Note 12 - Employee Benefits

Defined Benefit Pension Plan and Other Postretirement Benefits

The Company has a noncontributory defined benefit pension plan and a life insurance plan covering a majority of its employees and a postretirement medical plan providing coverage to less than half of its employees. Employees hired or rehired after June 30, 2010 are not eligible for the noncontributory defined benefit pension plan and employees hired or rehired after December 31, 1996, are not eligible for the postretirement medical plan and are not eligible to receive basic life coverage once they retire.

Questar funds a trust for Employee Retirement Income Security Act (ERISA)-qualified pension and postretirement 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 these limitations, the Company seeks to fund the qualified pension 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 IRS for the qualified plan. The nonqualified pension plan is unfunded; claims are paid from the Company's general funds. The Company commingles postretirement benefit plan assets with those of the ERISA-qualified pension plan as permitted by section 401(h) of the Internal Revenue Code.

The Company's Employee Benefits Committee (EBC) has oversight over investment of qualified pension and postretirement benefit plan 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 EBC allocates qualified pension, postretirement medical 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. The EBC seeks investment returns consistent with reasonable and prudent levels of liquidity and risk.

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 EBC'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. The majority of qualified pension and postretirement benefit plan assets were invested as follows:



	Actual Allocation				Policy Range
	Year Ended December 31,
	2012		2011		2012					2011
Total domestic equity securities	34	%	35	%	35	%	-	45	%	35	%	-	45	%
Foreign equity securities
Developed market foreign equity securities	20	%	20	%
Emerging market foreign equity securities	5	%	4	%
Total foreign securities	25	%	24	%	25	%	-	35	%	25	%	-	35	%
Debt securities
Investment-grade intermediate-term debt	4	%	5	%
Investment-grade long-term debt	14	%	17	%
Below-investment-grade debt	10	%	9	%
Total debt securities	28	%	31	%	25	%	-	35	%	25	%	-	35	%
Inflation protection securities	9	%	9	%	—	%	-	10	%	—	%	-	10	%
Cash and short-term investments	4	%	1	%	—	%	-	3	%	—	%	-	3	%

At December 31, 2012, 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 (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 and are benchmarked against the MSCI 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 Barclays Capital 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 Barclays Capital 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 are allocated to inflation protection funds. These funds invest in indices that comprise the Dow Jones U.S. Select REIT, Dow Jones-UBS Commodity Total Return, 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 short-term debt issued by governments and corporations.

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 EBC has given specific approval or where commingled funds are utilized that have previously adopted permitting guidelines.

Fair value accounting standards define fair value in applying GAAP 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 with Levels 1, 2 and 3 ranging from the most observable to the least observable valuation inputs. Level 1 inputs are unadjusted quoted prices in active markets that the Company has the ability to access for identical assets or liabilities at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The following is a description of the valuation methodologies used at December 31, 2012 and 2011, to value pension and postretirement benefit plan assets. The Company's pension and postretirement benefit plan assets did not include any investments measured using Level 3 inputs at December 31, 2012 and 2011.

Corporate bonds and U.S. government securities: 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 markets for common stocks and registered investment companies.

Registered investment companies: Registered investment companies, also known as 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 a NAV methodology were subject to significant redemption restrictions on their valuation dates.

The following tables set forth, by level within the fair value hierarchy, qualified pension and postretirement benefit plan assets at fair value as of December 31, 2012 and 2011:



	Investments at Fair Value
	December 31, 2012
	Level 1		Level 2		Total
	(in millions)
Corporate bonds	$	—	$	1.9	$	1.9
U.S. government securities	—		2.0		2.0
Registered investment companies:
Fixed income funds	79.2		—		79.2
Inflation protection fund	25.5		—		25.5
Domestic equity fund	1.9		—		1.9
Commingled funds:
Cash equivalent funds	—		20.8		20.8
Domestic equity index fund	—		185.9		185.9
Foreign equity growth fund	—		37.3		37.3
Foreign equity index funds	—		60.1		60.1
Corporate debt funds	—		72.8		72.8
Inflation protection fund	—		24.5		24.5
Foreign equity growth 103-12 investment entity	—		36.5		36.5
Total	$	106.6	$	441.8	$	548.4



	Investments at Fair Value
	December 31, 2011
	Level 1		Level 2		Total
	(in millions)
Corporate bonds	$	—	$	1.9	$	1.9
U.S. government securities	—		3.1		3.1
Registered investment companies:
Fixed income funds	62.7		—		62.7
Inflation protection fund	19.5		—		19.5
Domestic equity fund	2.1		—		2.1
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

Pension plan benefits are based on the employee's age at retirement, years of service and highest earnings during 72 consecutive semimonthly pay periods in the last 10 years of employment. 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 amortized its transition obligation over a 20-year period that began in 1992 and ended in 2012.

