Employee Benefits

Defined Benefit Pension Plans and Other Postretirement Benefits

The Company maintains closed, defined-benefit pension and postretirement medical plans providing coverage to 145, or 16%, of QEP's active employees and to 70 participants that are retired, terminated and vested, or suspended. Pension-plan benefits are based on the employee's age at retirement, years of service and highest earnings in a consecutive 72 semi-monthly pay period during the 10 years preceding retirement. QEP pension plans include a qualified and a nonqualified retirement plan. Postretirement health care benefits and life insurance are provided only to employees hired before January 1, 1997. The Company pays a portion of the costs of health-care benefits determined by an employee's years of service. The Company has capped its exposure to increasing medical care and life insurance costs by paying a fixed dollar monthly contribution toward these retiree benefits. The Company contribution is prorated based on an employee's years of service at retirement; only those employees with 25 or more years of service receive the maximum Company contribution. At December 31, 2012 and 2011, QEP's accumulated benefit obligation exceeded the fair value of plan assets as the plan is unfunded.

During the year ended December 31, 2012, the Company recognized a $2.2 million loss on curtailment as part of its restructuring efforts and related termination benefits. A curtailment is recognized immediately when there is a significant reduction in, or an elimination of, defined benefit accruals for present employees' future services. For additional information regarding the Company's restructuring efforts see Note 7 - Restructuring Costs. During the year ended December 31, 2012, the Company made contributions of $5.6 million to its funded pension plan, and $1.3 million to its unfunded pension plan. Contributions to funded plans increase plan assets while contributions to unfunded plans are used to fund current benefit payments. During 2013, the Company expects to contribute approximately $8.1 million to its funded pension plan, approximately $3.2 million to its unfunded pension plan and approximately $0.2 million for retiree health care and life insurance benefits. The accumulated postretirement benefit obligation for all defined-benefit pension plans was $106.9 million and $78.3 million at December 31, 2012 and 2011, respectively.

The following table sets forth changes in the benefit obligations and fair value of plan assets for the Company's pension and other postretirement benefit plans for the years ended December 31, 2012 and 2011, as well as the funded status of the plans and amounts recognized in the financial statements at December 31, 2012 and 2011:



	Pension benefits						Other postretirement benefits
	2012			2011			2012			2011
	(in millions)
Change in benefit obligation
Benefit obligation at January 1,	$	104.1		$	78.0		$	5.9		$	4.5
Service cost	4.0			2.9			0.1			0.1
Interest cost	5.1			4.5			0.3			0.3
Change in plan assumptions	8.4			19.6			—			—
Benefit payments	(2.7		)	(0.2		)	—			—
Actuarial loss (gain)	10.8			(0.7		)	0.4			1.0
Benefit obligation at December 31,	$	129.7		$	104.1		$	6.7		$	5.9
Change in plan assets
Fair value of plan assets at January 1,	$	44.2		$	30.9		$	—		$	—
Actual gain (loss) on plan assets	6.9			(1.3		)	—			—
Company contributions to the plan	6.9			14.8			—			—
Benefit payments	(2.7		)	(0.2		)	—			—
Fair value of plan assets at December 31,	55.3			44.2			—			—
Underfunded status (current and long-term)	$	(74.4	)	$	(59.9	)	$	(6.7	)	$	(5.9	)
Amounts recognized in balance sheets
Accounts payable and accrued expenses	$	(3.2	)	$	(1.3	)	$	(0.2	)	$	—
Other long-term liabilities	(71.2		)	(58.6		)	(6.5		)	(5.9		)
Total amount recognized in balance sheet	$	(74.4	)	$	(59.9	)	$	(6.7	)	$	(5.9	)
Amounts recognized in AOCI
Net actuarial loss (gain)	$	32.6		$	18.6		$	1.3		$	1.0
Prior service cost	35.1			42.6			3.4			3.8
Total amount recognized in AOCI	$	67.7		$	61.2		$	4.7		$	4.8

The following table sets forth the Company's pension and other postretirement benefit cost and amounts recognized in other comprehensive income (before tax) for the respective years ended December 31:



	Pension benefits									Other postretirement benefits
	2012			2011			2010			2012			2011			2010

