PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS

There are approximately 5,800 employees and retirees covered by qualified defined benefit pension plans providing retirement benefits based on compensation and years of service, and approximately 4,000 employees, retirees and dependents covered by postretirement health and life benefit plans. DOE retained the obligation for postretirement health and life benefits for workers who retired prior to July 28, 1998. Pursuant to the SERPs and the pension restoration plan, Centrus provides certain executive officers additional retirement benefits in excess of qualified plan limits imposed by tax law based on a targeted benefit objective. Employees hired on or after September 1, 2008 and who are not covered by a collective bargaining agreement that provides for participation do not participate in a qualified defined benefit pension plan or the postretirement health and life benefit plan.

Plan assets and benefit obligations are remeasured each year as of the balance sheet date resulting in differences between actual and projected results for the year. Historically, the Company recognized these actuarial gains and losses as a component of stockholders’ equity and generally amortized them into operating results over the average future service period of the active employees of these plans or the average future lifetime of plan participants for inactive plans. Upon the adoption of fresh start accounting and as a result of ceasing enrichment activities and the various plan changes described below, the Successor Company adopted an accounting policy to immediately recognize actuarial gains and losses in the statement of operations beginning in the fourth quarter of 2014. The immediate recognition in the statement of operations is intended to increase transparency into how movements in plan assets and benefit obligations impact financial results. As noted below, the impacts of plan amendments continue to be deferred as a component of stockholders’ equity and are recognized as net periodic benefit costs or credits in the statement of operations over time.

Changes in the projected benefit obligations and plan assets and the funded status of the plans follow (in millions):



	Defined Benefit Pension Plans									Postretirement Health and Life Benefit Plans
	Successor			Predecessor						Successor			Predecessor
	Three Months Ended December 31, 2014			Nine Months Ended September 30, 2014			Year Ended December 31, 2013			Three Months Ended December 31, 2014			Nine Months Ended September 30, 2014			Year Ended December 31, 2013
Changes in Benefit Obligations:
Obligations at beginning of period	$	965.1		$	907.4		$	1,099.0		$	240.4		$	231.9		$	248.8
Actuarial (gains) losses, net	18.7			96.0			(121.0		)	4.3			8.3			(25.2		)
Service costs	2.0			1.8			9.9			0.2			1.3			3.6
Interest costs	10.2			31.7			45.0			2.3			7.5			9.0
Benefits paid	(15.0		)	(44.3		)	(58.2		)	(2.8		)	(8.7		)	(12.2		)
Lump sum benefits paid	(17.9		)	(24.7		)	(47.2		)	—			—			—
Less federal subsidy on benefits paid	—			—			—			0.1			0.1			0.5
Administrative expenses paid	(1.7		)	N/A			N/A			N/A			N/A			N/A
Plan amendments	—			—			—			(6.8		)	—			(27.8		)
Curtailments	—			(2.8		)	(20.1		)	—			—			24.6
Special termination benefits	—			—			—			—			—			10.6
Obligations at end of period	961.4			965.1			907.4			237.7			240.4			231.9
Changes in Plan Assets:
Fair value of plan assets at beginning of period	781.5			784.0			774.8			28.7			36.9			41.6
Actual return on plan assets	25.5			46.2			92.7			0.7			0.5			6.9
Company contributions	—			20.3			21.9			(0.3		)	—			0.6
Benefits paid	(15.0		)	(44.3		)	(58.2		)	(2.8		)	(8.7		)	(12.2		)
Lump sum benefits paid	(17.9		)	(24.7		)	(47.2		)	—			—			—
Administrative expenses paid	(1.7		)	N/A			N/A			N/A			N/A			N/A
Fair value of plan assets at end of period	772.4			781.5			784.0			26.3			28.7			36.9
(Unfunded) status at end of period	(189.0		)	(183.6		)	(123.4		)	(211.4		)	(211.7		)	(195.0		)

