EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans (OPEB)

The Company has two trusteed, noncontributory defined benefit retirement plans covering regular represented and nonrepresented employees with more than one year of service. All represented employees of NJRHS hired on or after October 1, 2000, and all non-represented employees hired on or after October 1, 2009, are covered by an enhanced defined contribution plan instead of the defined benefit plan.

Defined benefit plan benefits are based on years of service and average compensation during the highest sixty consecutive months of employment.

The Company also maintains an unfunded nonqualified pension equalization plan (PEP) that was established to provide employees with the full level of benefits as stated in the qualified plan without reductions due to various limitations imposed by the provisions of federal income tax laws and regulations. There were no plan assets in the nonqualified plan due to the nature of the plan.

The Company provides postemployment medical and life insurance benefits to employees who meet certain eligibility requirements.

The Company's funding policy for its pension plans is to contribute at least the minimum amount required by the ERISA, as amended. In fiscal 2011 and 2010, the Company had no minimum funding requirements; however, the Company made discretionary contributions to the pension plans during fiscal 2011 and 2010 totaling $4.9 million and $14.5 million, respectively. The Company plans to make an additional discretionary contribution of $20 million in December 2011.The Company elected to make these discretionary tax-deductible contributions to improve the funded status of the pension plans. The Company does not expect to be required to make additional contributions to fund the pension plans over the next three fiscal years based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents. In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans.

There are no Federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts due to regulatory agreements with the BPU. The Company contributed $6.5 million and $4.8 million, respectively, in fiscal 2011 and 2010 and estimates that it will contribute between $5 million to $6 million over the next five years. Additional contributions may be required based on market conditions and changes to assumptions.

The Company's OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare Part D, for which the Company qualifies for federal subsidies. As a result of the Patient Protection and Affordable Care Act, which was enacted in March 2010, beginning in fiscal 2014 the tax deduction available to the Company will be reduced to the extent its drug expenses are reimbursed under the Medicare Part D retiree drug subsidy program. Accordingly, the Company recorded a non-cash, after-tax adjustment of approximately $3.2 million, of which, approximately $2.4 million, relates to NJNG. Since the Company believes the amount is recoverable through the regulatory process, NJNG has recognized a regulatory asset of $2.4 million. In addition, the regulatory asset was grossed up by $1.6 million associated with the recovery of NJNG's income taxes. The non-cash, after-tax charge to the Company 's non-regulated activities was $792,000.

The following summarizes the changes in the funded status of the plans and the related liabilities recognized in the Consolidated Balance Sheets:



	Pension ⁽¹⁾						OPEB
(Thousands)	2011			2010			2011			2010
Change in Benefit Obligation
Benefit obligation at beginning of year	$	155,189		$	133,839		$	89,279		$	78,292
Service cost	4,775			3,969			3,345			2,814
Interest cost	8,378			8,196			4,845			4,819
Plan participants' contributions	48			48			16			9
Actuarial loss	8,342			14,439			3,637			5,333
Benefits paid, net of retiree subsidies received	(5,584		)	(5,302		)	(2,056		)	(1,988		)
Benefit obligation at end of year	$	171,148		$	155,189		$	99,066		$	89,279
Change in plan assets
Fair value of plan assets at beginning of year	$	122,865		$	100,639		$	27,644		$	22,195
Actual return on plan assets	1,933			12,864			(556		)	2,768
Employer contributions	5,027			14,616			6,497			4,784
Benefits paid, net of plan participants' contributions	(5,536		)	(5,254		)	(2,157		)	(2,103		)
Fair value of plan assets at end of year	$	124,289		$	122,865		$	31,428		$	27,644
Funded status	$	(46,859	)	$	(32,324	)	$	(67,638	)	$	(61,635	)
Amounts recognized on Consolidated Balance Sheets
Postemployment employee benefit liability
Current	$	(75	)	$	(119	)	$	(117	)	$	(97	)
Non-current	(46,784		)	(32,205		)	(67,521		)	(61,538		)
Total	$	(46,859	)	$	(32,324	)	$	(67,638	)	$	(61,635	)


(1)	Includes the Company's Pension Equalization Plan.

The Company recognizes a liability for its underfunded benefit plans as required by the Compensation - Retirement Benefits Topic of the ASC. The Company records the offset to regulatory assets for the portion of liability relating to its regulated utility and to accumulated other comprehensive income for the portion of the liability related to its non-regulated operations.

