(17) Retirement Plans:

We sponsor a noncontributory defined benefit pension plan covering a significant number of our former and current employees and other postretirement benefit plans that provide medical, dental, life insurance and other benefits for covered retired employees and their beneficiaries and covered dependents. The benefits are based on years of service and final average pay or career average pay. Contributions are made in amounts sufficient to meet ERISA funding requirements while considering tax deductibility. Plan assets are invested in a diversified portfolio of equity and fixed-income securities and alternative investments.

The accounting results for pension and other postretirement benefit costs and obligations are dependent upon various actuarial assumptions applied in the determination of such amounts. These actuarial assumptions include the following: discount rates, expected long-term rate of return on plan assets, future compensation increases, employee turnover, healthcare cost trend rates, expected retirement age, optional form of benefit and mortality. We review these assumptions for changes annually with our independent actuaries. We consider our discount rate and expected long-term rate of return on plan assets to be our most critical assumptions.

The discount rate is used to value, on a present value basis, our pension and other postretirement benefit obligations as of the balance sheet date. The same rate is also used in the interest cost component of the pension and postretirement benefit cost determination for the following year. The measurement date used in the selection of our discount rate is the balance sheet date. Our discount rate assumption is determined annually with assistance from our independent actuaries based on the pattern of expected future benefit payments and the prevailing rates available on long-term, high quality corporate bonds that approximate the benefit obligation.

As of December 31, 2013 and 2012, we utilized an estimation technique that is based upon a settlement model (Bond:Link) that permits us to more closely match cash flows to the expected payments to participants. This rate can change from year-to-year based on market conditions that affect corporate bond yields.

In determining the discount rate as of December 31, 2011, we considered, among other things, the yields on the Citigroup Above Median Pension Curve, the Towers Watson Index, the general movement of interest rates and the changes in those rates from one period to the next.

As a result of the change described above, Frontier is utilizing a discount rate of 4.90% as of December 31, 2013 for its qualified pension plan, compared to rates of 4.00% and 4.50% in 2012 and 2011, respectively. The discount rate for postretirement plans as of December 31, 2013 was a range of 4.90% to 5.20% compared to a range of 4.00% to 4.20% in 2012 and 4.50% to 4.75% in 2011.

The expected long-term rate of return on plan assets is applied in the determination of periodic pension and postretirement benefit cost as a reduction in the computation of the expense. In developing the expected long-term rate of return assumption, we considered published surveys of expected market returns, 10 and 20 year actual returns of various major indices, and our own historical 5 year, 10 year and 20 year investment returns. The expected long-term rate of return on plan assets is based on an asset allocation assumption of 35% to 55% in fixed income securities, 35% to 55% in equity securities and 5% to 15% in alternative investments. We review our asset allocation at least annually and make changes when considered appropriate. Our pension asset investment allocation decisions are made by the Retirement Investment & Administration Committee (RIAC), a committee comprised of members of management, pursuant to a delegation of authority by the Retirement Plan Committee of the Board of Directors. The RIAC is responsible for reporting its actions to the Retirement Plan Committee. Asset allocation decisions take into account expected market return assumptions of various asset classes as well as expected pension benefit payment streams. When analyzing anticipated benefit payments, management considers both the absolute amount of the payments as well as the timing of such payments. In 2013, 2012 and 2011, our expected long-term rate of return on plan assets was 8.00%, 7.75% and 8.00%, respectively. For 2014, we will assume a rate of return of 7.75%. Our pension plan assets are valued at fair value as of the measurement date. The measurement date used to determine pension and other postretirement benefit measures for the pension plan and the postretirement benefit plan is December 31.

Pension Benefits

The following tables set forth the pension plan’s projected benefit obligations, fair values of plan assets and the pension benefit liability recognized on our consolidated balance sheets as of December 31, 2013 and 2012 and the components of total periodic pension benefit cost for the years ended December 31, 2013, 2012 and 2011:



($ in thousands)	2013		2012

Change in projected benefit obligation (PBO)
PBO at beginning of year	$	1,944,731	$	1,799,313
Service cost		47,651		43,688
Interest cost		75,812		78,027
Actuarial (gain)/loss		(180,709)		196,304
Benefits paid		(54,151)		(172,601)
Settlements		(164,608)		-
PBO at end of year	$	1,668,726	$	1,944,731

Change in plan assets
Fair value of plan assets at beginning of year	$	1,253,666	$	1,257,990
Actual return on plan assets		119,328		139,679
Employer contributions, net of transfers		62,290		28,598
Benefits paid		(54,151)		(172,601)
Settlements		(164,608)		-
Fair value of plan assets at end of year	$	1,216,525	$	1,253,666

Funded status	$	(452,201)	$	(691,065)

Amounts recognized in the consolidated balance sheet
Other current liabilities	$	(100,205)	$	(60,386)
Pension and other postretirement benefits	$	(351,996)	$	(630,679)
Accumulated other comprehensive loss	$	411,432	$	697,874