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



	2012		2011
Discount rate	4.20	%	4.80	%
Rate of increase in compensation	5.50		5.50
Long-term return on assets	7.25		7.25

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



	2012		2011
Discount rate	2.40	%	3.30	%
Rate of increase in compensation	5.50		5.50

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



	2012					2011
Discount rate	4.00				%	4.40				%
Long-term return on assets	7.25					7.25
Health-care inflation rate	8.50					8.00
	decreasing to					decreasing to
	4.50	%	by	2021		5.00	%	by	2014

Questar does not expect any plan assets to be returned during 2013. The qualified and nonqualified pension plan accumulated benefit obligation totaled $623.4 million at December 31, 2012. Plan obligations and fair value of all plan assets are shown in the following table:



	Pension						Postretirement Benefits
	Year Ended December 31,						Year Ended December 31,
	2012			2011			2012			2011
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	646.9		$	492.4		$	88.7		$	77.9
Service cost	13.2			9.3			0.7			0.5
Interest cost	31.1			28.5			3.8			4.2
Change in plan assumptions	69.0			122.3			7.3			14.7
Actuarial (gain) loss	18.2			13.2			(1.0		)	(0.9		)
Benefits paid	(18.1		)	(18.8		)	(5.1		)	(7.7		)
Benefit obligation at end of year	760.3			646.9			94.4			88.7

Change in plan assets
Fair value of plan assets at beginning of year	390.0			359.9			34.0			38.4
Actual gain (loss) on plan assets	59.3			2.5			4.6			(0.7		)
Company contributions to the plan	79.6			46.4			4.1			4.0
Benefits paid	(18.1		)	(18.8		)	(5.1		)	(7.7		)
Fair value of plan assets at end of year	510.8			390.0			37.6			34.0
Underfunded status (current and long-term)	$	(249.5	)	$	(256.9	)	$	(56.8	)	$	(54.7	)

The projected 2013 qualified pension plan funding is $57.7 million. Estimated benefit-plan payments for the five years following 2012 and the subsequent five years aggregated are as follows:



	Pension		Postretirement Benefits
	Years Ending December 31,
	(in millions)
2013	$	24.7	$	4.9
2014	26.0		5.1
2015	33.0		5.2
2016	28.7		5.3
2017	29.0		5.4
2018 through 2022	183.5		28.3

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



	Pension									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2012			2011			2010			2012			2011			2010
	(in millions)
Service cost	$	13.2		$	9.3		$	9.3		$	0.7		$	0.5		$	0.6
Interest cost	31.1			28.5			28.7			3.8			4.2			4.4
Expected return on plan assets	(31.8		)	(26.0		)	(24.4		)	(2.3		)	(2.6		)	(2.4		)
Prior-service and other costs	1.1			1.1			1.1			1.6			1.9			1.9
Recognized net actuarial loss	24.9			12.1			8.2			2.5			0.3			0.6
Curtailment charges	—			0.8			2.4			—			—			0.3
Accretion of regulatory liability	—			—			—			0.8			0.8			0.8
Periodic expense	$	38.5		$	25.8		$	25.3		$	7.1		$	5.1		$	6.2

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



	2012		2011		2010 - 2^nd Half		2010 - 1^st Half
Discount rate	4.80	%	5.75	%	5.75	%	6.50	%
Rate of increase in compensation	5.50		4.00		4.00		4.00
Long-term return on assets	7.25		7.25		7.25		7.25

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



	2012		2011		2010 - 2^nd Half		2010 - 1^st Half
Discount rate	3.30	%	5.75	%	5.75	%	6.50	%
Rate of increase in compensation	5.50		4.00		4.00		4.00

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



	2012					2011					2010 - 2^nd Half					2010 - 1^st Half
Discount rate	4.40				%	5.75				%	5.75				%	6.50				%
Long-term return on assets	7.25					7.25					7.25					7.25
Health-care inflation rate	7.00					8.00					8.00					8.00
	decreasing to					decreasing to					decreasing to					decreasing to
	5.00	%	by	2014		5.00	%	by	2014		5.00	%	by	2013		5.00	%	by	2013

The 2013 estimated qualified and nonqualified pension expense is $35.6 million. In 2013, $27.5 million of estimated actuarial loss and $1.1 million of prior-service cost for the pension plan will be amortized from AOCI. The 2013 estimated postretirement benefits expense is $5.0 million excluding amortization of a regulatory liability. In 2013, $3.0 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 cause a minimal increase in the yearly service and interest costs and would increase the accumulated postretirement benefit obligation by $0.9 million. A 1% decrease in the health-care inflation rate would cause a minimal decrease in the yearly service and interest costs and would decrease the postretirement accumulated benefit obligation by $0.8 million.

Questar Gas and Questar Pipeline participate in Questar's pension and other postretirement benefit plans. Questar Gas's and Questar Pipeline'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 Gas and Questar Pipeline employees would be retained by the pension plan.

Questar Gas contributes to the Questar pension plans in amounts equal to yearly expenses. Questar Gas's pension expense was $19.7 million in 2012, $13.4 million in 2011 and $15.4 million in 2010. Questar Gas's postretirement benefit expenses other than pensions were $3.3 million in 2012, $2.3 million in 2011 and $3.6 million in 2010.

Questar Pipeline contributes to the Questar pension plans in amounts equal to yearly expenses. Questar Pipeline's pension expense was $7.4 million in 2012, $5.0 million in 2011 and $4.1 million in 2010. Questar Pipeline's postretirement benefit expenses other than pensions were $1.2 million in 2012, $1.0 million in 2011 and $0.8 million in 2010.

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 matching contributions. Questar's expense amounted to $7.3 million in 2012, $7.0 million in 2011, and $5.9 million in 2010.

Questar Gas's EIP expense equaled its matching contribution of $3.6 million in 2012, $3.4 million in 2011 and $3.9 million in 2010. Questar Pipeline's EIP expense equaled its matching contribution of $1.4 million in 2012, $1.4 million in 2011 and $1.2 million in 2010.