The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income as of September 30:



	Regulatory Assets							Accumulated Other Comprehensive Income
	Pension			OPEB				Pension			OPEB
Balance at September 30, 2009	$	57,140		$	37,784			$	14,366		$	8,477
Amounts arising during the period:
Net actuarial loss (gain)	7,669			3,162				4,212			1,342
Amounts amortized to net periodic costs:
Net actuarial (loss)	(2,205		)	(1,842		)		(517		)	(437		)
Prior service cost	(39		)	(68		)		(16		)	(7		)
Net transition obligation	—			(286		)		—			(70		)
Balance at September 30, 2010	$	62,565		$	38,750		⁽¹⁾	$	18,045		$	9,305
Amounts arising during the period:
Net actuarial loss (gain)	12,912			11,592				4,987			(4,927		)
Amounts amortized to net periodic costs:
Net actuarial (loss)	(3,087		)	(2,063		)		(859		)	(549		)
Prior service cost	(35		)	(68		)		(13		)	(7		)
Net transition obligation	—			(286		)		—			(70		)
Balance at September 30, 2011	$	72,355		$	47,925		⁽¹⁾	$	22,160		$	3,752


(1)	Balance represents amounts recognized in accordance with ASC 715 and excludes $609,000 and $900,000 associated with a regulatory asset approved by the BPU for fiscal 2011 and 2010, respectively.

Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost in fiscal 2012 are as follows:



	Regulatory Assets					Accumulated Other Comprehensive Income
(Thousands)	Pension		OPEB			Pension		OPEB
Net actuarial gain (loss)	$	3,848	$	2,671	—	$	1,167	$	223
Prior service (cost) credit	37		19		—	9		6
Net transition obligation	—		286		—	—		70
Total	$	3,885	$	2,976	—	$	1,176	$	299

The accumulated benefit obligation (ABO) for the pension plans, including the Pension Equalization Plan exceeded the fair value of plan assets. The projected benefit and accumulated benefit obligations and the fair value of plan assets are as follows:



	Pension
(Thousands)	2011		2010
Projected benefit obligation	$	171,148	$	155,189
Accumulated benefit obligation	$	151,590	$	137,130
Fair value of plan assets	$	124,289	$	122,865

The components of the net periodic cost for pension benefits, including the Company's Pension Equalization Plan, and OPEB costs (principally health care and life insurance) for employees and covered dependents were as follows:



	Pension									OPEB
(Thousands)	2011			2010			2009			2011			2010			2009
Service cost	$	4,775		$	3,969		$	2,712		$	3,345		$	2,814		$	1,728
Interest cost	8,378			8,196			7,748			4,845			4,819			4,057
Expected return on plan assets	(11,490		)	(10,306		)	(8,753		)	(2,472		)	(1,939		)	(1,996		)
Recognized actuarial loss	3,946			2,722			554			2,612			2,279			1,067
Prior service cost amortization	48			56			56			75			76			78
Recognized net initial obligation	—			—			—			356			356			357
Net periodic benefit cost	$	5,657		$	4,637		$	2,317		$	8,761		$	8,405		$	5,291

The weighted average assumptions used to determine benefit costs during the fiscal year and obligations as of September 30, are as follows:



	Pension						OPEB
	2011		2010		2009		2011		2010		2009
Benefit costs:
Discount rate	5.5	%	6.25	%	7.75	%	5.5	%	6.25	%	7.75	%
Expected asset return	8.25	%	8.25	%	9.00	%	8.25	%	8.25	%	9.00	%
Compensation increase	2.50/3.25%		3.75	%	3.75	%	3.25	%	3.75	%	3.75	%

Obligations:
Discount rate	5.25	%	5.5	%	6.25	%	5.25	%	5.5	%	6.25	%
Compensation increase	3.25	%	2.50/3.25%		3.75	%	3.25	%	2.50/3.25%		3.75	%

In selecting an assumed discount rate, the Company uses a modeling process that involves selecting a portfolio of high-quality corporate debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of the Company's expected future benefit payments. The Company considers the results of this modeling process, as well as overall rates of return on high-quality corporate bonds and changes in such rates over time, to determine its assumed discount rate.

Information relating to the assumed health care cost trend rate (HCCTR) used to determine expected OPEB benefits as of September 30, and the effect of a one percent change in the rate, are as follows:



($ in thousands)	2011			2010			2009
HCCTR	8.2		%	8.0		%	8.0		%
Ultimate HCCTR	4.8		%	5.0		%	5.0		%
Year ultimate HCCTR reached	2019			2018			2018

Effect of a 1 percentage point increase in the HCCTR on:
Year-end benefit obligation	$	17,193		$	15,474		$	13,181
Total service and interest cost	$	1,751		$	1,571		$	1,083
Effect of a 1 percentage point decrease in the HCCTR on:
Year-end benefit obligation	$	(13,792	)	$	(12,421	)	$	(10,617	)
Total service and interest costs	$	(1,367	)	$	(1,234	)	$	(859	)

The Company's investment objective is a long-term real rate of return on assets before permissible expenses that is approximately 6 percent greater than the assumed rate of inflation as measured by the consumer price index. The expected long-term rate of return is based on the asset categories in which the Company invests and the current expectations and historical performance for these categories.

