Note 2 – Components of Net Periodic Benefit Cost

As of January 1, 2018, the Company and Southwest adopted Financial Accounting Standards Board (“FASB”) “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, and be appropriately described. The update also allows only the service cost component (and not the other components of periodic benefit costs) to be eligible for capitalization when applicable, making no exception for specialized industries, including rate-regulated industries. This guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized as part of assets prior to the date of adoption were not adjusted through a cumulative effect adjustment. The guidance allows a practical expedient for the retrospective application that permits use of the amounts disclosed for the various components of net benefit cost in the pension and other postretirement benefit plans footnote as the basis for the retrospective application. This is in lieu of determining how much of the various components of net benefit cost were actually reflected in the income statement each period as a result of capitalization of certain costs into assets and their subsequent amortization. The Company and Southwest have elected to utilize the practical expedient. Therefore, upon adoption, amounts presented in the Condensed Consolidated Statements of Income for operations and maintenance for the three months and twelve months ended March 31, 2017 were reclassified. The Operations and maintenance line item of the Southwest Gas Holdings, Inc. Condensed Consolidated Statement of Income was revised from $109.2 million to $104.3 million for the three months ended March 31, 2017 and from $410.1 million to $390.4 million for the twelve months ended March 31, 2017. The Operations and maintenance line item of the Southwest Gas Corporation Condensed Consolidated Statement of Income was revised from $108.7 million to $103.8 million for the three months ended March 31, 2017 and from $409.6 million to $389.9 million for the twelve months ended March 31, 2017. The Other income (deductions) line item of the Southwest Gas Holdings, Inc. Condensed Consolidated Statement of Income was revised from $3.9 million to ($990,000) for the three months ended March 31, 2017 and from $11.6 million to ($8.1) million for the twelve months ended March 31, 2017. The Other income (deductions) line item of the Southwest Gas Corporation Condensed Consolidated Statement of Income was revised from $3.6 million to ($1.2) million for the three months ended March 31, 2017 and from $10.1 million to ($9.5) million for the twelve months ended March 31, 2017. Net income overall was not impacted by this reclassification for either Southwest Gas Holdings, Inc. or Southwest Gas Corporation.

Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees and a separate unfunded supplemental retirement plan (“SERP”) which is limited to officers. Southwest also provides postretirement benefits other than pensions (“PBOP”) to its qualified retirees for health care, dental, and life insurance.

During the first quarter of 2018, qualifying term-vested participants were offered a lump-sum present value payout of their pensions. The offer was primarily intended to reduce insurance and ongoing maintenance costs associated with qualifying participant balances. There were approximately 385 eligible participants subject to the offer. Payment from pension assets, for those electing to take advantage of the offer, is expected to occur by July 2018. The lump sum payout will have no impact on net periodic benefit cost or pension funding requirements during 2018.

The service cost component of net periodic benefit costs included in the table below are components of an overhead loading process associated with the cost of labor (refer to discussion above related to the update to Topic 715). The overhead process ultimately results in allocation of that portion of overall net periodic benefit costs to the same accounts to which productive labor is charged. As a result, service costs become components of various accounts, primarily operations and maintenance expense, net utility plant, and deferred charges and other assets for both the Company and Southwest. Refer also to the practical expedient elected related to amounts capitalized as part of assets prior to the adoption date.


	Qualified Retirement Plan
	Period Ended March 31,
	Three Months						Twelve Months
	2018			2017			2018			2017
(Thousands of dollars)
Service cost	$	7,139		$	5,848		$	24,683		$	22,972
Interest cost		11,043			11,520			45,606			46,041
Expected return on plan assets		(14,689	)		(13,799	)		(56,086	)		(56,217	)
Amortization of net actuarial loss		8,029			6,001			26,032			24,950

Net periodic benefit cost	$	11,522		$	9,570		$	40,235		$	37,746


	SERP
	Period Ended March 31,
	Three Months						Twelve Months
	2018			2017			2018			2017
(Thousands of dollars)
Service cost	$	61		$	78		$	292		$	327
Interest cost		415			471			1,827			1,865
Amortization of net actuarial loss		375			360			1,456			1,397

Net periodic benefit cost	$	851		$	909		$	3,575		$	3,589


	PBOP
	Period Ended March 31,
	Three Months						Twelve Months
	2018			2017			2018			2017
(Thousands of dollars)
Service cost	$	368		$	367		$	1,469		$	1,492
Interest cost		687			808			3,111			3,192
Expected return on plan assets		(930	)		(840	)		(3,448	)		(3,201	)
Amortization of prior service costs		334			334			1,335			1,335
Amortization of net actuarial loss		—			—			—			313

Net periodic benefit cost	$	459		$	669		$	2,467		$	3,131