We sponsor a noncontributory qualified defined benefit pension plan (referred to as our pension plan) for substantially all of our employees. In addition to this tax qualified pension plan, we also maintain a non-qualified pension plan for certain eligible highly compensated employees. We maintain post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees. We also provide other post-employment benefits for eligible former employees.

The pension plan provides benefits to participants under five separate formulas which are (i) the pension band or pension factor formula for our union-represented employees, (ii) the account balance formula ("ABF") for our union-represented employees, (iii) the Old Management Formula ("OMF") for our non-represented employees, (iv) the Defined Lump Sum ("DLS") formula for our non-represented employees and (v) the ABF for our non-represented employees. Participants, upon retirement or termination, may elect any form of annuity option available, a lump sum distribution or a combination annuity/lump sum.

For union-represented employees hired or rehired prior to January 1, 2009, pension benefits are based on either the pension band or pension factor formula. The pension band formula uses a flat dollar amount per year of service in which each job title has been assigned a dollar amount. The pension factor formula, which covers union-represented sales employees, uses a factor based on final average compensation times years of service. All union-represented employees hired or rehired on or after January 1, 2009, upon meeting certain requirements, earn a pension under the ABF, which provides a compensation credit equal to 3% of eligible compensation plus an annual interest credit.

For non-represented employees, the OMF is based on final average compensation and years of service, the DLS formula is based on final average compensation and age-related service credits and the ABF is based on a compensation credit equal to 3% of eligible compensation plus an annual interest credit. Participants who earned their pension under the OMF and DLS formula were non-represented participants who had completed 20 years of service by December 31, 2000 or who were service pension eligible by December 31, 2003. Employees who did not meet these requirements accrued a pension under the OMF and DLS formula until December 31, 2000, or earlier based on the plan's provisions and then commenced accruing a pension under the ABF beginning on January 1, 2001. The ABF covers non-represented participants hired after December 31, 2000 and management employees who did not have 20 years of service by December 31, 2000 or who did not become service pension eligible by December 31, 2003. In November 2009, we amended the pension plan to no longer provide pension benefit accruals for active non-represented employees after December 31, 2009. In addition, non-represented employees hired after January 1, 2009 are not eligible to participate in the plan. This amendment froze final average compensation calculations under the OMF and DLS formulas. In addition, the plan no longer includes service after December 31, 2009 in the calculation under the OMF, percentage credits under the DSL formula, nor compensation credits under the ABF. Active non-represented employees who participate in the plan retain their accrued pension benefit earned as of December 31, 2009 and employees under the ABF will continue to earn interest credits on their benefit after December 31, 2009. Employees are eligible to receive their accrued benefit when they separate from Qwest.

In addition to the benefits described above, the pension plan provides survivor and disability benefits to certain participants. The plan also provided a death benefit for eligible beneficiaries of certain retirees; however, we have eliminated this benefit effective March 1, 2010 for retirees who retired prior to January 1, 2004 and whose deaths occur after February 28, 2010. We previously eliminated the death benefit for eligible beneficiaries of certain retirees who retired after December 31, 2003.

Current funding laws require a company with a plan shortfall to fund the annual cost of benefits earned in addition to a seven-year amortization of the shortfall. Our funding policy for the pension plan is to make contributions with the objective of accumulating sufficient assets to pay all qualified pension benefits when due under the terms of the plan. The accounting unfunded status of our pension plan was $627 million as of the successor date of December 31, 2011. Based on current funding laws and regulations, we opted to make a contribution of $307 million in December 2011, and therefore, will not be required to make a contribution in 2012. Although potentially significant in the aggregate, we currently expect that contributions in 2013 and beyond will decrease from the 2011 contribution amount. However, the actual amount of required contributions to the plan in 2013 and beyond will depend on earnings on investments, discount rates, demographic experience, changes in the benefits and funding laws and regulations.

We maintain a non-qualified pension plan for certain eligible highly compensated employees. In November 2009, we amended the non-qualified pension plan to no longer provide benefit accruals after December 31, 2009. In addition, non-represented employees hired after January 1, 2009 are not eligible to participate in the plan. Employees who participate in the plan retain their accrued pension benefit earned as of December 31, 2009 and employees under the ABF will continue to earn interest credits on their benefit after December 31, 2009. Employees are eligible to receive their accrued benefit when they separate from Qwest. In addition, this plan provides survivor and disability benefits to certain participants. The plan also provided a death benefit for eligible beneficiaries of certain retirees; however, we have eliminated this benefit for retirees who retired prior to January 1, 2004 and whose deaths occur after February 28, 2010. We previously eliminated the death benefit for eligible beneficiaries of certain retirees who retired after December 31, 2003.

The benefit obligation for our occupational health care and life insurance post-retirement plans is estimated based on the terms of our written benefit plans. In calculating this obligation, we consider numerous assumptions, estimates and judgments, including but not limited to, discount rates, health care cost trend rates and plan amendments. In 2008, we negotiated our current four-year collective bargaining agreements which covered approximately 13,000 of our unionized employees as of the successor date of December 31, 2011. In 2008, the plan was amended to reflect changes affecting eligible post-1990 retirees who are former non-represented employees, including: (i) a Letter of Agreement that states such post-1990 retirees will begin contributing to the cost of health care benefits in excess of specified limits on the company-funded portion of retiree health care costs (also referred to as "caps") beginning January 1, 2009 and (ii) a provision that such post-1990 retirees will pay increased out-of-pocket costs through plan design changes starting January 1, 2009, including the elimination of Medicare Part B premium reimbursements for post-1990 retirees who are former non-represented employees. These changes have been considered in calculating the benefit obligation under the occupational health care plan.

