Employee Benefit Plans

The Company has various defined benefit pension plans covering certain U.S. salaried employees and eligible hourly employees. In addition to its own pension plans, the Company contributes to a multi-employer defined benefit pension plan covering eligible employees who are represented by the United Mine Workers of America ("UMWA"). The Company funds its retirement and employee benefit plans in accordance with the requirements of the plans and, where applicable, in amounts sufficient to satisfy the "Minimum Funding Standards" of the Employee Retirement Income Security Act of 1974 ("ERISA"). The plans provide benefits based on years of service and compensation or at stated amounts for each year of service.

Defined Benefits Pension and Other Postretirement Benefit Plans

The Company also provides certain postretirement benefits other than pensions, primarily healthcare, to eligible retirees. The Company's postretirement benefit plans are not funded. New salaried employees have been ineligible to participate in postretirement healthcare benefits since May 2000. Effective January 1, 2003 the Company placed a monthly cap on Company contributions for postretirement healthcare coverage.

The Company is required to measure plan assets and liabilities as of the fiscal year-end reporting date. As of December 31, 2014, all of the Company's pension plans had obligations that exceed plan assets and, as of December 31, 2013, all of the Company's pension plans, with the exception of the Salaried Pension Plan, had obligations that exceeded plan assets. The amounts recognized for all of the Company's pension and postretirement benefit plans are as follows (in thousands):



	Pension Benefits						Other Postretirement Benefits
	December 31, 2014			December 31, 2013			December 31, 2014			December 31, 2013
Accumulated benefit obligation	$	290,524		$	247,874		$	598,385		$	600,748
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	265,650		$	295,944		$	600,748		$	662,464
Service cost	6,804			7,062			7,776			9,943
Interest cost	13,296			12,280			30,903			28,791
Actuarial (gain) loss	59,433			(37,873		)	64,426			(74,146		)
Benefits paid	(28,083		)	(11,763		)	(28,924		)	(26,304		)
Plan amendments	4,531			—			(76,544		)	—
Plan settlements	(5,162		)	—			—			—
Benefit obligation at end of year	$	316,469		$	265,650		$	598,385		$	600,748
Change in plan assets:
Fair value of plan assets at beginning of year	$	257,765		$	232,960		$	—		$	—
Actual return on plan assets	14,138			35,788			—			—
Employer contributions	771			780			28,924			26,304
Benefits paid	(28,083		)	(11,763		)	(28,924		)	(26,304		)
Fair value of plan assets at end of year	$	244,591		$	257,765		$	—		$	—
Unfunded status of plan	$	(71,878	)	$	(7,885	)	$	(598,385	)	$	(600,748	)
Amounts recognized in balance sheet, pre-tax:
Other long-term assets	$	—		$	1,260		$	—		$	—
Pension and other postretirement benefits obligation
Current	(3,292		)	(7,089		)	(25,740		)	(30,036		)
Long-term	(68,586		)	(2,056		)	(572,645		)	(570,712		)
Net amount recognized	$	(71,878	)	$	(7,885	)	$	(598,385	)	$	(600,748	)
Amounts recognized in accumulated other comprehensive income (loss), pre-tax
Prior service cost (credit)	$	5,279		$	994		$	(70,130	)	$	7,641
Net actuarial loss	107,884			48,331			287,550			238,693
Net amount recognized	$	113,163		$	49,325		$	217,420		$	246,334

The components of net periodic benefit cost are as follows (in thousands):



	Pension Benefits									Other Postretirement Benefits
	For the years ended December 31,									For the years ended December 31,
	2014			2013			2012			2014		2013		2012
Components of net periodic benefit cost:
Service cost	$	6,804		$	7,062		$	5,991		$	7,776	$	9,943	$	8,072
Interest cost	13,296			12,280			12,517			30,903		28,791		29,010
Expected return on plan assets	(18,213		)	(16,941		)	(16,125		)	—		—		—
Amortization of prior service cost	246			263			256			1,227		1,230		1,045
Amortization of net actuarial loss	2,292			9,609			9,377			15,570		18,936		14,725
Settlement loss	1,663			—			—			—		—
Net periodic benefit cost for continuing operations	$	6,088		$	12,273		$	12,016		$	55,476	$	58,900	$	52,852

The estimated portions of net prior service cost (credit) and net actuarial loss remaining in accumulated other comprehensive income that is expected to be recognized as components of net periodic benefit costs in 2015 are as follows (in thousands):



