Note 12 - Employee Benefits

Defined Benefit Pension Plan and Other Postretirement Benefits

The Company has defined benefit pension and life insurance plans covering a majority of its employees and a postretirement medical plan providing coverage to less than half of its employees. Employees hired after June 30, 2010 are not eligible for the defined benefit pension plan and employees hired after December 31, 1996, are not eligible for the postretirement medical plan and are not eligible to receive basic life coverage once they retire. The Company's Employee Benefits Committee (EBC) has oversight over investment of retirement-plan and postretirement-benefit assets. The EBC uses a third-party consultant to assist in setting targeted-policy ranges for the allocation of assets among various investment categories. The majority of retirement-benefit assets were invested as follows:



	Actual Allocation				Policy Range
	Year Ended December 31,
	2011		2010		2011	2010
Total domestic equity securities	35	%	41	%	35-45%	35-45%
Foreign equity securities
Developed market foreign equity securities	20	%	25	%	—	—
Emerging market foreign equity securities	4	%	7	%	—	—
Total foreign securities	24	%	32	%	25-35%	25-35%
Debt securities
Investment grade intermediate term debt	5	%	4	%	—	—
Investment grade long-term debt	17	%	13	%	—	—
Below-investment grade debt	9	%	9	%	—	—
Total debt securities	31	%	26	%	25-35%	25-35%
Inflation protection securities	9	%	—	%	0-10%	—%
Cash and short-term investments	1	%	1	%	0-3%	0-3%

At the end of 2011, domestic equity assets were invested in a passive total stock market index fund that invests in a diversified portfolio of stocks representative of the whole U.S. stock market and an S&P 500 index fund. Developed market foreign equity assets were invested in funds that hold a diversified portfolio of common stocks of corporations in developed countries outside the United States. These investments are benchmarked against the Morgan Stanley Capital International Europe Australasia and Far East (or MSCI EAFE) index. Emerging market foreign equity assets are invested in funds that hold a diversified portfolio of common stocks of corporations in emerging countries outside the United States. This investment is benchmarked against the MSCI EAFE Emerging Markets index. Investment grade intermediate-term debt assets are invested in funds holding a diversified portfolio of debt of governments, corporations and mortgage borrowers with average maturities of 5 to 10 years and investment-grade credit ratings. The investments are benchmarked against the Barclay's Aggregate Bond index. Investment-grade long-term debt assets are invested in a diversified portfolio of debt of governments, corporations and mortgage borrowers with an average maturity of more than 10 years and investment-grade credit ratings. These assets are benchmarked against the Barclay's Government/Credit Bond index. Below-investment-grade debt assets are invested in a fund holding a diversified portfolio of debt securities of corporations with an average maturity up to 10 years with below-investment-grade credit ratings. This investment is benchmarked against the Merrill Lynch High Yield II Total Return Bond index. To mitigate the impact of inflation, assets were allocated to inflation protection funds in 2011. These funds invest in indices that comprise the Dow Jones U.S. Select REIT, Dow Jones-UBS Commodity Total Return Index, S&P Global LargeMidCap Commodity and Resources, and Barclays Capital U.S. Treasury Inflation Protected Securities. Cash and short-term investments are held in a fund that purchases investment grade quality short-term debt issued by governments and corporations.

Questar funds a trust for Employee Retirement Income Security Act (ERISA) qualified retirement-benefit obligations to pay benefits currently due and to build asset balances over a reasonable time period to pay future obligations. Questar is subject to and complies with minimum-required and maximum-allowed annual contribution levels mandated by ERISA and by the Internal Revenue Code. Subject to the above limitations, the Company seeks to fund the qualified retirement plan in amounts that are at a minimum equal to the yearly expense. The Company also has a nonqualified pension plan that covers a group of management employees in addition to the qualified pension plan. The nonqualified pension plan provides for defined benefit payments upon retirement of the management employee, or to the spouse upon death of the management employee above the benefit limit defined by the Internal Revenue Service for the qualified plan. The nonqualified pension plan is unfunded. Claims are paid from the Company's general funds. The Company commingles postretirement-benefit obligation assets with those of the ERISA-qualified retirement plan as permitted by section 401(h) of the Internal Revenue Code. The EBC seeks investment returns consistent with reasonable and prudent levels of liquidity and risk.

