EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans

The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and nonrepresented employees with more than one year of service. Defined benefit plan benefits are based on years of service and average compensation during the highest 60 consecutive months of employment. The Company also provides postemployment medical and life insurance benefits to employees who meet certain eligibility requirements.

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. Participation in the postemployment medical and life insurance plan was also frozen to new employees as of the same dates, with the exception of new NJRHS represented employees, for which benefits were frozen beginning April 3, 2012.

The Company 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’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 2016 and 2015, the Company had no minimum funding requirements. The Company made no discretionary contributions to the pension plans in fiscal 2015. The Company made a discretionary contribution of $30 million during the first quarter of fiscal 2016 to improve the funded status of the pension plans based on current actuarial assumptions. The Company does not expect to be required to make additional contributions to fund the pension plans over the following two 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.

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 $3.2 million and $5.7 million, in fiscal 2016 and 2015, respectively, and estimates that it will contribute between $3 million to $5 million over each of 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)	2016			2015			2016			2015
Change in Benefit Obligation
Benefit obligation at beginning of year	$	255,987		$	227,699		$	138,367		$	127,773
Service cost	7,591			7,485			4,521			4,253
Interest cost	11,342			10,199			6,256			5,739
Plan participants’ contributions ⁽²⁾	47			47			104			60
Actuarial loss	26,369			17,418			15,590			3,891
Benefits paid, net of retiree subsidies received	(7,682		)	(6,861		)	(4,445		)	(3,349		)
Benefit obligation at end of year	$	293,654		$	255,987		$	160,393		$	138,367
Change in plan assets
Fair value of plan assets at beginning of year	$	199,123		$	211,653		$	57,269		$	56,909
Actual return on plan assets	28,316			(5,813		)	5,872			(1,799		)
Employer contributions	30,071			97			3,235			5,672
Benefits paid, net of plan participants’ contributions ⁽²⁾	(7,635		)	(6,814		)	(4,341		)	(3,513		)
Fair value of plan assets at end of year	$	249,875		$	199,123		$	62,035		$	57,269
Funded status	$	(43,779	)	$	(56,864	)	$	(98,358	)	$	(81,098	)
Amounts recognized on Consolidated Balance Sheets
Postemployment employee (liability)
Current	$	(79	)	$	(71	)	$	(454	)	$	(477	)
Noncurrent	(43,700		)	(56,793		)	(97,904		)	(80,621		)
Total	$	(43,779	)	$	(56,864	)	$	(98,358	)	$	(81,098	)


(1)	Includes the Company’s PEP.


(2)	Prior to July 1, 1998, employees were eligible to elect an additional participant contribution to enhance their benefits and contributions made during the periods were insignificant.

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 NJNG and to accumulated other comprehensive income for the portion of the liability related to its unregulated 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, 2014	$	61,794		$	43,774		$	17,581		$	117
Amounts arising during the period:
Net actuarial loss	30,579			9,563			9,742			1,103
Amounts amortized to net periodic costs:
Net actuarial (loss)	(5,305		)	(2,911		)	(1,680		)	(32		)
Prior service (cost) credit	(108		)	311			(3		)	54
Balance at September 30, 2015	$	86,960		$	50,737		$	25,640		$	1,242
Amounts arising during the period:
Net actuarial loss	13,696			11,274			4,475			3,289
Amounts amortized to net periodic costs:
Net actuarial (loss)	(5,607		)	(3,175		)	(1,676		)	(99		)
Prior service (cost) credit	(108		)	311			(3		)	54
Balance at September 30, 2016	$	94,941		$	59,147		$	28,436		$	4,486

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)	2016		2015		2016			2015			2016		2015		2016			2015
Net actuarial loss	$	94,158	$	86,070	$	60,561		$	52,462		$	28,432	$	25,632	$	4,686		$	1,495
Prior service cost (credit)	783		890		(1,414		)	(1,725		)	4		8		(200		)	(253		)
Total	$	94,941	$	86,960	$	59,147		$	50,737		$	28,436	$	25,640	$	4,486		$	1,242

To the extent the unrecognized amounts in accumulated other comprehensive income or regulatory assets exceed 10 percent of the greater of the benefit obligation or the fair value of plan assets, an amortized amount over the average expected future working lifetime of the active plan participants is recognized. Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost in fiscal 2017 are as follows:



	Regulatory Assets					Accumulated Other Comprehensive Income (Loss)
(Thousands)	Pension		OPEB			Pension		OPEB
Net actuarial loss	$	6,799	$	4,210		$	2,028	$	160
Prior service cost (credit)	108		(311		)	3		(54		)
Total	$	6,907	$	3,899		$	2,031	$	106

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)	2016		2015
Projected benefit obligation	$	293,654	$	255,987
Accumulated benefit obligation	$	252,077	$	217,937
Fair value of plan assets	$	249,875	$	199,123

