EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans

The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and nonrepresented employees with more than one year of service. Defined benefit plan benefits are based on years of service and average compensation during the highest sixty consecutive months of employment. The Company also provides postemployment medical and life insurance benefits to employees who meet certain eligibility requirements.

All represented employees of NJRHS hired on or after October 1, 2000, non-represented employees hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are covered by an enhanced defined contribution plan instead of the defined benefit plan. Participation in the postemployment medical and life insurance plan was also frozen to new employees as of the same dates, with the exception of new NJRHS represented employees, for which benefits were frozen beginning April 3, 2012.

The Company also maintains an unfunded nonqualified PEP that was established to provide employees with the full level of benefits as stated in the qualified plan without reductions due to various limitations imposed by the provisions of federal income tax laws and regulations. There were no plan assets in the nonqualified plan due to the nature of the plan.

During the fourth quarter of fiscal 2014, the Company implemented a voluntary early retirement program to certain employees and recognized an expense of approximately $5 million, including pension and postemployment benefit costs of $3.5 million related to special termination benefits, and $1.5 million related to other severance benefits.

The Company's funding policy for its pension plans is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In fiscal 2014 and 2013, the Company had no minimum funding requirements. The Company made no discretionary contributions to the pension plans in fiscal 2014, and contributed $20 million in fiscal 2013. The Company elected to make this discretionary tax-deductible contribution to improve the funded status of the pension plans. The Company does not expect to be required to make additional contributions to fund the pension plans over the next three fiscal years based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents. In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans.

There are no Federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts due to regulatory agreements with the BPU. The Company contributed $5 million and $6 million, respectively, in fiscal 2014 and 2013 and estimates that it will contribute between $4 million to $6 million over the next five years. Additional contributions may be required based on market conditions and changes to assumptions.

The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the Consolidated Balance Sheets as of September 30:



	Pension ⁽¹⁾						OPEB
(Thousands)	2014			2013			2014			2013
Change in Benefit Obligation
Benefit obligation at beginning of year	$	198,826		$	211,136		$	112,771		$	121,027
Service cost	6,143			6,871			3,923			4,686
Interest cost	10,066			8,942			5,734			5,148
Plan participants' contributions	47			49			38			32
Special termination benefits	2,814			—			648			—
Actuarial loss (gain)	21,440			(22,288		)	6,792			(15,645		)
Benefits paid, net of retiree subsidies received	(11,637		)	(5,884		)	(2,133		)	(2,477		)
Benefit obligation at end of year	$	227,699		$	198,826		$	127,773		$	112,771
Change in plan assets
Fair value of plan assets at beginning of year	$	200,236		$	166,664		$	49,555		$	41,090
Actual return on plan assets	22,923			19,323			4,590			5,120
Employer contributions	85			20,083			4,970			5,977
Benefits paid, net of plan participants' contributions	(11,591		)	(5,834		)	(2,206		)	(2,632		)
Fair value of plan assets at end of year	$	211,653		$	200,236		$	56,909		$	49,555
Funded status	$	(16,046	)	$	1,410		$	(70,864	)	$	(63,216	)
Amounts recognized on Consolidated Balance Sheets
Postemployment employee benefit (liability) asset
Current	$	(100	)	$	(96	)	$	(136	)	$	(100	)
Noncurrent	(15,946		)	1,506			(70,728		)	(63,116		)
Total	$	(16,046	)	$	1,410		$	(70,864	)	$	(63,216	)


(1)	Includes the Company's PEP.

The Company recognizes a liability for its underfunded benefit plans as required by the Compensation - Retirement Benefits Topic of the ASC. The Company records the offset to regulatory assets for the portion of liability relating to its regulated utility and to accumulated other comprehensive income for the portion of the liability related to its non-regulated operations.