The EBC allocates qualified pension-plan, postretirement-medical-plan and life-plan assets among broad asset categories and reviews the asset allocation at least annually. Asset allocation decisions consider risk and return, future benefit requirements, participant growth and other expected cash flows. These characteristics affect the level, risk and expected growth of postretirement-benefit assets.

The EBC uses asset-mix guidelines that include permissible ranges for each asset category, return objectives for each asset group and the desired level of diversification and liquidity. These guidelines change from time to time based on the committee's ongoing evaluation of each plan's risk tolerance. The EBC estimates an expected overall long-term rate of return on assets by weighting expected returns of each asset class by its targeted asset allocation percentage. Expected return estimates are developed from analysis of past performance and forecasts of long-term return expectations by third-parties.

Responsibility for individual security selection rests with each investment manager, who is subject to guidelines specified by the EBC. These guidelines are designed to ensure consistency with overall plan objectives.

The EBC sets performance objectives for each investment manager that are expected to be met over a three-year period or a complete market cycle, whichever is shorter. Performance and risk levels are regularly monitored to confirm policy compliance and that results are within expectations.

Pension-plan guidelines prohibit transactions between a fiduciary and parties in interest unless specifically provided for in ERISA. No restricted securities, such as letter stock or private placements, may be purchased for any investment fund. Questar securities may be considered for purchase at an investment manager's discretion, but within limitations prescribed by ERISA and other laws. There was no direct investment in Questar shares for the periods disclosed. Use of derivative securities by any investment managers is prohibited except where the committee has given specific approval or where commingled funds are utilized that have previously adopted permitting guidelines.

The fair value measurement accounting standards define fair value in applying generally accepted accounting principles as well as establish a framework for measuring fair value and for making disclosures about fair value measurements. The standards establish a fair value hierarchy. Level 1 inputs are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset. The following is a description of the valuation methodologies used at December 31, 2011, to value pension and postretirement assets.

Corporate bonds and U.S. government securities: United States Treasury securities are valued at the closing price reported on the active market on which each individual security is traded. Corporate bonds and United States government corporation and agency securities are valued at the closing price reported on the markets on which the individual securities are traded, which in general are less active than the market for U.S. Treasury securities.

Mutual funds: Mutual funds are valued at the closing price reported on the active market on which the individual funds are traded.

Commingled funds and 103-12 investment entity: These investments are investment vehicles generally restricted to institutional investors and are valued using the net asset value (NAV) of the fund. The NAV is based on the value of the underlying assets owned by the fund excluding transaction costs, and minus liabilities. The underlying assets are valued at the closing prices reported on the markets on which they are traded. No assets that were valued using an NAV methodology were subject to significant redemption restrictions on their valuation dates.

The following tables set forth by level, within the fair value hierarchy, pension and postretirement benefit assets fair value:



	Investments at Fair Value
	December 31, 2011
	Level 1		Level 2		Total
	(in millions)
Domestic equity mutual fund	$	2.1	$	—	$	2.1
Fixed income mutual funds	62.7		—		62.7
Inflation protection mutual fund	19.5		—		19.5
Corporate bonds	—		1.9		1.9
U.S. government securities	—		3.1		3.1
Commingled funds
Cash equivalent funds	—		3.0		3.0
Domestic equity index fund	—		145.8		145.8
Foreign equity growth fund	—		28.2		28.2
Foreign equity index funds	—		43.0		43.0
Corporate debt funds	—		65.7		65.7
Inflation protection fund	—		18.7		18.7
Foreign equity growth 103-12 investment entity	—		30.2		30.2
Total	$	84.3	$	339.6	$	423.9



	Investments at Fair Value
	December 31, 2010
	Level 1		Level 2		Total
	(in millions)
Domestic equity mutual fund	$	2.6	$	—	$	2.6
Fixed income mutual funds	53.7		—		53.7
Corporate bonds	—		2.0		2.0
U.S. government securities	—		3.2		3.2
Commingled funds
Cash equivalent funds	—		3.5		3.5
Domestic equity index fund	—		160.9		160.9
Foreign equity growth fund	—		52.7		52.7
Foreign equity index funds	—		36.7		36.7
Corporate debt funds	—		45.7		45.7
Foreign equity growth 103-12 investment entity	—		37.1		37.1
Total	$	56.3	$	341.8	$	398.1

During 2011, the Company determined that the 2010 amounts for commingled funds and the 103-12 investment entity should be classified as Level 2 instead of Level 3. The amounts have been recast in the above table.

