EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans

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, non-represented employees hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, 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 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 provided postemployment medical and life insurance benefits to employees who meet certain eligibility requirements. During fiscal 2012, the Plan was amended so that represented employees hired on or after January 1, 2012, are no longer eligible for postemployment medical benefits.

The Company's funding policy for its pension plans is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In fiscal 2013 and 2012, the Company had no minimum funding requirements; however, the Company made discretionary contributions to the pension plans totaling $20 million during both fiscal 2013 and 2012. 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 million and $5.8 million, respectively, in fiscal 2013 and 2012 and estimates that it will contribute between $3 million to $5 million over the next five years. Additional contributions may be required based on market conditions and changes to assumptions.

The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the Consolidated Balance Sheets as of September 30:



	Pension ⁽¹⁾						OPEB
(Thousands)	2013			2012			2013			2012
Change in Benefit Obligation
Benefit obligation at beginning of year	$	211,136		$	171,148		$	121,027		$	99,066
Service cost	6,871			5,375			4,686			3,584
Interest cost	8,942			8,825			5,148			5,133
Plan participants' contributions	49			47			32			29
Amendments	—			1,083			—			(3,423		)
Actuarial (gain) loss	(22,288		)	30,428			(15,645		)	18,807
Benefits paid, net of retiree subsidies received	(5,884		)	(5,770		)	(2,477		)	(2,169		)
Benefit obligation at end of year	$	198,826		$	211,136		$	112,771		$	121,027
Change in plan assets
Fair value of plan assets at beginning of year	$	166,664		$	124,289		$	41,090		$	31,428
Actual return on plan assets	19,323			28,018			5,120			6,222
Employer contributions	20,083			20,080			5,977			5,775
Benefits paid, net of plan participants' contributions	(5,834		)	(5,723		)	(2,632		)	(2,335		)
Fair value of plan assets at end of year	$	200,236		$	166,664		$	49,555		$	41,090
Funded status	$	1,410		$	(44,472	)	$	(63,216	)	$	(79,937	)
Amounts recognized on Consolidated Balance Sheets
Postemployment employee benefit (liability) asset
Current	$	(96	)	$	(93	)	$	(100	)	$	(120	)
Noncurrent	1,506			(44,379		)	(63,116		)	(79,817		)
Total	$	1,410		$	(44,472	)	$	(63,216	)	$	(79,937	)


(1)	Includes the Company's PEP.

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 (Loss)
	Pension			OPEB				Pension			OPEB
Balance at September 30, 2011	$	72,355		$	47,925		⁽¹⁾	$	22,160		$	3,752
Amounts arising during the period:
Net actuarial loss (gain)	10,896			16,773				4,198			(1,442		)
Amounts amortized to net periodic costs:
Net actuarial (loss)	(3,848		)	(2,671		)		(1,166		)	(223		)
Prior service credit (cost)	1,046			(2,677		)		(9		)	(420		)
Net transition obligation	—			(551		)		—			(156		)
Balance at September 30, 2012	$	80,449		$	58,799		⁽¹⁾	$	25,183		$	1,511
Amounts arising during the period:
Net actuarial (gain)	(17,961		)	(13,523		)		(8,826		)	(3,589		)
Amounts amortized to net periodic costs:
Net actuarial (loss)	(5,719		)	(3,743		)		(1,927		)	(114		)
Prior service (cost) credit	(105		)	301				(3		)	54
Net transition obligation	—			(22		)		—			(4		)
Balance at September 30, 2013	$	56,664		$	41,812			$	14,427		$	(2,142	)


(1)	Balance represents amounts recognized in accordance with ASC 715 and excludes $308,000 associated with a regulatory asset approved by the BPU for fiscal 2012.

The amounts in regulatory assets and accumulated other comprehensive income not yet recognized as components of net periodic benefit cost as of September 30 are:



	Regulatory Assets										Accumulated Other Comprehensive Income (Loss)
	Pension				OPEB						Pension				OPEB
(Thousands)	2013		2012		2013			2012			2013		2012		2013			2012
Net actuarial loss (gain)	$	55,559	$	79,239	$	44,140		$	61,406		$	14,412	$	25,165	$	(1,782	)	$	1,921
Prior service cost (credit)	1,105		1,210		(2,339		)	(2,640		)	15		18		(360		)	(414		)
Net transition obligation	—		—		11			33			—		—		—			4
Total	$	56,664	$	80,449	$	41,812		$	58,799		$	14,427	$	25,183	$	(2,142	)	$	1,511

Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost in fiscal 2014 are as follows:



	Regulatory Assets						Accumulated Other Comprehensive Income (Loss)
(Thousands)	Pension		OPEB				Pension		OPEB
Net actuarial gain	$	4,348	$	2,607		—	$	1,248	$	(107	)
Prior service credit	108		11			—	3		—
Net transition obligation	—		(303		)	—	—		(54		)
Total	$	4,456	$	2,315		—	$	1,251	$	(161	)

