9. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS

Defined Benefit Plans

We sponsor a qualified defined benefit pension plan (“Retirement Plan”) that is non-contributory covering certain of our hourly employees who fulfill minimum age and service requirements. Certain salaried employees are also covered by the Retirement Plan, although these benefits have previously been frozen. In April 2013, the Retirement Plan was amended for certain employees under collective bargaining agreements to among other things: (i) change the benefit formula to a cash balance account as of May 1, 2013 and (ii) freeze entrance into the Retirement Plan so that no person is eligible to become a participant on or following May 1, 2013. As of May 2013, all employees under collective bargaining agreements that include a defined benefit plan are on a cash balance plan.

In connection with the acquisition of SureWest, we assumed sponsorship in 2012 of a frozen non-contributory defined benefit pension plan (the “SureWest Plan”). The SureWest Plan covers certain eligible employees and benefits are based on years of service and the employee’s average compensation during the five highest consecutive years of the last ten years of credited service. This plan has previously been frozen so that no person is eligible to become a new participant and all future benefit accruals for existing participants have ceased.

We also have two non-qualified supplemental retirement plans (“Supplemental Plans”): the Restoration Plan, which we acquired as part of our North Pittsburgh Systems, Inc. (“North Pittsburgh”) and TXU Communications Venture Company (“TXUCV”) acquisitions, and a Supplemental Executive Retirement Plan (“SERP”), which we acquired as part of our acquisition of SureWest. The Supplemental Plans provide supplemental retirement benefits to certain former employees by providing for incremental pension payments to partially offset the reduction that would have been payable under the qualified defined benefit pension plans if it were not for limitations imposed by federal income tax regulations. Both plans have previously been frozen so that no person is eligible to become a new participant in the Supplemental Plans. These plans are unfunded and have no assets. The benefits paid under the Supplemental Plans are paid from the general operating funds of the Company.

The following tables summarize the change in benefit obligation, plan assets and funded status of the Retirement Plan, SureWest Plan and Supplemental Plans (collectively the “Pension Plans”) as of December 31, 2013 and 2012.

(In thousands)	2013			2012
Change in benefit obligation
Benefit obligation at the beginning of the year	$	379,528		$	203,413
Service cost	743			1,184
Interest cost	15,307			13,620
Actuarial loss (gain)	(34,315		)	32,274
Benefits paid	(21,559		)	(16,529		)
Acquisition of SureWest Plans	-			146,688
Plan change	(2,361		)	(1,122		)
Benefit obligation at the end of the year	$	337,343		$	379,528

(In thousands)	2013			2012
Change in plan assets
Fair value of plan assets at the beginning of the year	$	262,778		$	142,736
Employer contributions	11,480			15,222
Actual return on plan assets	39,489			27,935
Benefits paid	(21,559		)	(16,529		)
Acquisition of SureWest Plans	-			93,414
Fair value of plan assets at the end of the year	$	292,188		$	262,778
Funded status at year end	$	(45,155	)	$	(116,750	)

Amounts recognized in the consolidated balance sheets at December 31, 2013 and 2012 consisted of:

(In thousands)	2013			2012
Current liabilities	$	(254	)	$	(254	)
Long-term liabilities	$	(44,901	)	$	(116,496	)

Amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2013 and 2012 consisted of:

(In thousands)	2013			2012
Unamortized prior service credit	$	(4,426	)	$	(2,523	)
Unamortized net actuarial loss	10,302			67,104
	$	5,876		$	64,581

The following table summarizes the components of net periodic pension cost recognized in the consolidated statements of income for the plans for the years ended December 31, 2013, 2012 and 2011:

(In thousands)	2013			2012			2011
Service cost	$	743		$	1,184		$	1,277
Interest cost	15,307			13,620			10,960
Expected return on plan assets	(20,654		)	(14,728		)	(10,893		)
Amortization of:
Net actuarial loss	3,652			2,518			786
Prior service credit	(457		)	(282		)	(166		)
Net periodic pension cost	$	(1,409	)	$	2,312		$	1,964

The following table summarizes other changes in plan assets and benefit obligations recognized in other comprehensive loss, before tax effects, during 2013 and 2012.

(In thousands)	2013			2012
Actuarial loss (gain), net	$	(53,149	)	$	19,066
Recognized actuarial loss	(3,652		)	(2,518		)
Prior service credit	(2,361		)	(1,122		)
Recognized prior service credit	457			282
Total amount recognized in other comprehensive loss, before tax effects	$	(58,705	)	$	15,708

The estimated net loss and net prior service credit for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss in net periodic benefit cost in 2014 are $0.2 million and $(0.5) million, respectively.