Amounts recognized in assets and liabilities:
Current liabilities	$	(9.7	)	$	(9.5	)	$	(2.2	)	—			—			—
Noncurrent liabilities	(179.3		)	(174.1		)	(121.2		)	(211.4		)	(211.7		)	(195.0		)
	$	(189.0	)	$	(183.6	)	$	(123.4	)	$	(211.4	)	$	(211.7	)	$	(195.0	)
Amounts recognized in accumulated other comprehensive income (loss), pre-tax:
Net actuarial loss	$	—		$	202.4		$	115.3		$	—		$	22.0		$	12.8
Prior service cost (credit)	—			—			0.2			(6.8		)	(1.8		)	(2.1		)
	$	—		$	202.4		$	115.5		$	(6.8	)	$	20.2		$	10.7



Assumptions used to determine benefit obligations at end of period:
Discount rate	4.1%	4.3%	4.9%	3.8%	4.0%	4.5%
Compensation increases	n/a	n/a	2.0%	2.0%	2.0%	2.0%

The net overfunded or underfunded status of the plans are recognized as either assets or liabilities in the balance sheet. The current liability reflects expected contributions for benefit payments for the SERPs and the pension restoration plan in the following year.

The discount rates above, rounded to the nearest 0.1%, are the estimated rates at which the benefit obligations could be effectively settled on the measurement date and are based on yields of high quality fixed income investments whose cash flows match the timing and amount of expected benefit payments of the plans.

The expected return on plan assets is based on the weighted average of long-term return expectations for the composition of the plans’ equity and debt securities. Expected returns on equity securities are based on historical long-term returns of equity markets. Expected returns on debt securities are based on the current interest rate environment. Historically, the Company developed the expected return assumption net of administrative expenses. The Successor Company modified its calculation methodology to develop the expected return assumption as gross of administrative expenses.

A curtailment occurs when an employer eliminates accrual of pension benefits for some or all future services of a significant number of employees covered by the pension plan. When a curtailment occurs, plan assets and benefit obligations are remeasured.

Projected benefit obligations are based on actuarial assumptions including possible future increases in compensation. Accumulated benefit obligations are based on actuarial assumptions but do not include possible future increases in compensation. As noted below, the retirement benefit under the pension plans is fixed and no longer increases to reflect changes in compensation. Therefore, the accumulated benefit obligation equaled the projected benefit obligation of $961.4 million at December 31, 2014. At December 31, 2013, projected compensation increases for employees covered by a collective bargaining agreement and for certain executive benefits were included in the actuarial assumptions resulting in the projected benefit obligation of $907.4 million compared to the accumulated benefit obligation of $906.0 million. At December 31, 2014, none of Centrus' plans had fair value of plan assets in excess of accumulated benefit obligations.

Predecessor Plan Changes and Workforce Reductions

Effective August 5, 2013, accrued benefits for active employees that were not covered by a collective bargaining agreement at the Paducah GDP have been frozen under the defined benefit pension plans, including the non-qualified pension restoration plan. The retirement benefit is fixed and will no longer increase for these employees to reflect changes in compensation or company service. However, these employees will not lose any benefits earned through August 4, 2013 under the pension plans and continue to accrue service credits toward vesting and qualifying for early or unreduced retirement benefits under the plans. Unamortized prior service costs related to those pension plan participants were accelerated and a plan re-measurement was conducted at June 30, 2013. The result was a curtailment gain of $0.7 million recorded in the second quarter of 2013 to special charges. Obligations for plans affected by the benefit freeze decreased by $32.7 million in total.

As of December 31, 2013, the Company anticipated layoffs of the remaining Paducah workforce in 2014 resulting in accelerated retirement obligations in the GDP pension plan and GDP postretirement health and life benefit plan. Unamortized prior service costs related to affected plan participants were accelerated due to these terminations. Moreover, and in accordance with plan documents, certain affected plan participants were credited additional plan service credits towards qualifying for early or unreduced retirement based on their involuntary termination of employment. The net impact recorded in special charges at December 31, 2013 for the two plans was $22.9 million, and obligations for both plans increased in total by $47.9 million.

The defined benefit pension plans were amended during 2013 to allow a lump sum payment option to active employees who are not covered by a collective bargaining agreement at the Paducah GDP and who were terminated as a result of participation in a reduction in force from August 5, 2013 through December 31, 2014. The qualified defined benefit pension plans were further amended to allow a one-time voluntary election for a lump sum payment in December 2013 to certain former employees with deferred vested pension benefits. Any lump sum distributions in connection with these programs fully settled Centrus' long-term pension obligations related to those benefits. Lump sum benefits paid were $17.9 million in the three months ended December 31, 2014 and $24.7 million in the nine months ended September 30, 2014. Settlement accounting, which requires immediate recognition of a portion of amounts deferred in accumulated other comprehensive income, need not be followed if the sum of the settlements for the year is less than the service cost and interest cost components of the net periodic benefit cost for the plan year, determined on a plan by plan basis. Total lump sum payments fell below the minimum settlement accounting thresholds for the plans and therefore settlement accounting was not required.