No contributions were made to the post-retirement occupational health care trust in 2011 or 2010 and we do not expect to make a contribution in 2012.

The terms of the post-retirement health care and life insurance plans between us and our eligible non-represented employees and our eligible post-1990 non-represented retirees are established by us and are subject to change at our discretion. We have a practice of sharing some of the cost of providing health care benefits with our non-represented employees and post-1990 non-represented retirees. The benefit obligation for the non-represented post-retirement health care benefits is based on the terms of the current written plan documents and is adjusted for anticipated continued cost sharing with non-represented employees and post-1990 non-represented retirees. However, our contribution under our post-1990 non-represented retirees' health care plan is capped at a specific dollar amount. Effective January 1, 2009, we amended our post-1990 non-represented retiree plan to, among other things, (i) require retirees to pay increased out-of-pocket costs and (ii) eliminate the reimbursement of Medicare Part B premiums.

A change of 100 basis points in the assumed initial health care cost trend rate would have had the following effects in 2011:

We expect our health care cost trend rate to decrease by 0.5% per year from 7.5% in 2012 to an ultimate rate of 5.0% in 2018. Our post-retirement health care expense for certain eligible post-1990 non-represented retirees and for certain eligible union-represented retirees is capped at a set dollar amount. Therefore, those health care benefit obligations are not subject to increasing health care trends after the effective date of the caps.

The pension, non-qualified pension and post-retirement health care benefit payments and premiums and life insurance premium payments are paid by us or distributed from plan assets. The estimated benefit payments provided below are based on actuarial assumptions using the demographics of the employee and retiree populations and have been reduced by estimated participant contributions.

	Pension Plan

	(Dollars in millions)
Estimated future benefit payments:
2012	$	741	3	348	(24	)
2013		703	2	343	(26	)
2014		687	2	336	(28	)
2015		672	2	328	(30	)
2016		655	2	317	(32	)
2017—2021		3,003	8	1,398	(183	)

The measurement date used to determine pension, non-qualified pension and post-retirement health care and life insurance benefits is December 31. The actuarial assumptions used to compute the net periodic benefit expense for our pension, non-qualified pension and post-retirement benefit plans are based upon information available as of the beginning of the year, as presented in the following table.

	Pension Plan									Non-Qualified Pension Plan									Post-Retirement Benefit Plans

	Successor(1)			Predecessor						Successor(1)			Predecessor						Successor(1)			Predecessor
	2011			2010			2009			2011			2010			2009			2011			2010			2009
Actuarial assumptions at beginning of year:
Discount rate		5.40	%		5.80	%		6.70	%		5.00	%		5.50	%		6.70	%		5.30	%		5.70	%		6.70	%
Rate of compensation increase		3.50	%		3.50	%		3.50	%		N/A			3.50	%		3.50	%		N/A			N/A			N/A
Expected long-term rate of return on plan assets		7.50	%		8.00	%		8.00	%		N/A			N/A			N/A			7.50	%		8.00	%		8.50	%
Initial health care cost trend rate		N/A			N/A			N/A			N/A			N/A			N/A			7.50	%		8.00	%		9.00	%
Ultimate health care cost trend rate		N/A			N/A			N/A			N/A			N/A			N/A			5.00	%		5.00	%		5.00	%
Year ultimate trend rate is reached		N/A			N/A			N/A			N/A			N/A			N/A			2016			2016			2013

The components of net periodic benefit expense for our pension, non-qualified pension and post-retirement benefit plans are detailed below:

	Successor			Predecessor

	Nine Months Ended December 31, 2011			Three Months Ended March 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
	(Dollars in millions)
Net periodic benefit expense (income):
Service cost	$	40			14			53			103
Interest cost		318			104			447			505
Expected return on plan assets		(416	)		(133	)		(556	)		(565	)
Recognized prior service cost		—			(6	)		(22	)		—
Recognized net actuarial loss		—			31			130			75
Curtailment and settlements		—			—			—			(13	)

Total net periodic benefit (income) expense	$	(58	)		10			52			105

	Successor		Predecessor

	Nine Months Ended December 31, 2011		Three Months Ended March 31, 2011		Year Ended December 31, 2010		Year Ended December 31, 2009
	(Dollars in millions)
Net periodic benefit expense:
Service cost	$	—		—		—		1
Interest cost		1		—		2		2
Curtailment and settlements		1		—		—		2

Total net periodic benefit expense	$	2		—		2		5

	Successor			Predecessor

	Nine Months Ended December 31, 2011			Three Months Ended March 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
	(Dollars in millions)
Net periodic benefit expense:
Service cost	$	5			2			7			8
Interest cost		124			41			183			215
Expected return on plan assets		(38	)		(13	)		(61	)		(68	)
Recognized prior service cost		—			(24	)		(99	)		(99	)
Recognized net actuarial loss		—			10			40			30
Curtailment and settlements		—			—			—			—

Total net periodic benefit expense	$	91			16			70			86

The net periodic benefit expense (income) for our pension, non-qualified pension and post-retirement benefit plans is included in general, administrative and other operating expenses in our consolidated statements of operations. Beginning on January 1, 2010, we no longer provide pension benefit accruals for active non-represented employees under our qualified and non-qualified pension plans. As a result, we recognized a gain of $13 million relating to the qualified pension plan for the predecessor year ended December 31, 2009. We also recognized $2 million in non-qualified pension plan settlements for the predecessor year ended December 31, 2009.

