Pension Plans And Other Postretirement Benefits | Note 15 – Pension Plans and Other Post-retirement Benefits The Company maintains a qualified, defined benefit pension plan that cover s its full-time employees who were hired prior to April 1, 2003. Retirement benefits under the plan are generally based on the employee’s total years of service and compensation during the last five years of employment. The Company’s policy is to fund the plan annually at a level which is deductible for income tax purposes and which provides assets sufficient to meet its pension obligations over time. To offset some limitations imposed by the Internal Revenue Code with respect to payments under qualified plans, the Company has a non-qualified Supplemental Pension Benefit Plan for Salaried Employees in order to prevent some employees from being penalized by these limitations , and to provide certain retirement benefits based on employee’s years of service and compensation . The Company also has non-qualified Supplemental Executive Retirement Plans for some current and retired employees. The net pension costs and obligations of the qualified and non-qualified plans are included in the tables which follow. Employees hired after April 1, 2003 may participate in a defined contribution plan that provides a Company matching contribution on amounts contributed by participants and an annual profit-sharing contribution based upon a percentage of the eligible participants’ compensation. In August 2014, the Company announced changes to the way it will provide future retirement benefits to employees acquired through a prior acquisition. Effective January 1, 2015, the Company began providing future retirement benefits for these employees through its defined contribution plan. As a result, no further service will be considered in future accruals in the qualified defined benefit pension plan after December 31, 2014, and as a result of this change, the Company recognized a curtailment loss of $84 in 2014. In the first quarter of 2014, the Company offered a one-time voluntary lump sum window to certain eligible terminated vested participants in an effort to reduce its long-term obligations and plan volatility for its qualified defined benefit pension plan. In May 2014, the plan paid $11,471 to participants who elected to receive a lump sum distribution, which was funded from existing plan assets. These payments are reported as a portion of benefits paid for 2014 in the table presenting the change in benefit obligation for pension benefits. Effective July 1, 2015, the Company added a permanent lump sum option to the form of benefit payments offered to participants of the qualified defined benefit pension plan upon retirement or termination. The plan paid $5,329 during the second half of 2015 to participants who elected this option. In addition to providing pension benefits, the Company offers p ost-retirement b enefits other than p ensions to employees hired before April 1, 2003 and retiring with a minimum level of service. These benefits include continuation of medical and prescription drug benefits, or a cash contribution toward such benefits, for eligible retirees and life insurance benefits for eligible retirees. The Company funds these benefits through various trust accounts. The benefits of retired officers and other eligible retirees are paid by the Company and not from plan assets due to limitations imposed by the Internal Revenue Code. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated: Pension Benefits Other Post-retirement Benefits Years: 2016 $ 27,402 $ 1,889 2017 20,034 2,200 2018 20,079 2,518 2019 19,937 2,783 2020 20,823 2,995 2021-2025 102,607 17,413 The changes in the benefit obligation and fair value of plan assets, the funded status of the plans and the assumptions used in the measurement of the company’s benefit obligation are as follows: Pension Benefits Other Post-retirement Benefits 2015 2014 2015 2014 Change in benefit obligation: Benefit obligation at January 1, $ 311,609 $ 281,161 $ 71,958 $ 57,174 Service cost 3,349 4,295 1,224 1,161 Interest cost 12,955 14,153 2,802 2,903 Actuarial (gain) loss (7,778) 43,250 (6,527) 11,769 Plan participants' contributions - - 204 217 Benefits paid (17,118) (22,600) (1,270) (1,311) Plan amendments 3,220 - (3,254) 45 Curtailment - (8,650) - - Special termination benefits 302 - - - Benefit obligation at December 31, 306,539 311,609 65,137 71,958 Change in plan assets: Fair value of plan assets at January 1, 244,897 232,347 43,326 40,840 Actual return on plan assets (3,058) 17,148 (998) 3,175 Employer contributions 13,884 18,002 2,428 300 Benefits paid (17,118) (22,600) (1,052) (989) Fair value of plan assets at December 31, 238,605 244,897 43,704 43,326 Funded status of plan: Net amount recognized at December 31, $ 67,934 $ 66,712 $ 21,433 $ 28,632 The Company’s pension plans had an accumulated benefit obligation of $291,132 and $293,364 at December 31, 2015 