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Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2012
Employee Benefit Plans | 15. EMPLOYEE BENEFIT PLANS Retirement Plans We sponsor a defined benefit pension plan (“Chesapeake Pension Plan”), an unfunded pension supplemental executive retirement plan (“Chesapeake SERP”), and an unfunded postretirement health care and life insurance plan (“Chesapeake Postretirement Plan”). As a result of the merger with FPU in October 2009, we now also sponsor and maintain a separate defined benefit pension plan for FPU (“FPU Pension Plan”) and a separate unfunded postretirement medical plan for FPU (“FPU Medical Plan”). We measure the assets and obligations of the defined benefit pension plans and other postretirement benefits plans to determine the plans’ funded status as of the end of the year as an asset or a liability on our consolidated balance sheets. We record as a component of other comprehensive income/loss or a regulatory asset the changes in funded status that occurred during the year that are not recognized as part of net periodic benefit costs. The following table presents the amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income/loss or as a regulatory asset as of December 31, 2012:
(in thousands) |  | Chesapeake Pension Plan |  |  | FPU Pension Plan |  |  | Chesapeake SERP |  |  | Chesapeake Postretirement Plan |  |  | FPU Medical Plan |  |  | Total |
Prior service cost (credit) |  |  | ($ 1) |  |  | $ | — |  |  | $ | 46 |  |  |  | ($986) |  |  | $ | — |  |  |  | ($941) |
Net loss |  |  | 4,379 |  |  |  | 15,517 |  |  |  | 858 |  |  |  | 1,144 |  |  |  | 18 |  |  |  | 21,916 |
Total |  | $ | 4,378 |  |  | $ | 15,517 |  |  | $ | 904 |  |  | $ | 158 |  |  | $ | 18 |  |  | $ | 20,975 |
Accumulated other comprehesive loss pre-tax(1) |  | $ | 4,378 |  |  | $ | 2,948 |  |  | $ | 904 |  |  | $ | 158 |  |  | $ | 3 |  |  | $ | 8,391 |
Post-merger regulatory asset |  |  | — |  |  |  | 12,569 |  |  |  | — |  |  |  | — |  |  |  | 15 |  |  |  | 12,584 |
Subtotal |  |  | 4,378 |  |  |  | 15,517 |  |  |  | 904 |  |  |  | 158 |  |  |  | 18 |  |  |  | 20,975 |
Pre-merger regulatory asset |  |  | — |  |  |  | 5,109 |  |  |  | — |  |  |  | — |  |  |  | 62 |  |  |  | 5,171 |
Total unrecognized cost |  | $ | 4,378 |  |  | $ | 20,626 |  |  | $ | 904 |  |  | $ | 158 |  |  | $ | 80 |  |  | $ | 26,146 |
(1) | The total amount of accumulated other comprehensive loss recorded on our consolidated balance sheet as of December 31, 2012 is net of income tax benefits of $3.3 million.
The pre-merger regulatory asset of $5.2 million at December 31, 2012 represents the portion attributable to FPU’s regulated energy operations of the changes in the funded status in the FPU Pension Plan and FPU Medical Plan that occurred but were not recognized, as part of the net periodic benefit costs prior to the merger. This portion was deferred as a regulatory asset prior to the merger by FPU pursuant to a previous order by the Florida PSC and continues to be amortized over the remaining service period of the participants at the time of the merger. During 2012 and 2011, we experienced a significant decline in interest and other corporate bond rates, and as a result, we used lower discount rates for our pension and other postretirement plans at December 31, 2012 and 2011 to estimate the benefit obligations of those plans. We also experienced a decline in plan asset values during 2011, which, in conjunction with the higher benefit obligations, resulted in higher unrecognized costs at December 31, 2012 and 2011. The total unrecognized cost of our pension and postretirement benefits plans was $26.1 million and $23.1 million at December 31, 2012 and 2011, respectively, compared to $13.9 million at December 31, 2010. The amounts in accumulated other comprehensive income/loss and regulatory asset for our pension and postretirement benefits plans that are expected to be recognized as a component of net benefit cost in 2013 are set forth in the following table:
(in thousands) |  | Chesapeake Pension Plan |  |  | FPU Pension Plan |  |  | Chesapeake SERP |  |  | Chesapeake Postretirement Plan |  |  | FPU Medical Plan |  |  | Total |
Prior service cost (credit) |  |  | ($1) |  |  | $ | — |  |  | $ | 19 |  |  |  | ($77) |  |  | $ | — |  |  |  | ($59) |
Net loss |  | $ | 308 |  |  | $ | 332 |  |  | $ | 64 |  |  | $ | 74 |  |  | $ | — |  |  | $ | 778 |
Amortization of pre-merger regulatory asset |  | $ | — |  |  | $ | 761 |  |  | $ | — |  |  | $ | — |  |  | $ | 8 |  |  | $ | 769 |