The mix and targeted allocation of the pension and OPEB plans' assets are as follows:



	2012		Assets at
	Target		September 30,
Asset Allocation	Allocation		2011		2010		⁽¹⁾
U.S. equity securities	39	%	36	%	39	%
International equity securities	20		17		21
Fixed income	41		47		40
Total	100	%	100	%	100	%


(1)	The allocation of assets excludes a contribution of $10.1 million made on September 30, 2010, that was not yet invested in accordance with the plan's investment policy.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years:



(Thousands)	Pension		OPEB
2012	$	6,098	$	2,808
2013	$	6,340	$	3,029
2014	$	6,710	$	3,372
2015	$	7,061	$	3,707
2016	$	7,470	$	4,073
2017 - 2021	$	46,247	$	27,297

The Company 's OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare Part D. Therefore, under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 the Company qualifies for federal subsidies.

The estimated subsidy payments are:



	Estimated Subsidy Payment
Fiscal Year	(Thousands)
2012	$198
2013	$218
2014	$233
2015	$251
2016	$271
2017 - 2021	$1,728

Pension assets held in the master trust, measured at fair value are summarized as follows:



	Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(Thousands)	(Level 1)			(Level 2)			(Level 3)			Total
As of September 30, 2011:
Assets:
Money market funds		$	—		$	—		$	—	$	—
Registered Investment Companies-
Equity Funds:
Large Cap Fund		18,754			—			—		18,754
Large Cap Index Fund		18,922			—			—		18,922
Small Cap Fund		6,505			—			—		6,505
World Equity Ex-US Fund		20,993			—			—		20,993
Fixed Income Funds:
Emerging Markets Debt Fund		6,145			—			—		6,145
High Yield Bond Fund		12,537			—			—		12,537
Long Duration Fund		40,433			—			—		40,433
Total assets at fair value		$	124,289		$	—		$	—	$	124,289
As of September 30, 2010:
Assets:
Money market funds		$	10,100		$	—		$	—	$	10,100
Registered Investment Companies-
Equity Funds:
Large Cap Fund		18,641			—			—		18,641
Large Cap Index Fund		18,129			—			—		18,129
Small Cap Fund		6,598			—			—		6,598
World Equity Ex-US Fund		23,600			—			—		23,600
Fixed Income Funds:
Emerging Markets Debt Fund		5,714			—			—		5,714
High Yield Bond Fund		11,284			—			—		11,284
Long Duration Fund		28,799			—			—		28,799
Total assets at fair value		$	122,865		$	—		$	—	$	122,865

OPEB assets held in the Master Trust, measured at fair value are summarized as follows:



	Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(Thousands)	(Level 1)			(Level 2)			(Level 3)			Total
As of September 30, 2011:
Assets:
Money market funds		$	1,593		$	—		$	—	$	1,593
Registered Investment Companies-
Equity Funds:
Large Cap Fund		4,765			—			—		4,765
Large Cap Index Fund		4,825			—			—		4,825
Small Cap Fund		1,591			—			—		1,591
World Equity Ex-US Fund		5,550			—			—		5,550
Fixed Income Funds:
Core Fixed Income Fund		8,366			—			—		8,366
Emerging Markets Debt Fund		1,589			—			—		1,589
High Yield Bond Fund		3,149			—			—		3,149
Total assets at fair value		$	31,428		$	—		$	—	$	31,428
As of September 30, 2010:
Assets:
Money market funds		$	6		$	—		$	—	$	6
Registered Investment Companies-
Equity Funds:
Large Cap Fund		4,437			—			—		4,437
Large Cap Index Fund		4,469			—			—		4,469
Small Cap Fund		1,655			—			—		1,655
World Equity Ex-US Fund		5,416			—			—		5,416
Fixed Income Funds:
Core Fixed Income Fund		7,207			—			—		7,207
Emerging Markets Debt Fund		1,470			—			—		1,470
High Yield Bond Fund		2,984			—			—		2,984
Total assets at fair value		$	27,644		$	—		$	—	$	27,644

The Plan had no Level 2 or Level 3 fair value measurements during the two fiscal years and there have been no changes in valuation methodologies as of September 30, 2011. The following is a description of the valuation methodologies used for assets measured at fair value:

Money Market funds: Represents bank balances and money market funds which are valued based on the net asset value of shares held at year end.

Registered Investment Companies: Equity and fixed income funds valued at the net asset value (“NAV”) of shares held by the plan at year end as reported on the active market on which the individual securities are traded.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Defined Contribution Plan

The Company offers an Employees' Retirement Savings Plan (Savings Plan) to eligible employees. The Company matches 50 percent of participants' contributions up to 6 percent of base compensation.

For represented NJRHS employees and other employees who are not eligible for participation in the defined benefit plan and for non-represented employees hired on or after October 1, 2009, the Company contributes between 2 percent and 3 percent of base compensation, depending on years of service, into the Savings Plan on their behalf.

The amount expensed and contributed for the matching provision of the Savings Plan was $1.5 million in fiscal 2011, $1.4 million in fiscal 2010 and $1.2 million in fiscal 2009.