Pension-plan benefits are based on the employee's age at retirement, years of service and highest earnings in a consecutive 72 semimonthly pay period during the 10 years preceding retirement. Postretirement health-care and life insurance benefits are provided only to employees hired before January 1, 1997. The Company pays a portion of the costs of health-care benefits determined by an employee's years of service and generally limited to 170% of the 1992 contribution for employees who retired after January 1, 1993. The Company is amortizing its transition obligation over a 20-year period, which began in 1992.

The qualified pension projected benefit obligation was measured using the following assumptions at December 31:



	2011		2010
Discount rate	4.80	%	5.75	%
Rate of increase in compensation	5.50		4.00
Long-term return on assets	7.25		7.25

The nonqualified pension projected benefit obligation was measured using the following assumptions at December 31:



	2011		2010
Discount rate	3.30	%	5.75	%
Rate of increase in compensation	5.50		4.00
Long-term return on assets	7.25		7.25

The postretirement benefit accumulated benefit obligation was measured using the following assumptions at December 31:



	2011		2010
Discount rate	4.40	%	5.75	%
Long-term return on assets	7.25		7.25
Health-care inflation rate	8.00		8.00
	decreasing to 5.00% by 2014		decreasing to 5.00% by 2013

Questar does not expect any plan assets to be returned during 2012. The qualified and nonqualifed pension plan accumulated benefit obligation totaled $519.6 million at December 31, 2011. Plan obligations and fair value of all plan assets are shown in the following table:



	Pension						Postretirement Benefits
	2011			2010			2011			2010
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	492.4		$	486.6		$	77.9		$	76.3
Service cost	9.3			9.3			0.5			0.6
Interest cost	28.5			28.7			4.2			4.4
Change in plan assumptions	122.3			70.5			14.7			4.5
Actuarial (gain) loss	13.2			(11.0		)	(0.9		)	1.1
Curtailment charge	—			(18.3		)	—			(4.4		)
Transfer to QEP due to Spinoff	—			(53.6		)	—			—
Benefits paid	(18.8		)	(19.8		)	(7.7		)	(4.6		)
Benefit obligation at end of year	646.9			492.4			88.7			77.9

Change in plan assets
Fair value of plan assets at beginning of year	359.9			318.6			38.4			35.8
Actual gain (loss) on plan assets	2.5			43.7			(0.7		)	4.1
Company contributions to the plan	46.4			42.6			4.0			3.1
Transfer to QEP due to Spinoff	—			(25.2		)	—			—
Benefits paid	(18.8		)	(19.8		)	(7.7		)	(4.6		)
Fair value of plan assets at end of year	390.0			359.9			34.0			38.4
Underfunded status (current and long-term)	$	(256.9	)	$	(132.5	)	$	(54.7	)	$	(39.5	)

The projected 2012 qualified pension plan funding is $53.6 million. Estimated benefit-plan payments for the five years following 2011 and the subsequent five years aggregated are as follows:



	Pension		Postretirement Benefits
	(in millions)
2012	$	19.4	$	4.6
2013	20.5		4.7
2014	22.1		4.8
2015	26.5		4.9
2016	26.4		5.0
2017 through 2021	167.1		25.9

The components of the pension and postretirement benefits expense are as follows. The pension expense includes the costs of both qualified and nonqualified pension plans. The pension and other postretirement benefits expense for 2010 and 2009 include eligible employees and retirees of both Questar and QEP.