and 2014 , respectively. The following table provides the net liability recognized on the consolidated balance sheets at December 31,: Pension Benefits Other Post-retirement Benefits 2015 2014 2015 2014 Current liability $ 8,370 $ 4,930 $ - $ - Noncurrent liability 59,564 61,782 21,433 28,632 Net liability recognized $ 67,934 $ 66,712 $ 21,433 $ 28,632 At December 31, 2015 and 2014 , the Company’s pension plans had benefit obligations in excess of its plan assets. The following tables provide the projected benefit obligation, the accumulated benefit obligation and fair market value of the plan assets as of December 31,: Projected Benefit Obligation Exceeds the Fair Value of Plan Assets 2015 2014 Projected benefit obligation $ 306,539 $ 311,609 Fair value of plan assets 238,605 244,897 Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets 2015 2014 Accumulated benefit obligation $ 291,132 $ 293,364 Fair value of plan assets 238,605 244,897 The following table provides the components of net periodic benefit costs for the years ended December 31,: Pension Benefits Other Post-retirement Benefits 2015 2014 2013 2015 2014 2013 Service cost $ 3,349 $ 4,295 $ 5,313 $ 1,224 $ 1,161 $ 1,525 Interest cost 12,955 14,153 12,660 2,802 2,903 2,579 Expected return on plan assets (18,702) (17,601) (14,770) (2,923) (2,742) (2,268) Amortization of prior service cost (credit) 174 277 228 (687) (278) (295) Amortization of actuarial loss 5,993 2,256 8,169 1,282 260 1,479 Curtailment loss - 84 - - - - Net periodic benefit cost $ 3,769 $ 3,464 $ 11,600 $ 1,698 $ 1,304 $ 3,020 The Company records the underfunded status of its pension and other post-retirement benefit plans on its consolidated balance sheets and records a regulatory asset for these costs that would otherwise be charged to stockholders’ equity, as the Company anticipates recoverability of the costs through customer rates. The Company’s pension and other post-retirement benefit plans were underfunded at December 31, 2015 and 2014 . Changes in the plans’ funded status will affect the assets and liabilities recorded on the balance sheet. Due to the Company’s regulatory treatment, the recognition of the funded status is recorded as a regulatory asset pursuant to the FASB’s accounting guidance for regulated operations. The following table provides the amounts recognized in regulatory assets that have not been recognized as components of net periodic benefit cost as of December 31,: Pension Benefits Other Post-retirement Benefits 2015 2014 2015 2014 Net actuarial loss $ 87,930 $ 79,639 $ 14,469 $ 18,356 Prior service cost (credit) 4,419 1,374 (2,926) (359) Total recognized in regulatory assets $ 92,349 $ 81,013 $ 11,543 $ 17,997 The estimated net actuarial loss and prior service cost for the Company’s pension plans that will be amortized in 201 6 from the regulatory assets into net periodic benefit cost are $ 6,917 and $ 578 , respectively. The estimated net actuarial loss and prior service credit for the Company’s other post-retirement benefit plans that will be amortized in 201 6 from regulatory assets into net periodic benefit cost are $ 1,068 and $ 549 , respectively. Accounting for pensions and other post-retirement benefits requires an extensive use of assumptions about the discount rate, expected return on plan assets, the rate of future compensation increases received by the Company’s employees, mortality, turnover and medical costs. Each assumption is reviewed annually with assistance from the Company’s actuarial consultant who provides guidance in establishing the assumptions. The assumptions are selected to represent the average expected experience over time and may differ in any one year from actual experience due to changes in capital markets and the overall economy. These differences will impact the amount of pension and other post-retirement benefit expense that the Company recognizes. The significant assumptions related to the Company’s benefit obligations are as follows: Pension Benefits Other Post-retirement Benefits 2015 2014 2015 2014 Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31, Discount rate 4.48% 4.20% 4.60% 4.17% Rate of compensation increase 3.0 -4.0% 3.0 -4.0% n/a n/a Assumed Health Care Cost Trend Rates Used to Determine Benefit Obligations as of December 31, Health care cost trend rate n/a n/a 7.0% 7.0% Rate to which the cost trend is assumed to decline (the ultimate trend rate) n/a n/a 5.0% 5.0% Year that the rate reaches the ultimate trend rate n/a n/a 2021 2019 n/a – Assumption is not applicable. The significant assumptions related to the Company’s net periodic benefit costs are as follows: Pension Benefits Other Post-retirement Benefits 2015 2014 2013 2015 2014 2013 Weighted Average Assumptions Used to Determine Net Periodic Benefit Costs for Years Ended December 31, Discount rate 4.20% 5.12% 4.17% 4.17% 5.12% 4.17% Expected return on plan assets 7.50% 7.50% 7.50% 5.00 -7.50% 5.00 -7.50% 5.00 -7.50% Rate of