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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2014
Compensation and Retirement Disclosure [Abstract]  
Employee Benefit Plans
Employee Benefit Plans
The Company sponsors noncontributory qualified defined benefit pension plans ("qualified pension plans") and a post-retirement healthcare benefit plan which provide certain cash payments and medical, dental and life insurance benefits to eligible retired employees and their beneficiaries and covered dependents. These plans were created as part of the acquisition of the Northern New England operations from Verizon and mirrored the prior Verizon plans.
On August 2, 2014, the Company’s collective bargaining agreements with two of its labor unions expired. On August 28, 2014, the Company informed the unions that the parties were at impasse and on that date implemented its final proposals at that time that included, among other changes, elimination of post-retirement healthcare benefits for represented employees and freezing the pension plan effective as of October 14, 2014. As further discussed in Note 20, on February 22, 2015, the collective bargaining agreements with these two unions were ratified. Given the uncertainty around the outcome of these labor negotiations that existed at December 31, 2014, the Company has not recognized the impact of the changes to the benefit plans available to represented employees implemented at impasse or those agreed to upon ratification of the collective bargaining agreements.
The Company maintains a qualified pension plan for represented employees. Participants in this plan accrue benefits in accordance with the respective plan document and contractual requirements in the collective bargaining agreements. The accrued benefits for active participants through October 14, 2014 were frozen and the pension plan was closed to new participants effective October 14, 2014. With ratification of the collective bargaining agreements on February 22, 2015, future benefit accruals for eligible pension plan participants will be made at 50% of the benefit accrual rate prior to the plan freeze on October 14, 2014 and will be capped after 30 years of total credited service.
Effective August 28, 2014, active represented employees were no longer eligible for post-retirement healthcare plan benefits. Employees who retire on or after August 28, 2014 are permitted to participate in the post-retirement healthcare plan providing benefits to non-represented employees (the “OPEB Plan”). Upon ratification of the collective bargaining agreements on February 22, 2015 and for 30 months thereafter, active represented employees who retire and meet the eligibility requirements and their spouses are eligible to receive certain monthly reimbursements of medical insurance premiums until the retiree reaches age 65 or dies.
During the fourth quarter of 2014, the Company amended the OPEB Plan to allow the retirees receiving benefits under a separate post-retirement healthcare plan for represented employees to participate in the OPEB Plan. Effective January 1, 2015, the represented retirees were transferred to the OPEB Plan and the post-retirement healthcare plan for represented employees was terminated.
The qualified pension plan, which covers non-represented employees, is frozen. Therefore, no new benefits are being earned by participants and no new participants are becoming eligible for benefits in this plan.
The Company makes contributions to the qualified pension plans to meet minimum funding requirements under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and has the ability to elect to make additional discretionary contributions. The post-retirement healthcare plans are unfunded and the Company funds the benefits that are paid. Annually, and as necessary, the Company remeasures the net liabilities of its qualified pension and other post-retirement healthcare benefits in accordance with the Compensation-Retirement Benefits Topic of the ASC.
Plan Assets, Obligations and Funded Status
A summary of plan assets, projected benefit obligation and funded status of the plans are as follows for the year ended December 31, 2014 and the year ended December 31, 2013 (in thousands): 
 
Qualified Pension Plans
 
 
 
 
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
Fair value of plan assets:
 
 
 
Beginning fair value of plan assets
$
175,242

 
$
166,304

Actual return on plan assets
7,553

 
18,883

Plan settlements
(2,935
)
 
(7,931
)
Employer contributions
30,000

 
21,800

Benefits paid
(14,450
)
 
(23,814
)
Ending fair value of plan assets
195,410

 
175,242

Projected benefit obligation:
 
 
 
Beginning projected benefit obligation
$
328,776

 
$
369,841

Service cost
14,760

 
18,543

Interest cost
15,367

 
14,934

Plan settlements
(2,935
)
 
(7,931
)
Benefits paid
(14,450
)
 
(23,814
)
Actuarial loss (gain)
66,698

 
(42,797
)
Ending projected benefit obligation
408,216

 
328,776

Funded status
$
(212,806
)
 
$
(153,534
)
 
 
 