	Pension Year Ended December 31,									Postretirement Benefits Year Ended December 31,
	2011			2010			2009			2011			2010			2009
	(in millions)
Service cost	$	9.3		$	9.3		$	9.9		$	0.5		$	0.6		$	0.7
Interest cost	28.5			28.7			29.6			4.2			4.4			4.6
Expected return on plan assets	(26.0		)	(24.4		)	(25.3		)	(2.6		)	(2.4		)	(2.2		)
Prior service and other costs	1.1			1.1			1.2			1.9			1.9			1.9
Recognized net actuarial loss	12.1			8.2			6.6			0.3			0.6			0.9
Curtailment charges	0.8			2.4			—			—			0.3			—
Special-termination benefits	—			—			2.0			—			—			—
Accretion of regulatory liability	—			—			—			0.8			0.8			0.8
Periodic expense	$	25.8		$	25.3		$	24.0		$	5.1		$	6.2		$	6.7

Assumptions at January 1, used to calculate the qualified and nonqualified pension benefits expense for the years, were as follows:



	2011		2010 - 2^nd Half		2010 - 1^st Half		2009
Discount rate	5.75	%	5.75	%	6.50	%	6.50	%
Rate of increase in compensation	4.00		4.00		4.00		4.00
Long-term return on assets	7.25		7.25		7.25		7.50

Assumptions at January 1, used to calculate the postretirement benefits expense for the years, were as follows:



	2011		2010 - 2^nd Half		2010 - 1^st Half		2009
Discount rate	5.75	%	5.75	%	6.50	%	6.50	%
Long-term return on assets	7.25		7.25		7.25		7.50
Health-care inflation rate	8.00		8.00		8.00		8.00
	decreasing to 5.00% by 2014		decreasing to 5.00% by 2013		decreasing to 5.00% by 2013		decreasing to 5.00% by 2011

The 2012 estimated qualified and nonqualifed pension expense is $36.1 million. In 2012, $21.4 million of estimated actuarial loss and $1.1 million of prior service cost for the pension plan will be amortized from AOCI. The 2012 estimated postretirement expense is $6.0 million excluding amortization of a regulatory liability. In 2012, $1.6 million of net transition obligation and $2.2 million of estimated actuarial loss for the postretirement benefit plans will be amortized from AOCI.

Service costs and interest costs are sensitive to changes in the health-care inflation rate. A 1% increase in the health-care inflation rate would increase the yearly service and interest costs by $0.1 million and the accumulated postretirement benefit obligation by $1.0 million. A 1% decrease in the health-care inflation rate would decrease the yearly service costs and interest cost by $0.1 million and the accumulated postretirement benefit obligation by $0.9 million.

Questar Pipeline and Questar Gas participate in Questar's pension and other postretirement benefit plans. Questar Pipeline's and Questar Gas's pension plan and postretirement medical and life insurance assets and benefit obligations cannot be separately determined because plan assets are not segregated or restricted to meet the companies' pension and postretirement medical and life obligations. If the companies were to withdraw from the pension plan, the pension obligation for Questar Pipeline and Questar Gas employees would be retained by the pension plan.

Questar Pipeline contributes to the Questar pension plans in amounts equal to yearly expenses. Questar Pipeline's pension expense was $5.0 million in 2011, $4.1 million in 2010 and $3.8 million in 2009. Questar Pipeline's postretirement benefit expenses other than pensions were $1.0 million in 2011, $0.8 million in 2010 and $0.3 million in 2009.

Questar Gas contributes to the Questar pension plans in amounts equal to yearly expenses. Questar Gas's pension expense was $13.4 million in 2011, $15.4 million in 2010 and $13.3 million in 2009. Questar Gas's postretirement benefit expenses other than pensions were $2.3 million in 2011, $3.6 million in 2010 and $3.8 million in 2009.

Employee Investment Plan

The Employee Investment Plan (EIP) is a defined contribution pension plan that allows eligible employees to purchase shares of Questar common stock or other investments through payroll deduction at the current fair market value on the transaction date. The Company currently contributes an overall match of 100% of employees' pre-tax purchases up to a maximum of 6% of their qualifying earnings. To satisfy employee purchases of Questar stock, the EIP trustee may purchase Questar shares on the open market with cash received or Questar may issue new shares. The Company recognizes expense equal to its yearly contributions. Questar's expense amounted to $7.0 million in 2011, $5.9 million in 2010, and $5.2 million in 2009.

Questar Pipeline's EIP expense equaled its matching contribution of $1.4 million in 2011, $1.2 million in 2010 and $1.1 million in 2009. Questar Gas's EIP expense equaled its matching contribution of $3.4 million in 2011, $3.9 million in 2010 and $3.3 million in 2009.