PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS

There are approximately 5,000 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 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, 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
	Year Ended December 31, 2015			Three Months Ended December 31, 2014			Nine Months Ended September 30, 2014			Year Ended December 31, 2015			Three Months Ended December 31, 2014			Nine Months Ended September 30, 2014
Changes in Benefit Obligations:
Obligations at beginning of period	$	961.4		$	965.1		$	907.4		$	237.7		$	240.4		$	231.9
Actuarial (gains) losses, net	(55.2		)	18.7			96.0			(30.2		)	4.3			8.3
Service costs	5.8			2.0			1.8			0.2			0.2			1.3
Interest costs	36.9			10.2			31.7			8.8			2.3			7.5
Benefits paid	(62.1		)	(15.0		)	(44.3		)	(13.1		)	(2.8		)	(8.7		)
Lump sum benefits paid	(50.6		)	(17.9		)	(24.7		)	—			—			—
Less federal subsidy on benefits paid	—			—			—			0.1			0.1			0.1
Administrative expenses paid	(3.4		)	(1.7		)	N/A			—			N/A			N/A
Plan amendments	—			—			—			—			(6.8		)	—
Curtailments	—			—			(2.8		)	—			—			—
Obligations at end of period	832.8			961.4			965.1			203.5			237.7			240.4
Changes in Plan Assets:
Fair value of plan assets at beginning of period	772.4			781.5			784.0			26.3			28.7			36.9
Actual return on plan assets	(8.0		)	25.5			46.2			0.4			0.7			0.5
Company contributions	8.0			—			20.3			0.2			(0.3		)	—
Benefits paid	(62.1		)	(15.0		)	(44.3		)	(13.1		)	(2.8		)	(8.7		)
Lump sum benefits paid	(50.6		)	(17.9		)	(24.7		)	—			—			—
Administrative expenses paid	(3.4		)	(1.7		)	N/A			N/A			N/A			N/A
Fair value of plan assets at end of period	656.3			772.4			781.5			13.8			26.3			28.7
(Unfunded) status at end of period	(176.5		)	(189.0		)	(183.6		)	(189.7		)	(211.4		)	(211.7		)

Amounts recognized in assets and liabilities:
Current liabilities	$	(4.2	)	$	(9.7	)	$	(9.5	)	(5.4		)	—			—
Noncurrent liabilities	(172.3		)	(179.3		)	(174.1		)	(184.3		)	(211.4		)	(211.7		)
	$	(176.5	)	$	(189.0	)	$	(183.6	)	$	(189.7	)	$	(211.4	)	$	(211.7	)
Amounts recognized in accumulated other comprehensive income (loss), pre-tax:
Net actuarial loss	$	—		$	—		$	202.4		$	—		$	—		$	22.0
Prior service cost (credit)	—			—			—			(0.3		)	(6.8		)	(1.8		)
	$	—		$	—		$	202.4		$	(0.3	)	$	(6.8	)	$	20.2



Assumptions used to determine benefit obligations at end of period:
Discount rate	4.5%	4.1%	4.3%	4.2%	3.8%	4.0%
Compensation increases	n/a	n/a	n/a	n/a	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 non-qualified plans and the postretirement health and life benefit plans 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. Effective August 5, 2013, accrued benefits under the defined benefit pension plans are fixed and no longer increase to reflect changes in compensation or company service. Therefore, the accumulated benefit obligation equaled the projected benefit obligation of $832.8 million as of December 31, 2015 and $961.4 million as of December 31, 2014. As of December 31, 2015, none of Centrus’ plans had fair value of plan assets in excess of accumulated benefit obligations.

Centrus has recognized $26.4 million in 2015 as net periodic benefit income in the consolidated statement of operations, consisting of $24.7 million of income included in cost of sales of the LEU segment and $1.7 million of income included in selling, general and administrative expenses. Out of this amount, $29.6 million reflects the immediate recognition of net actuarial income based on the remeasurement of assets and benefit obligations. The net gains for 2015 include the effect of an increase in the discount rates at December 31, 2015 compared to December 31, 2014, and changes in the mortality assumptions reflected in the Society of Actuaries’ MP-2015 adopted as of December 31, 2015. Actuarial gains and losses were recognized in the second, third and fourth quarters of 2015 as described in the following section.

Lump Sum Payments and Settlement Accounting

The defined benefit pension plans have been amended 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, 2015. 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.