The actuarial assumptions used to compute the funded status for the plans are based upon information available as of the successor date of December 31, 2011 and the predecessor date of December 31, 2010 and are as follows:

	December 31,

	Pension Plan						Non-Qualified Pension Plan						Post-Retirement Benefit Plans
	Successor			Predecessor			Successor			Predecessor			Successor	Predecessor
	2011			2010			2011			2010			2011	2010
Actuarial assumptions at end of year:
Discount rate		4.70	%		5.30	%		4.40	%		4.90	%	4.60%		5.20	%
Rate of compensation increase		3.25	%		3.50	%		N/A			3.50	%	N/A		N/A
Initial health care cost trend rate		N/A			N/A			N/A			N/A		7.25% - 8.00%		7.50	%
Ultimate health care cost trend rate		N/A			N/A			N/A			N/A		5.00%		5.00	%
Year ultimate trend rate is reached		N/A			N/A			N/A			N/A		2018		2016

The following table summarizes the change in the benefit obligations for the pension, non-qualified pension and post-retirement benefit plans:

	Successor			Predecessor

	Nine Months Ended December 31, 2011			Three Months Ended March 31, 2011			Year Ended December 31, 2010
	(Dollars in millions)
Benefit obligations accrued at beginning of period:	$	8,237			8,245			8,116
Service cost		40			14			53
Interest cost		318			104			447
Actuarial loss		565			—			389
Benefits paid from plan assets		(489	)		(152	)		(760	)

Benefit obligations accrued at end of period	$	8,671			8,211			8,245

Accumulated benefit obligations	$	8,667			8,211			8,245

	Successor			Predecessor

	Nine Months Ended December 31, 2011			Three Months Ended March 31, 2011		Year Ended December 31, 2010
	(Dollars in millions)
Benefit obligations accrued at beginning of period:	$	31			31		31
Service cost		—			—		2
Interest cost		1			—		—
Actuarial loss		2			—		2
Benefits paid by company		(11	)		—		(4	)

Benefit obligations accrued at end of period	$	23			31		31

Accumulated benefit obligations	$	23			31		31

	Successor			Predecessor

	Nine Months Ended December 31, 2011			Three Months Ended March 31, 2011			Year Ended December 31, 2010
	(Dollars in millions)
Benefit obligations accrued at beginning of period:	$	3,284			3,323			3,388
Service cost		5			2			7
Interest cost		124			41			183
Actuarial loss		130			—			66
Plan amendments		27			—			—
Participant contributions		46			15			59
Benefits paid from plan assets		(130	)		(47	)		(186	)
Benefits paid by company		(159	)		(46	)		(214	)
Medicare Part D reimbursements		21			—			20

Benefit obligations accrued at end of period	$	3,348			3,288			3,323

Accumulated benefit obligations	$	3,348			3,288			3,323

We maintain plan assets for our pension plan and certain post-retirement benefit plans. The pension plan assets are used for the payment of pension benefits and certain eligible plan expenses. The post-retirement benefit plan assets are used to pay health care benefits and premiums on behalf of eligible retirees who are former union-represented plan participants and to pay certain eligible plan expenses. The expected rate of return on plan assets is the long-term rate of return we expect to earn on the plans' assets. The rate of return is determined by the strategic allocation of plan assets and the long-term risk and return forecast for each asset class. The forecasts for each asset class are generated primarily from an analysis of the long-term expectations of various third party investment management organizations. The expected rate of return on plan assets is reviewed annually and revised, as necessary, to reflect changes in the financial markets and our investment strategy. The following table summarizes the change in the fair value of plan assets for the pension and post-retirement benefit plans:

	Pension Plan Assets

	(Dollars in millions)
Fair value of plan assets December 31, 2009 (Predecessor)	$	7,326		863
Actual gain on plan assets		1,094		124
Benefits paid from plan assets		(760	)	(186	)

Fair value of the plan assets December 31, 2010 (Predecessor)		7,660		801
Actual gain on plan assets		133		13
Benefits paid from plan assets		(152	)	(47	)

Fair value of plan assets March 31, 2011 (Predecessor)		7,641		767


Fair value of plan assets April 1, 2011 (Successor)		7,777		762
Actual gain on plan assets		449		11
Contribution to qualified trust		307		—
Benefits paid from plan assets		(489	)	(130	)

Fair Value of the plan assets December 31, 2011 (Successor)	$	8,044		643

Pension Plan: Our investment objective for the pension plan assets is to achieve an attractive risk-adjusted return over time that will provide for the payment of benefits and minimize the risk of large losses. Our pension plan investment strategy is designed to meet this objective by broadly diversifying plan assets across numerous strategies with differing expected returns, volatilities and correlations. The pension plan assets have target allocations of 53% to interest rate sensitive investments and 47% to investments designed to provide higher expected returns than the interest rate sensitive investments. Interest rate sensitive investments include 32% of plan assets targeted primarily to long-duration investment grade bonds, 10% to high yield and emerging market bonds, 5% to convertible bonds and 6% targeted to diversified strategies, which primarily have exposures to global government, corporate and inflation-linked bonds, as well as some exposures to global stocks and commodities. Assets expected to provide higher returns than the interest rate sensitive assets include broadly diversified equity investments with approximately 15% targeted to U.S. stocks, 12% to developed market non-U.S. stocks and 3% to emerging market stocks. Approximately 12% is allocated to other private markets investments including funds primarily invested in private equity, debt and hedge funds. Real estate investments are targeted at 5% of plan assets. At the beginning of 2012, our expected annual long-term rate of return on pension assets is assumed to be 7.5%.