In March 2011, new plan provisions for the FPU Medical Plan were adopted in a continuing effort to standardize FPU’s benefits with those offered by Chesapeake. The new plan provisions, which became effective January 1, 2012, require eligible employees retiring in 2012 through 2014 to pay a portion of the total benefit costs based on the year they retire. Participants retiring in 2015 and after will be required to pay the full benefit costs associated with participation in the FPU Medical Plan. The change in the FPU Medical Plan resulted in a curtailment gain of $892,000. We recorded $170,000 of this curtailment gain, which was allocated to FPU’s unregulated operations, in 2012. We deferred $722,000 of this curtailment gain and included it as a regulatory liability at December 31, 2012. The deferred portion of our curtailment gain was associated with FPU’s regulated operations. Since we determined that the non-recurring gain resulted from the FPU merger and the related integration, we determined that the appropriate accounting treatment prescribed deferral and amortization over a future period, as specified by the Florida PSC. In January 2011, a former executive officer retired and received lump-sum pension distributions of $844,000 and $765,000 from the Chesapeake Pension Plan and Chesapeake SERP, respectively. In connection with these lump-sum payment distributions, we recorded $436,000 in pension settlement losses in addition to the net benefit cost in 2011. Based upon the current funding status of the Chesapeake Pension Plan, which does not meet or exceed 110 percent of the benefit obligation as required per the Department of Labor regulations, our former executive officer was required to deposit property equal to 125 percent of the restricted portion of his lump sum distribution into an escrow. Each year, an amount equal to the value of payments that would have been paid to him if he had elected the life annuity form of distribution will become unrestricted. Property equal to the life annuity amount will be returned to him from the escrow account. These same regulations will apply to the top 20 highest compensated employees taking distributions from the Pension Plan. Defined Benefit Pension Plans The Chesapeake Pension Plan was closed to new participants effective January 1, 1999, and was frozen with respect to additional years of service and additional compensation effective January 1, 2005. Benefits under the Chesapeake Pension Plan were based on each participant’s years of service and highest average compensation, prior to the freezing of the plan. The FPU Pension Plan covers eligible FPU non-union employees hired before January 1, 2005 and union employees hired before the respective union contract expiration dates in 2005 and 2006. Prior to the merger, the FPU Pension Plan was frozen with respect to additional years of service and additional compensation effective December 31, 2009. Our funding policy provides that payments to the trustee of each plan shall be equal to at least the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The following schedule summarizes the assets of the Chesapeake Pension Plan and the FPU Pension Plan, by investment type, at December 31, 2012, 2011 and 2010:
|  | Chesapeake Pension Plan |  |  | FPU Pension Plan |
At December 31, |  | 2012 |  |  | 2011 |  |  | 2010 |  |  | 2012 |  |  | 2011 |  |  | 2010 |
Asset Category |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  | 52.07 | % |  |  | 51.75 | % |  |  | 64.33 | % |  |  | 52.81 | % |  |  | 51.98 | % |  |  | 60.00 | %
Debt securities |  |  | 38.00 | % |  |  | 37.88 | % |  |  | 30.60 | % |  |  | 38.04 | % |  |  | 38.05 | % |  |  | 35.00 | %
Other |  |  | 9.93 | % |  |  | 10.37 | % |  |  | 5.07 | % |  |  | 9.15 | % |  |  | 9.97 | % |  |  | 5.00 | %
Total |  |  | 100.00 | % |  |  | 100.00 | % |  |  | 100.00 | % |  |  | 100.00 | % |  |  | 100.00 | % |  |  | 100.00 | %
In December 2011, we changed the investments and investment asset allocation of our pension assets to better align them with the investment goals and objectives established for the Plans. This change also resulted in the pension assets of the Chesapeake Pension Plan and FPU Pension Plan being invested in similar investments. The investment policy of both the Chesapeake and FPU Pension Plans is designed to provide the capital assets necessary to meet the financial obligations of the plans. The investment goals and objectives are to achieve investment returns that together with contributions will provide funds adequate to pay promised benefits to present and future beneficiaries of the plans, earn a long-term investment return in excess of the growth