$	3,454		$	2,845
Interest cost	3,167			4,035			4,463
Expected return on plan assets	(1,835		)	(2,070		)	(2,116		)
Amortization of:
Prior service benefit	(3,901		)	(3,068		)	(4,753		)
Net gain	(2,374		)	(2,025		)	(2,671		)
Net periodic benefit cost	$	(2,174	)	$	326		$	(2,232	)

In 2016, the Company changed the method used to estimate the service and interest components of net periodic benefit cost for other post-retirement benefits. This change, compared to the previous method, resulted in a decrease in the service cost and interest cost components in 2016, and is expected to result in a decrease in the service cost and interest cost components in future periods. Historically, the Company estimated service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. In 2016, the Company elected to utilize a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plan’s liability cash flows to the corresponding spot rates on the yield curve. The Company accounted for this change as a change in accounting estimate and accordingly, accounted for this prospectively. The change in estimate decreased the service and interest components of net periodic benefit cost in 2016 by approximately $0.8 million.

The changes in benefit obligations recognized in other comprehensive income are presented below (in thousands):



	Years Ended December 31,
	2016			2015			2014
Net (gain) loss	$	10,143		$	(8,884	)	$	3,496
Prior service benefit	(32,697		)	(824		)	—
Amortization of:
Prior service benefit	3,901			3,068			4,753
Net gain	2,374			2,025			2,671
Total recognized in other comprehensive income	$	(16,279	)	$	(4,615	)	$	10,920

The total amount recognized in net periodic benefit cost and other comprehensive income are presented below (in thousands):



	Years Ended December 31,
	2016			2015			2014
Total recognized in net periodic benefit cost and other comprehensive income	$	(18,453	)	$	(4,289	)	$	8,688

The amount in accumulated other comprehensive income that is expected to be recognized as a component of net periodic benefit cost during 2017 is a prior service benefit of $6.2 million and a net gain of $1.6 million.

The following are the weighted-average actuarial assumptions used to determine the net periodic benefit cost for the twelve months ended December 31:



	2016 (a)				2015		2014
Discount rate:	January 1 - September 30		October 1 - December 31
Benefit obligation	4.59	%	3.75	%	4.1	%	4.9	%
Service cost	4.91	%	4.03	%	4.1	%	4.9	%
Interest cost	3.86	%	3.15	%	4.1	%	4.9	%
Expected long-term return on plan assets	4.875%				5.2	%	5.2	%
Health care cost trend rates:
Initial	7.00%				7.25	%	7.5	%
Ultimate	4.5%				4.5	%	4.5	%
Year ultimate reached	2026				2026		2026

_____________________

(a) The actuarial assumptions are evaluated by the Company at each measurement date. The Other Post-retirement Benefits Plan was remeasured at October 1, 2016 due to a plan amendment.

For measurement purposes, a 7.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016. The rate was assumed to decrease gradually to 4.5% for 2026 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. The effect of a 1% change in these assumed health care cost trend rates would increase or decrease the December 31, 2016 benefit obligation by $11.2 million or $9.0 million, respectively. In addition, a 1% change in said rate would increase or decrease the aggregate 2016 service and interest cost components of the net periodic benefit cost by $1.3 million or $1.0 million, respectively.

The Company’s overall expected long-term rate of return on assets, on an after-tax basis, is 4.875% effective January 1, 2016 and January 1, 2017. The expected long-term rate of return is based on the after-tax weighted average of the expected returns on investments based upon the target asset allocation. The Company’s target allocations for the plan’s assets are presented below:



	December 31, 2016
Equity securities	65	%
Fixed income	30	%
Alternative investments	5	%
Total	100	%

The Other Post-retirement Benefit Plan invests the majority of its plan assets in institutional funds which includes a diversified portfolio of domestic and international equity securities and fixed income securities. The asset portfolio also includes cash equivalents and a real estate limited partnership. The expected rates of return for the funds are assessed annually and are based on long-term relationships among major asset classes and the level of incremental returns that can be earned by the successful implementation of different active investment management strategies. Equity returns are based on estimates of long-term inflation rate, real rate of return, 10-year Treasury bond premium over cash, an expected equity risk premium, as well as other economic factors. Fixed income returns are based on maturity, long-term inflation, real rate of return and credit spreads. These assumptions also capture the expected correlation of returns between these asset classes over the long term.

