(14) Retirement Plans:

The following tables provide the components of total benefit cost:



	Pension Benefits
	For the three months ended				For the six months ended
	June 30,				June 30,

($ in millions)	2017		2016		2017		2016

Components of total pension benefit cost
Service cost	$	25	$	34	$	50	$	47
Interest cost on projected benefit obligation		33		42		67		65
Expected return on plan assets		(48)		(65)		(96)		(92)
Amortization of unrecognized loss		9		11		17		21
Net periodic pension benefit cost	$	19	$	22	$	38	$	41
Pension settlement costs		19		-		62		-
Total pension benefit cost	$	38	$	22	$	100	$	41



	Postretirement Benefits
	For the three months ended				For the six months ended
	June 30,				June 30,

($ in millions)	2017		2016		2017		2016

Components of net periodic postretirement benefit cost
Service cost	$	6	$	5	$	11	$	8
Interest cost on projected benefit obligation		9		10		19		17
Amortization of prior service cost/(credit)		(3)		(2)		(5)		(5)
Amortization of unrecognized loss		1		-		1		1
Net periodic postretirement benefit cost	$	13	$	13	$	26	$	21

During the first six months of 2017 and 2016, we capitalized $14 million and $13 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 six months ended June 30, 2017, lump sum pension settlement payments to terminated or retired individuals amounted to $362 million, which exceeded the settlement threshold of $234 million, and as a result, Frontier recognized non-cash settlement charges totaling $62 million during the first six months of 2017. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. These non-cash charges 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 charges in the first six months of 2017, the net pension plan liability was remeasured as of June 30, 2017 and March 31, 2017 to be $711 million and $665 million, respectively, as compared to the $699 million measured and recorded at December 31, 2016. The remeasured funded status of the Pension Plan was approximately 80%, as of June 30, 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 $2,609 million at June 30, 2017, a decrease of $157 million, or 6%. This decrease was a result of benefit payments of $390 million, partially offset by positive investment returns of $154 million, net of investment management and administrative fees, increased receivable from Verizon and the Verizon pension plan trusts of $38 million related to the CTF Acquisition, and Frontier contributions of $41 million during the first six months of 2017.

As part of the CTF Acquisition, Verizon is required to make a cash payment to Frontier for the difference in assets transferred by Verizon into the Pension Plan and the related obligation (the Differential), which is estimated to be $131 million. We expect to receive the payment from Verizon during the third quarter of 2017. Once received, we will retain $34 million for contributions paid by Frontier during the second quarter of 2017, and remit the remaining cash received to the Pension Plan to offset future contributions.