| Employee Benefit Plans | Note 7 - Employee Benefit Plans Pension Benefits The Company’s Pension Plan covers
all active employees hired prior to April 1, 2007. Employees hired after March 31, 2007 are not eligible to participate in this
plan, but can participate in a defined contribution profit sharing plan that provides an annual contribution at the discretion
of the Company, based upon a percentage of the participants’ annual paid compensation. In order to be eligible for contribution,
the eligible employee must be employed by the Company on December 31 st Other Benefits The Company’s Other Benefits Plan covers
substantially all of its current retired employees. Employees hired after March 31, 2007 are not eligible to participate in this
plan. Coverage includes healthcare and life insurance. Accrued retirement benefit costs are recorded each year. Regulatory Treatment of Over/Underfunded Retirement Obligations Because the Company is subject to regulation
in the states in which it operates, it is required to maintain its accounts in accordance with the regulatory authority’s
rules and guidelines, which may differ from other authoritative accounting pronouncements. In those instances, the Company follows
the guidance of ASC 980, Regulated Operations Regulated Operations Compensation – Retirement Benefits The Company uses a December 31 measurement date for all of its employee
benefit plans. The tables below set forth information relating to the Company’s Pension Plan and Other Benefits Plan for
2016 and 2015.
( Thousands of Dollars)
Pension Plan Other Benefits Plan
December 31,
2016 2015 2016 2015
Change in Projected Benefit Obligation:
Beginning Balance $ 72,542 $ 75,043 $ 46,249 $ 49,578
Service Cost 2,308 2,558 1,099 1,373
Interest Cost 3,046 2,894 1,952 1,921
Actuarial (Gain) Loss 2,810 (5,915 ) 141 (6,062 )
Benefits Paid (2,105 ) (2,038 ) (553 ) (561 )
Ending Balance $ 78,601 $ 72,542 $ 48,888 $ 46,249
( Thousands of Dollars)
Pension Plan Other Benefits Plan
December 31,
2016 2015 2016 2015
Change in Fair Value of Plan Assets:
Beginning Balance $ 52,931 $ 51,623 $ 29,018 $ 27,535
Actual Return on Plan Assets 4,909 11 1,591 350
Employer Contributions 3,635 3,335 1,551 1,694
Benefits Paid (2,105 ) (2,038 ) (553 ) (561 )
Ending Balance $ 59,370 $ 52,931 $ 31,607 $ 29,018
Funded Status $ (19,231 ) $ (19,611 ) $ (17,281 ) $ (17,231 )
( Thousands of Dollars)
Pension Plan Other Benefits Plan
December 31,
2016 2015 2016 2015
Amounts Recognized in the Consolidated Balance Sheets consist of :
Current Liability 373 327 — —
Noncurrent Liability 18,858 19,284 17,281 17,231
Net Liability Recognized $ 19,231 $ 19,611 $ 17,281 $ 17,231
(Thousands of Dollars)
Pension Plan Other Benefits Plan
Years Ended December 31,
2016 2015 2014 2016 2015 2014
Components of Net Periodic Benefit Cost
Service Cost $ 2,308 $ 2,558 $ 1,894 $ 1,099 $ 1,373 $ 1,032
Interest Cost 3,046 2,894 2,682 1,952 1,921 1,792
Expected Return on Plan Assets (4,014 ) (3,919 ) (3,534 ) (2,213 ) (2,107 ) (1,937 )
Amortization of Net Actuarial Loss 1,426 1,645 416 1,773 2,261 1,413
Amortization of Prior Service Cost/(Credit) — — 2 (1,728 ) (1,728 ) (1,728 )
Net Periodic Benefit Cost $ 2,766 $ 3,178 $ 1,460 $ 883 $ 1,720 $ 572 Amounts that are expected to be amortized from Regulatory
Assets into Net Periodic Benefit Cost in 2017 are as follows:
(Thousands of Dollars)
Pension Other
Actuarial Loss $ 1,566 $ 1,781
Prior Service Credit — (1,728 ) The discount rate and compensation increase rate for determining
our postretirement benefit plans’ benefit obligations and costs as of December 31, 2016, 2015 and 2014, respectively, are
as follows:
Pension Plan Other Benefits Plan
2016 2015 2014 2016 2015 2014
Weighted Average Assumptions:
Expected Return on Plan Assets 7.50 % 7.50 % 7.50 % 7.50 % 7.50 % 7.50 %
Discount Rate for:
Benefit Obligation 4.06 % 4.26 % 3.91 % 4.06 % 4.26 % 3.91 %
Benefit Cost 4.26 % 3.91 % 4.87 % 4.26 % 3.91 % 4.87 %
Compensation Increase for:
Benefit Obligation 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 %
Benefit Cost 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % The compensation increase assumption for
the Other Benefits Plan is attributable to life insurance provided to qualifying employees upon their retirement. The insurance
coverage will be determined based on the employee’s base compensation as of their retirement date. The Company utilizes the Society of
Actuaries’ mortality table (RP 2014) (Mortality Improvement Scale MP2016 for the 2016 valuation). For the 2016 valuation, costs and obligations
for our Other Benefits Plan assumed a 9.0% annual rate of increase in the per capita cost of covered healthcare benefits in 2017
with the annual rate of increase declining 1.0% per year for 2018-2020 and 0.5% per year for 2021-2022, resulting in an annual
rate of increase in the per capita cost of covered healthcare benefits of 5% by year 2022. A one-percentage point change in assumed healthcare cost trend rates
would have the following effects on the Other Benefits Plan:
(Thousands of Dollars)
1 Percentage Point
Increase Decrease
Effect on Current Year’s Service and Interest Cost $ 673 $ (514 )
Effect on Projected Benefit Obligation $ 8,410 $ (6,633 ) The following benefit payments, which reflect expected future service,
are expected to be paid:
(Thousands of Dollars)
Year Pension Plan Other Benefits Plan
2017 $ 2,391 $ 1,030
2018 2,440 1,277
2019 2,455 1,497
2020 2,847 1,641
2021 3,046 1,851
2022-2026 22,178 11,278
Totals $ 35,357 $ 18,574 Benefit Plans Assets The allocation of plan assets at December 31, 2016 and 2015
by asset category is as follows:
Pension Plan Other Benefits Plan
Asset Category 2016 2015 Target 2016 2015 Target
Equity Securities 59.7 % 59.1 % 55 % 54.1 % 50.0 % 43 %
Debt Securities 36.6 % 37.8 % 38 % 43.3 % 47.4 % 50 %
Cash 1.0 % 1.3 % 2 % 2.6 % 2.4 % 2 %
Real Estate/Commodities 2.7 % 1.8 % 5 % 0.0 % 0.2 % 5 %
Total 100.0 % 100.0 % 100.0 % 100.0 % Two outside investment firms each manage
a portion of the Pension Plan asset portfolio. One of those investment firms also manages the Other Benefits Plan asset portfolio.
Quarterly meetings are held between the Company’s Pension Committee of the Board of Directors and the investment managers
to review their performance and asset allocation. If the actual asset allocation is outside the targeted range, the Pension Committee
reviews current market conditions and advice provided by the investment managers to determine the appropriateness of rebalancing
the portfolio. The objective of the Company is to maximize
the long-term return on retirement plan assets, relative to a reasonable level of risk, maintain a diversified investment portfolio
and maintain compliance with the Employee Retirement Income Security Act of 1974. The expected long-term rate of return is based
on the various asset categories in which plan assets are invested and the current expectations and historical performance for these
categories. Equity securities include Middlesex common
stock in the amounts of $0.8 million (1.4% of total Pension Plan assets) and $1.0 million (2.0 % of total Pension Plan assets)
as of December 31, 2016 and 2015, respectively. Fair Value Measurements Accounting guidance provides a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:
· Level 1 – Inputs to the valuation methodology are unadjusted quoted market prices for identical
assets or liabilities in accessible active markets.
· Level 2 – Inputs to the valuation methodology that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. If the
asset or liability has a specified contractual term, the Level 2 input must be observable for substantially the full term of the
asset or liability.
· Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair
value measurement. Certain investments in cash and cash equivalents,
equity securities, and commodities are valued based on quoted market prices in active markets and are classified as Level 1 investments.
