(16)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, 2015, 2014 and 2013, we utilized an estimation technique that is based upon a settlement model (Bond:Link) that permits us to 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.

As a result of the technique described above, Frontier is utilizing a discount rate of 4.50% as of December 31, 2015 for its qualified pension plan, compared to rates of 4.10% and 4.90% in 2014 and 2013, respectively. The discount rate for postretirement plans as of December 31, 2015 was a range of 4.50% to 4.70% compared to a range of 4.10% to 4.20% in 2014 and 4.90% to 5.20% in 2013.

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 40% in long-duration fixed income securities, and 60% in equity securities and other 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 2015, 2014 and 2013, our expected long-term rate of return on plan assets was 7.75%, 7.75% and 8.00%, respectively. For 2016, we will assume a rate of return of 7.50%. 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.

During 2014, the Society of Actuaries released a series of updated mortality tables resulting from recent studies conducted by them measuring mortality rates for various groups of individuals. The updated mortality tables reflect improved trends in longevity and therefore have the effect of increasing the estimate of benefits to be received by plan participants. At December 31, 2014 we updated our mortality assumptions by taking into consideration the newly issued mortality tables as well as our own historical experience, which increased our pension benefit obligation by $66 million and our postretirement benefit obligation by $24 million.

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, 2015 and 2014 and the components of total periodic pension benefit cost for the years ended December 31, 2015, 2014 and 2013:



($ in millions)	2015		2014

Change in projected benefit obligation (PBO)
PBO at beginning of year	$	2,210	$	1,669
PBO for plans of the Connecticut operations at contracted discount rate		-		342
Actuarial adjustment to PBO for plans of the Connecticut operations		5		5
Service cost		55		42
Interest cost		88		80
Actuarial (gain)/loss		(88)		182
Benefits paid		(128)		(110)
PBO at end of year	$	2,142	$	2,210

Change in plan assets
Fair value of plan assets at beginning of year	$	1,673	$	1,217
Fair value of plan assets for the Connecticut operations as of acquisition date		5		342
Actual return on plan assets		(40)		141
Employer contributions		62		83
Benefits paid		(128)		(110)
Fair value of plan assets at end of year	$	1,572	$	1,673

Funded status	$	(570)	$	(537)

Amounts recognized in the consolidated balance sheet
Pension and other postretirement benefits - current	$	(9)	$	(101)
Pension and other postretirement benefits - noncurrent	$	(561)	$	(436)
Accumulated other comprehensive loss	$	584	$	532

In connection with the completion of the Connecticut Acquisition, certain employees were transferred to the Frontier Communications Pension Plan (the Plan) effective October 24, 2014. Assets of $5 million were transferred from the AT&T pension plan trust during 2015. Assets of $342 million, including a receivable of $34 million, were transferred into the Plan during 2014.



($ in millions)	2015		2014		2013

Components of total periodic pension benefit cost
Service cost	$	55	$	42	$	48
Interest cost on projected benefit obligation		88		80		76
Expected return on plan assets		(129)		(99)		(95)
Amortization of unrecognized loss		29		20		37
Net periodic pension benefit cost		43		43		66
Pension settlement costs		-		-		44
Total periodic pension benefit cost	$	43	$	43	$	110

The expected amortization of unrecognized loss in 2016 is $42 million, excluding the impact, if any, from the pending Verizon Transaction.

Our pension plan contains provisions that provide certain employees with the option of receiving lump sum payment upon retirement. Frontier’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 $165 million, which exceeded the settlement threshold of $125 million. As a result, Frontier was required to recognize a non-cash settlement charge of $44 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 $20 million, $15 million and $19 million of pension and OPEB expense into the cost of our capital expenditures during the years ended December 31, 2015, 2014 and 2013, respectively, as the costs relate to our engineering and plant construction activities.

The plan’s weighted average asset allocations at December 31, 2015 and 2014 by asset category are as follows:



	2015		2014
Asset category:
Equity securities	47	%	45	%
Debt securities	46	%	47	%
Alternative investments	6	%	6	%
Cash and other	1	%	2	%
Total	100	%	100	%

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



($ in millions)	Amount

2016	$	200
2017		160
2018		158
2019		157
2020		154
2021-2025		754
Total	$	1,583

We made total cash contributions to our pension plan of $62 million and $83 million, respectively, during 2015 and 2014. Our 2014 total contributions reflect the impact of the extension of funding relief included in the Highway and Transportation Funding Act of 2014.

