PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

Spire and the Utilities maintain pension plans for their employees.

The Missouri Utilities have non-contributory, defined benefit, trusteed forms of pension plans covering the majority of their employees. Plan assets consist primarily of corporate and United States (US) government obligations and a growth segment consisting of exposure to equity markets, commodities, real estate and inflation-indexed securities, achieved through derivative instruments.

Spire Alabama has non-contributory, defined benefit, trusteed forms of pension plans covering the majority of its employees. Qualified plan assets are comprised of mutual and commingled funds consisting of US equities with varying strategies, global equities, alternative investments, and fixed income investments.

The net periodic pension cost included the following components:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2018			2017			2018			2017
Spire
Service cost – benefits earned during the period	$	4.8		$	5.0		$	15.2		$	15.5
Interest cost on projected benefit obligation	6.5			7.0			20.3			20.8
Expected return on plan assets	(8.6		)	(9.4		)	(27.8		)	(29.0		)
Amortization of prior service (credit) cost	(0.2		)	0.2			(0.7		)	0.7
Amortization of actuarial loss	2.4			3.0			8.4			9.6
Loss on lump-sum settlements	7.5			—			16.9			11.9
Subtotal	12.4			5.8			32.3			29.5
Regulatory adjustment	2.1			3.1			30.4			0.3
Net pension cost	$	14.5		$	8.9		$	62.7		$	29.8



Spire Missouri
Service cost – benefits earned during the period	$	2.9		$	3.0		$	9.4		$	9.6
Interest cost on projected benefit obligation	4.6			4.8			14.4			14.5
Expected return on plan assets	(6.1		)	(6.8		)	(20.3		)	(21.2		)
Amortization of prior service cost	0.3			0.2			0.7			0.7
Amortization of actuarial loss	2.0			2.5			7.1			8.2
Loss on lump-sum settlements	5.2			—			14.6			11.5
Subtotal	8.9			3.7			25.9			23.3
Regulatory adjustment	2.4			1.3			26.7			(4.5		)
Net pension cost	$	11.3		$	5.0		$	52.6		$	18.8



Spire Alabama
Service cost – benefits earned during the period	$	1.6		$	1.6		$	4.9		$	4.7
Interest cost on projected benefit obligation	1.3			1.6			4.1			4.6
Expected return on plan assets	(1.6		)	(1.8		)	(5.0		)	(5.4		)
Amortization of prior service credit	(0.5		)	—			(1.4		)	—
Amortization of actuarial loss	0.4			0.5			1.3			1.4
Loss on lump-sum settlements	2.3			—			2.3			0.4
Subtotal	3.5			1.9			6.2			5.7
Regulatory adjustment	(0.6		)	1.6			3.0			4.3
Net pension cost	$	2.9		$	3.5		$	9.2		$	10.0

Pursuant to the provisions of the Missouri Utilities’ and Spire Alabama’s pension plans, pension obligations may be satisfied by monthly annuities, lump-sum cash payments, or special termination benefits. Lump-sum payments are recognized as settlements (which can result in gains or losses) only if the total of such payments exceeds the sum of service and interest costs in a specific year. Special termination benefits, when offered, are also recognized as settlements which can result in gains or losses. In the second and third quarters of fiscal 2018, certain plans met the criteria for settlement recognition, resulting in the remeasurement of the obligation of the plans using updated census data and assumptions for discount rate and mortality. In the quarter ended June 30, 2018, the two Missouri plans and one Alabama plan met the criteria, and the total lump-sum payments recognized as settlements was $34.5 (including $19.6 for Spire Missouri and $14.9 for Spire Alabama), resulting in total losses of $7.5 (including $5.2 for Spire Missouri and $2.3 for Spire Alabama). For the remeasurements, the discount rates for the Missouri plans were updated to 4.20% and 4.15% at June 30, 2018 (from 3.70% and 3.75% at September 30, 2017), and the discount rate for the Alabama plan was updated to 4.20% (from 3.65%). In the quarter ended March 31, 2018, the two Spire Missouri plans met the criteria for settlement recognition, and a total of $39.5 of lump-sum payments were recognized as settlements, resulting in losses of $9.4. In the quarter ended March 31, 2017, a Spire Missouri plan and a Spire Alabama plan met the criteria, and the lump-sum payments recognized as settlements were $36.3 and $1.9, respectively, resulting in losses of $11.5 and $0.4, respectively.

The funding policy of the Utilities 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 2018 contributions to Spire Missouri’s pension plans through June 30, 2018, were $24.9 to the qualified trusts and none to non-qualified plans. There were no fiscal 2018 contributions to the Spire Alabama pension plans through June 30, 2018.

