Defined Benefit Pension Plans and Other Postretirement Benefits

The Company maintains the QEP Resources, Inc. Retirement Plan, a closed, defined-benefit pension plan providing coverage to 62 active and suspended participants, or 8%, of QEP's active employees and to 152 participants that are retired or terminated and vested (the Pension Plan). QEP also sponsors an unfunded Supplemental Executive Retirement Plan. 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. Of the 62 active, pension eligible employees, 39 are also eligible for the postretirement medical and life insurance plans when they retire. As of December 31, 2014, 36 retirees are enrolled in this plan. The Company has capped its exposure to increasing medical costs by paying a fixed dollar monthly contribution toward these retiree benefits. The Company's 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, 2014 and 2013, QEP's accumulated benefit obligation exceeded the fair value of its qualified retirement plan assets. At December 31, 2014 and 2013, QEP's nonqualified retirement plan was unfunded.

During the year ended December 31, 2014, the Company recognized a $9.3 million loss on curtailment and $1.9 million in expenses for special termination benefits in connection with the Midstream Sale (see Note 3 - Discontinued Operations) and the 2014 property sales in the Midcontinent area (see Note 2 - Acquisitions and Divestitures). The Pension Plan was amended to provide certain termination benefits for participants impacted by the Midstream Sale and the 2014 Midcontinent property sales who were aged 50-54 as of the date of their separation from the Company. These expenses are included within "Net income from discontinued operations, net of income tax" and "Net gain (loss) from asset sales" for the year ended December 31, 2014, on the Consolidated Statements of Operations. During the year ended December 31, 2012, the Company recognized a $2.2 million loss on curtailment as part of its restructuring and related termination benefits (see Note 8 - Restructuring Costs). A curtailment is recognized immediately when there is a significant reduction in, or an elimination of, defined benefit accruals for present employees' future services. During the year ended December 31, 2014, the Company made contributions of $8.1 million to its funded qualified pension plan. Contributions to funded qualified plans increase plan assets. During the year ended December 31, 2014, the Company made payments of $4.9 million of benefits pursuant to its unfunded nonqualified retirement plan. Payments to the unfunded nonqualified plans are used to fund current benefit payments. During 2015, the Company expects to contribute approximately $4.0 million to its funded pension plan, pay approximately $4.4 million of benefits under its unfunded nonqualified pension plan and pay approximately $0.3 million for retiree health care and life insurance benefits. The accumulated benefit obligation for all defined-benefit pension plans was $121.8 million and $101.0 million at December 31, 2014 and 2013, 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, 2014 and 2013, as well as the funded status of the plans and amounts recognized in the financial statements at December 31, 2014 and 2013:



	Pension benefits						Other postretirement benefits
	2014			2013			2014			2013
	(in millions)
Change in benefit obligation
Benefit obligation at January 1,	$	118.0		$	129.7		$	5.9		$	6.7
Service cost	2.6			3.3			—			0.1
Interest cost	5.3			4.8			0.3			0.3
Special termination benefits	1.9			—			—			—
Curtailments	(8.2		)	—			(0.2		)	—
Plan settlements	(2.3		)	—			—			—
Benefit payments	(5.5		)	(5.5		)	—			(0.1		)
Actuarial loss (gain)	20.8			(14.3		)	0.6			(1.1		)
Benefit obligation at December 31,	$	132.6		$	118.0		$	6.6		$	5.9
Change in plan assets
Fair value of plan assets at January 1,	$	71.7		$	55.3		$	—		$	—
Actual gain on plan assets	4.5			10.4			—			—
Company contributions to the plan	13.0			11.5			—			0.1
Benefit payments	(5.5		)	(5.5		)	—			(0.1		)
Plan settlements	(2.3		)	—			—			—
Fair value of plan assets at December 31,	81.4			71.7			—			—
Underfunded status (current and long-term)	$	(51.2	)	$	(46.3	)	$	(6.6	)	$	(5.9	)
Amounts recognized in balance sheets
Accounts payable and accrued expenses	$	(4.3	)	$	(5.5	)	$	(0.3	)	$	(0.2	)
Other long-term liabilities	(46.9		)	(40.8		)	(6.3		)	(5.7		)
Total amount recognized in balance sheet	$	(51.2	)	$	(46.3	)	$	(6.6	)	$	(5.9	)
Amounts recognized in AOCI
Net actuarial loss	$	21.2		$	9.5		$	0.6		$	0.2
Prior service cost	16.1			30.1			1.4			3.0
Total amount recognized in AOCI	$	37.3		$	39.6		$	2.0		$	3.2

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
	2014			2013			2012			2014			2013			2012