($ in thousands)	Expected in 2014		2013		2012		2011

Components of total periodic pension benefit cost
Service cost			$	47,651	$	43,688	$	38,879
Interest cost on projected benefit obligation				75,812		78,027		84,228
Expected return on plan assets				(94,695)		(95,777)		(100,558)
Amortization of prior service cost /(credit)	$	45		8		(199)		(199)
Amortization of unrecognized loss		19,274		36,930		29,890		15,364
Net periodic pension benefit cost				65,706		55,629		37,714
Pension settlement costs				44,163		-		-
Total periodic pension benefit cost			$	109,869	$	55,629	$	37,714

Our pension plan contains provisions that provide certain employees with the option of receiving lump sum payment upon retirement. The Company’s accounting policy is to record these payments as a settlement only if, in the aggregate, they exceed the sum of the annual service and interest costs for the plan’s net periodic pension benefit cost. During 2013, lump sum pension settlement payments to terminated or retired individuals amounted to $164.6 million, which exceeded the settlement threshold of $125.4 million, and as a result, the Company was required to recognize a non-cash settlement charge of $44.2 million during 2013. The non-cash charge was required to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the pension plan. This non-cash charge reduced our recorded net income and retained earnings, with an offset to accumulated other comprehensive loss in shareholders’ equity of Frontier.

We capitalized $19.2 million, $15.8 million and $10.2 million of pension and OPEB expense into the cost of our capital expenditures during the years ended December 31, 2013, 2012 and 2011, respectively, as the costs relate to our engineering and plant construction activities.

Based on current assumptions and plan asset values, we estimate that our 2014 pension and OPEB expenses will be approximately $65 million to $85 million for our current business operations before amounts capitalized into the cost of capital expenditures and the impact of pension settlement costs, if any.

The plan’s weighted average asset allocations at December 31, 2013 and 2012 by asset category are as follows:



	2013		2012
Asset category:
Equity securities	42	%	43	%
Debt securities	44	%	40	%
Alternative investments	13	%	14	%
Cash and other	1	%	3	%
Total	100	%	100	%

The plan’s expected benefit payments over the next 10 years are as follows:



($ in thousands)	Amount

2014	$	100,839
2015		104,480
2016		110,570
2017		114,703
2018		117,055
2019-2023		633,650
Total	$	1,181,297

During 2013, the Company contributed four real estate properties to its qualified defined benefit pension plan. The pension plan obtained independent appraisals of the properties and, based on these appraisals, the pension plan recorded the contributions at their fair value of $23.4 million. The Company has entered into leases for the contributed properties for 15 years at a combined aggregate annual rent of approximately $2.1 million. The properties are managed on behalf of the pension plan by an independent fiduciary, and the terms of the leases were negotiated with the fiduciary on an arm’s-length basis.

We made total contributions to our pension plan during 2013 of $62.3 million, consisting of cash payments of $38.9 million and the contribution of real property with a fair value of $23.4 million, as described above.

We made total net cash contributions to our pension plan for 2012 of $28.6 million, consisting of net cash payments of $18.3 million in the third quarter and $10.3 million in the fourth quarter. These pension contributions reflect the positive impact of funding rate changes contained in the Highway Investment Act of 2012 and guidance from the IRS on August 16, 2012 related to valuation rates, and on September 11, 2012 related to lump sum methodologies.

We made contributions to our pension plan of approximately $76.7 million in 2011, consisting of cash payments of $18.6 million and, as described below, the contribution of real property with a fair value of $58.1 million.

On September 8, 2011, the Company contributed four administrative properties to its qualified defined benefit pension plan. The pension plan obtained independent appraisals of the properties and, based on these appraisals, the pension plan recorded the contributions at their fair value of $58.1 million. The Company has entered into leases for the contributed properties for 15 years at a combined aggregate annual rent of $5.8 million. The properties are managed on behalf of the pension plan by an independent fiduciary, and the terms of the leases were negotiated with the fiduciary on an arm’s-length basis.

The accumulated benefit obligation for the plan was $1,560.0 million and $1,793.8 million at December 31, 2013 and 2012, respectively.

Assumptions used in the computation of annual pension costs and valuation of the year-end obligations were as follows:



	2013		2012		2011
Discount rate - used at year end to value obligation	4.90	%	4.00	%	4.50	%
Discount rate - used to compute annual cost	4.00	%	4.50	%	5.25	%
Expected long-term rate of return on plan assets	8.00	%	7.75	%	8.00	%
Rate of increase in compensation levels	2.50	%	2.50	%	2.50	%

Postretirement Benefits Other Than Pensions—“OPEB”

The following tables set forth the OPEB plan’s benefit obligations, fair values of plan assets and the postretirement benefit liability recognized on our consolidated balance sheets as of December 31, 2013 and 2012 and the components of net periodic postretirement benefit cost for the years ended December 31, 2013, 2012 and 2011.