of the Plans’ retirement liabilities, minimize pension expense and cumulative contributions resulting from liability measurement and asset performance, and maintain a diversified portfolio to reduce the risk of large losses. On June 29, 2012, the United States Congress passed the “Moving Ahead for Progress in the 21 st Century Act” (also known as the “Transportation and Student Loan Bill”). Included in this legislation was pension funding relief, which allows pension sponsors to use 25-year average corporate bond rates rather than current interest rates to measure pension obligations for pension funding purposes. Although this legislation does not affect the accounting treatment of pension plans, the allowed use of higher interest rates to measure pension plan obligations for funding purposes reduces the minimum pension plan contribution requirements. Despite the reduction in the minimum pension plan contribution requirements, we made 2012 pension plan contributions at levels similar to those we had initially estimated prior to the passage of the legislation. This represented minimum contribution payments using the current interest rates to measure pension plan obligations as well as additional contributions to achieve a certain level of funding in those plans. The following allocation range of asset classes is intended to produce a rate of return sufficient to meet the Plans’ goals and objectives:
Asset Allocation Strategy |
Asset Class |  | Minimum Allocation Percentage |  |  | Maximum Allocation Percentage |
Domestic Equities (Large Cap, Mid Cap and Small Cap) |  |  | 14 | % |  |  | 32 | %
Foreign Equities (Developed and Emerging Markets) |  |  | 13 | % |  |  | 25 | %
Fixed Income (Inflation Bond and Taxable Fixed) |  |  | 26 | % |  |  | 40 | %
Alternative Strategies (Long/Short Equity and Hedge Fund of Funds) |  |  | 6 | % |  |  | 14 | %
Diversifying Assets (High Yield Fixed Income, Commodities, and Real Estate) |  |  | 7 | % |  |  | 19 | %
Cash |  |  | 0 | % |  |  | 5 | %
Due to periodic contributions and different asset classes producing varying returns, the actual asset values may temporarily move outside of the intended ranges. The investments are monitored on a quarterly basis, at a minimum, for asset allocation and performance. At December 31, 2012, the assets of the Chesapeake Pension Plan and the FPU Pension Plan were comprised of the following investments:
|  | Fair Value Measurement Hierarchy |  |  |  |
Asset Category |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Large Cap (1) |  | $ | 3,504 |  |  | $ | 3,443 |  |  | $ | — |  |  | $ | 6,947 |
U.S. Mid Cap (1) |  |  | — |  |  |  | 3,078 |  |  |  | — |  |  |  | 3,078 |
U.S. Small Cap (1) |  |  | — |  |  |  | 1,523 |  |  |  | — |  |  |  | 1,523 |
International (2) |  |  | 10,019 |  |  |  | — |  |  |  | — |  |  |  | 10,019 |
Alternative Strategies (3) |  |  | 4,978 |  |  |  | — |  |  |  | — |  |  |  | 4,978 |
|  |  | 18,501 |  |  |  | 8,044 |  |  |  | — |  |  |  | 26,545 |
Debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Inflation Protected (4) |  |  | 2,507 |  |  |  | — |  |  |  | — |  |  |  | 2,507 |
Fixed income (5) |  |  | — |  |  |  | 14,109 |  |  |  | — |  |  |  | 14,109 |
High Yield (5) |  |  | — |  |  |  | 2,547 |  |  |  | — |  |  |  | 2,547 |
|  |  | 2,507 |  |  |  | 16,656 |  |  |  | — |  |  |  | 19,163 |
Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodities (6) |  |  | 1,918 |  |  |  | — |  |  |  | — |  |  |  | 1,918 |
Real Estate (7) |  |  | 2,048 |  |  |  | — |  |  |  | — |  |  |  | 2,048 |
Guaranteed deposit (8) |  |  | — |  |  |  | — |  |  |  | 710 |  |  |  | 710 |
|  |  | 3,966 |  |  |  | — |  |  |  | 710 |  |  |  | 4,676 |
Total Pension Plan Assets |  | $ | 24,974 |  |  | $ | 24,700 |  |  | $ | 710 |  |  | $ | 50,384 |
(1) | Includes funds that invest primarily in United States common stocks.
(2) | Includes funds that invest primarily in foreign equities and emerging markets equities.
(3) | Includes funds that actively invest in both equity and debt securities, funds that sell short securities and funds that provide long-term capital appreciation. The funds may invest in debt securities below investment grade.
(4) | Includes funds that invest primarily in inflation-indexed bonds issued by the U.S. government.
(5) | Includes funds that invest in investment grade and fixed income securities.
(6) | Includes funds that invest primarily in commodity-linked derivative instruments and fixed income securities.
(7) | Includes funds that invest primarily in real estate.
(8) | Includes investment in a group annuity product issued by an insurance company.