The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income as of September 30:



	Regulatory Assets							Accumulated Other Comprehensive Income (Loss)
	Pension			OPEB				Pension			OPEB
Balance at September 30, 2012	$	80,449		$	58,799		⁽¹⁾	$	25,183		$	1,511
Amounts arising during the period:
Net actuarial (gain)	(17,961		)	(13,523		)		(8,826		)	(3,589		)
Amounts amortized to net periodic costs:
Net actuarial (loss)	(5,719		)	(3,743		)		(1,927		)	(114		)
Prior service (cost) credit	(105		)	301				(3		)	54
Net transition obligation	—			(22		)		—			(4		)
Balance at September 30, 2013	$	56,664		$	41,812			$	14,427		$	(2,142	)
Amounts arising during the period:
Net actuarial loss	10,563			4,277				6,243			2,098
Amounts amortized to net periodic costs:
Net actuarial (loss) gain	(5,326		)	(2,607		)		(3,085		)	107
Prior service (cost) credit	(107		)	303				(4		)	54
Net transition obligation	—			(11		)		—			—
Balance at September 30, 2014	$	61,794		$	43,774			$	17,581		$	117


(1)	Balance represents amounts recognized in accordance with ASC 715 and excludes $308,000 associated with a regulatory asset approved by the BPU for fiscal 2012.

The amounts in regulatory assets and accumulated other comprehensive income not yet recognized as components of net periodic benefit cost as of September 30 are:



	Regulatory Assets										Accumulated Other Comprehensive Income (Loss)
	Pension				OPEB						Pension				OPEB
(Thousands)	2014		2013		2014			2013			2014		2013		2014			2013
Net actuarial loss (gain)	$	60,797	$	55,559	$	45,809		$	44,140		$	17,570	$	14,412	$	425		$	(1,782	)
Prior service cost (credit)	997		1,105		(2,035		)	(2,339		)	11		15		(308		)	(360		)
Net transition obligation	—		—		—			11			—		—		—			—
Total	$	61,794	$	56,664	$	43,774		$	41,812		$	17,581	$	14,427	$	117		$	(2,142	)

Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost in fiscal 2015 are as follows:



	Regulatory Assets					Accumulated Other Comprehensive Income (Loss)
(Thousands)	Pension		OPEB			Pension		OPEB
Net actuarial loss	$	5,305	$	2,911		$	1,680	$	32
Prior service cost (credit)	108		(311		)	3		(54		)
Total	$	5,413	$	2,600		$	1,683	$	(22	)

The accumulated benefit obligation for the pension plans, including the PEP, exceeded the fair value of plan assets. The projected benefit and accumulated benefit obligations and the fair value of plan assets as of September 30, are as follows:



	Pension
(Thousands)	2014		2013
Projected benefit obligation	$	227,699	$	198,826
Accumulated benefit obligation	$	198,058	$	176,172
Fair value of plan assets	$	211,653	$	200,236

The components of the net periodic cost for pension benefits, including the Company's PEP, and OPEB costs (principally health care and life insurance) for employees and covered dependents for fiscal years ended September 30, are as follows:



	Pension									OPEB
(Thousands)	2014			2013			2012			2014			2013			2012
Service cost	$	6,143		$	6,871		$	5,375		$	3,923		$	4,686		$	3,584
Interest cost	10,066			8,942			8,825			5,734			5,148			5,133
Expected return on plan assets	(15,475		)	(14,825		)	(12,685		)	(4,174		)	(3,653		)	(2,746		)
Recognized actuarial loss	5,596			7,646			5,015			2,500			3,857			2,894
Prior service cost (credit) amortization	111			108			46			(357		)	(355		)	25
Recognized net initial obligation	—			—			—			11			26			356
Net periodic benefit cost	$	6,441		$	8,742		$	6,576		$	7,637		$	9,709		$	9,246
Special termination benefit	2,814			—			—			648			—			—
Net periodic benefit cost recognized as expense	$	9,255		$	8,742		$	6,576		$	8,285		$	9,709		$	9,246

The weighted average assumptions used to determine benefit costs during the fiscal year and obligations as of September 30, are as follows:



	Pension							OPEB
	2014			2013		2012		2014		2013		2012
Benefit costs:
Discount rate	5.15	%		4.30	%	5.25	%	5.15	%	4.30	%	5.25	%
Expected asset return	8.25	%		8.50	%	8.25	%	8.25	%	8.50	%	8.25	%
Compensation increase	3.25	%		3.25	%	3.25	%	3.50	%	3.25	%	3.25	%

Obligations:
Discount rate	4.55	%		5.15	%	4.30	%	4.55	%	5.15	%	4.30	%
Compensation increase	3.25/3.50%		⁽¹⁾	3.25	%	3.25	%	3.50	%	3.25	%	3.25	%


(1)	Percentages for represented and nonrepresented plans, respectively.