Emergence from Chapter 11 Bankruptcy

In connection with Centrus' emergence from Chapter 11 bankruptcy, plan assets and benefit obligations were remeasured as of September 30, 2014. The net effect of the remeasurement was an increase of $85.4 million on the net pension liability (unfunded status) and an increase of $9.2 million in the postretirement health and life benefit plans liability. The increase in the pension and postretirement health and life benefit plans obligations are primarily a result of lower discount rates and revised mortality assumptions reflecting the Society of Actuaries’ RP-2014 and MP-2014 exposure draft mortality tables and mortality improvement scale. The final mortality tables are substantially the same as the exposure draft tables and were used for the December 31, 2014 measurement date.

Historically, the Company recognized the actuarial gains and losses as a component of stockholders’ equity on an annual basis and generally amortized them into operating results over the average future service period of the active employees of these plans (or the average future lifetime of plan participants for inactive plans), to the extent the unrecognized gain or loss is outside a corridor. As a result of fresh start accounting, the amount of Predecessor accumulated other comprehensive loss, net of tax of $121.7 million has been expensed as part of Reorganization Items, Net. The Successor Company has adopted an accounting policy to immediately recognize these gains and losses in the statement of operations in the period in which they arise.

Upon the Effective Date, the Company froze benefit accruals under the SERPs. The $2.2 million net credit to Reorganization Items, Net in the nine months ended September 30, 2014 reflects the curtailment related to the freeze of the benefits under these plans.

Successor Company Events

The Successor Company has recognized $11.6 million in the three months ended December 31, 2014 as net periodic benefit cost in the consolidated statement of operations, consisting of $11.1 million of cost of sales included in the LEU segment and $0.5 million included in selling, general and administrative expenses. Of this amount, $10.4 million reflects the immediate recognition of net actuarial losses based on the year-end remeasurement of assets and benefit obligations, and reflects lower discount rates since September 30, 2014, other changes in assumptions and a higher investment experience than assumed in the three-month period.

A post-65 Medicare Exchange was implemented by Centrus at December 31, 2014 for those previously covered by a collective bargaining agreement at the Paducah GDP facility. The transition to the post-65 Medicare Exchange was reflected as a plan amendment that reduced plan obligations by $6.8 million. This reduction in obligation is recognized in other comprehensive income as a prior service credit. The estimated prior service credit for the postretirement health and life benefit plans that will be amortized from accumulated other comprehensive income into net periodic pension benefit cost during 2015 is $0.3 million.

Components of Net Periodic Benefit Costs and Other Amounts Recognized in Other Comprehensive Income (Loss) (in millions)



	Defined Benefit Pension Plans									Postretirement Health and Life Benefit Plans
	Successor			Predecessor						Successor			Predecessor
	Three Mos. Ended Dec. 31, 2014			Nine Mos. Ended Sep. 30, 2014			Year Ended Dec. 31, 2013			Three Mos. Ended Dec. 31, 2014			Nine Mos. Ended Sep. 30, 2014			Year Ended Dec. 31, 2013
Net Periodic Benefit Costs
Service costs	$	2.0		$	1.8		$	9.9		$	0.2		$	1.3		$	3.6
Interest costs	10.2			31.7			45.0			2.3			7.5			9.0
Expected return on plan assets (gains)	(13.1		)	(38.5		)	(51.1		)	(0.4		)	(1.5		)	(2.3		)
Amortization of prior service costs (credits), net				—			0.7			—			(0.3		)	—
Amortization of actuarial (gains) losses, net	6.4			1.0			16.2			4.0						2.7
Curtailment loss (gain)	—			(2.2		)	12.6			—			—			(1.0		)
Special termination loss	—			—			—			—			—			10.6
Net periodic benefit costs	$	5.5		$	(6.2	)	$	33.3		$	6.1		$	7.0		$	22.6



Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss)
Net valuation (gain) loss	$	6.4		$	85.4		$	(182.7	)	$	4.0		$	9.2	$	(5.1	)
Net prior service cost (credit)	—			—			—			(6.8		)	—		(27.8		)
Amortization of actuarial gains (losses), net	(6.4		)	1.5			(28.0		)	(4.0		)	—		(27.3		)
Amortization of prior service (costs) credits	—			(0.2		)	(1.5		)	—			0.3		25.6
Total (gain) loss recognized in other comprehensive income (loss), pre-tax	$	—		$	86.7		$	(212.2	)	$	(6.8	)	$	9.5	$	(34.6	)
Total recognized in net periodic benefit costs (income) and other comprehensive income (loss), pre-tax	$	5.5		$	80.5		$	(178.9	)	$	(0.7	)	$	16.5	$	12.0



	Defined Benefit Pension Plans			Postretirement Health and Life Benefit Plans
	Successor	Predecessor		Successor	Predecessor
	Three Mos. Ended Dec. 31, 2014	Nine Mos. Ended Sep. 30, 2014	Year Ended Dec. 31, 2013	Three Mos. Ended Dec. 31, 2014	Nine Mos. Ended Sep. 30, 2014	Year Ended Dec. 31, 2013
Assumptions used to determine net periodic benefit costs:
Discount rate	4.1%	4.3%	4.9%	4.0%	4.0%	4.5%
Expected return on plan assets	7.0%	6.8%	6.8%	5.8%	6.8%	6.8%
Compensation increases	n/a	n/a	4.0%	2.0%	2.0%	4.0%

Net periodic benefit costs include service and interest costs of providing pension benefits that are accrued over the years employees render service. Prior service costs or credits are amortized over the employees’ average remaining years of service from age 40 until the date of full benefit eligibility or the average expected future lifetime of all plan participants, as applicable. Participants in the postretirement health and life benefit plan are generally eligible for benefits at retirement after age 50 with 10 years of continuous credited service at the time of retirement.

Net periodic benefit costs are allocated to cost of sales for the LEU segment and to selling, general and administrative expense. Prior to cessation of enrichment at the Paducah GDP, net periodic benefit costs were allocated to SWU inventory costs rather than as a direct charge to cost of sales.

Healthcare cost trend rates used to measure postretirement health benefit obligations follow:



	Successor	Predecessor
	December 31, 2014	September 30, 2014	December 31, 2013
Healthcare cost trend rate for the following year	8%	7.5%	7.5%
Long-term rate that the healthcare cost trend rate gradually declines to	5%	5%	5%
Year that the healthcare cost trend rate is expected to reach the long-term rate	2021	2019	2019

A one-percentage-point change in the assumed healthcare cost trend rates would have an effect on the postretirement health benefit obligation and costs of the Successor Company, as follows (in millions):



	One Percentage Point
	Increase		Decrease
Postretirement health benefit obligation	$	5.9	$	(5.5	)
Net periodic benefit costs (service and interest cost components only)	$	0.1	$	(0.1	)

Benefit Plan Assets

Independent advisors manage investment assets of Centrus' defined benefit pension plans and postretirement health and life benefit plans. Centrus has the fiduciary responsibility for reviewing performance of the various investment advisors. The investment policy of the plans is to maximize portfolio returns within reasonable and prudent levels of risk in order to meet projected liabilities and maintain sufficient cash to make timely payments of all participant benefits. Risk is reduced by diversifying plan assets in a broad mix of asset classes and by following a strategic asset allocation approach. Asset classes and target weights are adjusted periodically to optimize the long-term portfolio risk/return tradeoff, to provide liquidity for benefit payments, and to align portfolio risk with the underlying obligations. The investment policy of the plans prohibits the use of leverage, direct investments in tangible assets, or any investment prohibited by applicable laws or regulations.

