(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 pension plan and postretirement benefit plans are closed to the majority of our newly hired employees. 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, 2016, 2015 and 2014, 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 4.10% as of December 31, 2016 for its qualified pension plan, compared to rates of 4.50% and 4.10% in 2015 and 2014, respectively. The discount rate for postretirement plans as of December 31, 2016 was a range of 4.10% to 4.30% compared to a range of 4.50% to 4.70% in 2015 and 4.10% to 4.20% in 2014.

As a result of the CTF Acquisition, the Frontier Communications Pension Plan (the Plan) was remeasured. This remeasurement resulted in a decrease in the discount rate from 4.50% at December 31, 2015 to 4.00% at the date of the CTF Acquisition. This change in the discount rate resulted in a remeasurement charge to other comprehensive income (loss) of $105 million during 2016.

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 2016, 2015 and 2014, our expected long-term rate of return on plan assets was 7.50%, 7.75%, and 7.75%, respectively. For 2017, 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.

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, 2016 and 2015 and the components of total pension benefit cost for the years ended December 31, 2016, 2015 and 2014:



($ in millions)	2016		2015

Change in projected benefit obligation (PBO)
PBO at beginning of year	$	2,142	$	2,210
Service cost		88		55
Interest cost		122		88
Actuarial (gain)/loss		137		(88)
Benefits paid		(155)		(128)
Connecticut Acquisition transfer		-		5
CTF Acquisition PBO		1,108		-
Special termination benefits		23		-
PBO at end of year	$	3,465	$	2,142

Change in plan assets
Fair value of plan assets at beginning of year	$	1,572	$	1,673
Fair value of plan assets for the CTF operations as of acquisition date		1,120		-
Fair value of plan assets for the Connecticut Operations as of acquisition date		-		5
Actual return on plan assets		201		(40)
Employer contributions		28		62
Benefits paid		(155)		(128)
Fair value of plan assets at end of year	$	2,766	$	1,572

Funded status	$	(699)	$	(570)

Amounts recognized in the consolidated balance sheet
Pension and other postretirement benefits - current	$	-	$	(9)
Pension and other postretirement benefits - noncurrent	$	(699)	$	(561)
Accumulated other comprehensive loss	$	647	$	584

In connection with the completion of the CTF Acquisition, certain employees were transferred to the Frontier Communications Pension Plan (the Plan) effective April 1, 2016. Assets of $1,108 million related to the CTF Acquisition were transferred from Verizon and the Verizon pension plan trusts during 2016.



($ in millions)	2016		2015		2014

Components of total pension benefit cost
Service cost	$	88	$	55	$	42
Interest cost on projected benefit obligation		122		88		80
Expected return on plan assets		(168)		(129)		(99)
Amortization of unrecognized loss		40		29		20
Net periodic pension benefit cost		82		43		43
Special termination benefits		23		-		-
Total pension benefit cost	$	105	$	43	$	43

The expected amortization of unrecognized loss in 2017 is $35 million.

We capitalized $25 million, $20 million and $15 million of pension and OPEB expense into the cost of our capital expenditures during the years ended December 31, 2016, 2015 and 2014, respectively, as the costs relate to our engineering and plant construction activities.

The plan’s weighted average asset allocations at December 31, 2016 and 2015 by asset category are as follows:



	2016		2015
Asset category:
Equity securities	50	%	47	%
Debt securities	38	%	46	%
Alternative investments	11	%	6	%
Cash and other	1	%	1	%
Total	100	%	100	%

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



($ in millions)	Amount

2017	$	375
2018		308
2019		293
2020		281
2021		271
2022-2026		1,224
Total	$	2,752

We made total contributions to our pension plan of $28 million during 2016 consisting of cash payments of $13 million and the contribution of real property with a fair value of $15 million, as described below.

See Note 7 for further discussion of a Frontier contribution of real estate property in 2016 with an aggregate fair value of $15 million for the purpose of funding a portion of its contribution obligations to the Plan.

We made total cash contributions to our pension plan during 2015 and 2014 of $62 million and $83 million, respectively.