compensation increase 3.0 -4.0% 4.0 -4.5% 4.0 -4.5% n/a n/a n/a Assumed Health Care Cost Trend Rates Used to Determine Net Periodic Benefit Costs for Years Ended December 31, Health care cost trend rate n/a n/a n/a 7.0% 7.5% 8.0% Rate to which the cost trend is assumed to decline (the ultimate trend rate) n/a n/a n/a 5.0% 5.0% 5.0% Year that the rate reaches the ultimate trend rate n/a n/a n/a 2019 2019 2019 n/a – Assumption is not applicable . Assumed health-care trend rates have a significant effect on the expense and liabilities for other post-retirement benefit plans. The health care 7 trend rate is based on historical rates and expected market conditions. A one-percentage point change in the assumed health-care cost trend rates would have the following effects: 1-Percentage-Point Increase 1-Percentage-Point Decrease Effect on the health-care component of the accrued other post-retirement benefit obligation $ 3,691 $ (3,319) Effect on aggregate service and interest cost components of net periodic post-retirement health-care benefit cost $ 254 $ (233) The Company’s discount rate assumption , which is utilized to calculate the present value of the projected benefit payments of our post-retirement benefits, was determined by selecting a hypothetical portfolio of high quality corporate bonds appropriate to match the projected benefit payments of the plan s . The selected bond portfolio was derived from a universe of Aa-graded corporate bonds, all of which were noncallable (or callable with make-whole provisions), and have at least $ 50,000 in outstanding value. The discount rate was then developed as the rate that equates the market value of the bonds purchased to the discounted value of the plan’s benefit payments. The Company’s pension expense and liability (benefit obligations) increases as the discount rate is reduced. The Company’s expected return on plan assets is determined by evaluating the asset class return expectations with its advisors as well as actual, long-term, historical results of our asset returns. The Company’s market related value of plan assets is equal to the fair value of the plan ’s assets as of the last day of its fiscal year, and is a determinant for the expected return on plan assets which is a component of post-retirement benefits expense. The Company’s pension expense increases as the expected return on plan assets decreases. For 201 5 , the Company used a 7.50 % expected return on plan assets assumption which will decrease to 7.25% for 2016 . The Company believes its actual long-term asset allocation on average will approximate the targeted allocation. The Company’s investment strategy is to earn a reasonable rate of return while maintaining risk at acceptable levels through the diversification of investments across and within various asset categories. Investment returns are compared to benchmarks that include the S&P 500 Index, the Barclays Capital Intermediate Government/Credit Index, and a combination of the two indices. The Pension Committee meets semi-annually to review plan investments and management monitors investment performance quarterly through a performance report prepared by an external consulting firm. The Company’s pension plan asset allocation and the target allocation by asset class are as follows: Percentage of Plan Assets at December 31, Target Allocation 2015 2014 Domestic equities 25 to 75% 63% 64% International equities 0 to 10% 6% 6% Fixed income 25 to 50% 24% 25% Alternative investments 0 to 5% 3% 3% Cash and cash equivalents 0 to 20% 4% 2% Total 100% 100% 100% The fair value of the Company’s pension plans’ assets at December 31, 201 5 by asset class are as follows: Total Level 1 Level 2 Level 3 Domestic equities: (1) Common stocks $ 146,970 $ 146,970 $ - $ - Mutual funds 3,605 3,605 - - International equities (2) 14,180 14,180 - - Fixed income: (3) U.S. Treasury and government agency bonds 22,953 - 22,953 - Corporate and foreign bonds 13,579 - 13,579 - Mutual funds 21,523 21,523 - - Alternative investments: (4) Real estate 5,981 5,981 - - Commodity funds 1,169 1,169 - - Cash and cash equivalents (5) 8,645 50 8,595 - Total pension assets $ 238,605 $ 193,478 $ 45,127 $ - The fair value of the Company’s pension plans’ assets at December 31, 201 4 by asset class are as follows: Total Level 1 Level 2 Level 3 Domestic equities: (1) Common stocks $ 151,402 $ 151,402 $ - $ - Mutual funds 4,168 4,168 - - International equities (2) 14,584 14,584 - - Fixed income: (3) U.S. Treasury and government agency bonds 25,150 - 25,150 - Corporate and foreign bonds 13,716 - 13,716 - Mutual funds 21,405 21,405 - - Alternative investments: (4) Real estate 6,215 6,215 - - Commodity funds 1,203 1,203 - - Cash and cash equivalents (5) 7,054 19 7,035 - Total pension assets $ 244,897 $ 198,996 $ 45,901 $ - (1) Investments in common stocks are valued using unadjusted quoted prices obtained from active markets. Investments in equity mutual funds, which invest