 
Accumulated benefit obligation
$
366,649

 
$
290,910

 
 
 
 
Amounts recognized in the consolidated balance sheet:
 
 
 
Long-term liabilities
$
(212,806
)
 
$
(153,534
)
Net amount recognized in the consolidated balance sheet
$
(212,806
)
 
$
(153,534
)
 
 
 
 
Amounts recognized in accumulated other comprehensive loss:
 
 
 
Net actuarial loss
$
(130,294
)
 
$
(60,349
)
Net amount recognized in accumulated other comprehensive loss
$
(130,294
)
 
$
(60,349
)
 
Post-retirement Healthcare Plans
 
 
 
 
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
Fair value of plan assets:
 
 
 
Beginning fair value of plan assets
$
—

 
$
—

Employer contributions
6,097

 
3,704

Benefits paid
(6,097
)
 
(3,704
)
Ending fair value of plan assets
—

 
—

Projected benefit obligation:
 
 
 
Beginning projected benefit obligation
$
590,435

 
$
621,443

Service cost
24,969

 
26,712

Interest cost
29,908

 
24,555

Plan amendment (a)
(46,277
)
 
—

Benefits paid
(6,097
)
 
(3,704
)
Actuarial loss (gain)
148,434

 
(78,571
)
Ending projected benefit obligation
741,372

 
590,435

Funded status
$
(741,372
)
 
$
(590,435
)
 
 
 
 
Amounts recognized in the consolidated balance sheet:
 
 
 
Current liabilities
$
(6,021
)
 
$
(5,701
)
Long-term liabilities
(735,351
)
 
(584,734
)
Net amount recognized in the consolidated balance sheet
$
(741,372
)
 
$
(590,435
)
 
 
 
 
Amounts recognized in accumulated other comprehensive loss:
 
 
 
Prior service credit
$
45,329

 
$
—

Net actuarial loss
$
(253,740
)
 
$
(111,960
)
Net amount recognized in accumulated other comprehensive loss
$
(208,411
)
 
$
(111,960
)

(a) In the fourth quarter of 2014, the Company amended its OPEB Plan to permit the former represented employees currently receiving post-retirement healthcare benefits to participate in that plan. Effective January 1, 2015, the former represented employees were transferred from their current plan to the OPEB Plan. The healthcare plan options available in the OPEB Plan contain higher deductibles, co-pays and co-insurance requirements than the healthcare plan options in the post-retirement healthcare plan for former represented employees. Accordingly, the Company recognized a gain as a result of the plan amendment, which will be accounted for as a prior service credit.
Qualified Pension Plan Assets. The investment objective for the qualified pension plan assets is to achieve an attractive risk-adjusted return over time that will provide for the payment of benefits in the future while minimizing the risk of loss of principal. The Company's strategy emphasizes a long-term equity orientation, global diversification and financial and operating risk controls. Both active and passive management investment approaches are employed depending on perceived market efficiencies and various other factors. Diversification targets of 75% equity securities and 25% fixed income securities for the represented employees plan seeks to minimize the concentration of market risk. For the qualified pension plan for the non-represented employees, the diversification target is 35% equity securities and 65% fixed income securities and is invested using primarily a liability driven investment strategy. The asset allocation at December 31, 2014 for the Company's qualified pension plan assets was as follows: 
 
Non-Represented
Employees Plan
 
Represented
Employees Plan
 
Total Qualified
Pension Plans
 
 
 
 
 
 
Cash and cash equivalents (a)
0.6
%
 
0.4
%
 
0.4
%
Equity securities (b)
31.3
%
 
74.9
%
 
68.3
%
Fixed income securities
68.1
%
 
24.7
%
 
31.3
%
Plan asset portfolio allocation at December 31, 2014
100.0
%
 
100.0
%
 
100.0
%
 
(a)
Cash and cash equivalents at December 31, 2014 include amounts pending settlement from the purchase or sale of equity or fixed income securities.
(b)
Equity securities at December 31, 2014 include amounts held in hedged equity funds which primarily invest using a "fund of funds" strategy in multiple other equity funds.
The fair values for the qualified pension plan assets by asset category at December 31, 2014 are as follows (in thousands): 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
848