The accumulated benefit obligation for the plan was $3,363 million and $2,048 million at December 31, 2016 and 2015, respectively.

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



	2016		2015		2014
Discount rate - used at year end to value obligation	4.10	%	4.50	%	4.10	%
Discount rate - used to compute annual cost	4.50	%	4.10	%	4.90	%
Expected long-term rate of return on plan assets	7.50	%	7.75	%	7.75	%
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 plans’ benefit obligations, fair values of plan assets and the postretirement benefit liability recognized on our consolidated balance sheets as of December 31, 2016 and 2015 and the components of total postretirement benefit cost for the years ended December 31, 2016, 2015 and 2014.



($ in millions)	2016		2015

Change in benefit obligation
Benefit obligation at beginning of year	$	626	$	727
CTF Acquisition PBO		276		-
Service cost		19		19
Interest cost		37		30
Plan participants' contributions		5		5
Actuarial (gain)/loss		(18)		(115)
Benefits paid		(23)		(25)
Connecticut Acquisition transfer		-		5
Plan change		-		(20)
Special termination benefits		3		-
Benefit obligation at end of year	$	925	$	626

Change in plan assets
Fair value of plan assets at beginning of year	$	-	$	-
Plan participants' contributions		5		5
Employer contribution		18		20
Benefits paid		(23)		(25)
Fair value of plan assets at end of year	$	-	$	-

Funded status	$	(925)	$	(626)

Amounts recognized in the consolidated balance sheet
Pension and other postretirement benefits - current	$	(23)	$	(24)
Pension and other postretirement benefits - noncurrent	$	(902)	$	(602)
Accumulated other comprehensive (gain) loss	$	(29)	$	(20)


($ in millions)	2016		2015		2014

Components of total postretirement benefit cost
Service cost	$	19	$	19	$	11
Interest cost on projected benefit obligation		37		30		22
Amortization of prior service cost /(credit)		(9)		(5)		(4)
Amortization of unrecognized loss		1		8		3
Net periodic postretirement benefit cost		48		52		32
Special termination benefits		3		-		-
Total postretirement benefit cost	$	51	$	52	$	32

The expected amortization of prior service credit in 2017 is $9 million and the expected amortization of unrecognized loss in 2017 is $0.

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

2017	$	24	$	-	$	24
2018		30		-		30
2019		38		-		38
2020		44		-		44
2021		49		-		49
2022-2026		298		1		299
Total	$	483	$	1	$	484

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 $1 million and the effect on the accumulated postretirement benefit obligation for health benefits would be $20 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) million and the effect on the accumulated postretirement benefit obligation for health benefits would be $(19) 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, 2016 and 2015 are as follows:



	Pension Plan				OPEB
($ in millions)	2016		2015		2016		2015
Net actuarial loss	$	647	$	584	$	1	$	20
Prior service cost/(credit)		-		-		(30)		(40)
Total	$	647	$	584	$	(29)	$	(20)

The amounts recognized as a component of accumulated other comprehensive loss for the years ended December 31, 2016 and 2015 are as follows:



	Pension Plan				OPEB
($ in millions)	2016		2015		2016		2015
Accumulated other comprehensive (gain) loss at
beginning of year	$	584	$	532	$	(20)	$	119

Net actuarial gain (loss) recognized during year		(40)		(29)		(1)		(8)
Prior service (cost) credit recognized during year		-		-		9		5
Net actuarial loss (gain) occurring during year		103		81		(17)		(136)
Net amount recognized in comprehensive income
(loss) for the year		63		52		(9)		(139)
Accumulated other comprehensive (gain) loss at
end of year	$	647	$	584	$	(29)	$	(20)

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 $48 million, $28 million and $21 million for 2016, 2015 and 2014, respectively.

Discount rate - used at year end to value obligation

4.10% - 4.30%

4.50% - 4.70%

4.10% - 4.20%

Discount rate - used to compute annual cost

4.50% - 4.70%

4.10% - 4.20%

4.90% - 5.20%