(12) RETIREMENT AND EMPLOYEE BENEFIT PLANS

401(k) Defined Contribution Plan

The Company has a 401(k) defined contribution plan covering eligible employees. The Company expensed $2.5 million, $2.2 million and $1.9 million of contribution expense in 2013, 2012 and 2011, respectively. Additionally, the Company capitalized $2.9 million, $2.8 million and $3.8 million of contributions in 2013, 2012 and 2011, respectively, directly related to the acquisition, exploration and development activities of the Company’s natural gas and oil properties or directly related to the construction of the Company’s gathering systems.

Defined Benefit Pension and Other Postretirement Plans

Prior to January 1, 1998, the Company maintained a traditional defined benefit plan with benefits payable based upon average final compensation and years of service. Effective January 1, 1998, the Company amended its pension plan to become a “cash balance” plan on a prospective basis for its non-bargaining employees. A cash balance plan provides benefits based upon a fixed percentage of an employee’s annual compensation. The Company’s funding policy is to contribute amounts which are actuarially determined to provide the plans with sufficient assets to meet future benefit payment requirements and which are tax deductible.

The postretirement benefit plan provides contributory health care and life insurance benefits. Employees become eligible for these benefits if they meet age and service requirements. Generally, the benefits paid are a stated percentage of medical expenses reduced by deductibles and other coverages.

Substantially all employees are covered by the Company’s defined benefit pension and postretirement benefit plans. The Company accounts for its defined benefit pension and other postretirement plans by recognizing the funded status of each defined pension benefit plan and other postretirement benefit plan on the Company’s balance sheet. In the event a plan is overfunded, the Company recognizes an asset. Conversely, if a plan is underfunded, the Company recognizes a liability.

The following provides a reconciliation of the changes in the plans’ benefit obligations, fair value of assets, and funded status as of December 31, 2013 and 2012:


					Other Postretirement
	Pension Benefits				Benefits
		2013		2012		2013		2012
	(in thousands)

Change in benefit obligations:
Benefit obligation at January 1	$	105,432	$	81,738	$	11,464	$	6,793
Service cost		13,789		10,942		2,296		1,832
Interest cost		4,104		4,050		441		398
Participant contributions		–		–		24		21
Actuarial loss		(11,107)		14,981		(1,706)		2,525
Benefits paid		(8,492)		(6,951)		(139)		(105)
Plan amendments		–		672		–		–
Settlements		(520)		–		–		–
Benefit obligation at December 31	$	103,206	$	105,432	$	12,380	$	11,464


					Other Postretirement
	Pension Benefits				Benefits
		2013		2012		2013		2012
	(in thousands)

Change in plan assets:
Fair value of plan assets at January 1	$	83,347	$	68,023	$	–	$	–
Actual return on plan assets		12,471		11,191		–		–
Employer contributions		12,520		11,084		115		84
Participant contributions		–		–		24		21
Benefits paid		(8,492)		(6,951)		(139)		(105)
Settlements		(507)		–		–		–
Fair value of plan assets at December 31	$	99,339	$	83,347	$	–	$	–
Funded status of plans at December 31	$	(3,867)	$	(22,085)	$	(12,380)	$	(11,464)

The Company uses a December 31 measurement date for all of its plans and had liabilities recorded for the underfunded status for each period as presented above.

The change in accumulated other comprehensive income related to the pension plans was a gain of $19.2 million ($11.6 million after tax) for the year ended December 31, 2013 and a loss of $8.4 million ($5.0 million after tax) for the year ended December 31, 2012. The change in accumulated other comprehensive income related to the other postretirement benefit plan was a gain of $1.8 million ($1.1 million after tax) for the year ended December 31, 2013 and was a loss of $2.4 million ($1.4 million after tax) for the year ended December 31, 2012. Included in accumulated other comprehensive income as of December 31, 2013 and 2012 was a $15.9 million loss ($9.6 million net of tax) and a $36.9 million loss ($22.3 million net of tax), respectively, related to the Company’s pension and other postretirement benefit plans. For the year ended December 31, 2013, amortization of prior period service cost included in net periodic pension cost of $21.0 million was reclassified from accumulated other comprehensive income to general and administrative expenses.

The amounts in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit cost during 2014 are $0.1 million for prior service costs and $0.2 million net loss.