 
$
848

 
$
—

 
$
—

Equity securities (a)
133,446

 
79,896

 
53,199

 
351

Fixed income securities
61,116

 
26,803

 
34,313

 
—

Fair value of plan assets at December 31, 2014
$
195,410

 
$
107,547

 
$
87,512

 
$
351

(a)
All Level 3 equity securities are amounts held in hedged equity funds.
The fair values for the qualified pension plan assets by asset category at December 31, 2013 were as follows (in thousands): 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,677

 
$
1,677

 
$
—

 
$
—

Equity securities (a)
107,683

 
69,381

 
26,591

 
11,711

Fixed income securities
65,882

 
28,942

 
36,940

 
—

Fair value of plan assets at December 31, 2013
$
175,242

 
$
100,000

 
$
63,531

 
$
11,711

(a)
All Level 3 equity securities are amounts held in hedged equity funds.
Cash and cash equivalents include short-term investment funds, primarily in diversified portfolios of investment grade money market instruments and are valued using quoted market prices, and thus classified within Level 1 of the fair value hierarchy, as outlined in note (9) "Fair Value".
Equity securities include direct holdings of equity securities and units held in mutual funds that invest in equity securities of domestic and international corporations in a variety of industry sectors. The direct holdings and units held in publicly traded mutual funds are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Fair values for units held in mutual funds that invest in equity securities that are not publicly traded are based on observable prices and are classified within Level 2 of the fair value hierarchy. The fair values of hedged equity funds are estimated using net asset value per share of the investments. The Company has the ability to redeem these investments at net asset value on a limited basis and thus has classified hedged equity funds within Level 3 of the fair value hierarchy. The Company is liquidating its positions in all its hedged equity funds per the terms of its investment agreements with such hedge equity funds.
Fixed income securities are investments in mutual funds that invest in corporate bonds, treasury securities and other debt instruments. These securities are expected to provide significant diversification benefits, in terms of asset volatility and pension funding volatility, in the portfolio and a stable source of income. Units held in publicly traded mutual funds that invest in fixed income securities are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Fair values of mutual funds that invest in fixed income securities that are not publicly traded are based on observable prices and are classified within Level 2 of the fair value hierarchy.
A reconciliation of the beginning and ending balance of plan assets that are measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2013 and the year ended December 31, 2014 is as follows (in thousands): 
 
Hedged Equity Funds
Balance at December 31, 2012
$
11,869

Actual gain on plan assets held
2,083

Purchases, sales and settlements, net
(2,241
)
Balance at December 31, 2013
$
11,711

Actual gain (loss) on plan assets held
145

Purchases, sales and settlements, net
(11,505
)
Balance at December 31, 2014
$
351



Net Periodic Benefit Cost. Components of the net periodic benefit cost related to the Company's qualified pension plans and post-retirement healthcare plans for the years ended December 31, 2014, 2013 and 2012 are as follows (in thousands):
 
 
Qualified Pension Plans
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Year Ended
December 31, 2014

Year Ended
December 31, 2013
 
Year Ended
December 31, 2012
 
 
 
 
 
 
 
 
 
Service cost
$
14,760

 
$
18,543

 
$
15,489

 
Interest cost
15,367

 
14,934

 
14,565

 
Expected return on plan assets
(13,525
)
 
(12,462
)
 
(13,268
)
 
Amortization of actuarial loss
2,054

 
5,585

 
2,213

 
Plan settlement
671

 
1,683

 
445

 
Net periodic benefit cost
$
19,327


$
28,283

 
$
19,444

 
 
 
Post-retirement Healthcare Plans
 
 
 
 
 
 
 
 
 
 
 
 


 
 
Year Ended
December 31, 2014

Year Ended
December 31, 2013

Year Ended
December 31, 2012
 
 
 
 
 
 

 
 
Service cost
$
24,969

 
$
26,712


$
25,423

 
Interest cost
29,908

 
24,555


23,958

 
Expected return on plan assets
—

 
—


(33
)
 
Amortization of prior service credit
(948
)
 