At December 31, 2011, the assets of the Chesapeake Pension Plan and the FPU Pension Plan were comprised of the following investments:
|  | Fair Value Measurement Hierarchy |  |  |  |
Asset Category |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Large Cap (1) |  | $ | 3,146 |  |  | $ | 3,151 |  |  | $ | — |  |  | $ | 6,297 |
U.S. Mid Cap (1) |  |  | — |  |  |  | 2,683 |  |  |  | — |  |  |  | 2,683 |
U.S. Small Cap (1) |  |  | — |  |  |  | 1,341 |  |  |  | — |  |  |  | 1,341 |
International (2) |  |  | 8,563 |  |  |  | — |  |  |  | — |  |  |  | 8,563 |
Alternative Strategies (3) |  |  | 4,489 |  |  |  | — |  |  |  | — |  |  |  | 4,489 |
|  |  | 16,198 |  |  |  | 7,175 |  |  |  | — |  |  |  | 23,373 |
Debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Inflation Protected (4) |  |  | 2,237 |  |  |  | — |  |  |  | — |  |  |  | 2,237 |
Fixed income (5) |  |  | — |  |  |  | 12,617 |  |  |  | — |  |  |  | 12,617 |
High Yield (5) |  |  | — |  |  |  | 2,256 |  |  |  | — |  |  |  | 2,256 |
|  |  | 2,237 |  |  |  | 14,873 |  |  |  | — |  |  |  | 17,110 |
Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodities (6) |  |  | 1,789 |  |  |  | — |  |  |  | — |  |  |  | 1,789 |
Real Estate (7) |  |  | 1,797 |  |  |  | — |  |  |  | — |  |  |  | 1,797 |
Guaranteed deposit (8) |  |  | — |  |  |  | — |  |  |  | 897 |  |  |  | 897 |
Other |  |  | 32 |  |  |  | — |  |  |  | — |  |  |  | 32 |
|  |  | 3,618 |  |  |  | — |  |  |  | 897 |  |  |  | 4,515 |
Total Pension Plan Assets |  | $ | 22,053 |  |  | $ | 22,048 |  |  | $ | 897 |  |  | $ | 44,998 |
(1) | Includes funds that invest primarily in United States common stocks.
(2) | Includes funds that invest primarily in foreign equities and emerging markets equities.
(3) | Includes funds that actively invest in both equity and debt securities, funds that sell short securities and funds that provide long-term capital appreciation. The funds may invest in debt securities below investment grade.
(4) | Includes funds that invest primarily in inflation-indexed bonds issued by the U.S. government.
(5) | Includes funds that invest in investment grade and fixed income securities.
(6) | Includes funds that invest primarily in commodity-linked derivative instruments and fixed income securities.
(7) | Includes funds that invest primarily in real estate.
(8) | Includes investment in a group annuity product issued by an insurance company.
At December 31, 2012 and 2011, all of the investments classified under Level 1 of the fair value measurement hierarchy were recorded at fair value based on unadjusted quoted prices in active markets for identical investments. The Level 2 investments were recorded at fair value based on net asset value per unit of the investments, which used significant observable inputs although those investments were not traded publicly and did not have quoted market prices in active markets. The Level 3 investments were guaranteed deposit accounts, which were valued based on the liquidation value of those accounts, including the effect of the balance and interest guarantee and liquidation restriction. The following table sets forth the summary of the changes in the fair value of Level 3 investments for the years ended December 31, 2012 and 2011:
At December 31, |  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |
Balance, beginning of year |  | $ | 897 |  |  | $ | — |
Purchases |  |  | 79 |  |  |  | 897 |
Transfers in |  |  | 3,620 |  |  |  | — |
Disbursements |  |  | (3,902 | ) |  |  | — |
Investment Income |  |  | 16 |  |  |  | — |
Balance, end of year |  | $ | 710 |  |  | $ | 897 |
The following schedule sets forth the funded status at December 31, 2012 and 2011:
|  | Chesapeake Pension Plan |  |  | FPU Pension Plan |
At December 31, |  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Change in benefit obligation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Benefit obligation — beginning of year |  | $ | 11,672 |  |  | $ | 11,760 |  |  | $ | 57,999 |  |  | $ | 52,478 |
Interest cost |  |  | 458 |  |  |  | 520 |  |  |  | 2,577 |  |  |  | 2,695 |
Actuarial loss |  |  | 726 |  |  |  | 941 |  |  |  | 6,915 |  |  |  | 5,403 |
Benefits paid |  |  | (923 | ) |  |  | (705 | ) |  |  | (2,979 | ) |  |  | (2,577 | )
Effect of settlement |  |  | — |  |  |  | (844 | ) |  |  | — |  |  |  | — |
Benefit obligation — end of year |  |  | 11,933 |  |  |  | 11,672 |  |  |  | 64,512 |  |  |  | 57,999 |
Change in plan assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets — beginning of year |  |  | 7,162 |  |  |  | 7,787 |  |  |  | 37,836 |  |  |  | 40,201 |
Actual return on plan assets |  |  | 849 |  |  |  | (124 | ) |  |  | 4,526 |  |  |  | (1,101 | )
Employer contributions |  |  | 1,342 |  |  |  | 1,048 |  |  |  | 2,571 |  |  |  | 1,313 |
Benefits paid |  |  | (923 | ) |  |  | (705 | ) |  |  | (2,979 | ) |  |  | (2,577 | )
Effect of settlement |  |  | — |  |  |  | (844 | ) |  |  | — |  |  |  | — |