Post-Retirement Benefit Plan: Our investment objective for the post-retirement benefit plan assets is to achieve an attractive risk-adjusted return and minimize the risk of large losses over the expected life of the assets. Investment risk is managed by broadly diversifying assets across numerous strategies with differing expected returns, volatilities and correlations. Our investment strategy is designed to be consistent with the investment objective, with particular focus on providing liquidity for the reimbursement of our occupational post-retirement health care costs. The post-retirement benefit plan assets have target allocations of 35% to equities and 65% to non-equity investments. Specific target allocations within these broad categories are allowed to vary to provide liquidity in order to meet reimbursement requirements. Equity investments are broadly diversified with exposure to publicly traded U.S., non-U.S. and emerging market stocks and private equity. While no new private equity investments have been made in recent years, the percent allocation to existing private equity investments is expected to increase in the near term as liquid, publicly traded stocks are drawn down for the reimbursement of health care costs. The 65% non-equity allocation includes investment grade bonds, high yield bonds, convertible bonds, emerging market debt, real estate, hedge funds, private debt and diversified strategies. At the beginning of 2012, our expected annual long-term rate of return on post-retirement benefit plan assets is assumed to be 7.5%.

Permitted investments: Plan assets are managed consistent with the restrictions set forth by the Employee Retirement Income Security Act of 1974, as amended, which requires diversification of assets and also generally prohibits defined benefit and welfare plans from investing more than 10% of their assets in securities issued by the sponsor company. As of December 31, 2011, the pension and post-retirement benefit plans did not directly own any shares of CenturyLink's common stock or debt, or any of our debt.

Derivative instruments: Derivative instruments are used to reduce risk as well as provide return. The pension and post-retirement benefit plans use exchange traded futures to gain exposure to equity and Treasury markets consistent with target asset allocations. Interest rate swaps are used in the pension plan to reduce risk relative to measurement of the benefit obligation, which is sensitive to interest rate changes. Foreign exchange forward contracts and total return swaps are used primarily to manage currency exposures. Credit default swaps are used to manage credit risk exposures in a cost effective and targeted manner relative to transacting with physical corporate fixed income securities. Options are currently used to manage interest rate exposure taking into account the implied volatility and current pricing of the specific underlying market instrument. Some derivative instruments subject the plans to counterparty risk. We closely monitor counterparty exposure and mitigate this risk by diversifying the exposure among multiple high credit quality counterparties, requiring collateral and limiting exposure by periodically settling contracts.

The gross notional exposure of the derivative instruments directly held by the plans is shown below. The notional amount of the derivatives corresponds to market exposure but does not represent an actual cash investment.

	Pension Plan				Post-Retirement Benefit Plans

	Successor		Predecessor		Successor		Predecessor
	December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
	(Dollars in millions)
Derivative instrument:
Exchange-traded U.S. equity futures	$	535		382		12		13
Exchange-traded non-U.S. equity futures		4		36		—		12
Exchange-traded Treasury futures		1,512		1,333		19		48
Interest rate swaps		435		432		—		—
Total return swaps		110		110		51		20
Foreign exchange forwards		379		399		23		45

Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB. For additional information on the fair value hierarchy, see Note 13—Fair Value Disclosure.

The tables below presents the fair value of plan assets by category and the input levels used to determine those fair values as of the successor date of December 31, 2011. It is important to note that the asset allocations do not include market exposures that are gained with derivatives.

	Fair Value of Pension Plan Assets

	Level 1		Level 2			Level 3		Total
	(Dollars in millions)
Investment grade bonds(a)	$	694		756			—		1450
High yield bonds(b)		—		530			78		608
Emerging market bonds(c)		—		189			—		189
Convertible bonds(d)		—		335			—		335
Diversified strategies(e)		—		489			—		489
U.S. stocks(f)		224		85			—		309
Non-U.S. stocks(g)		697		42			—		739
Emerging market stocks(h)		65		136			—		201
Private equity(i)		—		—			791		791
Private debt(j)		—		—			448		448
Market neutral hedge funds(k)		—		620			188		808
Directional hedge funds(k)		—		268			28		296
Real estate(l)		—		48			334		382
Derivatives(m)		12		(5	)		—		7
Cash equivalents and short-term investments(n)		13		1,118			—		1,131

Total investments	$	1,705		4,611			1,867		8,183

Dividends and interest receivable									21
Pending trades receivable									388
Accrued expenses									(8	)
Pending trades payable									(540	)

Total pension plan assets								$	8,044

	Fair Value of Post-Retirement Plan Assets

	Level 1		Level 2		Level 3		Total
	(Dollars in millions)
Investment grade bonds(a)	$	12		95		—		107
High yield bonds(b)		—		61		—		61
Emerging market bonds(c)		—		33		—		33
Convertible bonds(d)		—		30		—		30
Diversified strategies(e)		—		62		—		62
U.S. stocks(f)		64		—		—		64
Non-U.S. stocks(g)		58		2		—		60
Emerging market stocks(h)		—		17		—		17
Private equity(i)		—		—		60		60
Private debt(j)		—		—		8		8
Market neutral hedge funds(k)		—		67		—		67
Directional hedge funds(k)		—		20		—		20
Real estate(l)		—		19		26		45
Cash equivalents and short-term investments(n)		1		20		—		21

Total investments	$	135		426		94		655

Dividends and interest receivable								3
Pending trades receivable								23
Accrued expenses								(15	)
Pending trades payable								(23	)

Total post-retirement plan assets							$	643

The tables below presents the fair value of plan assets by category and the input levels used to determine those fair values as of the predecessor date of December 31, 2010. It is important to note that the asset allocations do not include market exposures that are gained with derivatives.