The pension plans’ projected benefit obligation, accumulated benefit obligation and fair value of plan assets as of December 31, 2013 and 2012 are as follows:


		2013		2012
		(in thousands)

Projected benefit obligation	$	103,206	$	105,432
Accumulated benefit obligation	$	100,208	$	100,379
Fair value of plan assets	$	99,339	$	83,347

Pension and other postretirement benefit costs include the following components for 2013, 2012 and 2011:


								Other Postretirement
		Pension Benefits						Benefits
		2013		2012		2011		2013		2012		2011
		(in thousands)

Service cost	$	13,789	$	10,942	$	9,323	$	2,296	$	1,832	$	1,354
Interest cost		4,104		4,050		3,671		441		398		252
Expected return on plan assets		(6,136)		(5,426)		(4,398)		–		–		–
Amortization of transition obligation		–		–		–		–		64		64
Amortization of prior service cost		103		286		344		14		14		14
Amortization of net loss		1,541		1,220		856		120		93		11
Net periodic benefit cost		13,401		11,072		9,796		2,871		2,401		1,695
Settlements and curtailments		70		–		–		–		–		–
Total benefit cost	$	13,471	$	11,072	$	9,796	$	2,871	$	2,401	$	1,695

Amounts recognized in other comprehensive income for the year ended December 31, 2013 were as follows:


		Pension Benefits		Other Postretirement Benefits
		(in thousands)

Net actuarial gain arising during the year	$	17,454	$	1,706
Amortization of prior service cost		104		14
Amortization of net loss		1,541		120
Settlements		70		–
Tax effect		(7,535)		(721)
	$	11,634	$	1,119

The assumptions used in the measurement of the Company’s benefit obligations as of December 31, 2013 and 2012 are as follows:


	Pension Benefits				Other Postretirement Benefits
	2013		2012		2013		2012

Discount rate	5.00	%	4.00	%	5.00	%	4.00	%
Rate of compensation increase	4.50	%	4.50	%	n/a		n/a

The assumptions used in the measurement of the Company’s net periodic benefit cost for 2013, 2012 and 2011 are as follows:


	Pension Benefits						Other Postretirement Benefits
	2013		2012		2011		2013		2012		2011

Discount rate	4.00	%	5.00	%	5.50	%	4.00	%	5.00	%	5.50	%
Expected return on plan assets	7.00	%	7.50	%	7.50	%	n/a		n/a		n/a
Rate of compensation increase	4.50	%	4.50	%	4.50	%	n/a		n/a		n/a

The expected return on plan assets for the various benefit plans is based upon a review of the historical returns experienced, combined with the future expected returns based upon the asset allocation strategy employed. The plans seek to achieve an adequate return to fund the obligations in a manner consistent with the federal standards of the Employee Retirement Income Security Act and with a prudent level of diversification.

For measurement purposes, the following trend rates were assumed for 2013 and 2012:


	2013		2012

Health care cost trend assumed for next year	8	%	8	%
Rate to which the cost trend is assumed to decline	5	%	5	%
Year that the rate reaches the ultimate trend rate	2032		2031

Assumed health care cost trend rates have a significant effect on the amounts for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects:


		1% Increase		1% Decrease
	(in thousands)

Effect on the total service and interest cost components	$	457	$	(373)
Effect on postretirement benefit obligations	$	1,693	$	(1,413)

Pension Payments and Asset Management

In 2013, the Company contributed $12.5 million to its pension plans and $0.1 million to its other postretirement benefit plan. The Company expects to contribute $12.0 million to its pension plans and $0.4 million to its other postretirement benefit plan in 2014. No plan assets are expected to be returned to the Company during the next twelve months.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:


	Pension Benefits			Other Postretirement Benefits
	(in thousands)

2014	$	6,384	$	404
2015	$	6,280	$	542
2016	$	8,075	$	730
2017	$	8,553	$	801
2018	$	9,517	$	994
Years 2019-2023	$	58,894	$	7,545

The Company’s overall investment strategy is to provide an adequate pool of assets to support both the long-term growth of plan assets and to ensure adequate liquidity exists for the near-term benefit payment of obligations to participants, retirees and beneficiaries. The Benefits Administration Committee of the Company administers the Company’s pension plan assets. The Benefits Administration Committee believes long-term investment performance is a function of asset-class mix and restricts the composition of pension plan assets to a combination of cash and cash equivalents, domestic equity markets, international equity markets or investment grade fixed income assets.

The table below presents the allocations targeted by the Benefits Administration Committee and the actual weighted-average asset allocation of the Company’s pension plan as of December 31, 2013, by asset category. The asset allocation targets are subject to change and the Benefits Administration Committee allows for its actual allocations to deviate from target as a result of current and anticipated market conditions. Plan assets are periodically balanced whenever the allocation to any asset class falls outside of the specified range.