During 2013, Frontier 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 million. Frontier has entered into leases for the contributed properties with initial terms of 15 years at a combined aggregate annual rent of approximately $2 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 million, consisting of cash payments of $39 million and the contribution of real property with a fair value of $23 million, as described above.

The accumulated benefit obligation for the plan was $2,048 million and $2,094 million at December 31, 2015 and 2014, respectively.

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



	2015		2014		2013
Discount rate - used at year end to value obligation	4.50	%	4.10	%	4.90	%
Discount rate - used to compute annual cost	4.10	%	4.90	%	4.00	%
Expected long-term rate of return on plan assets	7.75	%	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, 2015 and 2014 and the components of net periodic postretirement benefit cost for the years ended December 31, 2015, 2014 and 2013.



($ in millions)	2015		2014

Change in benefit obligation
Benefit obligation at beginning of year	$	727	$	385
Benefit obligation for the Connecticut operations as of acquisition date		5		211
Service cost		19		11
Interest cost		30		22
Plan participants' contributions		5		5
Actuarial (gain)/loss		(115)		115
Benefits paid		(25)		(19)
Plan change		(20)		(3)
Benefit obligation at end of year	$	626	$	727

Change in plan assets
Fair value of plan assets at beginning of year	$	-	$	2
Plan participants' contributions		5		5
Employer contribution		20		12
Benefits paid		(25)		(19)
Fair value of plan assets at end of year	$	-	$	-

Funded status	$	(626)	$	(727)

Amounts recognized in the consolidated balance sheet
Pension and other postretirement benefits - current	$	(24)	$	(22)
Pension and other postretirement benefits - noncurrent	$	(602)	$	(705)
Accumulated other comprehensive (gain) loss	$	(20)	$	119



($ in millions)	2015		2014		2013

Components of net periodic postretirement benefit cost
Service cost	$	19	$	11	$	13
Interest cost on projected benefit obligation		30		22		17
Amortization of prior service cost /(credit)		(5)		(4)		(6)
Amortization of unrecognized loss		8		3		8
Net periodic postretirement benefit cost	$	52	$	32	$	32

The expected amortization of prior service credit in 2016 is $9 million and the expected amortization of unrecognized loss in 2016 is $2 million, excluding the impact, if any, from the pending Verizon Transaction.

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

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



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

2016	$	25	$	-	$	25
2017		29		-		29
2018		33		-		33
2019		35		-		35
2020		38		-		38
2021-2025		211		1		210
Total	$	371	$	1	$	370

For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for different retiree groups, a 7.00% annual rate of increase in the per-capita cost of covered medical benefits, gradually decreasing to 5.00% in the year 2024 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 $2 million and the effect on the accumulated postretirement benefit obligation for health benefits would be $18 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 $(2) million and the effect on the accumulated postretirement benefit obligation for health benefits would be $(16) million.

The amounts in accumulated other comprehensive (gain) loss that have not yet been recognized as components of net periodic benefit cost at December 31, 2015 and 2014 are as follows:



($ in millions)	Pension Plan				OPEB
	2015		2014		2015		2014
Net actuarial loss	$	584	$	532	$	20	$	143
Prior service cost/(credit)		-		-		(40)		(24)
Total	$	584	$	532	$	(20)	$	119

The amounts recognized as a component of accumulated other comprehensive loss for the years ended December 31, 2015 and 2014 are as follows:



($ in millions)	Pension Plan				OPEB
	2015		2014		2015		2014
Accumulated other comprehensive loss at
beginning of year	$	532	$	412	$	119	$	5

Net actuarial gain (loss) recognized during year		(29)		(20)		(8)		(3)
Prior service (cost) credit recognized during year		-		-		5		4
Net actuarial loss (gain) occurring during year		81		140		(136)		113
Net amount recognized in comprehensive income
(loss) for the year		52		120		(139)		114
Accumulated other comprehensive (gain) loss at
end of year	$	584	$	532	$	(20)	$	119

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 $28 million, $21 million and $21 million for 2015, 2014 and 2013, respectively.

Discount rate - used at year end to value obligation

4.50% - 4.70%

4.10% - 4.20%

4.90% - 5.20%

Discount rate - used to compute annual cost

4.10% - 4.20%

4.90% - 5.20%

4.00% - 4.20%