Retirement Plans

6 Months Ended

Jun. 30, 2021

Retirement Plans [Abstract]

Retirement Plans

(18) Retirement Plans:

Frontier recognizes actuarial gains (losses) for our pension and postretirement plans in the period they occur. The components of net periodic benefit cost other than the service cost component for our plans as well as any actuarial gains or losses are included in “Investment and other income (loss)” on the consolidated statement of operations.

The following tables provide the components of total pension benefit cost:

	Successor		Predecessor
	Pension		Pension
	For the two months		For the one month		For the three months
	ended June 30,		ended April 30,		ended June 30,
($ in millions)	2021		2021		2020
Components of total pension benefit cost
Service cost	$	13	$	8	$	24
Interest cost on projected benefit obligation		18		8		28
Expected return on plan assets		(31)		(16)		(39)
Amortization of unrecognized loss		-		6		30
Net periodic pension benefit cost		-		6		43
Pension settlement costs		-		-		56
Gain on disposal, net		-		-		(50)
Total pension benefit cost	$	-	$	6	$	49
	Successor		Predecessor
	Pension		Pension
	For the two months		For the four months		For the six months
	ended June 30,		ended April 30,		ended June 30,
($ in millions)	2021		2021		2020
Components of total pension benefit cost
Service cost	$	13	$	32	$	49
Interest cost on projected benefit obligation		18		31		58
Expected return on plan assets		(31)		(61)		(89)
Amortization of unrecognized loss		-		24		47
Net periodic pension benefit cost		-		26		65
Pension settlement costs		-		-		159
Gain on disposal, net		-		-		(50)
Total pension benefit cost	$	-	$	26	$	174

The components of net periodic benefit cost other than the service cost component are included in “Investment and other income” on the consolidated statement of operations.

As part of fresh start accounting, Frontier revalued its net pension obligation as of April 30, 2021. In revaluating the pension benefit obligation, the assumed discount rate was 3.10% and the assumed rate of return on Plan assets was 7.5%. The discount rate increased compared to the 2.60% used in the December 31, 2020 valuation. This change as well as other changes in assumptions lead to a pension obligation decrease of $328 million.

The value of our pension plan assets increased $79 million from $2,507 million at December 31, 2020 to $2,586 million at April 30, 2021. This increase primarily resulted from contributions of $32 million and investment returns of $78 million, partially offset by benefit payments to participants of $25 million and plan expenses of $6 million.

The value of our pension plan assets increased $61 million from $2,586 million at April 30, 2021 to $2,647 million at June 30, 2021. This increase primarily resulted from investment returns of $76 million, partially offset by benefit payments to participants of $13 million and plan expenses of $2 million.

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, 2020, lump sum pension settlement payments to terminated or retired individuals amounted to $464 million, which exceeded the settlement threshold of $211 million, and as a result, Frontier recognized non-cash settlement charges totaling $159 million during the six months ended June 30, 2020.

Required pension plan contributions for fiscal year 2020 were approximately $180 million prior to the CARES Act that was passed in March 2020. The CARES Act allowed employers to postpone pension contributions due in 2020 until January 4, 2021. As a result, Frontier elected to defer all of its remaining 2020 fiscal year required contributions of approximately $127 million including additional interest.

In March 2021, Congress passed the American Rescue Plan Act, or ARPA, which includes pension funding relief for plan sponsors.  ARPA provides for 1) a shortfall amortization period change from 7 to 15 years with a fresh start for the existing shortfall, with an option to commence in this in the 2019 plan year and 2) interest rate stabilization, with an option to commence in this in the 2020 plan year.

Incorporating the ARPA pension relief provisions, our pension plan contributions in the fiscal year 2021 are estimated to be $95 million. Frontier made contribution payments of $32 million during the four months ended April 30, 2021.

The following tables provide the components of total postretirement benefit cost:

	Successor		Predecessor
	Postretirement		Postretirement
	For the two months		For the one month		For the three months
	ended June 30,		ended April 30,		ended June 30,
($ in millions)	2021		2021		2020
Components of net periodic postretirement benefit cost
Service cost	$	3	$	2	$	5
Interest cost on projected benefit obligation		5		2		8
Amortization of prior service cost (credit)		(1)		(3)		(8)
Amortization of unrecognized (gain) loss		13		2		1
Net periodic postretirement benefit cost		20		3		6
One-time gain on sale		-		-		(24)
Net periodic postretirement benefit cost	$	20	$	3	$	(18)
	Successor		Predecessor
	Postretirement		Postretirement
	For the two months		For the four months		For the six months
	ended June 30,		ended April 30,		ended June 30,
($ in millions)	2021		2021		2020
Components of net periodic postretirement benefit cost
Service cost	$	3	$	7	$	10
Interest cost on projected benefit obligation		5		9		16
Amortization of prior service cost (credit)		(1)		(10)		(16)
Amortization of unrecognized (gain) loss		13		5		3
Net periodic postretirement benefit cost		20		11		13
One-time gain on sale		-		-		(24)
Net periodic postretirement benefit cost	$	20	$	11	$	(11)

As part of fresh start accounting, the Company remeasured its other postretirement benefit obligation as of April 30, 2021. The assumed discount rate for this remeasurement increased from 2.60% to 3.30%, resulting in a reduction of our postretirement benefit obligation of approximately $101 million. As such, the postretirement benefit obligation was reduced from $1,042 million as of December 31, 2020, to $941 million as of April 30, 2021.

In May of 2021, Frontier amended the medical coverage for certain postretirement benefit plans, which resulted in a remeasurement of its other postretirement benefit obligation and a prior service credit of $55 million, which is deferred in Accumulated comprehensive income for the two months ended June 30, 2021.

The remeasurement resulted in a decrease to the discount rate used to calculate the benefit obligation from 3.30% to 3.20%, resulting in a remeasurement loss of approximately $14 million. As a result of fresh start accounting, Frontier updated its policy to recognize actuarial gains and losses in the period in which they occur. As such, this loss on remeasurement was recorded in Investment and other income, net on our consolidated statement of operations for the two months ended June 30, 2021.

During the one month and four months of April 30, 2021, we capitalized $1 million and $7 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. During the two months ended June 30, 2021, we capitalized $4 million of pension and OPEB expense. During the three and six months ended June 30, 2020, we capitalized $7 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.