	Fair Value of Pension Plan Assets

	Level 1		Level 2			Level 3		Total
	(Dollars in millions)
Investment grade bonds(a)	$	453		804			—		1,257
High yield bonds(b)		—		520			114		634
Emerging market bonds(c)		—		191			—		191
Convertible bonds(d)		—		355			—		355
Diversified strategies(e)		—		444			—		444
U.S. stocks(f)		400		44			—		444
Non-U.S. stocks(g)		701		120			—		821
Emerging market stocks(h)		78		161			—		239
Private equity(i)		—		—			831		831
Private debt(j)		—		—			530		530
Market neutral hedge funds(k)		—		635			102		737
Directional hedge funds(k)		—		230			29		259
Real estate(l)		—		35			288		323
Derivatives(m)		8		(2	)		—		6
Cash equivalents and short-term investments(n)		57		452			—		509
Securities lending collateral(o)		—		241			—		241

Total investments		1,697		4,230			1,894		7,821
Securities lending obligation(o)		—		(241	)		—		(241	)

Total investments, net of securities lending obligation	$	1,697		3,989			1,894		7,580

Dividends and interest receivable									20
Pending trades receivable									83
Accrued expenses									(10	)
Pending trades payable									(13	)

Total pension plan assets								$	7,660

	Fair Value of Post-Retirement Plan Assets

	Level 1		Level 2			Level 3		Total
	(Dollars in millions)
Investment grade bonds(a)	$	10		153			—		163
High yield bonds(b)		—		123			—		123
Emerging market bonds(c)		—		38			—		38
Convertible bonds(d)		—		33			—		33
Diversified strategies(e)		—		6			—		6
U.S. stocks(f)		77		—			—		77
Non-U.S. stocks(g)		40		30			—		70
Emerging market stocks(h)		—		30			—		30
Private equity(i)		—		—			77		77
Private debt(j)		—		—			11		11
Market neutral hedge funds(k)		—		70			—		70
Directional hedge funds(k)		—		20			—		20
Real estate(l)		—		18			25		43
Derivatives(m)		—		1			—		1
Cash equivalents and short-term investments(n)		2		19			—		21
Securities lending collateral(o)		—		31			—		31

Total investments		129		572			113		814
Securities lending obligation(o)		—		(31	)		—		(31	)

Total investments, net of securities lending obligation	$	129	$	541		$	113		783

Dividends and interest receivable									2
Pending trades receivable									17
Accrued expenses									(1	)

Total post-retirement plan assets								$	801

The plans' assets are invested in various asset categories utilizing multiple strategies and investment managers. For several of the investments in the tables above and discussed below, the plans own units in commingled funds and limited partnerships that invest in various types of assets. Interests in commingled funds are valued using the net asset value ("NAV") per unit of each fund. The NAV reported by the fund manager is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled funds held by the plans that can be redeemed at NAV within a year of the financial statement date are generally classified as Level 2. Investments in limited partnerships represent long-term commitments with a fixed maturity date, typically ten years. Valuation inputs for these limited partnership interests are generally based on assumptions and other information not observable in the market and are classified as Level 3 investments. The assumptions and valuation methodologies of the pricing vendors, account managers, fund managers and partnerships are monitored and evaluated for reasonableness. Below is an overview of the asset categories, the underlying strategies and valuation inputs used to value the assets in the preceding tables:

(a) Investment grade bonds represent investments in fixed income securities as well as commingled bond funds with characteristics similar to the Barclays Capital U.S. Aggregate Bond Index. This index is comprised of U.S. Treasury securities, agencies, corporate bonds, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Treasury securities are valued at the bid price reported in the active market in which the security is traded and are classified as Level 1. The valuation inputs of other investment grade bonds primarily utilize observable market information and are based on a spread to U.S. Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings. The primary observable inputs include references to the new issue market for similar securities, the secondary trading markets and dealer quotes. Option adjusted spread models are utilized to evaluate securities such as asset backed securities that have early redemption features. These securities are classified as Level 2. The commingled funds are valued at NAV based on the market value of the underlying fixed income securities using the same valuation inputs described above. The commingled funds can be redeemed at NAV within a year of the financial statement date and are classified as Level 2.

(b) High yield bonds represent investments in below investment grade fixed income securities as well as commingled high yield bond funds. The valuation inputs for the securities primarily utilize observable market information and are based on a spread to U.S. Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings. These securities are classified as Level 2. The commingled funds are valued at NAV based on the market value of the underlying high yield instruments using the same valuation inputs described above. Commingled funds that can be redeemed at NAV within a year of the financial statement date are classified as Level 2. Commingled funds that cannot be redeemed at NAV or that cannot be redeemed at NAV within a year of the financial statement date are classified as Level 3.

(c) Emerging market bonds represent investments in securities issued by governments and other entities located in developing countries as well as commingled emerging market bond funds. The valuation inputs for the securities utilize observable market information and are primarily based on dealer quotes or a spread relative to the local government bonds. These securities are classified as Level 2. The commingled funds are valued at NAV based on the market value of the underlying emerging market bonds using the same valuation inputs described above. The commingled funds can be redeemed at NAV within a year of the financial statement date and are classified as Level 2.

(d) Convertible bonds primarily represent investments in corporate debt securities that have features that allow the debt to be converted into equity securities under certain circumstances. The valuation inputs for the individual convertible bonds primarily utilize observable market information including a spread to U.S. Treasuries and the value and volatility of the underlying equity security. Convertible bonds are classified as Level 2.

(e) Diversified strategies represent an investment in a commingled fund that primarily have exposures to global government, corporate and inflation linked bonds, global stocks and commodities. The commingled fund is valued at NAV based on the market value of the underlying investments. The valuation inputs utilize observable market information including published prices for exchange traded securities, bid prices for government bonds, and spreads and yields available for comparable fixed income securities with similar credit ratings. This fund can be redeemed at NAV within a year of the financial statement date and is classified as Level 2.