	Pension Plan Asset Allocations
Asset category:	Target		Actual

U.S. Equity(1)	35	%	36	%
Non-U.S. Developed Equity(2)	30	%	31	%
Emerging Markets Equity(3)	5	%	6	%
Opportunistic(4)	–	%	–	%
Fixed income(5)	29	%	26	%
Cash(6)	1	%	1	%
Total	100	%	100	%

(1) Asset category above includes the following equity securities in the table below: U.S large cap growth equity, U.S. large cap value equity, U.S. large

cap core equity, and U.S. small cap equity.

(2) Asset category above includes Non-U.S. equity securities in the table below.

(3) Asset category above includes Emerging markets equity securities below.

(4) Asset category above includes none of the securities in the table below.

(5) Asset category above includes Fixed income pension plan assets in the table below.

(6) Asset category above includes Cash and cash equivalents pension plan assets in the table below.

Utilizing GAAP’s fair value hierarchy, the Company’s fair value measurement of pension plan assets as of December 31, 2013 are as follows:


Asset category:	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Equity securities:
U.S. large cap growth equity(1)	$	7,660	$	7,660	$	–	$	–
U.S. large cap value equity(2)		8,174		8,174		–		–
U.S. large cap core equity(3)		16,438		–		16,438		–
U.S. small cap equity(4)		3,245		3,245		–		–
Non-U.S. equity(5)		30,628		30,628		–		–
Emerging markets equity(6)		6,374		–		6,374		–
Fixed income (7)		25,523		–		25,523		–
Cash and cash equivalents		1,296		1,296		–		–
Total	$	99,338	$	51,003	$	48,335	$	–

(1)Mutual fund that seeks to invest in a diversified portfolio of stocks with price appreciation growth opportunities.

(2)Mutual fund that seeks to invest in a diversified portfolio of stocks that will increase in value over the long-term as well as provide current income.

(3)An institutional fund that seeks to replicate the performance of the S&P 500 Index before fees.

(4)Mutual fund that seeks to invest in a diversified portfolio of stocks with small market capitalizations.

(5)Mutual funds that invest primarily in equity securities of companies domiciled outside of the United States, primarily in developed markets.

(6)An institutional fund that invests primarily in the equity securities of companies domiciled in emerging markets.

(7)Institutional funds that seek an investment return that approximates, as closely as practicable, before expenses, the performance of the Barclays U.S. Intermediate Credit Bond Index over the long term and the Barclays Long U.S. Corporate Bond Index over the long-term.

Utilizing GAAP’s fair value hierarchy, the Company’s fair value measurement of pension plan assets at December 31, 2012 are as follows:


Asset category:	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Equity securities:
U.S. large cap growth equity(1)	$	4,588	$	4,588	$	–	$	–
U.S. large cap value equity(2)		5,257		5,257		–		–
U.S. large cap core equity(3)		11,564		–		11,564		–
U.S. small cap equity(4)		2,792		2,792		–		–
Non-U.S. equity(5)		21,891		21,891		–		–
Emerging markets equity(6)		4,454		–		4,454		–
Fixed income (7)		31,021		–		31,021		–
Cash and cash equivalents		1,780		1,780		–		–
Total	$	83,347	$	36,308	$	47,039	$	–

(1)Mutual fund that seeks to invest in a diversified portfolio of stocks with price appreciation growth opportunities.

(2)Mutual fund that seeks to invest in a diversified portfolio of stocks that will increase in value over the long-term as well as provide current income.

(3)An institutional fund that seeks to replicate the performance of the S&P 500 Index before fees.

(4)Mutual fund that seeks to invest in a diversified portfolio of stocks with small market capitalizations.

(5)Mutual funds that invest primarily in equity securities of companies domiciled outside of the United States, primarily in developed markets.

(6)An institutional fund that invests primarily in the equity securities of companies domiciled in emerging markets.

(7)An institutional fund that seeks to replicate the performance of the Barclays Capital Long-Term Corporate Bond Index before fees through a sampling process.

The Company’s pension plan assets that are classified as Level 1 are due to the pension plan’s investments comprising either cash or investments in open-ended mutual funds which produce a daily net asset value that is validated with a sufficient level of observable activity to support classification of the fair value measurement as Level 1. The Company’s Level 2 pension plan assets represent investments in institutional funds. These equity securities can be redeemed on demand but are not actively traded. The fair values of these Level 2 securities are based upon the net asset values provided by the investment managers. No concentration of risk arising within or across categories of plan assets exists due to any significant investments in a single entity, industry, country or investment fund.