The level of lump-sum pension payments in the second and third quarters of 2015 resulted in the remeasurement of pension obligations under settlement accounting rules. The interim remeasurements were required when the payments exceeded, or were expected to exceed, the sum of the service cost and interest cost components of the annual net periodic benefit cost for each plan for the current year. Effective with the adoption of fresh start accounting as of September 30, 2014, Centrus immediately recognizes actuarial gains and losses in the statement of operations in the period in which they arise.

The remeasurement of pension obligations as of June 30, 2015 under the non-qualified defined benefit pension plans and the Employees’ Retirement Plan of Centrus Energy Corp. resulted in a gain of $3.9 million included in selling, general and administrative expenses in the second quarter of 2015. The gain includes the effect of an increase in the discount rate used in the measurement of pension obligations from approximately 4.1% as of December 31, 2014 to approximately 4.5% as of June 30, 2015.

Pension obligations under the Retirement Program Plan for Employees of United States Enrichment Corporation and the plans mentioned above were remeasured as of September 30, 2015, resulting in a loss of $21.6 million included in cost of sales of the LEU segment and a loss of $3.2 million included in selling, general and administrative expenses in the third quarter of 2015. The discount rate used in the measurement of pension obligations as of September 30, 2015 was approximately 4.4%. The losses also include the effect of actual investment experience for pension plan assets relative to the expected return assumption of 6.75% per year.

The year-end remeasurements resulted in an actuarial gain of $48.8 million included in cost of sales of the LEU segment and a gain of $1.7 million included in selling, general and administrative expenses in the fourth quarter of 2015. The discount rate used in the measurement of pension obligations as of December 31, 2015 was approximately 4.5% for pension obligations and 4.2% for postretirement health and life benefit plans. The gains include the effect of a slight increase of the discount rates in the fourth quarter of 2015 from the last remeasurement of September 30, 2015, actual investment experience for pension plan assets relative to the expected return assumption of 6.75% per year, and changes in the mortality assumptions reflected in the Society of Actuaries’ MP-2015 adopted as of December 31, 2015.

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 amount of Predecessor accumulated other comprehensive loss, net of tax, of $121.7 million was expensed as part of Reorganization Items, Net. 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.

Plan Amendment

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. 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 prior service credit is being amortized from accumulated other comprehensive income into net periodic pension benefit cost.

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
	Year Ended Dec. 31, 2015			Three Months Ended Dec. 31, 2014			Nine Months Ended Sep. 30, 2014			Year Ended Dec. 31, 2015			Three Months Ended Dec. 31, 2014			Nine Months Ended Sep. 30, 2014
Net Periodic Benefit Costs
Service costs	$	5.8		$	2.0		$	1.8		$	0.2		$	0.2		$	1.3
Interest costs	36.9			10.2			31.7			8.8			2.3			7.5
Expected return on plan assets (gains)	(47.4		)	(13.1		)	(38.5		)	(0.8		)	(0.4		)	(1.5		)
Amortization of prior service costs (credits), net	—			—			—			(0.3		)	—			(0.3		)
Amortization of actuarial (gains) losses, net	0.2			6.4			1.0			(29.8		)	4.0
Curtailment loss (gain)	—			—			(2.2		)	—			—			—
Net periodic benefit costs	$	(4.5	)	$	5.5		$	(6.2	)	$	(21.9	)	$	6.1		$	7.0



Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss)
Net valuation (gain) loss	$	0.2		$	6.4		$	85.4		$	(29.8	)	$	4.0		$	9.2
Net prior service cost (credit)	—			—			—			—			(6.8		)	—
Amortization of actuarial gains (losses), net	(0.2		)	(6.4		)	1.5			29.8			(4.0		)	—
Amortization of prior service (costs) credits	—			—			(0.2		)	0.3			—			0.3
Total (gain) loss recognized in other comprehensive income (loss), pre-tax	$	—		$	—		$	86.7		$	0.3		$	(6.8	)	$	9.5
Total recognized in net periodic benefit costs (income) and other comprehensive income (loss), pre-tax	$	(4.5	)	$	5.5		$	80.5		$	(21.6	)	$	(0.7	)	$	16.5



	Defined Benefit Pension Plans			Postretirement Health and Life Benefit Plans
	Successor		Predecessor	Successor		Predecessor
	Year Ended Dec. 31, 2015	Three Months Ended Dec. 31, 2014	Nine Months Ended Sep. 30, 2014	Year Ended Dec. 31, 2015	Three Months Ended Dec. 31, 2014	Nine Months Ended Sep. 30, 2014
Assumptions used to determine net periodic benefit costs:
Discount rate	4.5%	4.1%	4.3%	4.2%	4.0%	4.0%
Expected return on plan assets	6.8%	7.0%	6.8%	5.3%	5.8%	6.8%
Compensation increases	n/a	n/a	n/a	2.0%	2.0%	2.0%

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.

