Retirement Plan

We sponsor a non-contributory defined benefit retirement plan that covers most legacy Holly non-union employees hired prior to January 1, 2007 and union employees hired prior to July 1, 2010, which was closed to new entrants effective January 1, 2007 for non-union employees and July 1, 2010 for union employees. Effective January 1, 2012, no additional benefits will be accrued under this plan for non-union employee participants and effective May 1, 2012, no additional benefits will be accrued for union employee participants, at which time the plan was fully frozen. The changes to the union employee participants have been accounted for as a curtailment. Accordingly, we adjusted the projected benefit obligation and accumulated other comprehensive income by $7.1 million and recorded additional pension expense of $0.7 million in the second quarter of 2012. The changes related to the non-union employees were also accounted for as a curtailment, which was recorded in the fourth quarter of 2011. Our funding policy for this defined benefit retirement plan is to make annual contributions of not less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Benefits are based on the employee’s years of service and compensation.

The net periodic pension expense consisted of the following components:



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands)
Service cost – benefit earned during the period	$	509		$	1,268		$	679		$	2,535
Interest cost on projected benefit obligations	1,061			1,281			2,052			2,562
Expected return on plan assets	(949		)	(1,339		)	(1,899		)	(2,678		)
Amortization of prior service cost	50			97			67			195
Amortization of net loss	620			533			1,103			1,066
Estimated effect of curtailment	674			—			899			—
Net periodic pension expense	$	1,965		$	1,840		$	2,901		$	3,680

The expected long-term annual rate of return on plan assets is 6.5%, which is the rate is used in measuring 2012 net periodic benefit costs. We contributed $22.4 million to the retirement plan in June 2012.

In 2012, we established a program for non-union plan participants whose benefits pursuant to the defined benefit plan were frozen. The program provides for payments after year-end of each of the next three years provided the employee remains with the us. The payments are based on each employee's years of service and eligible salary. For the three and six months ended June 30, 2012, we recognized transition benefit costs of $3.5 million and $6.9 million, respectively, that relates to our transition to the new defined contribution plan.

We have a post-retirement healthcare and other benefits plan that is available to certain eligible employees who were hired before certain defined dates and satisfy certain age and service requirements.The net periodic benefit expense of this plan consisted of the following components:



	Three Months Ended June 30, 2012			Six Months Ended June 30, 2012
	(In thousands)
Service cost – benefit earned during the period	$	475		$	950
Interest cost on projected benefit obligations	875			1,750
Amortization of prior service credit	(550		)	(1,100		)
Amortization of net loss	75			150
Net periodic pension expense	$	875		$	1,750