Components of net periodic benefit cost
Service cost	$	2.6		$	3.3		$	4.0		$	—		$	0.1		$	0.1
Interest cost	5.3			4.8			5.1			0.3			0.3			0.3
Expected return on plan assets	(5.1		)	(3.9		)	(3.6		)	—			—			—
Curtailment loss	9.3			—			2.2			1.4			—			—
Special termination benefits	1.9			—			—			—			—			—
Settlements	0.7			—			—			—			—			—
Amortization of prior service costs	4.7			5.0			5.3			0.3			0.3			0.3
Amortization of actuarial loss	0.8			2.3			1.9			—			0.1			0.1
Periodic expense	$	20.2		$	11.5		$	14.9		$	2.0		$	0.8		$	0.8
Components recognized in accumulated other comprehensive income
Current period actuarial loss (gain)	$	21.5		$	(20.8	)	$	15.9		$	0.6		$	(1.0	)	$	0.4
Amortization of actuarial loss	(0.8		)	(2.3		)	(1.9		)	—			(0.1		)	(0.1		)
Amortization of prior service cost	(14.0		)	(5.0		)	(5.3		)	(1.7		)	(0.4		)	(0.4		)
Loss on curtailment in current period	(8.2		)	—			(2.2		)	(0.2		)	—			—
Settlements	(0.7		)	—			—			—			—			—
Total amount recognized in accumulated other comprehensive income	$	(2.2	)	$	(28.1	)	$	6.5		$	(1.3	)	$	(1.5	)	$	(0.1	)

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 2015 is $4.1 million, which represents amortization of prior service cost recognition and actuarial losses. The estimated portion to be recognized in net periodic cost for other postretirement benefits from AOCI in 2015 is $0.2 million, which represents amortization of prior service cost recognition. Amortization of prior service costs and actuarial losses/gains out of AOCI are recognized in the Consolidated Statements of Operations in "General and administrative."

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, 2014 and 2013:



	Pension benefits				Other postretirement benefits
	2014		2013		2014		2013
Discount rate	3.94	%	4.75	%	4.00	%	5.00	%
Rate of increase in compensation	4.00	%	4.00	%	4.00	%	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
	2014		2013		2012		2014		2013		2012
Discount rate	4.40	%	3.69	%	4.38	%	5.00	%	4.10	%	4.70	%
Expected long-term return on plan assets	7.00	%	6.75	%	7.25	%	n/a		n/a		n/a
Rate of increase in compensation	4.00	%	3.60	%	3.60	%	4.00	%	3.60	%	4.00	%

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 2015. Historical health 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 increases and decreases in the health-care inflation rate is not applicable.

Plan Assets

The Company's Employee Benefits Committee (EBC) oversees investment of qualified 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 invested in a combination of index funds and actively managed products, 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. High yield and bank loan assets are held in funds holding a diversified portfolio of these instruments with an average maturity of 5 to 7 years.

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 and significant to the fair value measurement. 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:



	December 31, 2014								Percentage of total
	Level 1		Level 2		Level 3		Total		Percentage of total
	(in millions except percentages)
Cash and short-term investments	$	—	$	—	$	0.3	$	0.3	—	%
Equity securities:
Domestic	—		—		36.7		36.7		45	%
International	—		—		20.2		20.2		25	%
Fixed income	—		—		24.2		24.2		30	%
Total investments	—		—		$	81.4	$	81.4	100	%
	December 31, 2013								Percentage of total
	Level 1		Level 2		Level 3		Total		Percentage of total
	(in millions except percentages)
Cash and short-term investments	$	—	$	—	$	0.3	$	0.3	—	%
Equity securities:
Domestic	—		—		29.3		29.3		41	%
International	—		—		21.3		21.3		30	%
Fixed income	—		—		20.8		20.8		29	%
Total investments	—		—		$	71.7	$	71.7	100	%

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



	Year ended December 31,
	2014			2013
	(in millions)
Balance at January 1,	$	71.7		55.2
Employer contributions	8.1			8.1
Unrealized gains (losses)	(1.0		)	9.8
Realized gains	5.9			1.0
Administrative fees	(0.4		)	(0.3		)
Benefits paid	(2.9		)	(2.1		)
Balance at December 31,	$	81.4		$	71.7

Expected Benefit Payments

As of December 31, 2014, the following future benefit payments are expected to be paid:



	Pension		Postretirement benefits
	(in millions)
2015	$	8.3	$	0.3
2016	7.0		0.4
2017	6.3		0.4
2018	6.3		0.4
2019	7.2		0.4
2020 through 2024	41.8		1.8

Employee Investment Plan

QEP employees may participate in the QEP Employee Investment Plan, a defined-contribution plan (the 401(k) Plan). The 401(k) Plan allows eligible employees to make investments, including purchasing shares of QEP common stock, through payroll deduction at the current fair market value on the transaction date. For the years ended December 31, 2014 and 2013, the Company made matching contributions for employees not covered by the Pension Plan equal to 100% of employees' contributions up to a maximum of 8% of their qualifying earnings. Employees in the Pension Plan are eligible for a 6% match. For the year ended December 31, 2012, the Company made matching contributions equal to 100% of employees' contributions up to a maximum of 6% of their qualifying earnings. The Company may contribute a discretionary portion beyond the Company's matching contribution to employees not in the Pension Plan, and for the year ended December 31, 2012, the Company made such discretionary contributions equal to 2% of each eligible employee's compensation. The Company recognizes expense equal to its yearly contributions, which amounted to $7.6 million, $6.9 million and $6.4 million during the years ended December 31, 2014, 2013 and 2012, respectively.