The allocation of plan assets between equity and debt securities and the target allocation range by asset category follows:



	December 31,
	2014		2013		2015 Target
Defined Benefit Pension Plans:
Equity securities	48	%	54	%	40	-	60%
Debt securities	52		46		40	-	60
	100	%	100	%
Postretirement Health and Life Benefit Plans:
Equity securities	65	%	69	%	55	-	75%
Debt securities	35		31		25	-	45
	100	%	100	%

Plan assets are measured at fair value. Following are the plan investments as of December 31, 2014 and December 31, 2013 categorized by the fair value hierarchy levels described in Note 14, Fair Value Measurements, (in millions):



	Defined Benefit Pension Plans
	Level 1				Level 2				Level 3				Total
	2014		2013		2014		2013		2014		2013		2014		2013
U.S. government securities	$	—	$	—	$	81.5	$	74.2	$	—	$	—	$	81.5	$	74.2
Collective trust - money market funds	—		—		10.6		19.4		—		—		10.6		19.4
Collective trust - bond funds	—		—		51.8		48.1		—		—		51.8		48.1
Collective trust - equity funds	—		—		366.7		423.1		—		—		366.7		423.1
Corporate debt	—		—		249.6		208.5		—		—		249.6		208.5
Municipal bonds	—		—		8.1		7.0		—		—		8.1		7.0
Fair value of investments by hierarchy level	$	—	$	—	$	768.3	$	780.3	$	—	$	—	$	768.3	$	780.3
Accrued interest receivable													4.0		4.0
Unsettled transactions													0.1		(0.3		)
Plan assets													$	772.4	$	784.0



	Postretirement Health and Life Benefit Plans
	Level 1				Level 2				Level 3				Total
	2014		2013		2014		2013		2014		2013		2014		2013
Money market funds	$	—	$	—	$	0.8	$	0.9	$	—	$	—	$	0.8	$	0.9
Bond mutual funds	8.5		10.4		—		—		—		—		8.5		10.4
Equity mutual funds	17.0		25.6		—		—		—		—		17.0		25.6
Fair value of investments by hierarchy level	$	25.5	$	36.0	$	0.8	$	0.9	$	—	$	—	$	26.3	$	36.9

Level 1 assets consist of bond and equity mutual funds that have a publicly available NAV.

Level 2 assets include investments in U.S. government agency securities, corporate and municipal debt and mortgage and asset backed securities that are valued based on estimated prices using observable, market-based inputs. Bond and equity funds in collective trusts are valued based on the NAVs provided by administrators of the funds. A collective trust fund is an investment vehicle with a NAV quoted in a private market. The NAV for each fund is based on the underlying assets owned by the fund, less any expenses accrued against the fund, divided by the number of fund shares outstanding. Investments in these funds are classified within Level 2 of the valuation hierarchy because the NAV’s unit price is not quoted in an active market; however, the unit price is based on underlying investments which are traded in an active market. Investments in money market funds are classified within Level 2 of the valuation hierarchy because the publicly reported NAV of one dollar does not necessarily reflect the fair value of the underlying securities.

Level 3 assets include investments in corporate debt securities that are valued based on estimated prices that include unobservable inputs such as extrapolated data, indicative quotes and proprietary models of third-party pricing sources. The defined benefit pension plans held Level 3 assets during 2013 as summarized in the table below (in millions):



	Year Ended December 31, 2013
Beginning balance	$	0.6
Transfer out to Level 2	(0.6		)
Transfer in from Level 2	—
New purchases	—
Ending balance	$	—

Benefit Plan Cash Flows

Centrus expects to contribute $9.7 million to the non-qualified defined benefit pension plans in 2015. The Company does not expect there to be a required contribution for the qualified defined benefit pension plans in 2015 and therefore does not expect to contribute in 2015. There is no required contribution for the postretirement health and life benefit plans under Employee Retirement Income Security Act (“ERISA”) and the Company does not expect to contribute in 2015.

Estimated future benefit plan payments follow (in millions):



	Defined Benefit Pension Plans		Postretirement Health and Life Benefit Plans
2015	$	92.9	$	18.6
2016	58.6		22.1
2017	56.9		23.9
2018	56.0		23.0
2019	53.4		21.7
2020 to 2024	253.6		84.0

Other Plans

Centrus sponsors a 401(k) defined contribution plan for employees. Employee contributions are matched at established rates. Amounts contributed are invested in a range of investment options available to participants, and the funds are administered by an independent trustee. Matching cash contributions by the Company amounted to $0.9 million in the three months ended December 31, 2014, $4.1 million in the nine months ended September 30, 2014 and $6.3 million in 2013.