(f) U.S. stocks represent investments in stocks of U.S. based companies as well as commingled U.S. stock funds. The valuation inputs for U.S. stocks are based on the last published price reported on the major stock market on which the securities are traded and are classified as Level 1. The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described above. These commingled funds can be redeemed at NAV within a year of the financial statement date and are classified as Level 2.

(g) Non-U.S. stocks represent investments in stocks of companies based in developed countries outside the U.S. as well as commingled funds. The valuation inputs for non-U.S. stocks are based on the last published price reported on the major stock market on which the securities are traded and are classified as Level 1. The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described above. These commingled funds can be redeemed at NAV within a year of the financial statement date and are classified as Level 2.

(h) Emerging market stocks represent investments in a registered mutual fund and commingled funds comprised of stocks of companies located in developing markets. Registered mutual funds are valued at the last published price reported on the major market on which the mutual funds are traded and are classified as Level 1. The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described previously for individual stocks. These commingled funds can be redeemed at NAV within a year of the financial statement date and are classified as Level 2.

(i) Private equity represents non-public investments in domestic and foreign buy out and venture capital funds. Private equity funds are structured as limited partnerships and are valued according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines. The partnerships use valuation methodologies that give consideration to a range of factors, including but not limited to the price at which investments were acquired, the nature of the investments, market conditions, trading values on comparable public securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investments. These valuation methodologies involve a significant degree of judgment. Private equity investments are classified as Level 3.

(j) Private debt represents non-public investments in distressed or mezzanine debt funds. Mezzanine debt instruments are debt instruments that are subordinated to other debt issues and may include embedded equity instruments such as warrants. Private debt funds are structured as limited partnerships and are valued according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines. The valuation of underlying fund investments are based on factors including the issuer's current and projected credit worthiness, the security's terms, reference to the securities of comparable companies, and other market factors. These valuation methodologies involve a significant degree of judgment. Private debt investments are classified as Level 3.

(k) Market neutral hedge funds hold investments in a diversified mix of instruments that are intended in combination to exhibit low correlations to market fluctuations. These investments are typically combined with futures to achieve uncorrelated excess returns over various markets. Directional hedge funds—This asset category represents investments that may exhibit somewhat higher correlations to market fluctuations than the market neutral hedge funds. Investments in hedge funds include both direct investments and investments in diversified funds of funds. Hedge Funds are valued at NAV based on the market value of the underlying investments which include publicly traded equity and fixed income securities and privately negotiated debt securities. The hedge funds are valued by third party administrators using the same valuation inputs previously described. Hedge funds that can be redeemed at NAV within a year of the financial statement date are classified as Level 2. Hedge fund investments that cannot be redeemed at NAV or that cannot be redeemed at NAV within a year of the financial statement date are classified as Level 3.

(l) Real estate represents investments in commingled funds and limited partnerships that invest in a diversified portfolio of real estate properties. These investments are valued at NAV according to the valuation policy of each fund or partnership, subject to prevailing accounting and other regulatory guidelines. The valuation inputs of the underlying properties are generally based on third-party appraisals that use comparable sales or a projection of future cash flows to determine fair value. Real estate investments that can be redeemed at NAV within a year of the financial statement date are classified as Level 2. Real estate investments that cannot be redeemed at NAV or that cannot be redeemed at NAV within a year of the financial statement date are classified as Level 3.

(m) Derivatives include the market value of exchange traded futures contracts which are classified as Level 1, as well as privately negotiated over-the-counter swaps that are valued based on the change in interest rates or a specific market index and classified as Level 2. The market values represent gains or losses that occur due to fluctuations in interest rates, foreign currency exchange rates, security prices, or other factors.

(n) Cash equivalents and short-term investments represent investments that are used in conjunction with derivatives positions or are used to provide liquidity for the payment of benefits or other purposes. U.S. Treasury Bills are valued at the bid price reported in the active market in which the security is traded and are classified as Level 1. The valuation inputs of other securities are based on a spread to U.S. Treasury Bills, the Federal Funds Rate, or London Interbank Offered Rate and consider yields available on comparable securities of issuers with similar credit ratings and are classified as Level 2. The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described above. These commingled funds can be redeemed at NAV within a year of the financial statement date and are classified as Level 2.

(o) Securities lending obligation and collateral represent securities lending transactions whereby the plan's lending agent lends stock and bond investments of the plan to other third-party investment firms in exchange for collateral. The stock and bond securities are generally loaned for a period of less than one month and can be recalled on a day's notice. Under the terms of its securities lending agreement, the plan typically requires collateral of a value in excess of the fair value of the loaned investments. Collateral received is then invested in certain collective investment vehicles maintained by the lending agent. Upon the maturity of the agreement, the borrower must return the same, or substantially the same, investments that were borrowed and the plan returns the collateral. The value of the obligation is a fixed amount based on the collateral received and is classified as Level 2. The collateral received is invested in collective investment vehicles that are comprised of short-term investment grade bonds and cash equivalents, the valuations of which are described above, and is classified as Level 2.

Concentrations of Risk: Investments, in general, are exposed to various risks, such as significant world events, interest rate, credit, foreign currency and overall market volatility risk. These risks are managed by broadly diversifying assets across numerous asset classes and strategies with differing expected returns, volatilities and correlations. Risk is also broadly diversified across numerous market sectors and individual companies. Financial instruments that potentially subject the plans to concentrations of counterparty risk consist principally of investment contracts with high quality financial institutions. These investment contracts are typically collateralized obligations and/or are actively managed, limiting the amount of counterparty exposure to any one financial institution. Although the investments are well diversified, the value of plan assets could change materially depending upon the overall market volatility, which could affect the funded status of the plans.