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)	2016			2015			2014			2016			2015			2014
Service cost	$	7,591		$	7,485		$	6,143		$	4,521		$	4,253		$	3,923
Interest cost	11,342			10,199			10,066			6,256			5,739			5,734
Expected return on plan assets	(20,118		)	(17,090		)	(15,475		)	(4,845		)	(4,977		)	(4,174		)
Recognized actuarial loss	7,281			6,985			5,596			3,274			2,943			2,500
Prior service cost (credit) amortization	111			111			111			(365		)	(364		)	(357		)
Recognized net initial obligation	—			—			—			—			—			11
Net periodic benefit cost	$	6,207		$	7,690		$	6,441		$	8,841		$	7,594		$	7,637
Special termination benefit	—			—			2,814			—			—			648
Net periodic benefit cost recognized as expense	$	6,207		$	7,690		$	9,255		$	8,841		$	7,594		$	8,285

Assumptions

The weighted average assumptions used to determine NJR’s benefit costs during the fiscal years below and obligations as of September 30, are as follows:



	Pension									OPEB
	2016			2015			2014			2016			2015			2014
Benefit costs:
Discount rate	4.50	%		4.55	%		5.15	%		4.60/4.55%		⁽¹⁾	4.55	%		5.15	%
Expected asset return	8.75	%		8.75	%		8.25	%		8.75	%		8.75	%		8.25	%
Compensation increase	3.25/3.50%		⁽¹⁾	3.25	%		3.25	%		3.50	%		3.50	%		3.50	%
Obligations:
Discount rate	3.96/3.94%		⁽¹⁾	4.50	%		4.55	%		4.08/4.01%		⁽¹⁾	4.60/4.55%		⁽¹⁾	4.55	%
Compensation increase	3.25/3.50%		⁽¹⁾	3.25/3.50%		⁽¹⁾	3.25/3.50%		⁽¹⁾	3.50	%		3.50	%		3.50	%


(1)	Percentages for represented and nonrepresented plans, respectively.

When measuring its projected benefit obligations, NJR uses an aggregate discount rate at which its obligation could be effectively settled. NJR determines a single weighted average discount rate based on a yield curve comprised of rates of return on a population of high quality debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of its expected future benefit payments. Prior to October 1, 2016, the Company used the same assumed rate to measure the service and interest cost components of its net periodic benefit costs. Effective October 1, 2016, the Company changed its method of measuring its service and interest costs from the aggregate approach to a disaggregated, or spot rate, approach. Under the new approach, NJR applies the duration specific spot rates from the full yield curve, as of the measurement date, to each year’s future benefit payments. NJR believes that the new method provides for a more precise measurement of its service and interest costs by aligning the timing of the plans’ separate future cash flows to the corresponding spot rates on the yield curve. Accordingly, NJR will account for this change prospectively as a change in accounting estimate.

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)	2016			2015			2014
HCCTR	8.5		%	6.7		%	7.1		%
Ultimate HCCTR	4.5		%	4.8		%	4.8		%
Year ultimate HCCTR reached	2025			2022			2022
Effect of a 1 percentage point increase in the HCCTR on:
Year-end benefit obligation	$	28,803		$	26,025		$	20,965
Total service and interest cost	$	2,331		$	2,026		$	1,885
Effect of a 1 percentage point decrease in the HCCTR on:
Year-end benefit obligation	$	(22,862	)	$	(20,427	)	$	(16,932	)
Total service and interest costs	$	(1,801	)	$	(1,593	)	$	(1,493	)

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:



	2017		Assets at
	Target		September 30,
Asset Allocation	Allocation		2016		2015
U.S. equity securities	40	%	38	%	38	%
International equity securities	20		20		19
Fixed income	40		42		43
Total	100	%	100	%	100	%

During fiscal 2015, the Company adopted the revised mortality assumptions published by the Society of Actuaries for its pension and other postemployment benefit obligations, which reflected increased life expectancies in the United States. The adoption of the new mortality tables resulted in an increase to the projected benefit obligation for the plans.

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



(Thousands)	Pension		OPEB
2017	$	8,195	$	3,707
2018	$	9,019	$	4,150
2019	$	9,778	$	4,672
2020	$	10,594	$	5,225
2021	$	11,532	$	5,806
2022 - 2026	$	73,863	$	37,817

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 as follows:



	Estimated Subsidy Payment
Fiscal Year	(Thousands)
2017	$234
2018	$256
2019	$276
2020	$306
2021	$337
2022 - 2026	$2,331

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	2016		2015		2016		2015
Money market funds	$	—	$	—	$	9	$	2,237
Registered Investment Companies:
Equity Funds:
Large Cap Index	78,306		63,285		19,532		17,460
Extended Market Index	16,250		11,827		4,114		3,762
International Stock	50,702		37,353		12,997		10,261
Fixed Income Funds:
Emerging Markets	12,906		8,857		3,294		2,617
Core Fixed Income	—		—		7,177		7,148
Opportunistic Income	—		—		4,155		4,179
Ultra Short Duration	—		—		4,082		3,960
High Yield Bond Fund	25,976		20,532		6,675		5,645
Long Duration Fund	65,735		57,269		—		—
Total assets at fair value	$	249,875	$	199,123	$	62,035	$	57,269

The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2016 and 2015, and there have been no changes in valuation methodologies as of September 30, 2016. 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, 2015, the Company matches 65 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 3 and 4 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 $2.8 million in fiscal 2016, $2.6 million in fiscal 2015 and $2.2 million in fiscal 2014. The amount contributed for the employer special contribution of the Savings Plan was $571,000 in fiscal 2016, $461,000 in fiscal 2015 and $374,000 in fiscal 2014.