The weighted-average assumptions used to determine the projected benefit obligations and net periodic benefit cost for the years ended December 31, 2013, 2012 and 2011 were as follows:

	2013	2012	2011
Discount rate - net periodic benefit cost	4.20%	5.00%	5.86%
Discount rate - benefit obligation	4.97%	4.20%	5.35%
Expected long-term rate of return on plan assets	8.00%	7.70%	7.50%
Rate of compensation/salary increase	1.75%	1.50%	3.06%

Other Non-qualified Deferred Compensation Agreements

We also are liable for deferred compensation agreements with former members of the board of directors and certain other former employees of a subsidiary of TXUCV, which was acquired in 2004. The benefits are payable for up to the life of the participant or to the beneficiary upon the death of the participant and may begin as early as age 55. Participants accrue no new benefits as these plans had previously been frozen by TXUCV’s predecessor company prior to our acquisition of TXUCV. Payments related to the deferred compensation agreements totaled approximately $0.6 million for the years ended December 31, 2013 and 2012, respectively. The net present value of the remaining obligations was approximately $1.8 million and $2.2 million at December 31, 2013 and 2012, respectively, and is included in pension and post-retirement benefit obligations in the accompanying balance sheets.

We also maintain 34 life insurance policies on certain of the participating former directors and employees. We recognized $0.3 million and $0.4 million in life insurance proceeds as other non-operating income in 2013 and 2012. The excess of the cash surrender value of the remaining life insurance policies over the notes payable balances related to these policies is determined by an independent consultant, and totaled $2.2 million and $2.0 million at December 31, 2013 and 2012, respectively. These amounts are included in investments in the accompanying consolidated balance sheets. Cash principal payments for the policies and any proceeds from the policies are classified as operating activities in the consolidated statements of cash flows. The aggregate death benefit payment payable under these policies totaled $7.3 million and $7.5 million as of December 31, 2013 and 2012, respectively.

Post-retirement Benefit Obligations

We sponsor a healthcare and life insurance plan (“Post-retirement Plan”) that provides post-retirement medical benefits and life insurance to certain groups of retired employees. Retirees share in the cost of healthcare benefits, making contributions that are adjusted periodically—either based upon collective bargaining agreements or because total costs of the program have changed. Covered expenses for retiree health benefits are paid as they are incurred. Post-retirement life insurance benefits are fully insured. The Post-retirement Plan is unfunded and has no assets, and benefits are paid from the general operating funds of the Company.

In connection with the acquisition of SureWest, we acquired its post-retirement benefit plan which provides life insurance benefits and a stated reimbursement for Medicare supplemental insurance to certain eligible retired participants. This plan has previously been frozen so that no person is eligible to become a new participant. Employer contributions for retiree medical benefits are separately designated within the SureWest Plan pension trust for the sole purpose of providing payments of retiree medical benefits. The nature of the assets used to provide payment of retiree medical benefits is the same as that of the SureWest Plan.

The following tables summarize the change in benefit obligation, plan assets and funded status of the post-retirement benefit obligations as of December 31, 2013 and 2012.

(In thousands)	2013			2012
Change in benefit obligation
Benefit obligation at the beginning of the year	$	43,906		$	33,184
Service cost	925			811
Interest cost	1,575			1,756
Plan participant contributions	757			614
Actuarial loss (gain)	(9,552		)	5,282
Benefits paid	(3,966		)	(4,011		)
Amendments	1,448			-
Acquisition	-			6,270
Benefit obligation at the end of the year	$	35,093		$	43,906

(In thousands)	2013			2012
Change in plan assets
Fair value of plan assets at the beginning of the year	$	3,410		$	–
Employer contributions	2,772			3,189
Plan participant’s contributions	757			614
Actual return on plan assets	602			197
Benefits paid	(3,966		)	(4,011		)
Acquisition	–			3,421
Fair value of plan assets at the end of the year	$	3,575		$	3,410
Funded status at year end	$	(31,518	)	$	(40,496	)

Amounts recognized in the consolidated balance sheets at December 31, 2013 and 2012 consist of:

(In thousands)	2013			2012
Current liabilities	$	(2,429	)	$	(2,467	)
Long-term liabilities	$	(29,089	)	$	(38,029	)

Amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2013 and 2012 consist of:

(In thousands)	2013			2012
Unamortized prior service cost (credit)	$	183		$	(1,446	)
Unamortized net actuarial loss (gain)	(7,868		)	2,055
	$	(7,685	)	$	609

The following table summarizes the components of the net periodic costs for post-retirement benefits for the years ended December 31, 2013, 2012 and 2011:

(In thousands)	2013			2012			2011
Service cost	$	925		$	811		$	749
Interest cost	1,575			1,756			1,690
Expected return on plan assets	(233		)	(105		)	–
Amortization of:
Net actuarial loss (gain)	–			–			(212		)
Prior service credit	(180		)	(189		)	(189		)
Net periodic postretirement benefit cost	$	2,087		$	2,273		$	2,038

The following table summarizes other changes in plan assets and benefit obligations recognized in other comprehensive loss, before tax effects, during 2013 and 2012:

(In thousands)	2013			2012
Actuarial loss (gain), net	$	(9,922	)	$	5,191
Prior service cost	1,448			–
Recognized prior service credit	180			189
Total amount recognized in other comprehensive loss, before tax effects	$	(8,294	)	$	5,380

The estimated net actuarial gain and net prior service credit that will be amortized from accumulated other comprehensive loss in net periodic postretirement cost in 2014 is approximately $(0.5) million and $(0.2) million, respectively.

The weighted-average discount rate assumptions utilized for the years ended December 31 were as follows:

	2013	2012	2011
Net periodic benefit cost	4.00%	5.00%	5.58%
Benefit obligation	4.40%	3.90%	5.22%

For purposes of determining the cost and obligation for pre-Medicare postretirement medical benefits, a 7.50% annual rate of increase in the per capita cost of covered benefits (i.e., healthcare trend rate) was assumed for the plan in 2014, declining to a rate of 5.00% in 2020. Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. A one percent change in the assumed healthcare cost trend rate would have had the following effects:

(In thousands)	1% Increase		1% Decrease
Effect on total of service and interest cost	$	277	$	(230	)
Effect on postretirement benefit obligation	$	2,063	$	(1,852	)

Plan Assets

Our investment strategy is designed to provide a stable environment to earn a rate of return over time to satisfy the benefit obligations and minimize the reliance on contributions as a source of benefit security. The objectives are based on a long-term (5 to 15 year) investment horizon, so that interim fluctuations should be viewed with appropriate perspective. The assets of the fund are to be invested to achieve the greatest return for the pension plans consistent with a prudent level of risk.

The asset return objective is to achieve, as a minimum over time, the passively managed return earned by managed index funds, weighted in the proportions outlined by the asset class exposures identified in the pension plan’s strategic allocation. We update our long-term, strategic asset allocations every few years to ensure they are in line with our fund objectives. The target allocation of the Pension Plan assets is approximately 50% - 60% equities with the remainder in fixed income funds and cash equivalents. Currently, we believe that there are no significant concentrations of risk associated with the pension plan assets.

The following is a description of the valuation methodologies for assets measured at fair value utilizing the fair value hierarchy discussed in Note 1, which prioritizes the inputs used in the valuation methodologies in measuring fair value. The fair value measurements used to value our plan assets as of December 31, 2013 were generated by using market transactions involving identical or comparable assets. There were no changes in the valuation techniques used during 2013.

Equity securities include investments in common and preferred stocks, mutual funds, common collective trusts and other commingled investment funds.

Common and Preferred Stocks: Includes domestic and international common and preferred stocks and are valued at the closing price as of the measurement date as reported on the active market on which the individual securities are traded multiplied by the number of shares owned.

Mutual Funds: Valued at the closing net asset value as of the measurement date as reported on the active market on which the funds are traded multiplied by the number of shares owned or the percentage of ownership in the fund.

Common Collective Trusts and Commingled Funds: Valued as determined by the fund manager based on the underlying net asset values and supported by the value of the underlying securities as of the financial statement date.

Fixed income funds include U.S. Treasury and Government Agency securities, corporate and municipal bonds, and mortgage-backed securities.

U.S. Treasury and Government Agency Securities: Valued at the closing net asset value as of the measurement date as reported on the active market on which the funds are traded multiplied by the number of shares owned or the percentage of ownership in the fund.

Corporate and municipal bonds and mortgage-backed securities: Valued based on yields currently available on comparable securities of issuers with similar credit ratings.