Fair value of plan assets — end of year |  |  | 8,430 |  |  |  | 7,162 |  |  |  | 41,954 |  |  |  | 37,836 |
Reconciliation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Funded status |  |  | (3,503 | ) |  |  | (4,510 | ) |  |  | (22,558 | ) |  |  | (20,163 | )
Accrued pension cost |  |  | ($3,503 | ) |  |  | ($4,510 | ) |  |  | ($22,558 | ) |  |  | ($20,163 | )
Assumptions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 3.50 | % |  |  | 4.25 | % |  |  | 3.75 | % |  |  | 4.50 | %
Expected return on plan assets |  |  | 6.00 | % |  |  | 6.00 | % |  |  | 7.00 | % |  |  | 7.00 | %
Net periodic pension cost (benefit) for the plans for 2012, 2011 and 2010 include the components shown below:
|  | Chesapeake |  |  | FPU |
|  | Pension Plan |  |  | Pension Plan |
For the Years Ended December 31, |  | 2012 |  |  | 2011 |  |  | 2010 |  |  | 2012 |  |  | 2011 |  |  | 2010 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Components of net periodic pension cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest cost |  | $ | 458 |  |  | $ | 520 |  |  | $ | 570 |  |  | $ | 2,577 |  |  | $ | 2,695 |  |  | $ | 2,729 |
Expected return on assets |  |  | (418 | ) |  |  | (424 | ) |  |  | (423 | ) |  |  | (2,627 | ) |  |  | (2,783 | ) |  |  | (2,532 | )
Amortization of prior service cost |  |  | (5 | ) |  |  | (5 | ) |  |  | (5 | ) |  |  | — |  |  |  | — |  |  |  | — |
Amortization of actuarial loss |  |  | 255 |  |  |  | 156 |  |  |  | 155 |  |  |  | 196 |  |  |  | — |  |  |  | — |
Net periodic pension cost |  |  | 290 |  |  |  | 247 |  |  |  | 297 |  |  |  | 146 |  |  |  | (88 | ) |  |  | 197 |
Settlement expense |  |  | — |  |  |  | 217 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Amortization of pre-merger regulatory asset |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 761 |  |  |  | 761 |  |  |  | 888 |
Total periodic cost |  | $ | 290 |  |  | $ | 464 |  |  | $ | 297 |  |  | $ | 907 |  |  | $ | 673 |  |  | $ | 1,085 |
Assumptions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 4.25 | % |  |  | 5.00 | % |  |  | 5.25 | % |  |  | 4.50 | % |  |  | 5.25 | % |  |  | 5.75 | %
Expected return on plan assets |  |  | 6.00 | % |  |  | 6.00 | % |  |  | 6.00 | % |  |  | 7.00 | % |  |  | 7.00 | % |  |  | 7.00 | %
Pension Supplemental Executive Retirement Plan The Chesapeake SERP was frozen with respect to additional years of service and additional compensation as of December 31, 2004. Benefits under the Chesapeake SERP were based on each participant’s years of service and highest average compensation, prior to the freezing of the plan. The accumulated benefit obligation for the Chesapeake SERP, which is unfunded, was $2.4 million and $2.2 million, at December 31, 2012 and 2011, respectively.
At December 31, |  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |
Change in benefit obligation: |  |  |  |  |  |  |  |
Benefit obligation — beginning of year |  | $ | 2,160 |  |  | $ | 2,731 |
Interest cost |  |  | 90 |  |  |  | 107 |
Actuarial loss |  |  | 191 |  |  |  | 176 |
Benefits paid |  |  | (89 | ) |  |  | (89 | )
Effect of settlement |  |  | — |  |  |  | (765 | )
Benefit obligation — end of year |  |  | 2,352 |  |  |  | 2,160 |
Change in plan assets: |  |  |  |  |  |  |  |
Fair value of plan assets — beginning of year |  |  | — |  |  |  | — |
Employer contributions |  |  | 89 |  |  |  | 854 |
Benefits paid |  |  | (89 | ) |  |  | (89 | )
Effect of settlement |  |  | — |  |  |  | (765 | )
Fair value of plan assets — end of year |  |  | — |  |  |  | — |
Reconciliation: |  |  |  |  |  |  |  |
Funded status |  |  | (2,352 | ) |  |  | (2,160 | )
Accrued pension cost |  |  | ($2,352 | ) |  |  | ($2,160 | )
Assumptions: |  |  |  |  |  |  |  |
Discount rate |  |  | 3.50 | % |  |  | 4.25 | %
Net periodic pension costs for the Chesapeake SERP for 2012, 2011, and 2010 include the components shown below:
For the Years Ended December 31, |  | 2012 |  |  | 2011 |  |  | 2010 |
(in thousands) |  |  |  |  |  |  |  |  |
Components of net periodic pension cost: |  |  |  |  |  |  |  |  |  |  |  |
Interest cost |  | $ | 90 |  |  | $ | 107 |  |  | $ | 136 |
Amortization of prior service cost |  |  | 19 |  |  |  | 19 |  |  |  | 18 |
Amortization of actuarial loss |  |  | 46 |  |  |  | 38 |  |  |  | 59 |
Net periodic pension cost |  |  | 155 |  |  |  | 164 |  |  |  | 213 |
Settlement expense |  |  | — |  |  |  | 219 |  |  |  | — |
Total periodic cost |  | $ | 155 |  |  | $ | 383 |  |  | $ | 213 |
Assumptions: |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 4.25 | % |  |  | 5.00 | % |  |  | 5.25 | %
Other Postretirement Benefits Plans The following schedule sets forth the status of other postretirement benefit plans:
|  | Chesapeake |  |  | FPU |
|  | Postretirement Plan |  |  | Medical Plan |
At December 31, |  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Change in benefit obligation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Benefit obligation — beginning of year |  | $ | 1,396 |  |  | $ | 2,474 |  |  | $ | 4,081 |  |  | $ | 3,098 |