The table below presents a rollforward of the pension plan assets valued using Level 3 inputs:

	Pension Plan Assets Valued Using Level 3 Inputs

	High Yield Bonds			Private Equity			Private Debt			Market Neutral Hedge Fund		Directional Hedge Funds			Real Estate			Total
	(Dollars in millions)
Balance at December 31, 2009 (Predecessor)	$	126			741			524			58		4			294			1,747
Net transfers		—			—			—			—		—			(32	)		(32	)
Net (dispositions) acquisitions		(24	)		(40	)		(35	)		41		25			6			(27	)
Actual return on plan assets:
Realized (losses) gains relating to assets sold during the year		(3	)		146			25			—		—			23			191
Unrealized gains (losses) relating to assets still held at year-end		15			(16	)		16			3		—			(3	)		15

Balance at December 31, 2010 (Predecessor)		114			831			530			102		29			288			1,894

Net transfers		—			—			—			—		—			—			—

Net (dispositions) acquisitions		(5	)		(20	)		(32	)		80		—			22			45

Actual return on plan assets:
Realized (losses) gains relating to assets sold during the period		(2	)		62			(1	)		—		—			4			63

Unrealized gains (losses) relating to assets still held at period-end		9			13			4			3		3			15			47

Balance at March 31, 2011 (Predecessor)		116			886			501			185		32			329			2,049

Balance at April 1, 2011 (Successor)		116			886			501			185		32			329			2,049
Net transfers		—			—			—			—		—			—			—
Net (dispositions) acquisitions		(21	)		(90	)		(60	)		—		(2	)		(1	)		(174	)
Actual return on plan assets:
Realized (losses) gains relating to assets sold during the period		(12	)		197			15			3		(1	)		9			211
Unrealized gains (losses) relating to assets still held at period-end		(5	)		(202	)		(8	)		—		(1	)		(3	)		(219	)

Balance at December 31, 2011 (Successor)	$	78			791			448			188		28			334			1,867

The table below presents a rollforward of the post-retirement benefits plan assets valued using Level 3 inputs:

	Post-Retirement Benefit Plan Assets Valued Using Level 3 Inputs

	Private Equity			Private Debt			Real Estate			Total
	(Dollars in millions)
Balance at December 31, 2009 (Predecessor)	$	85			12			44			141
Net transfers		—			—			(17	)		(17	)
Net dispositions		(15	)		(1	)		(5	)		(21	)
Actual return on plan assets:
Realized gains relating to assets sold during the year		21			—			1			22
Unrealized (losses) gains relating to assets still held at year-end		(14	)		—			2			(12	)

Balance at December 31, 2010 (Predecessor)		77			11			25			113
Net dispositions		(3	)		—			(1	)		(4	)
Actual return on plan assets:
Realized gains (losses) relating to assets sold during the period		8			—			1			9
Unrealized losses relating to assets still held at period-end		(6	)		(1	)		(1	)		(8	)
Balance at March 31, 2011 (Predecessor)		76			10			24			110


Balance at April 1, 2011 (Successor)		76			10			24			110
Net dispositions		(21	)		(2	)		—			(23	)
Actual return on plan assets:
Realized gains (losses) relating to assets sold during the period		33			1			—			34
Unrealized losses relating to assets still held at period-end		(28	)		(1	)		2			(27	)

Balance at December 31, 2011 (Successor)	$	60			8			26			94

Certain gains and losses are allocated between assets sold during the year and assets still held at year-end based on transactions and changes in valuations that occurred during the year. These allocations also impact our calculation of net acquisitions and dispositions.

The investment program produced actual gains on pension and post-retirement plan assets of $443 million for the successor nine months ended December 31, 2011 and $294 million for the predecessor three months ended March 31, 2011 as compared to the expected returns of $454 million for the successor nine months ended December 31, 2011 and $146 million for the predecessor three months ended March 31, 2011 for a difference of $11 million for the successor nine months ended December 31, 2011 and $148 million for the predecessor three months ended March 31, 2011. As of the predecessor date of December 31, 2010, the investment program produced actual gains on pension and post-retirement plan assets of $1.218 billion as compared to the expected returns of $617 million for a difference of $601 million. The short-term annual returns on plan assets will almost always be different from the expected long-term returns and the plans could experience net gains or losses, due primarily to the volatility occurring in the financial markets during any given year.

The following table presents the unfunded status of the pension, non-qualified pension and post-retirement benefit plans:

	Pension Plan						Non-Qualified Pension Plan						Post-Retirement Benefit Plans

	Successor			Predecessor			Successor			Predecessor			Successor			Predecessor
	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2011			Year Ended December 31, 2010
	(Dollars in millions)
Benefit obligation	$	(8,671	)		(8,245	)		(23	)		(31	)		(3,349	)		(3,323	)
Fair value of plan assets		8,044			7,660			—			—			643			801

Unfunded status	$	(627	)		(585	)		(23	)		(31	)		(2,706	)		(2,522	)

Current portion of unfunded status	$	—			—			(4	)		(4	)		(155	)		(155	)
Non-current portion of unfunded status		(627	)		(585	)		(19	)		(27	)		(2,551	)		(2,367	)

The current portion of our non-qualified pension and post-retirement benefit obligations is recorded on our consolidated balance sheets in accrued expenses and other current liabilities-salaries and benefits. The non-current portion of our pension, non-qualified pension and post-retirement obligations is recorded on our consolidated balance sheets in benefit plan obligations-net. Also included in accrued expenses and other current liabilities are obligations for the current portion of post-employment perquisites, post-employment disability insurance and workers compensation benefit obligations. These amounts totaled $16 million and $15 million as of the successor date of December 31, 2011 and the predecessor date of December 31, 2010, respectively. Also included in benefit plan obligations-net are obligations for the non-current portion of our executive life insurance plans, post-employment perquisites, post-employment disability insurance and workers compensation benefit obligations. These amounts totaled $143 million and $109 million as of the successor date of December 31, 2011 and the predecessor date of December 31, 2010, respectively.