The FASB guidance on disclosure for other post-retirement benefit plans requires disclosure of fair value measurements of plan assets. To increase consistency and comparability in fair value measurements, the FASB guidance on fair value measurements established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•

Level 1 – Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Prices of securities held in the mutual funds and underlying portfolios of the Other Post-retirement Benefits Plan are primarily obtained from independent pricing services. These prices are based on observable market data. The institutional funds are valued using the NAV provided by the administrator of the fund. The NAV price is quoted on a restrictive market although the underlying investments are traded on active markets. During the third quarter of 2016, the Company concluded that the NAV used for determining the fair value of the investments in the institutional funds have readily determinable fair values. Accordingly, such fund values have been re-categorized from Level 2 to Level 1 hierarchy.


•	Level 2 – Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. The fair value of these investments are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.


•	Level 3 – Unobservable inputs using data that is not corroborated by market data.

The fair value of the Company’s Other Post-retirement Benefits Plan assets at December 31, 2016 and 2015, and the level within the three levels of the fair value hierarchy defined by the FASB guidance on fair value measurements are presented in the table below (in thousands):



Description of Securities	Fair Value as of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Institutional Funds (a)
Equity funds	$	26,133	$	26,133	$	—	$	—
Fixed income funds	11,671		11,671		—		—
Total Institutional Funds	37,804		37,804		—		—
Limited Partnership Interest in Real Estate (b) (c)	1,311
Total Plan Investments	$	39,115	$	37,804	$	—	$	—

Description of Securities	Fair Value as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Institutional Funds (a)
Equity funds	$	24,881	$	24,881	$	—	$	—
Fixed income funds	11,599		11,599		—		—
Total Institutional Funds	36,480		36,480		—		—
Limited Partnership Interest in Real Estate (b) (c)	1,610
Total Plan Investments	$	38,090	$	36,480	$	—	$	—

___________________


(a)	The institutional funds are invested in equity or fixed income securities, or a combination thereof. The investment objective of each fund is to produce returns in excess of, or commensurate with, its predefined index.

(b)

This investment is a commercial real estate partnership that purchases land, develops limited infrastructure, and sells it for commercial development. The Company was restricted from selling its partnership interest during the life of the partnership, which spanned 7 years. Return of investment is realized as land is sold. The fair value of the limited partnership interest in real estate is based on the NAV of the partnership which reflects the appraised value of the land. The partnership term expired on June 30, 2016. Upon expiration, dissolution of the partnership commenced and, as a result, the general partner of the partnership is attempting to sell the remaining inventory as soon as possible at the highest pricing possible.

(c)

The table below reflects the changes in the fair value of the investments in real estate during the period (in thousands):



	Fair Value of Investments in Real Estate
Balance at December 31, 2014	$	1,640
Unrealized loss in fair value	(30		)
Balance at December 31, 2015	1,610
Sale of land	(145		)
Unrealized loss in fair value	(154		)
Balance at December 31, 2016	$	1,311

The Company expects to contribute $1.5 million to its other post-retirement benefits plan in 2017. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):



2017	$	2,622
2018	2,880
2019	3,057
2020	3,320
2021	3,510
2022-2026	20,084

Annual Short-Term Incentive Plan

The Annual Short-Term Incentive Plan (the "Incentive Plan") provides for the payment of cash awards to eligible Company employees, including each of its named executive officers. Payment of awards is based on the achievement of performance measures reviewed and approved by the Company’s Board of Directors’ Compensation Committee. Generally, these performance measures are based on meeting certain financial, operational and individual performance criteria. The financial performance goals are based on earnings per share and the operational performance goals are based on compliance, customer satisfaction, and reliability. If a specified level of earnings per share is not attained, no amounts will be paid under the Incentive Plan, unless the Compensation Committee determines otherwise. In 2016, the Company reached the required levels of earnings per share, customer satisfaction, reliability, compliance, and safety goals for an incentive payment of $12.5 million. In 2015 and 2014, the Company reached the required levels of earnings per share, safety, compliance, and customer satisfaction goals for an incentive payment of $10.5 million and $7.4 million, respectively. The Company has renewed the Incentive Plan in 2017 with similar goals.