Components of net periodic benefit cost
Service cost	$	4.0		$	2.9		$	1.3		$	0.1		$	0.1		$	0.1
Interest cost	5.1			4.5			2.1			0.3			0.3			0.1
Expected return on plan assets	(3.6		)	(2.6		)	(1.1		)	—			—			—
Curtailment loss	2.2			—			—			—			—			—
Amortization of prior service costs	5.3			5.3			2.6			0.3			0.3			0.2
Amortization of actuarial loss	1.9			—			—			0.1			—			—
Periodic expense	$	14.9		$	10.1		$	4.9		$	0.8		$	0.7		$	0.4
Components recognized in accumulated other comprehensive income
Current period actuarial loss (gain)	$	15.9		$	22.9		$	(4.2	)	$	0.4		$	1.0		$	—
Amortization of actuarial loss	(1.9		)	—			—			(0.1		)	—			—
Current period prior service cost	—			—			50.4			—			—			4.3
Amortization of prior service cost	(5.3		)	(5.3		)	(2.6		)	(0.4		)	(0.3		)	(0.1		)
Loss on curtailment in current period	(2.2		)	—			—			—			—			—
Total amount recognized in accumulated other comprehensive income	$	6.5		$	17.6		$	43.6		$	(0.1	)	$	0.7		$	4.2

The estimated portion of net actuarial loss and net prior service cost for the pension plans that will be amortized from AOCI into net periodic benefit cost in 2013 is $7.3 million, of which $5.0 million represents amortization of prior service cost recognition and the remaining $2.3 million represents amortization of net actuarial losses. The estimated portion to be recognized in net periodic cost for other postretirement benefits from AOCI in 2013 is $0.5 million, of which $0.4 million represents amortization of prior service cost recognition and the remaining $0.1 million represents amortization of net actuarial losses.

Following are the weighted-average assumptions (weighted by the plan level benefit obligation for pension benefits) used by the Company to calculate pension and other postretirement benefit obligations at December 31, 2012 and 2011:



	Pension benefits				Other postretirement benefits
	2012		2011		2012		2011
Discount rate	3.88	%	4.54	%	4.10	%	4.70	%
Rate of increase in compensation	3.60	%	3.60	%	3.60	%	4.00	%

The discount rate assumptions used by the Company represents an estimate of the interest rate at which the pension and other postretirement obligations could effectively be settled on the measurement date.

Following are the weighted-average assumptions (weighted by the net period benefit cost for pension benefits) used by the Company in determining the net periodic pension and other postretirement benefit cost for the years ended December 31:



	Pension benefits						Other postretirement benefits
	2012		2011		2010		2012		2011		2010
Discount rate	4.38	%	5.80	%	5.70	%	4.70	%	5.80	%	5.70	%
Expected long-term return on plan assets	7.25	%	7.50	%	7.50	%	n/a		n/a		n/a
Rate of increase in compensation	3.60	%	3.60	%	3.60	%	4.00	%	n/a		n/a

In selecting the assumption for expected long-term rate of return on assets, the Company considers the average rate of return expected on the funds to be invested to provide benefits. This includes considering the plan's asset allocation, historical returns on these types of assets, the current economic environment and the expected returns likely to be earned over the life of the plan. No plan assets are expected to be returned to the Company in 2013. Historical heath care cost trend rates are not applicable to the Company because the Company's medical costs are capped at a fixed amount. As the Company's medical costs are capped at a fixed amount, the sensitivity to increase and decreases in the health-care inflation rate is not applicable.

Plan Assets

The Company's Employee Benefits Committee (EBC) oversees investment of pension plan assets. The EBC uses a third-party asset manager to assist in setting targeted-policy ranges for the allocation of assets among various investment categories. The EBC allocates pension-plan assets among broad asset categories and reviews the asset allocation at least annually. Asset-allocation decisions consider risk and return, future-benefit requirements, participant growth and other expected cash flows. These characteristics affect the level, risk and expected growth of postretirement-benefit assets. The EBC uses asset-mix guidelines that include targets for each asset category, return objectives for each asset group and the desired level of diversification and liquidity. These guidelines may change from time to time based on the committee's ongoing evaluation of each plan's risk tolerance. The EBC estimates an expected overall long-term rate of return on assets by weighting expected returns of each asset class by its targeted asset allocation percentage. Expected return estimates are developed from analysis of past performance and forecasts of long-term return expectations by third-parties. Responsibility for individual security selection rests with each investment manager, who is subject to guidelines specified by the EBC. The EBC sets performance objectives for each investment manager that are expected to be met over a three-year period or a complete market cycle, whichever is shorter. Performance and risk levels are regularly monitored to confirm policy compliance and that results are within expectations. Performance for each investment is measured relative to the appropriate index benchmark for its category. QEP securities may be considered for purchase at an investment manager's discretion, but within limitations prescribed by ERISA and other laws. There was no direct investment in QEP shares for the periods disclosed. The majority of retirement-benefit assets were invested as follows:

Equity securities: Domestic equity assets were mostly invested in a stock index fund, and a smaller portion was invested in an actively managed product, with a diversification goal representative of the whole U.S. stock market. Foreign equity securities consisted of developed and emerging market foreign equity assets that were invested in funds that hold diversified portfolio of common stocks of corporations in developed and emerging foreign countries.

