Empire District Electric Company (EDE)

Pension Benefits

        We maintain The Empire District Electric Company Employees' Retirement Plan (Retirement Plan) covering substantially all of our employees. The Retirement Plan is a noncontributory, trusteed pension plan designed to meet the requirements of Section 401(a) of the Internal Revenue Code. Each covered employee is eligible for retirement at normal retirement date (age 65), with early retirement permitted under certain conditions. We also maintain The Empire District Electric Company Supplemental Executive Retirement Plan (SERP) which covers our officers who are participants in the Retirement Plan. We desire to provide a retirement benefit to our executive officers that is proportional, with respect to percentage of final average annual earnings, to the retirement benefit available to all other eligible employees. However the amount of average annual earnings that can be used to calculate retirement benefits under the Retirement Plan is restricted by Internal Revenue Code limitations. As explained below, the SERP is designed to restore retirement benefits an executive officer would otherwise lose due to such limitations. The SERP is not qualified under the Internal Revenue Code and benefits payable under the plan are paid out of our general funds.

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        The following table sets forth, with respect to each Named Executive Officer, the actuarial present value at December 31, 2007 of accumulated benefits under the Retirement Plan and the SERP, the number of years of credited service and the payments made under such plans during 2007.

(1)

Value represents Actuarial Present Value of age 65 monthly benefit. Assumed discount rate of 5.90%, no pre-retirement mortality or decrements, post-retirement mortality using an industry standard mortality table known as RP2000, and no collar adjustment.

        Normal retirement under the Retirement Plan is age 65, or, for individuals hired after December 31, 1996 and within 5 years of their 65th birthday, normal retirement will be the 5th anniversary of their hire date. Retirement benefits are calculated based on credited service (a plan year after age 21 in which the employee completes 2,080 hours of service), average annual earnings, and Social Security covered compensation. The formula used to determine normal retirement benefits during 2007 was as follows:

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1.250% of average annual earnings up to Social Security covered compensation times years of credited service up to 35 years, plus



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1.625% of average annual earnings in excess of Social Security covered compensation times years of credited service up to 35 years, plus



•

1.625% of average annual earnings times years of credited service in excess of 35 years up to a maximum of 5 additional years of covered service.

        Effective January 1, 2008, the factors in the retirement benefit formula described above were increased to 1.2625%, 1.64125% and 1.64125%, respectively.

        Earnings include base salary, cash incentive amounts, the value of performance-based restricted stock on the award date, and dividend equivalents. Average annual earnings is the average of annual earnings over the five consecutive years within the ten-year period prior to termination of employment which produces the highest average. Early retirement is available at age 55 with 5 years of eligibility service (any plan year after age 21). The benefit is calculated in the same manner as the normal retirement benefit before applying early retirement reduction factors which reduce the normal retirement benefit by a certain percentage. For instance, the normal retirement benefit is reduced by 25% if an employee elects to retire at age 55. If an employee terminates employment after completing five years of vesting service (a plan year after age 18 in which the employee completes 1,000 hours of service), such employee is entitled to a benefit beginning at age 65. The benefit is calculated in the same manner as the normal retirement benefit. Forms of benefits include life only, and 25%, 33¹/3%, or

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66²/3% joint and survivor (J&S) benefits. Election of the J&S benefit (only available to married participants) has the effect of reducing the employee's benefit. The reduction is dependent on the employee's age, the spouse's age, and the J&S benefit percentage elected.

        Executive officers whose accrued benefit under the Retirement Plan is reduced by the limits set forth in Section 401 or Section 415 of the Internal Revenue Code, or whose anticipated earnings for any year exceed $120,000, become a participant in the SERP. Generally, benefits payable under the SERP equal the difference between the benefit calculated under the Retirement Plan without regard to Internal Revenue Code limitations, and the benefit calculated under the Retirement Plan as limited by the Internal Revenue Code. Benefits under the SERP are only payable if benefits under the Retirement Plan are paid. Benefits under the SERP are paid in the same form and manner as benefits under the Retirement Plan. Actuarial equivalencies are determined in accordance with the actuarial assumptions set forth in the Retirement Plan.

        Mr. Knapp and Mr. Gatz are eligible for early retirement under the terms of both plans, however no benefits are payable under the SERP for either individual. The present value of Mr. Knapp's and Mr. Gatz's early retirement benefit under the Retirement Plan, assuming retirement at December 31, 2007, is $337,005 and $84,719, respectively. These amounts are not included in the table above.