The fair values of our assets for our defined benefit pension plans at December 31, 2013 and 2012, by asset category were as follows:

			As of December 31, 2013
			Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Total		(Level 1)		(Level 2)		(Level 3)

Cash equivalents:
Short-term investments(1)	$	4,708	$	2,835	$	1,873	$	–

Equities:
Stocks:
U.S. common stocks	38,463		38,463		–		–
International stocks	10,198		10,198		–		–
Funds:
U.S. small cap	15,181		–		15,181		–
U.S. mid cap	9,215		9,215		–		–
U.S. large cap	34,535		11,101		23,434		–
Emerging markets	20,225		12,855		7,370		–
International	60,416		44,132		16,284		–

Fixed Income:
U.S. treasury and government agency securities	19,012		19,012		–		–
Corporate and municipal bonds	8,624		–		8,624		–
Mortgage/asset-backed securities	8,116		–		8,116		–
Common Collective Trust	17,398		–		17,398
Mutual funds	46,097		46,097		–		–
Total	$	292,188	$	193,908	$	98,280	$	–

			As of December 31, 2012
			Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Total		(Level 1)		(Level 2)		(Level 3)

Cash equivalents:
Short-term investments(1)	$	4,262	$	1,036	$	3,226	$	–

Equities:
Stocks:
U.S. common stocks	36,620		36,620		–		–
International stocks	9,589		9,589		–		–
Funds:
U.S. small cap	17,110		–		17,110		–
U.S. mid cap	7,477		7,477		–		–
U.S. large cap	35,130		12,932		22,198		–
Emerging markets	7,807		7,807		–		–
International	43,100		34,602		8,498		–

Fixed Income:
U.S. treasury and government agency securities	22,937		22,937		–		–
Corporate and municipal bonds	9,238		–		9,238		–
Mortgage/asset-backed securities	10,669		–		10,669		–
Common Collective Trust	7,346				7,346
Mutual funds	51,493		51,493		–		–
Total	$	262,778	$	184,493	$	78,285	$	–

(1) Short-term investments includes cash and cash equivalents and an investment in a common collective trust which is principally comprised of certificates of deposit, commercial paper and U.S. Treasury bills with maturities less than one year.

The fair values of our assets for our post-retirement benefit plans at December 31, 2013 and 2012 were as follows:

			As of December 31, 2013
			Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Total		(Level 1)		(Level 2)		(Level 3)

Cash equivalents:
Short-term investments(1)	$	89	$	89	$	–	$	–

Equities:
U.S. common stocks	592		592		–		–
Funds:
U.S. small cap	215		–		215		–
U.S. large cap	638		–		638		–
Emerging markets	263		–		263		–
International	938		357		581		–

Fixed Income:
U.S. treasury and government agency securities	678		678		–		–
Corporate and municipal bonds	308		–		308		–
Mortgage/asset-backed securities	289		–		289		–
Total investments	$	4,010	$	1,716	$	2,294	$	–
Benefit payments payable	(434)
Net plan assets	$	3,576

			As of December 31, 2012
			Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Total		(Level 1)		(Level 2)		(Level 3)

Cash equivalents:
Short-term investments(1)	$	30	$	30	$	–	$	–

Equities:
U.S. common stocks	545		545		–		–
Funds:
U.S. small cap	238		–		238		–
U.S. large cap	572		–		572		–
International	576		289		287		–

Fixed Income:
U.S. treasury and government agency securities	776		776		–		–
Corporate and municipal bonds	312		–		312		–
Mortgage/asset-backed securities		361		–		361		–
Total	$	3,410	$	1,640	$	1,770	$	–

Cash Flows

Contributions

Our funding policy is to contribute annually an actuarially determined amount necessary to meet the minimum funding requirements as set forth in employee benefit and tax laws. We expect to contribute approximately $12.1 million to our pension plans and $2.5 million to our other post-retirement plans in 2014.

Estimated Future Benefit Payments

As of December 31, 2013, benefit payments expected to be paid over the next ten years are outlined in the following table:

			Other
	Pension		Post-retirement
(In thousands)	Plans		Plans
2014	$	22,413	$	3,495
2015	22,827		3,574
2016	23,164		3,615
2017	23,274		2,806
2018	23,245		2,820
2019 - 2023	116,421		12,867

Defined Contribution Plans

We offer defined contribution 401(k) plans to substantially all of our employees. Contributions made under the defined contribution plans include a match, at the Company’s discretion, of employee contributions to the plans. We recognized expense with respect to these plans of $5.2 million, $3.9 million and $2.5 million in 2013, 2012 and 2011, respectively. The increase in expense in 2013 and 2012 was attributable to the acquisition of SureWest in 2012.