Debt securities: Investment grade intermediate-term debt assets are invested in funds holding a diversified portfolio of debt of governments, corporations and mortgage borrowers with average maturities of 5 to 10 years and investment grade credit ratings. Investment grade long-term debt assets are invested in a diversified portfolio of debt of corporate and non-corporate issuers, with an average maturity of more than ten years and investment grade credit ratings.

Although the actual allocation to cash and short-term investments is minimal (less than 1%), larger cash allocations may be held from time to time if deemed necessary for operational aspects of the retirement plan. Cash is invested in a high-quality, short-term temporary investment fund that purchases investment-grade quality short-term debt issued by governments and corporations.

Commingled funds: The EBC made the decision to invest all of the retirement plan assets in commingled funds as these funds typically have lower expense ratios and are more tax efficient than mutual funds. While commingled funds are classified as Level 3 assets because there are calculations involved in determining the net asset value of the funds, the underlying assets can be traced back to observable asset values and these commingled funds are audited annually by an independent accounting firm.

The fair value measurement provision of ASC 820, Fair Value Measurements, defines fair value in applying generally accepted accounting principles as well as establishes a framework for measuring fair value and for making disclosures about fair-value measurements. Fair value measurement establishes a fair-value hierarchy. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset. The Company's Level 3 investments are public investment vehicles valued using the net asset value (NAV) of the fund, but are considered Level 3 because they are commingled funds. The NAV is based on the value of the underlying assets owned by the fund excluding transaction costs, and minus liabilities.

The following table sets forth by level, within the fair value hierarchy, the fair value of pension and postretirement benefit assets.:



	As of December 31, 2012								Percentage of total
	Level 1		Level 2		Level 3		Total		Percentage of total
	(in millions except percentages)
Cash and short-term investments	$	—	$	—	$	0.2	$	0.2	—		%
Equity securities:
Domestic	—		—		22.2		22.2		40		%
International	—		—		16.7		16.7		30		%
Fixed income	—		—		16.2		16.2		30		%
Total investments	—		—		$	55.3	$	55.3	100		%
	As of December 31, 2011								Percentage of total
	Level 1		Level 2		Level 3		Total		Percentage of total
	(in millions except percentages)
Cash and short-term investments	$	—	$	—	$	—	$	—	$	—
Equity securities:
Domestic	—		—		17.6		17.6		40		%
International	—		—		13		13.0		29		%
Fixed income	—		—		13.6		13.6		31		%
Total investments	—		—		$	44.2	$	44.2	100		%

The following table presents a summary of changes in the fair value of QEP's Level 3 investments:



	Year ended December 31,
	2012			2011
	(in millions)
Balance at January 1,	$	44.2		30.9
Employer contributions	5.6			14.8
Unrealized gains (losses)	6.3			(1.4		)
Realized gains	0.7			0.3
Administrative fees	(0.2		)	(0.2		)
Benefits paid	(1.3		)	(0.2		)
Balance at December 31,	$	55.3		$	44.2

Expected Benefit Payments

As of December 31, 2012, the following future benefit payments are expected to be paid:



	Pension		Postretirement benefits
	(in millions)
2013	$	5.7	$	0.2
2014	5.3		0.2
2015	4.9		0.2
2016	5.6		0.3
2017	5.2		0.3
2018 through 2021	40.9		1.8

Employee Investment Plan

QEP employees may participate in the QEP Employee Investment Plan (EIP), a defined-contribution plan. The EIP allows eligible employees to purchase shares of QEP common stock or other investments through payroll deduction at the current fair market value on the transaction date. The Company currently contributes an overall match of 100% of employees' contribution up to a maximum of 6% of their qualifying earnings. In addition, from time-to-time at the discretion of management, the Company may contribute a discretionary portion beyond the company match to employees not in the Company's closed defined benefit plan. The Company recognizes expense equal to its yearly contributions, which amounted to $6.4 million, $5.8 million and $4.2 million during the years ended December 31, 2012, 2011 and 2010.