—


—

 
Amortization of actuarial loss
6,654

 
7,398


6,194

 
Net periodic benefit cost
$
60,583

 
$
58,665


$
55,542


Other Comprehensive Loss. Other pre-tax changes in plan assets and benefit obligations recognized in other comprehensive loss are as follows for the years ended December 31, 2014, 2013 and 2012, respectively, (in thousands): 
 
 
Qualified Pension Plans
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Year Ended
December 31, 2014
 
Year Ended
December 31, 2013
 
Year Ended
December 31, 2012
 
 
Amounts recognized in other comprehensive loss:
 
 
 
 
 
 
Net (gain) loss arising during the period
$
72,670

 
$
(49,218
)
 
$
48,632

 
Amortization or settlement recognition of net loss
(2,725
)
 
(7,268
)
 
(2,658
)
 
Total amount recognized in other comprehensive loss
$
69,945

 
$
(56,486
)
 
$
45,974

 
 
 
 
 
 
 
 
Estimated amounts that will be amortized from accumulated other comprehensive loss in the next fiscal year:
 
 
 
 
 
 
Net actuarial loss
(7,421
)
 
(2,156
)
 
(4,870
)
 
Total amount estimated to be amortized from accumulated other comprehensive loss in the next fiscal year
$
(7,421
)
 
$
(2,156
)
 
$
(4,870
)
 
 
Post-retirement Healthcare Plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
December 31, 2014
 
Year Ended
December 31, 2013
 
Year Ended
December 31, 2012
 
 
Amounts recognized in other comprehensive loss:
 
 
 
 
 
 
Prior service credit
(46,277
)
 
—

 
—

 
Net (gain) loss arising during the period
148,434

 
(78,571
)
 
42,405

 
Amortization of prior service credit
948

 
—

 
—

 
Amortization or settlement recognition of net loss
(6,654
)
 
(7,398
)
 
(6,194
)
 
Total amount recognized in other comprehensive loss
$
96,451

 
$
(85,969
)
 
$
36,211

 
 
 
 
 
 
 
 
Estimated amounts that will be amortized from accumulated other comprehensive loss in the next fiscal year:
 
 
 
 
 
 
Prior service credit
5,782

 
—

 
—

 
Net actuarial loss
(14,389
)
 
(3,694
)
 
(8,941
)
 
Total amount estimated to be amortized from accumulated other comprehensive loss in the next fiscal year
$
(8,607
)
 
$
(3,694
)
 
$
(8,941
)

Assumptions
The determination of the net liability and the net periodic benefit cost recognized for the qualified pension plans and post-retirement healthcare plans by the Company are, in part, based on assumptions made by management. These assumptions include, among others, the discount rate applied to estimated future cash flows of the plans, the expected return on assets held by the qualified pension plans, certain demographic characteristics of the participants, such as expected retirement and mortality rates, and future inflation in healthcare costs. Certain assumptions, which include, among others, assumptions regarding future benefit increases and increases in the amount of post-retirement healthcare expenditures to be paid by the Company, reflect the Company's past practice of providing such increases to participants and therefore are considered a substantive plan under the Compensation—Retirement Benefits Topic of the ASC.
Projected Benefit Obligation Assumptions. The weighted average assumptions used in determining projected benefit obligations are as follows:
 
 
 
 
 
 
December 31, 2014
 
December 31, 2013
Qualified Pension Plans:
 
 
 
Discount rate
4.04
%
 
4.92
%
Rate of compensation increase (a)
3.00
%
 
3.00
%
Post-retirement Healthcare Plans:
 
 
 
Discount rate
4.14
%
 
4.98
%
Rate of compensation increase (a)
4.00
%
 
4.00
%
 
(a)
The rate of future increases in compensation assumption only applies to the plans for represented employees as plans for non-represented employees are frozen.
Net Periodic Benefit Cost Assumptions. The weighted average assumptions used in determining net periodic cost are as follows:
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
Qualified Pension Plans:
 
 
 
 
 
Discount rate
4.92
%
 
4.08
%
 
4.63
%
Expected return on plan assets (a)
7.66
%
 
7.54
%
 
7.52
%
Rate of compensation increase (b)
3.00
%
 
3.00
%
 
3.00
%
Post-retirement Healthcare Plans:
 
 
 
 
 