The following tables present cumulative items not recognized as a component of net periodic benefits expense, items recognized as a component of net periodic benefits expense, additional items deferred during 2011 and cumulative items not recognized as a component of net periodic benefits expense. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated balance sheets in accumulated other comprehensive loss:

	Predecessor

	December 31, 2010			Recognition of Net Periodic Benefits Expense			Deferrals		Net Change in AOCI			Three Months Ended March 31, 2011
	(Dollars in millions)
Accumulated other comprehensive (loss) income:
Pension plan:
Net actuarial (loss) gain	$	(1,695	)		30			—		30			(1,665	)
Prior service benefit (cost)		163			(5	)		—		(5	)		158
Deferred income tax benefit (expense)		676			(7	)		—		(7	)		669

Total pension plan		(856	)		18			—		18			(838	)

Non-qualified pension plan:
Net actuarial (loss) gain		(8	)		—			—		—			(8	)
Prior service benefit (cost)		1			(1	)		—		(1	)		—

Total non-qualified pension plan		(7	)		(1	)		—		(1	)		(8	)

Post-retirement benefit plans:
Net actuarial (loss) gain		(544	)		10			—		10			(534	)
Prior service benefit (cost)		890			(26	)		—		(26	)		864
Deferred income tax benefit (expense)		158			6			—		6			164

Total post-retirement benefit plans		504			(10	)		—		(10	)		494

Total accumulated other comprehensive (loss) income	$	(359	))		7			—		7			(352	)

	Successor

	April 1, 2011		Recognition of Net Periodic Benefits Expense		Deferrals			Net Change in AOCI			Nine Months Ended December 31, 2011
	(Dollars in millions)
Accumulated other comprehensive income (loss):
Pension plan:
Net actuarial (loss) gain	$	—		—		(533	)		(533	)		(533	)
Deferred income tax benefit (expense)		—		—		205			205			205

Total pension plan		—		—		(328	)		(328	)		(328	)

Non-qualified pension plan:
Net actuarial gain (loss)		—		1		(3	)		(2	)		(2	)
Deferred income tax benefit (expense)		—		—		1			1			1

Total non-qualified pension plan		—		1		(2	)		(2	)		(2	)

Post-retirement benefit plans:
Net actuarial (loss) gain		—		—		(163	)		(163	)		(163	)
Prior service (cost) benefit		—		—		(27	)		(27	)		(27	)
Deferred income tax benefit (expense)		—		—		73			73			73

Total post-retirement benefit plans		—		—		(117	)		(117	)		(117	)

Total accumulated other comprehensive income (loss)	$	—		1		(447	)		(446	)		(446	)

The following table presents estimated items to be recognized in 2012 as a component of net periodic benefit expense of the pension, non-qualified pension and post-retirement benefit plans:

We sponsor post-retirement health care plans with several benefit options that provide prescription drug benefits that we deem actuarially equivalent to or exceeding Medicare Part D. We recognize the impact of the federal subsidy received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 in the calculation of our post-retirement benefit obligation and net periodic post-retirement benefit expense.

We provide health care and life insurance benefits to essentially all of our active employees. We are largely self-funded for the cost of the health care plan. Our active health care benefit expenses were $179 million, $61 million, $238 million and $248 million for the successor nine months ended December 31, 2011, the predecessor three months ended March 31, 2011 and the predecessor years ended December 31, 2010 and 2009, respectively. Represented employee benefits are based on negotiated collective bargaining agreements. Employees are required to partially fund the health care benefits provided by us, in addition to paying their own out-of-pocket costs. Participating non-represented employees contributed $31 million, $9 million, $40 million and $38 million for the successor nine months ended December 31, 2011, the predecessor three months ended March 31, 2011 and the predecessor years ended December 31, 2010 and 2009, respectively. Participating union-represented employees contributed $9 million, $2 million, $11 million and $10 million for the successor nine months ended December 31, 2011, the predecessor three months ended March 31, 2011 and the predecessor years ended December 31, 2010 and 2009, respectively. Our group life insurance plan is fully insured and the premiums are paid by us.

We sponsor a qualified defined contribution benefit plan covering substantially all of our employees. Under this plan, employees may contribute a percentage of their annual compensation to the plan up to certain maximums, as defined by the plan and by the Internal Revenue Service ("IRS"). Currently, we match a percentage of employee contributions in cash. As of the successor date of December 31, 2011, the assets of the plan included approximately 6 million shares of our parent's, CenturyLink, common stock. As of the predecessor date of December 31, 2010, the assets of the plan included approximately 42 million shares of Qwest Communications International Inc. common stock. In both years, our 401k plan included common stock as a result of the combination of our employer match and participant directed contributions. We recognized $39 million, $14 million, $56 million and $59 million in expense related to this plan for the successor nine months ended December 31, 2011, the predecessor three months ended March 31, 2011 and the predecessor years ended December 31, 2010 and 2009, respectively.

We sponsor a non-qualified unfunded deferred compensation plan for various groups of our current and former highly compensated employees. Participants in these plans may, at their discretion, invest their deferred compensation in various investment choices including CenturyLink's common stock. The value of the assets and liabilities related to this plan is not significant.