in stocks, are valued using the net asset value per unit as obtained from quoted market prices from active markets . (2) Investments in international equities are valued using unadjusted quoted prices obtained from active markets. (3) Investments in U.S. Treasury and government agency bonds and corporate and foreign bonds are valued by a pricing service which utilizes pricing models that incorporate available trade, bid, and other market information to value the fixed income securities. Investments in fixed income mutual funds, which invest in bonds, are valued using the net asset value per unit as obtained from quoted market prices in active markets. (4) Alternative investments are comprised of real estate funds, real estate investment trusts, and commodity funds, and are valued using unadjusted quoted prices obtained from active markets. (5) Cash and cash equivalents are comprised of both uninvested cash and money market funds. The uninvested cash is valued based on its carrying value, and the money market funds are valued utilizing the net asset value per unit based on the fair value of the underlying assets as determined by the fund’s investment managers. Equity securities include Aqua America, Inc. common stock in the amounts of $19,958 or 8.4% and $17,409 or 7.1% of total pension plans’ assets as of December 31, 2015 and 2014, respectively . The asset allocation for the Company’s other post-retirement benefit plans and the target allocation by asset class are as follows: Percentage of Plan Assets at December 31, Target Allocation 2015 2014 Domestic equities 25 to 75% 54% 57% International equities 0 to 10% 2% 3% Fixed income 25 to 50% 26% 25% Alternative investments 0 to 5% 0% 1% Cash and cash equivalents 0 to 20% 18% 14% Total 100% 100% 100% The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 201 5 by asset class are as follows: Total Level 1 Level 2 Level 3 Domestic equities: (1) Common stocks $ 11,772 $ 11,772 $ - $ - Mutual funds 12,030 12,030 - - International equities (2) 1,078 1,078 - - Fixed income: (3) U.S. Treasury and government agency bonds 4,551 - 4,551 - Corporate and foreign bonds 4,476 - 4,476 - Mutual funds 2,177 2,177 - - Cash and cash equivalents (5) 7,620 - 7,620 - Total other post-retirement assets $ 43,704 $ 27,057 $ 16,647 $ - The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 201 4 by asset class are as follows: Total Level 1 Level 2 Level 3 Domestic equities: (1) Common stocks $ 12,265 $ 12,265 $ - $ - Mutual funds 12,582 12,582 - - International equities (2) 1,482 1,482 - - Fixed income: (3) U.S. Treasury and government agency bonds 5,678 - 5,678 - Corporate and foreign bonds 3,822 - 3,822 - Mutual funds 1,409 1,409 - - Alternative investments (4) 204 204 - - Cash and cash equivalents (5) 5,884 - 5,884 - Total other post-retirement assets $ 43,326 $ 27,942 $ 15,384 $ - (1) Investments in common stocks are valued using unadjusted quoted prices obtained from active markets. Investments in equity mutual funds, which invest in stocks, are valued using the net asset value per unit as obtained from quoted market prices from active markets . (2) Investments in international equities are valued using unadjusted quoted prices obtained from active markets. (3) Investments in U.S. Treasury and government agency bonds and corporate and foreign bonds are valued by a pricing service which utilizes pricing models that incorporate available trade, bid, and other market information to value the fixed income securities. Investments in fixed income mutual funds, which invest in bonds, are valued using the net asset value per unit as obtained from quoted market prices in active markets. (4) Investments in alternative investments are comprised of investments in real estate funds and real estate investment trusts and are valued using unadjusted quoted prices obtained from active markets. (5) Cash and cash equivalents is comprised of money market funds, which are valued utilizing the net asset value per unit based on the fair value of the underlying assets as determined by the fund’s investment managers. Funding requirements for qualified defined benefit pension plans are determined by government regulations and not by accounting pronouncements. In accordance with funding rules and the Company’s funding policy, during 201 6 our pension contribution is expected to be $ 8,145 . The Company has a 401(k) savings plan , which is a defined contribution plan and cover s substantially all employees. The Company makes matching contributions that are initially invested in our common stock based on a percentage of an employee’s contribution, subject to specific limitations. Participants may diversify their Company matching account balances into other investments offered under the 401(k) savings plan. The Company’s contribution s , which are recorded as compensation expense, were $5,001 , $3,051 , and $2,790 , for the years ended December 31, 2015, 2014, and 2013, respectively. |