PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

6 Months Ended

Mar. 31, 2012

Notes to Financial Statements [Abstract]

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

2. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

Laclede Gas has non-contributory, defined benefit, trusteed forms of pension plans covering substantially all employees. Plan assets consist primarily of corporate and U.S. government obligations and equity market exposure achieved through derivative instruments.

Pension costs for the quarters ended March 31, 2012 and 2011 were $7.6 million and $4.2 million, respectively, including amounts charged to construction. Pension costs for the six months ended March 31, 2012 and 2011 were $11.8 million and $5.8 million, respectively, including amounts charged to construction.

The net periodic pension costs include the following components:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2012			2011			2012			2011
Service cost – benefits earned during the period	$	2,301		$	2,388		$	4,613		$	4,776
Interest cost on projected benefit obligation		4,840			4,705			9,711			9,410
Expected return on plan assets		(4,899	)		(4,712	)		(9,798	)		(9,424	)
Amortization of prior service cost		148			160			296			320
Amortization of actuarial loss		2,259			2,557			4,536			5,114
Loss on lump-sum settlement		3,407			—			3,407			—
Sub-total		8,056			5,098			12,765			10,196
Regulatory adjustment		(484	)		(862	)		(967	)		(4,395	)
Net pension cost	$	7,572		$	4,236		$	11,798		$	5,801

Pursuant to the provisions of the Laclede Gas pension plans, pension obligations may be satisfied by lump-sum cash payments. Pursuant to a Missouri Public Service Commission (MoPSC or Commission) Order, lump-sum payments are recognized as settlements (which can result in gains or losses) only if the total of such payments exceeds 100% of the sum of service and interest costs. Lump-sum payments recognized as settlements were $6.4 million during the six months ended March 31, 2012. No lump-sum payments were recognized as settlements during the six months ended March 31, 2011.

Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains or losses not yet includible in pension cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The recovery in rates for the Utility’s qualified pension plans is based on an annual allowance of $4.8 million effective August 1, 2007 and $15.5 million effective January 1, 2011. The difference between these amounts and pension expense as calculated pursuant to the above and that otherwise would be included in the Statements of Income and Statements of Comprehensive Income is deferred as a regulatory asset or regulatory liability.

The funding policy of Laclede Gas is to contribute an amount not less than the minimum required by government funding standards, nor more than the maximum deductible amount for federal income tax purposes. Fiscal year 2012 contributions to the pension plans through March 31, 2012 were $22.9 million to the qualified trusts and approximately $2.0 million to the non-qualified plans. Contributions to the pension plans for the remaining six months of fiscal year 2012 are anticipated to be at least $10.5 million to the qualified trusts and $4.7 million to the non-qualified plans.

Postretirement Benefits

Laclede Gas provides certain life insurance benefits at retirement. Medical insurance is available after early retirement until age 65. The transition obligation not yet includible in postretirement benefit cost is being amortized over 20 years. Postretirement benefit costs for both the quarters ended March 31, 2012 and 2011 were $2.4 million, including amounts charged to construction. Postretirement benefit costs for the six months ended March 31, 2012 and 2011 were $4.8 million and $4.3 million, respectively, including amounts charged to construction.

Net periodic postretirement benefit costs consisted of the following components:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2012			2011			2012			2011
Service cost – benefits earned during the period	$	2,015		$	1,919		$	4,030		$	3,838
Interest cost on accumulated
postretirement benefit obligation		1,380			1,211			2,760			2,422
Expected return on plan assets		(991	)		(912	)		(1,982	)		(1,823	)
Amortization of transition obligation		34			34			68			68
Amortization of prior service credit		(518	)		(582	)		(1,036	)		(1,164	)
Amortization of actuarial loss		1,065			1,111			2,130			2,221
Sub-total		2,985			2,781			5,970			5,562
Regulatory adjustment		(604	)		(400	)		(1,208	)		(1,271	)
Net postretirement benefit cost	$	2,381		$	2,381		$	4,762		$	4,291

Missouri state law provides for the recovery in rates of costs accrued pursuant to GAAP provided that such costs are funded through an independent, external funding mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi trusts’ assets consist primarily of money market securities and mutual funds invested in stocks and bonds.

Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains and losses not yet includible in postretirement benefit cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The recovery in rates for the Utility’s postretirement benefit plans is based on an annual allowance of $7.6 million effective August 1, 2007 and $9.5 million effective January 1, 2011. The difference between these amounts and postretirement benefit cost based on the above and that otherwise would be included in the Statements of Income and Statements of Comprehensive Income is deferred as a regulatory asset or regulatory liability.

Laclede Gas’ funding policy is to contribute amounts to the trusts equal to the periodic benefit cost calculated pursuant to GAAP as recovered in rates. Fiscal year 2012 contributions to the postretirement plans through March 31, 2012 were $3.0 million to the qualified trusts and approximately $0.1 million paid directly to participants from Laclede Gas’ funds. Contributions to the postretirement plans for the remaining six months of fiscal year 2012 are anticipated to be $9.0 million to the qualified trusts and $0.2 million paid directly to participants from Laclede Gas’ funds.