(14) Retirement Plans:

The following tables provide the components of total benefit cost:



	Pension Benefits
	For the three months ended				For the nine months ended
	September 30,				September 30,

($ in millions)	2017		2016		2017		2016

Components of total pension benefit cost
Service cost	$	26	$	16	$	76	$	63
Interest cost on projected benefit obligation		27		24		94		89
Expected return on plan assets		(43)		(30)		(139)		(122)
Amortization of unrecognized loss		6		9		23		30
Net periodic pension benefit cost	$	16	$	19	$	54	$	60
Pension settlement costs		15		-		77		-
Total pension benefit cost	$	31	$	19	$	131	$	60



	Postretirement Benefits
	For the three months ended				For the nine months ended
	September 30,				September 30,

($ in millions)	2017		2016		2017		2016

Components of net periodic postretirement benefit cost
Service cost	$	5	$	6	$	16	$	14
Interest cost on projected benefit obligation		11		10		30		27
Amortization of prior service cost/(credit)		(2)		(2)		(7)		(7)
Amortization of unrecognized (gain) loss		(1)		-		-		1
Net periodic postretirement benefit cost	$	13	$	14	$	39	$	35

During the first nine months of 2017 and 2016, we capitalized $20 million and $18 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 and nine months ended September 30, 2017, lump sum pension settlement payments to terminated or retired individuals amounted to $87 million and $449 million, which exceeded the settlement threshold of $224 million, and as a result, Frontier recognized non-cash settlement charges totaling $77 million during the first nine 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. An additional pension settlement charge will be required in the fourth quarter of 2017, the amount of which will be dependent on the lump sum benefit payments made during the fourth quarter. As a result of the recognition of the settlement charges in the first nine months of 2017, the net pension plan liability was remeasured as of September 30, 2017, June 30, 2017 and March 31, 2017 to be $717 million, $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 September 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 $2,604 million at September 30, 2017, a decrease of $162 million, or 6%. This decrease was a result of benefit payments of $492 million, partially offset by positive investment returns of $270 million, net of investment management and administrative fees, and contributions in excess of the Differential (as defined below) of $60 million, during the first nine months of 2017.

As part of the CTF Acquisition, Verizon was required to make a cash payment to Frontier for the difference in assets initially transferred by Verizon into the Pension Plan and the related obligation (the Differential). In the third quarter of 2017, we received the $131 million Differential payment from Verizon, and have remitted an equivalent amount to the Pension Plan as of September 30, 2017. As the Differential was reflected as a receivable of the Pension Plan at December 31, 2016, the cash funding had no impact to plan assets.