Discount rate
4.98
%
 
4.20
%
 
4.66
%
Rate of compensation increase (b)
4.00
%
 
4.00
%
 
4.00
%
Healthcare cost trend rate assumed for participants under 65 (a)
7.90
%
 
8.10
%
 
8.40
%
Healthcare cost trend rate assumed for participants over 65 (a)
7.90
%
 
8.10
%
 
8.40
%
Rate that the cost trend rates ultimately declines to
4.50
%
 
4.50
%
 
4.50
%
Year that the rates reach the terminal rate
2030

 
2030

 
2030

 
(a)
The expected return on plan assets is the long-term rate-of-return the Company expects to earn on the plan assets. In developing the expected return on plan asset assumption, the Company evaluated historical investment performance, the plans' asset allocation strategies and return forecasts for each asset class and input from its advisors. Projected returns by such advisors were based on broad equity and fixed income indices. The expected return on plan assets is reviewed annually in conjunction with other plan assumptions and, if considered necessary, revised to reflect changes in the financial markets and the investment strategy. The investment strategy and target allocations of the qualified pension plans previously disclosed in "—Plan Assets, Obligations and Funded Status—Qualified Pension Plan Assets" herein were utilized.
(b)
The rate of future increases in compensation assumption only applies to the plans for represented employees as plans for non-represented employees are frozen.
Post-retirement Healthcare Plan Sensitivity. A 1% change in the medical trend rate assumed for post-retirement healthcare benefits at December 31, 2014 would have the following effects (in thousands): 
 
Increase (Decrease)
1% increase in the medical trend rate:
 
Effect on total service cost and interest cost components
$
14,152

Effect on benefit obligation
$
182,080

1% decrease in the medical trend rate:
 
Effect on total service cost and interest cost components
$
(10,719
)
Effect on benefit obligation
$
(138,046
)

The impact of the Medicare Drug Act of 2003 subsidy on the post-retirement healthcare benefits at December 31, 2014 is as follows (in thousands): 
 
Increase (Decrease)
 
 
Change in projected benefit obligation
$
(35,554
)
 
 
Change in each component of net periodic cost:
 
Service cost
$
(1,356
)
Interest cost
(1,641
)
Amortization of loss
(2,149
)
Total change in net periodic cost
$
(5,146
)

Estimated Future Contributions and Benefit Payments
Legislation enacted in 2014 changed the method in determining the discount rate used for calculating a qualified pension plan’s unfunded liability. This act contained a pension funding stabilization provision which allows pension plan sponsors to use higher interest rate assumptions when determining funded status and funding obligations. As a result, the Company's 2015 minimum required pension plan contribution is significantly lower than it would have been in the absence of this stabilization provision.
Estimated future employer contributions, benefit payments and Medicare prescription drug subsidies expected to offset the future post-retirement healthcare benefit payments as of December 31, 2014 are as follows (in thousands): 
 
Qualified
Pension Plans
 
Post-retirement
Healthcare Plans
 
 
 
 
Expected employer contributions for fiscal year 2015
$
16,190

 
$
6,021

Expected benefit payments for fiscal years:
 
 
 
2015
$
6,311

 
$
6,021

2016
7,165

 
7,506

2017
8,244

 
9,199

2018
10,447

 
11,166

2019
11,347

 
13,439

2020-2024
81,870

 
109,814

Expected subsidy for fiscal years:
 
 
 
2015
 
 
$
12

2016
 
 
28

2017
 
 
48

2018
 
 
76

2019
 
 
114

2020-2024
 
 
1,610


401(k) Savings Plans
The Company and its subsidiaries sponsor four voluntary 401(k) savings plans that, in the aggregate, cover all eligible Telecom Group employees and northern New England management employees, and one voluntary 401(k) savings plan that covers all eligible northern New England represented employees (collectively, "the 401(k) Plans"). Each 401(k) Plan year, the Company contributes an amount of matching contributions to the 401(k) Plans determined by the Company at its discretion for management employees and based on collective bargaining agreements for all other employees. For the 401(k) Plan years ended December 31, 2014, 2013 and 2012, the Company generally matched 100% of each employee's contribution up to 5% of compensation. Total Company contributions to all 401(k) Plans were $9.5 million, $9.9 million and $9.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.