In selecting an assumed discount rate, the Company uses a modeling process that involves selecting a portfolio of high-quality corporate debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of the Company's expected future benefit payments. The Company considers the results of this modeling process, as well as overall rates of return on high-quality corporate bonds and changes in such rates over time, to determine its assumed discount rate.

Information relating to the assumed HCCTR used to determine expected OPEB benefits as of September 30, and the effect of a one percent change in the rate, are as follows:



($ in thousands)	2014			2013			2012
HCCTR	7.1		%	7.3		%	7.5		%
Ultimate HCCTR	4.8		%	4.8		%	4.8		%
Year ultimate HCCTR reached	2022			2022			2022

Effect of a 1 percentage point increase in the HCCTR on:
Year-end benefit obligation	$	20,965		$	18,008		$	21,278
Total service and interest cost	$	1,885		$	2,156		$	1,868
Effect of a 1 percentage point decrease in the HCCTR on:
Year-end benefit obligation	$	(16,932	)	$	(14,629	)	$	(17,034	)
Total service and interest costs	$	(1,493	)	$	(1,675	)	$	(1,457	)

The Company's investment objective is a long-term real rate of return on assets before permissible expenses that is approximately 6 percent greater than the assumed rate of inflation as measured by the consumer price index. The expected long-term rate of return is based on the asset categories in which the Company invests and the current expectations and historical performance for these categories.

The mix and targeted allocation of the pension and OPEB plans' assets are as follows:



	2015		Assets at
	Target		September 30,
Asset Allocation	Allocation		2014		2013
U.S. equity securities	40	%	39	%	42	%
International equity securities	20		20		22
Fixed income	40		41		36
Total	100	%	100	%	100	%

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years:



(Thousands)	Pension		OPEB
2015	$	7,176	$	3,509
2016	$	8,102	$	4,292
2017	$	8,513	$	4,735
2018	$	9,309	$	5,197
2019	$	10,017	$	5,705
2020 - 2024	$	62,977	$	37,063

The Company 's OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare Part D. Therefore, under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Company qualifies for federal subsidies.

The estimated subsidy payments are:



	Estimated Subsidy Payment
Fiscal Year	(Thousands)
2015	$201
2016	$225
2017	$249
2018	$274
2019	$300
2020 - 2024	$2,030

Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:



	Quoted Prices in Active Markets for Identical Assets (Level 1)
(Thousands)	Pension				OPEB
Assets	2014		2013		2014		2013
Money market funds	$	50	$	3	$	1,154	$	1,150
Registered Investment Companies-
Equity Funds
Large Cap Index	70,358		69,707		19,092		16,419
Extended Market Index	12,475		14,736		3,733		3,444
International Stock	41,833		42,792		10,309		10,033
Fixed Income Funds
Emerging Markets	10,029		8,754		2,798		2,163
Core Fixed Income	—		—		6,522		11,684
Opportunistic Income	—		—		3,960		—
Ultra Short Duration	—		—		3,761		—
High Yield Bond Fund	21,054		19,850		5,580		4,662
Long Duration Fund	55,854		44,394		—		—
Total assets at fair value	$	211,653	$	200,236	$	56,909	$	49,555

The Plan had no Level 2 or Level 3 fair value measurements during the two fiscal years and there have been no changes in valuation methodologies as of September 30, 2014. The following is a description of the valuation methodologies used for assets measured at fair value:

Money Market funds — Represents bank balances and money market funds that are valued based on the net asset value of shares held at year end.

Registered Investment Companies — Equity and fixed income funds valued at the net asset value of shares held by the plan at year end as reported on the active market on which the individual securities are traded.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Defined Contribution Plan

The Company offers a Savings Plan to eligible employees. As of January 1, 2014, the Company matches 60 percent of participants' contributions up to 6 percent of base compensation. Represented NJRHS employees, non-represented employees hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are eligible for an employer special contribution of between 3 and 4 percent of base compensation, depending on years of service, into the Savings Plan on their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was $2.2 million in fiscal 2014, $1.9 million in fiscal 2013 and $1.7 million in fiscal 2012. The amount contributed for the employer special contribution of the Savings Plan was $374,000 in fiscal 2014, $193,000 in fiscal 2013 and $143,000 in fiscal 2012.