The accumulated benefit obligation for the pension plans, including the PEP, exceeded the fair value of plan assets. The projected benefit and accumulated benefit obligations and the fair value of plan assets as of September 30, are as follows:



	Pension
(Thousands)	2013		2012
Projected benefit obligation	$	198,826	$	211,136
Accumulated benefit obligation	$	176,172	$	186,825
Fair value of plan assets	$	200,236	$	166,664

The components of the net periodic cost for pension benefits, including the Company's PEP, and OPEB costs (principally health care and life insurance) for employees and covered dependents for fiscal years ended September 30, are as follows:



	Pension									OPEB
(Thousands)	2013			2012			2011			2013			2012			2011
Service cost	$	6,871		$	5,375		$	4,775		$	4,686		$	3,584		$	3,345
Interest cost	8,942			8,825			8,378			5,148			5,133			4,845
Expected return on plan assets	(14,825		)	(12,685		)	(11,490		)	(3,653		)	(2,746		)	(2,472		)
Recognized actuarial loss	7,646			5,015			3,946			3,857			2,894			2,612
Prior service cost amortization	108			46			48			(355		)	25			75
Recognized net initial obligation	—			—			—			26			356			356
Net periodic benefit cost	$	8,742		$	6,576		$	5,657		$	9,709		$	9,246		$	8,761

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



	Pension						OPEB
	2013		2012		2011		2013		2012		2011
Benefit costs:
Discount rate	4.30	%	5.25	%	5.50	%	4.30	%	5.25	%	5.50	%
Expected asset return	8.50	%	8.25	%	8.25	%	8.50	%	8.25	%	8.25	%
Compensation increase	3.25	%	3.25	%	2.50/3.25%		3.25	%	3.25	%	3.25	%

Obligations:
Discount rate	5.15	%	4.30	%	5.25	%	5.15	%	4.30	%	5.25	%
Compensation increase	3.25	%	3.25	%	3.25	%	3.25	%	3.25	%	3.25	%

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 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)	2013			2012			2011
HCCTR	7.3		%	7.5		%	8.2		%
Ultimate HCCTR	4.8		%	4.8		%	4.8		%
Year ultimate HCCTR reached	2022			2022			2019

Effect of a 1 percentage point increase in the HCCTR on:
Year-end benefit obligation	$	18,008		$	21,278		$	17,193
Total service and interest cost	$	2,156		$	1,868		$	1,751
Effect of a 1 percentage point decrease in the HCCTR on:
Year-end benefit obligation	$	(14,629	)	$	(17,034	)	$	(13,792	)
Total service and interest costs	$	(1,675	)	$	(1,457	)	$	(1,367	)

The Company's investment objective is a long-term real rate of return on assets before permissible expenses that is approximately 5 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:



	2014		Assets at
	Target		September 30,
Asset Allocation	Allocation		2013		2012
U.S. equity securities	40	%	42	%	39	%
International equity securities	20		22		21
Fixed income	40		36		40
Total	100	%	100	%	100	%

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



(Thousands)	Pension		OPEB
2014	$	6,819	$	3,135
2015	$	7,323	$	3,677
2016	$	7,900	$	4,211
2017	$	8,438	$	4,729
2018	$	9,210	$	5,269
2019 - 2023	$	58,543	$	35,631

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)
2014	$211
2015	$228
2016	$249
2017	$274
2018	$299
2019 - 2023	$1,988

Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:



	Quoted Prices in Active Markets for Identical Assets (Level 1)
(Thousands)	Pension				OPEB
Assets	2013		2012		2013		2012
Money market funds	$	3	$	—	$	1,150	$	1,159
Registered Investment Companies-
Equity Funds
Large Cap Index Fund	69,707		55,006		16,419		13,217
Vanguard Extended Market Index Fund	14,736		9,988		3,444		2,380
Vanguard Total International Stock	42,792		34,266		10,033		8,166
Fixed Income Funds
Emerging Markets Debt Fund	8,754		8,380		11,684		10,207
High Yield Bond Fund	19,850		16,635		2,163		1,997
Long Duration Fund	44,394		42,389		4,662		3,964
Total assets at fair value	$	200,236	$	166,664	$	49,555	$	41,090

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, 2013. 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 that 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 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 a Savings Plan to eligible employees. As of January 1, 2013 the Company matches 55 percent of participants' contributions up to 6 percent of base compensation. Represented NJRHS employees, non-represented employees hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are eligible for an employer special contribution of 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 $1.9 million in fiscal 2013, $1.7 million in fiscal 2012 and $1.5 million in fiscal 2011. The amount contributed for the employer special contribution of the Savings Plan was $193,000 in fiscal 2013, $143,000 in fiscal 2012 and $96,000 in fiscal 2011.