Certain investments in cash and cash equivalents, equity securities and fixed income securities are valued using prices received
from pricing vendors that utilize observable inputs and are therefore classified as Level 2 investments. The following tables present Middlesex’s Pension Plan assets
measured and recorded at fair value within the fair value hierarchy:
(Thousands of Dollars)
As of December 31, 2016
Level 1 Level 2 Level 3 Total
Mutual Funds $ 49,439 $ — $ — $ 49,439
Money Market Funds 648 — — 648
Common Equity Securities 9,283 — — 9,283
Total Investments $ 59,370 $ — $ — $ 59,370
(Thousands of Dollars)
As of December 31, 2015
Level 1 Level 2 Level 3 Total
Mutual Funds $ 43,623 $ — $ — $ 43,623
Money Market Funds 652 — — 652
Common Equity Securities 8,656 — — 8,656
Total Investments $ 52,931 $ — $ — $ 52,931 The following tables present Middlesex’s Other Benefits Plan
assets measured and recorded at fair value within the fair value hierarchy:
(Thousands of Dollars)
As of December 31, 2016
Level 1 Level 2 Level 3 Total
Mutual Funds $ 17,096 $ — $ — $ 17,096
Money Market Funds 826 — — 826
Preferred Equity Securities 108 — — 108
Agency/US/State/Municipal Debt — 13,577 — 13,577
Total Investments $ 18,030 $ 13,577 $ — $ 31,607
(Thousands of Dollars)
As of December 31, 2015
Level 1 Level 2 Level 3 Total
Mutual Funds $ 14,572 $ — $ — $ 14,572
Money Markey Funds 688 — — 688
Preferred Equity Securities 224 — — 224
Agency/US/State/Municipal Debt — 13,534 — 13,534
Total Investments $ 15,484 $ 13,534 $ — $ 29,018 Benefit Plans Contributions For the Pension Plan, Middlesex made total
cash contributions of $3.6 million in 2016 and expects to make approximately $3.3 million of cash contributions in 2017. For the Other Benefits Plan, Middlesex made
total cash contributions of $1.6 million in 2016 and expects to make approximately $1.6 million of cash contributions in 2017. 401(k) Plan The Company maintains a 401(k) defined
contribution plan, which covers substantially all employees with more than 1,000 hours of service. Under the terms of the Plan,
the Company matches 100% of a participant’s contributions, which do not exceed 1% of a participant’s compensation,
plus 50% of a participant’s contributions exceeding 1%, but not more than 6%. The Company’s matching contribution was
$0.6 million for each of the years ended December 31, 2016, 2015 and 2014. For those employees hired after March
31, 2007, and still actively employed on December 31, 2016, the Company approved, and will fund, a discretionary contribution of
$0.4 million which was based on 5.0% of eligible 2016 compensation. For the years ended December 31, 2015 and 2014, the Company
made discretionary contributions of $0.4 million and $0.3 million, respectively, for qualifying employees. Stock-Based Compensation The Company has a stock compensation plan
for certain management employees (the 2008 Restricted Stock Plan). The Company maintains an escrow account for 0.1 million shares
of the Company's common stock for the 2008 Restricted Stock Plan. Shares issued in connection with the 2008 Restricted Stock Plan
are subject to forfeiture by the employee in the event of termination of employment within five years of the award other than as
a result of normal retirement, death, disability or change in control. The maximum number of shares authorized for grant under
the 2008 Restricted Stock Plan is 0.3 million shares, for which 0.1 million remain as unissued shares. The Company recognizes compensation expense
at fair value for the 2008 Restricted Stock Plan awards in accordance with ASC 718, Compensation – Stock Compensation The following table presents information on the 2008 Restricted
Stock Plan:
Shares (thousands) Unearned (thousands) Weighted
Balance, January 1, 2014 117 $ 1,216
Granted 33 711 $ 21.46
Vested (22 ) —
Forfeited (1 ) (10 )
Amortization of Compensation Expense — (434 )
Balance, December 31, 2014 127 $ 1,483
Granted 33 741 $ 22.65
Vested (12 ) —
Forfeited — —
Amortization of Compensation Expense — (528 )
Balance, December 31, 2015 148 $ 1,696
Granted 24 750 $ 30.85
Vested (25 ) —
Forfeited — —
Amortization of Compensation Expense — (682 )
Balance, December 31, 2016 147 $ 1,764 The fair value of vested restricted shares
was $0.9 million and $0.3 million as of December 31, 2016 and 2015, respectively. |