Contributions to the qualified trusts of the Missouri Utilities’ pension plans for the remainder of fiscal 2018 are anticipated to be $11.0. No contributions to Spire Alabama’s pension plans are expected to be required for the remainder of fiscal 2018, but a voluntary contribution is likely in September.

Postretirement Benefits

Spire and the Utilities provide certain life insurance benefits at retirement. Spire Missouri plans provide for medical insurance after early retirement until age 65. For retirements prior to January 1, 2015, the Spire Missouri West plans provided medical insurance after retirement until death. The Spire Alabama plans provide medical insurance upon retirement until death for certain retirees depending on the type of employee and the date the employee was originally hired.

Net periodic postretirement benefit costs consisted of the following components:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2018			2017			2018			2017
Spire
Service cost – benefits earned during the period	$	2.3		$	2.7		$	7.0		$	8.2
Interest cost on accumulated postretirement benefit obligation	2.2			2.2			6.6			6.5
Expected return on plan assets	(3.5		)	(3.5		)	(10.5		)	(10.3		)
Amortization of prior service credit	—			—			(0.1		)	—
Amortization of actuarial loss	0.2			0.6			0.6			1.8
Subtotal	1.2			2.0			3.6			6.2
Regulatory adjustment	0.7			(0.8		)	0.8			(2.4		)
Net postretirement benefit cost	$	1.9		$	1.2		$	4.4		$	3.8



Spire Missouri
Service cost – benefits earned during the period	$	2.2		$	2.6		$	6.7		$	7.8
Interest cost on accumulated postretirement benefit obligation	1.7			1.7			5.3			5.1
Expected return on plan assets	(2.4		)	(2.3		)	(7.3		)	(6.8		)
Amortization of prior service cost	0.1			0.1			0.2			0.2
Amortization of actuarial loss	0.3			0.6			0.7			1.9
Subtotal	1.9			2.7			5.6			8.2
Regulatory adjustment	1.1			(0.4		)	2.1			(1.1		)
Net postretirement benefit cost	$	3.0		$	2.3		$	7.7		$	7.1



Spire Alabama
Service cost – benefits earned during the period	$	0.1		$	—		$	0.2		$	0.2
Interest cost on accumulated postretirement benefit obligation	0.4			0.4			1.1			1.2
Expected return on plan assets	(1.1		)	(1.1		)	(3.1		)	(3.3		)
Amortization of prior service credit	(0.1		)	(0.1		)	(0.3		)	(0.2		)
Amortization of actuarial gain	(0.1		)	—			(0.1		)	(0.1		)
Subtotal	(0.8		)	(0.8		)	(2.2		)	(2.2		)
Regulatory adjustment	(0.5		)	(0.5		)	(1.4		)	(1.4		)
Net postretirement benefit income	$	(1.3	)	$	(1.3	)	$	(3.6	)	$	(3.6	)

Missouri and Alabama state laws provide for the recovery in rates of costs accrued pursuant to GAAP provided that such costs are funded through an independent, external funding mechanism. The Utilities have established Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi Trusts as external funding mechanisms. The assets of the VEBA and Rabbi Trusts consist primarily of money market securities and mutual funds invested in stocks and bonds.

The Utilities’ funding policy is to contribute amounts to the trusts equal to the periodic benefit cost calculated pursuant to GAAP as recovered in rates. There have been $3.4 in contributions to the postretirement plans through June 30, 2018, for the Missouri Utilities. Contributions to the qualified trusts of the postretirement plans for the remainder of fiscal 2018 are anticipated to be $3.5. For Spire Alabama, there were no contributions to the postretirement plans during the first nine months of fiscal 2018, and none are expected to be required for the remainder of the fiscal year.

Regulatory Update - Spire Missouri

In a rate order issued in the second quarter of fiscal 2018, the MoPSC disallowed recovery of $28.8 related to pension costs. This amount of regulatory assets was written off to expense during that quarter and is reflected in the regulatory adjustment for both Spire Missouri and Spire for the nine months ended June 30, 2018. Also included in the rate order were updates to the treatment of pension and other postretirement benefits. Effective April 19, 2018, the pension cost for Spire Missouri West included in customer rates was reduced from $9.9 to $5.5 per year, the pension cost included in the Spire Missouri East customer rates was increased from $15.5 to $29.0 per year, and the annual allowance for health care postretirement plans for Spire Missouri East was reduced from $9.5 to $8.6. Over an amortization period of eight years, Spire Missouri East rates will also include the amortization of $173.0 of assets for pension and other postretirement benefits, and Spire Missouri West rates will be reduced by the amortization of a $26.2 net liability for pension and other postretirement benefits. These changes are discussed further in Note 3, Regulatory Matters.