Retirement Plans

3 Months Ended

Mar. 31, 2017

(15) Retirement Plans:

The following tables provide the components of total benefit cost:



	Pension Benefits
	For the three months ended
	March 31,

($ in millions)	2017		2016

Components of total pension benefit cost
Service cost	$	25	$	13
Interest cost on projected benefit obligation		34		23
Expected return on plan assets		(48)		(28)
Amortization of unrecognized loss		8		11
Net periodic pension benefit cost		19		19
Pension settlement costs		43		-
Total pension benefit cost	$	62	$	19



	Postretirement Benefits
	Other Than Pensions (OPEB)
	For the three months ended
	March 31,

($ in millions)	2017		2016

Components of net periodic postretirement benefit cost
Service cost	$	5	$	3
Interest cost on projected benefit obligation		10		7
Amortization of prior service cost/(credit)		(2)		(2)
Amortization of unrecognized loss		-		-
Net periodic postretirement benefit cost	$	13	$	8

During the first three months of 2017 and 2016, we capitalized $7 million and $6 million, respectively, of pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities.

The Pension Plan contains provisions that provide certain employees with the option of receiving a 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 Pension Plan’s net periodic pension benefit cost. During the three months ended March 31, 2017, lump sum pension settlement payments to terminated or retired individuals amounted to $255 million, which exceeded the settlement threshold of $234 million, and as a result, Frontier recognized a non-cash settlement charge of $43 million during the first quarter of 2017. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. This non-cash charge increased our recorded net loss and accumulated deficit, with an offset to accumulated other comprehensive loss in shareholders’ equity. Additional pension settlement charges will be required in each subsequent quarter of 2017, the amount of which will be dependent on the lump sum benefit payments made during the applicable quarter. As a result of the recognition of the settlement charge in the first quarter of 2017, the net pension plan liability was remeasured as of March 31, 2017 to be $665 million, as compared to the $699 million measured and recorded at December 31, 2016. The remeasured funded status of the Pension Plan was 80%, as of March 31, 2017, similar to December 31, 2016. Frontier did not record any adjustment to the pension plan liability, beyond the settlement charge, as a result of this remeasurement.

Our Pension Plan assets decreased from $2,766 million at December 31, 2016 to $2,608 million at March 31, 2017, a decrease of $158 million, or 6%. This decrease was a result of benefit payments of $269 million, partially offset by positive investment returns of $98 million, net of investment management and administrative fees, increased receivable from Verizon and the Verizon pension plan trusts of $7 million related to the CTF Acquisition, and Frontier contributions of $6 million during the first three months of 2017.