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



	December 31,
	2015	2014
Healthcare cost trend rate for the following year	7.5%	8%
Long-term rate that the healthcare cost trend rate gradually declines to	5%	5%
Year that the healthcare cost trend rate is expected to reach the long-term rate	2021	2021

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	$	5.2	$	(4.9	)
Net periodic benefit costs (service and interest cost components only)	$	0.3	$	(0.3	)

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,
	2015		2014		2016 Target
Defined Benefit Pension Plans:
Equity securities	47	%	48	%	40	-	60%
Debt securities	53		52		40	-	60
	100	%	100	%
Postretirement Health and Life Benefit Plans:
Equity securities	64	%	65	%	55	-	75%
Debt securities	36		35		25	-	45
	100	%	100	%

Plan assets are measured at fair value. Following are the plan investments as of December 31, 2015 and December 31, 2014 categorized by the fair value hierarchy levels described in Note 11, Fair Value Measurements, (in millions):



	Defined Benefit Pension Plans
	Level 1				Level 2				Level 3				Total
	2015		2014		2015		2014		2015		2014		2015		2014
U.S. government securities	$	—	$	—	$	61.8	$	81.5	$	—	$	—	$	61.8	$	81.5
Corporate debt	—		—		206.9		249.6		—		—		206.9		249.6
Municipal bonds	—		—		6.8		8.1		—		—		6.8		8.1
Fair value of investments by hierarchy level	$	—	$	—	$	275.5	$	339.2	$	—	$	—	$	275.5	$	339.2
Investments measured at NAV (a)													377.2		429.1
Accrued interest receivable													3.5		4.0
Unsettled transactions													0.1		0.1
Plan assets													$	656.3	$	772.4



	Postretirement Health and Life Benefit Plans
	Level 1				Level 2				Level 3				Total
	2015		2014		2015		2014		2015		2014		2015		2014
Money market funds	$	1.0	$	0.8	$	—	$	—	$	—	$	—	$	1.0	$	0.8
Bond mutual funds	4.0		8.5		—		—		—		—		4.0		8.5
Equity mutual funds	8.8		17.0		—		—		—		—		8.8		17.0
Fair value of investments by hierarchy level	$	13.8	$	26.3	$	—	$	—	$	—	$	—	$	13.8	$	26.3

(a) Equity, bond and money market investments held in collective trusts are valued based on the net asset value (“NAV”) provided by the administrator of the funds. 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. While the underlying investments are traded on an exchange, the funds are not. Fair values for the collective trust investments are measured using the NAVs as a practical expedient and are not categorized in the fair value hierarchy.

Level 1 assets consist of mutual funds and money market funds having a publicly available NAV.

Level 2 assets include investments in U.S. government agency securities, corporate and municipal debt that are valued based on estimated prices using observable, market-based inputs.

Benefit Plan Cash Flows

Centrus expects to contribute $4.2 million to the non-qualified defined benefit pension plans and $5.4 million to the postretirement health and life benefit plans in 2016. The Company does not expect there to be a required contribution for the qualified defined benefit pension plans in 2016 and therefore does not expect to contribute in 2016. There is no required contribution for the postretirement health and life benefit plans under Employee Retirement Income Security Act (“ERISA”).

Estimated future benefit plan payments follow (in millions):



	Defined Benefit Pension Plans		Postretirement Health and Life Benefit Plans
2016	$	65.8	$	19.2
2017	60.5		20.0
2018	59.8		21.0
2019	57.4		19.8
2020	57.5		18.3
2021 to 2025	266.6		70.5

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 $3.0 million in 2015, $0.9 million in the three months ended December 31, 2014, and $4.1 million in the nine months ended September 30, 2014.

The opportunity to participate in the Executive Deferred Compensation Plan was reactivated in June 2015 allowing deferrals beginning in July 2015. Enrollment in the plan had been suspended since January 2013. Qualified employees may defer compensation on a tax-deferred basis subject to plan limitations. Any matching contributions under the Company’s 401(k) plan that are foregone due to annual compensation limitations of the Internal Revenue Code are eligible to be received from the Company under the Executive Deferred Compensation Plan, provided that the employee deferred the maximum allowable pre-tax contribution in the 401(k) plan. Centrus matching contributions amounted to less than $0.1 million in 2015.