Service cost |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | 125 |
Interest cost |  |  | 55 |  |  |  | 64 |  |  |  | 79 |  |  |  | 176 |
Plan amendments |  |  | — |  |  |  | (1,140 | ) |  |  | — |  |  |  | — |
Plan participants contributions |  |  | 111 |  |  |  | 108 |  |  |  | 92 |  |  |  | 88 |
Curtailment gain |  |  | — |  |  |  | — |  |  |  | (2,651 | ) |  |  | — |
Actuarial loss |  |  | 39 |  |  |  | 100 |  |  |  | 500 |  |  |  | 802 |
Benefits paid |  |  | (186 | ) |  |  | (210 | ) |  |  | (328 | ) |  |  | (208 | )
Benefit obligation — end of year |  |  | 1,415 |  |  |  | 1,396 |  |  |  | 1,774 |  |  |  | 4,081 |
Change in plan assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets — beginning of year |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Employer contributions(1) |  |  | 75 |  |  |  | 102 |  |  |  | 236 |  |  |  | 120 |
Plan participants contributions |  |  | 111 |  |  |  | 108 |  |  |  | 92 |  |  |  | 88 |
Benefits paid |  |  | (186 | ) |  |  | (210 | ) |  |  | (328 | ) |  |  | (208 | )
Fair value of plan assets — end of year |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Reconciliation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Funded status |  |  | (1,415 | ) |  |  | (1,396 | ) |  |  | (1,774 | ) |  |  | (4,081 | )
Accrued postretirement cost |  |  | ($1,415 | ) |  |  | ($1,396 | ) |  |  | ($1,774 | ) |  |  | ($4,081 | )
Assumptions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 3.50 | % |  |  | 4.25 | % |  |  | 3.75 | % |  |  | 4.50 | %
(1) | Chesapeake’s Postretirement Plan does not receive a Medicare Part-D subsidy. The FPU Medical Plan did not receive a significant subsidy for the post-merger period.
Net periodic postretirement benefit costs for 2012, 2011, and 2010 include the following components:
|  | Chesapeake |  |  | FPU |
|  | Postretirement Plan |  |  | Medical Plan |
For the Years Ended December 31, |  | 2012 |  |  | 2011 |  |  | 2010 |  |  | 2012 |  |  | 2011 |  |  | 2010 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Components of net periodic postretirement cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | 125 |  |  | $ | 76 |
Interest cost |  |  | 55 |  |  |  | 64 |  |  |  | 122 |  |  |  | 79 |  |  |  | 176 |  |  |  | 123 |
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Actuarial (gain) loss |  |  | 73 |  |  |  | 67 |  |  |  | 57 |  |  |  | — |  |  |  | 55 |  |  |  | (6 | )
Prior service cost |  |  | (77 | ) |  |  | (77 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Net periodic postretirement cost |  | $ | 51 |  |  | $ | 54 |  |  | $ | 179 |  |  | $ | 80 |  |  | $ | 356 |  |  | $ | 193 |
Curtailment gain |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (892 | ) |  |  | — |  |  |  | — |
Net periodic postretirement cost |  | $ | 51 |  |  | $ | 54 |  |  | $ | 179 |  |  |  | ($812 | ) |  | $ | 356 |  |  | $ | 193 |
Assumptions |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 4.25 | % |  |  | 5.00 | % |  |  | 5.25 | % |  |  | 4.50 | % |  |  | 5.25 | % |  |  | 5.75 | %
In addition, we recorded an expense of $8,000 in 2012 and 2011, and $9,000 in 2010, related to continued amortization of FPU’s pre-merger postretirement benefit regulatory asset. Assumptions The assumptions used for the discount rate to calculate the benefit obligations of all the plans were based on the interest rates of high-quality bonds in 2012, reflecting the expected lives of the plans. In determining the average expected return on plan assets for each applicable plan, various factors, such as historical long-term return experience, investment policy and current and expected allocation, were considered. Since Chesapeake’s plans and FPU’s plans have different expected plan lives and investment policies, particularly in light of the lump-sum-payment option provided in the Chesapeake Pension Plan, different assumptions regarding discount rate and expected return on plan assets were selected for Chesapeake’s plans and FPU’s plans. Since both pension plans are frozen with respect to additional years of service and compensation, the rate of assumed compensation increases is not applicable. The health care inflation rate for 2012 used to calculate the benefit obligation is 6.0 percent for medical and 7.0 percent for prescription drugs for the Chesapeake Postretirement Plan; and 7.5 percent for the FPU Medical Plan. A one–percentage point increase in the health care inflation rate from the assumed rate would increase the accumulated postretirement benefit obligation by approximately $255,000 as of December 31, 2012, and would increase the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for 2012 by approximately $11,000. A one-percentage point decrease in the health care inflation rate from the assumed rate would decrease the accumulated postretirement benefit obligation by approximately $222,000 as of December 31, 2012, and would decrease the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for 2012 by approximately $10,000. Estimated Future Benefit Payments In 2013, we expect to contribute $325,000 and $650,000 to the Chesapeake Pension Plan and FPU Pension Plan, respectively, and $88,000 to the Chesapeake SERP. We also expect to contribute $97,000 and $258,000 to the Chesapeake Postretirement Plan and FPU Medical Plan, respectively, in 2013. The schedule below shows the estimated future benefit payments for each of the plans previously described:
|  | Chesapeake Pension Plan(1) |  |  | FPU Pension Plan(1) |  |  | Chesapeake SERP(2) |  |  | Chesapeake Postretirement Plan(2) |  |  | FPU Medical Plan(2) |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2013 |  | $ | 564 |  |  | $ | 2,816 |  |  | $ | 88 |  |  | $ | 97 |  |  | $ | 258 |
2014 |  | $ | 496 |  |  | $ | 2,881 |  |  | $ | 86 |  |  | $ | 99 |  |  | $ | 241 |
2015 |  | $ | 628 |  |  | $ | 2,930 |  |  | $ | 136 |  |  | $ | 101 |  |  | $ | 221 |
2016 |  | $ | 576 |  |  | $ | 2,974 |  |  | $ | 143 |  |  | $ | 98 |  |  | $ | 183 |
2017 |  | $ | 1,194 |  |  | $ | 3,006 |  |  | $ | 141 |  |  | $ | 97 |  |  | $ | 147 |
Years 2018 through 2022 |  | $ | 3,945 |  |  | $ | 16,037 |  |  | $ | 654 |  |  | $ | 451 |  |  | $ | 441 |
(1) | The pension plan is funded; therefore, benefit payments are expected to be paid out of the plan assets.
(2) | Benefit payments are expected to be paid out of our general funds.
On March 23, 2010, the Patient Protection and Affordable Care Act was signed into law. On March 30, 2010, a companion bill, the Health Care and Education Reconciliation Act of 2010, was also signed into law. Among other things, these new laws, when taken together, reduce the tax benefits available to an employer that receives the Medicare Part D subsidy. The deferred tax effects of the reduced deductibility of the postretirement prescription drug coverage must be recognized in the period these new laws were enacted. The FPU Medical Plan receives the Medicare Part D subsidy. We assessed the deferred tax effects on the reduced deductibility as a result of these new laws and determined that the deferred tax effects were not material to our financial results. Retirement Savings Plan Effective January 1, 2012, we sponsor one 401(k) retirement savings plan and one non-qualified supplemental employee retirement savings plan. Our 401(k) plan is offered to all eligible employees who have completed three months of service, except for employees represented by a collective bargaining agreement that does not specifically provide for participation in the plan, non-resident aliens with no U.S. source income and individuals classified as consultants, independent contractors or leased employees. Effective January 1, 2011, we match 100 percent of eligible participants’ pre-tax contributions to the Chesapeake 401(k) plan up to a maximum of six percent of eligible compensation, including pre-tax contributions made by BravePoint employees. In addition, we may make a supplemental contribution to participants in the plan, without regard to whether or not they make pre-tax contributions. Beginning January 1, 2011, the employer matching contribution is made in cash and is invested based on a participant’s investment directions. Any supplemental employer contribution is generally made in Chesapeake stock. With respect to the employer match and supplemental employer contribution, employees are 100 percent vested after two years of service or upon reaching 55 years of age while still employed by Chesapeake. Employees with one year of service are 20 percent vested and will become 100 percent vested after two years of service. Employees who do not make an election to contribute or do not opt out of the Chesapeake 401(k) plan will be automatically enrolled at a deferral rate of three percent, and the automatic deferral rate will increase by one percent per year up to a maximum of six percent. Effective January 1, 1999, we began offering a non-qualified supplemental employee retirement savings plan (“401(k) SERP”) to our executive officers over a specific income threshold. Participants receive a cash-only matching contribution percentage equivalent to their 401(k) match level. All contributions and matched funds can be invested among the mutual funds available for investment. All obligations arising under the 401(k) SERP are payable from our general assets, although we have established a Rabbi Trust for the 401(k) SERP. Assets held in the Rabbi Trust for the 401(k) SERP had a fair value of $2.2 million and $1.7 million at December 31, 2012 and 2011, respectively. (See Note 9, “Investments,” for further details). The assets of the Rabbi Trust are at all times subject to the claims of our general creditors. Prior to January 1, 2012, we sponsored two separate 401(k) retirement savings plans, one for FPU employees and the second covering all other Chesapeake employees. From January 1, 2011 to December 31, 2011, benefits offered under the two separate 401(k) retirement savings plans were