(16) 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)	2018		2017		2018		2017

Components of total pension benefit cost
Service cost	$	22	$	26	$	70	$	76
Interest cost on projected benefit obligation		31		27		91		94
Expected return on plan assets		(45)		(43)		(143)		(139)
Amortization of unrecognized loss		4		6		17		23
Net periodic pension benefit cost	$	12	$	16	$	35	$	54
Pension settlement costs		9		15		34		77
Total pension benefit cost	$	21	$	31	$	69	$	131


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

($ in millions)	2018		2017		2018		2017

Components of net periodic postretirement benefit cost
Service cost	$	5	$	5	$	16	$	16
Interest cost on projected benefit obligation		9		11		28		30
Amortization of prior service cost/(credit)		(1)		(2)		(6)		(7)
Amortization of unrecognized (gain) loss		-		(1)		1		-
Net periodic postretirement benefit cost	$	13	$	13	$	39	$	39

During the first nine months of 2018 and 2017, we capitalized $20 million and $20 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 nine months ended September 30, 2018, lump sum pension settlement payments to terminated or retired individuals amounted to $227 million, which exceed the settlement threshold of $216 million in 2018, and as a result, Frontier recognized non-cash settlement charges of $34 million during the first nine months of 2018. These non-cash charges accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. These non-cash charges decreased our recorded net income (loss), with an offset to Accumulated other comprehensive loss in shareholders’ equity. As a result of the recognition of the settlement charges in the first nine months of 2018, the net pension plan liability was remeasured as of September 30, 2018 to be $564 million, as compared to the $689 million measured and recorded at December 31, 2017.

During the nine months ended September 30, 2017, lump sum pension settlement payments to terminated or retired individuals amounted to $449 million, which exceeded the settlement threshold of $224 million, and as a result, Frontier recognized non-cash settlement charges of $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. 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 to be $717 million, as compared to the $711 million measured and recorded at June 30, 2017. 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 $2,674 million at December 31, 2017 to $2,567 million at September 30, 2018, a decrease of $107 million, or 4%. This decrease was a result of benefit payments of $274 million and investment management and administrative fees, partially offset by contributions of $135 million and positive investment returns of $31 million.

During the third quarter of 2018, Frontier contributed real estate property with an aggregate fair value of $37 million for the purpose of funding a portion of its contribution obligations to the Plan. We have entered into a long-term lease arrangement with the Plan. The property is managed on behalf of the Plan by an independent fiduciary, and the terms of the lease were negotiated with the fiduciary on an arm’s-length basis.

Required pension plan contributions for the full year 2018 are approximately $150 million, of which $135 million was contributed to the Plan during the first nine months of 2018, consisting of cash payments of $98 million and the contribution of real property with a fair value of $37 million. An additional cash contribution of $15 million was made on October 15, 2018. Frontier believes that there are no further contributions required in 2018.