($ in thousands)	2013		2012

Change in benefit obligation
Benefit obligation at beginning of year	$	438,550	$	391,596
Service cost		12,533		10,812
Interest cost		17,241		17,842
Plan participants' contributions		4,293		4,059
Actuarial (gain)/loss		(67,547)		30,958
Benefits paid		(19,447)		(15,974)
Plan change		-		(743)
Benefit obligation at end of year	$	385,623	$	438,550

Change in plan assets
Fair value of plan assets at beginning of year	$	5,055	$	5,101
Actual return on plan assets		(122)		466
Plan participants' contributions		4,293		4,059
Employer contribution		12,528		11,403
Benefits paid		(19,447)		(15,974)
Fair value of plan assets at end of year	$	2,307	$	5,055

Funded status	$	(383,316)	$	(433,495)

Amounts recognized in the consolidated balance sheet
Other current liabilities	$	(11,508)	$	(9,116)
Pension and other postretirement benefits	$	(371,808)	$	(424,379)
Accumulated other comprehensive loss	$	5,230	$	74,264



($ in thousands)	Expected in 2014		2013		2012		2011

Components of net periodic postretirement benefit cost
Service cost			$	12,533	$	10,812	$	8,958
Interest cost on projected benefit obligation				17,241		17,842		17,722
Expected return on plan assets				(136)		(172)		(324)
Amortization of prior service cost /(credit)	$	(3,560)		(6,101)		(10,068)		(10,198)
Amortization of unrecognized loss		2,886		7,846		7,537		4,424
Net periodic postretirement benefit cost			$	31,383	$	25,951	$	20,582

Assumptions used in the computation of annual OPEB costs and valuation of the year-end OPEB obligations were as follows:



	2013	2012	2011
Discount rate - used at year end to value obligation	4.90% - 5.20%	4.00% - 4.20%	4.50% - 4.75%
Discount rate - used to compute annual cost	4.00% - 4.20%	4.50% - 4.75%	5.25%
Expected long-term rate of return on plan assets	3.00% - 4.00%	3.00% - 4.00%	3.00% - 6.00%

The OPEB plan’s expected benefit payments over the next 10 years are as follows:



($ in thousands)	Gross Benefit		Medicare Part D Subsidy		Total

2014	$	16,687	$	489	$	16,198
2015		18,004		585		17,419
2016		19,342		691		18,651
2017		20,575		825		19,750
2018		21,785		961		20,824
2019-2023		120,619		6,994		113,625
Total	$	217,012	$	10,545	$	206,467

For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for different retiree groups, a 7.50% annual rate of increase in the per-capita cost of covered medical benefits, gradually decreasing to 5.00% in the year 2019 and remaining at that level thereafter. The effect of a 1% increase in the assumed medical cost trend rates for each future year on the aggregate of the service and interest cost components of the total postretirement benefit cost would be $1.1 million and the effect on the accumulated postretirement benefit obligation for health benefits would be $14.8 million. The effect of a 1% decrease in the assumed medical cost trend rates for each future year on the aggregate of the service and interest cost components of the total postretirement benefit cost would be $(1.0) million and the effect on the accumulated postretirement benefit obligation for health benefits would be $(13.8) million.

The amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at December 31, 2013 and 2012 are as follows:



($ in thousands)	Pension Plan				OPEB
	2013		2012		2013		2012
Net actuarial loss	$	411,076	$	697,511	$	30,835	$	105,970
Prior service cost/(credit)		356		363		(25,605)		(31,706)
Total	$	411,432	$	697,874	$	5,230	$	74,264

The amounts recognized as a component of accumulated comprehensive loss for the years ended December 31, 2013 and 2012 are as follows:



($ in thousands)	Pension Plan				OPEB
	2013		2012		2013		2012
Accumulated other comprehensive loss at
beginning of year	$	697,874	$	575,163	$	74,264	$	41,811

Net actuarial gain (loss) recognized during year		(36,930)		(29,890)		(7,846)		(7,537)
Prior service (cost) credit recognized during year		(8)		199		6,101		10,068
Net actuarial loss (gain) occurring during year		(205,341)		152,402		(67,289)		30,665
Prior service cost (credit) occurring during year		-		-		-		(743)
Settlement costs recognized during year		(44,163)		-		-		-
Net amount recognized in comprehensive income
for the year		(286,442)		122,711		(69,034)		32,453
Accumulated other comprehensive loss at
end of year	$	411,432	$	697,874	$	5,230	$	74,264

401(k) Savings Plans

We sponsor employee retirement savings plans under section 401(k) of the Internal Revenue Code. The plans cover substantially all full-time employees. Under certain plans, we provide matching contributions. Employer contributions were $20.6 million, $23.0 million and $22.2 million for 2013, 2012 and 2011, respectively.