substantially the same. Those benefits were also similar to the benefits offered under the one combined 401(k) retirement savings plan, effective January 1, 2012. Prior to January 1, 2011, FPU’s 401(k) plan provided a matching contribution of 50 percent of an employee’s pre-tax contributions, up to six percent of the employee’s salary, for a maximum company contribution of up to three percent. For non-union employees the plan provided a company match of 100 percent for the first two percent of an employee’s contribution, and a match of 50 percent for the next four percent of an employee’s contribution, for a total company match of up to four percent. Employees were automatically enrolled at the three percent contribution level, with the flexibility of opting out, and were eligible for the company match after six months of continuous service, with vesting of 100 percent after three years of continuous service. Prior to January 1, 2011, we made matching contributions up to six percent of the employee’s eligible pre-tax compensation for Chesapeake legacy businesses, except for BravePoint, as further explained below. The match was between 100 percent and 200 percent of the employee’s contribution (up to six percent of eligible compensation), based on the employee’s age and years of service. The first 100 percent was matched with Chesapeake common stock; the remaining match was invested in Chesapeake’s 401(k) Plan according to each employee’s investment direction. Employees were automatically enrolled at a two-percent contribution, with the flexibility of opting out, and were eligible for the company match after three months of continuing service, with vesting of 20 percent per year. From July 1, 2006 to December 31, 2010, our contribution made on behalf of BravePoint employees was a 50 percent matching contribution, for up to six percent of each employee’s annual compensation contributed to the plan. The matching contribution was funded in Chesapeake common stock. The plan was also amended at the same time to enable it to receive discretionary profit-sharing contributions in the form of employee pre-tax deferrals. The extent to which BravePoint had funds available for profit-sharing was dependent upon the extent to which the segment’s actual earnings exceeded budgeted earnings. Any profit-sharing dollars made available to employees could be deferred into the plan and/or paid out in the form of a bonus. Contributions to all of our 401(k) plans totaled $2.9 million for the year ended December 31, 2012, $2.7 million for the year ended December 31, 2011, and $1.7 million for the year ended December 31, 2010. As of December 31, 2012, there are 580,484 shares reserved to fund future contributions to the 401(k) plans. Deferred Compensation Plan On December 7, 2006, the Board of Directors approved the Chesapeake Utilities Corporation Deferred Compensation Plan (“Deferred Compensation Plan”), as amended, effective January 1, 2007. The Deferred Compensation Plan is a non-qualified, deferred compensation arrangement under which certain executives and members of the Board of Directors are able to defer payment of all or a part of certain specified types of compensation, including executive cash bonuses, executive performance shares, and directors’ retainers and fees. At December 31, 2012, the Deferred Compensation Plan consisted solely of shares of common stock related to the deferral of executive performance shares and directors’ stock retainers. Participants in the Deferred Compensation Plan are able to elect the payment of benefits to begin on a specified future date after the election is made in the form of a lump sum or annual installments. Deferrals of executive cash bonuses and directors’ cash retainers and fees are paid in cash. All deferrals of executive performance shares, which represent deferred stock units, and directors’ stock retainers are paid in shares of our common stock, except that cash is paid in lieu of fractional shares. We established a Rabbi Trust in connection with the Deferred Compensation Plan. The value of our stock held in the Rabbi Trust is classified within the stockholders’ equity section of the Balance Sheet and has been accounted for in a manner similar to treasury stock. The amounts recorded under the Deferred Compensation Plan totaled $982,000 and $817,000 at December 31, 2012 and 2011, respectively.

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- Definition The entire disclosure for pension and other postretirement benefits. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 158 -Paragraph 7, 21, 22 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS106-2 -Paragraph 20, 21, 22 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Implementation Guide (Q and A) -Number FAS88 -Paragraph 63 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 106 -Paragraph 518 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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