	Pension Benefits		Other Postretirement Benefits
Prior service cost (credit)	$	681	$	(6,209	)
Net actuarial loss	7,666		22,635
Net amount to be recognized	$	8,347	$	16,426

Changes in plan assets and benefit obligations recognized in other comprehensive income (loss) in 2014 are as follows (in thousands):



	Pension Benefits			Other Postretirement Benefits			Total
Current year net actuarial loss	$	(63,507	)	$	(64,426	)	$	(127,933	)
Current year prior service (cost) credit	(4,530		)	76,544			72,014
Amortization of actuarial loss	2,292			15,570			17,862
Recognition of settlement loss	1,663			—			1,663
Amortization of prior service cost	246			1,227			1,473
Total	(63,836		)	28,915			(34,921		)
Deferred income taxes	218			884			1,102
Total recognized in other comprehensive income (loss), net of taxes	$	(63,618	)	$	29,799		$	(33,819	)

A summary of key assumptions used is as follows:



	Pension Benefits						Other Postretirement Benefits
	December 31,						December 31,
	2014		2013		2012		2014		2013		2012
Weighted average assumptions used to determine benefit obligations:
Discount rate	4.32	%	5.24	%	4.29	%	4.34	%	5.28	%	4.44	%
Rate of compensation increase	3.70	%	3.70	%	3.70	%	—		—		—
Weighted average assumptions used to determine net periodic cost:
Discount rate	5.24	%	4.29	%	5.02	%	5.28	%	4.44	%	5.14	%
Expected return on plan assets	7.25	%	7.50	%	7.75	%	—		—		—
Rate of compensation increase	3.70	%	3.70	%	3.70	%	—		—		—



	December 31,
	2014		2013		2012
	Pre-65	Post-65	Pre-65	Post-65	Pre-65	Post-65
Assumed health care cost trend rates at December 31:
Health care cost trend rate assumed for next year	6.90%	6.90%	7.00%	7.00%	7.50%	7.50%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.50%	4.50%	4.50%	4.50%	5.00%	5.00%
Year that the rate reaches the ultimate trend rate	2027	2027	2027	2027	2019	2019

The discount rate is based on a yield-curve approach which matches the expected cash flows to high quality corporate bonds available at the measurement date. The model constructs a hypothetical bond portfolio whose cash flows match the year-by-year, projected benefit cash flow from the benefit plan. The yield on this hypothetical portfolio is the maximum discount rate used. The yield curve is based on a universe of bonds available from the Bloomberg Finance bond database at the measurement date, with a quality rating of AA or better by Moody's or S&P.

The plan assets of the pension plans are held and invested by the Walter Energy, Inc. Subsidiaries Master Pension Trust ("Pension Trust"). The Pension Trust employs a total return investment approach whereby a mix of equity and fixed income investments are used to meet the long-term funding and near-term cash flow requirements of the pension plan. The asset mix strives to generate rates of return sufficient to fund plan liabilities and exceed the long-term rate of inflation, while maintaining an appropriate level of portfolio risk. Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio is diversified across domestic and foreign equity holdings, and by investment styles and market capitalizations. Domestic equity holdings primarily consist of investments in common stocks and funds invested in large-cap and mid-cap companies located in the United States managed to replicate the investment performance of industry standard investment indexes. Foreign equity holdings primarily consist of investments in domestically managed mutual funds located in the United States. Fixed income holdings are diversified by issuer, security type and principal and interest payment characteristics. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Fixed income and derivatives holdings primarily consist of investments in domestically managed mutual funds located in the United States. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual benefits liability measurements, and periodic asset/liability studies. Management believes the only significant concentration of investment risk lies in exposure to the U.S. domestic markets as compared with total global investment opportunities.

The Pension Trust's strategic asset allocation targets for 2014 and the asset allocations as of December 31, 2014 and 2013 were as follows:



				Actual Allocation
	Strategic Allocation		Tactical Range	2014		2013
Equity Investments:
U.S. large-cap equity	33.0	%	25-41%	33.4	%	39.0	%
International equity	13.0	%	9-17%	11.9	%	14.3	%
U.S. mid-cap equity	14.0	%	10-18%	14.6	%	9.7	%
Total equity investments	60.0	%	50-70%	59.9	%	63.0	%
Fixed income investments	40.0	%	30-50%	38.7	%	36.5	%
Cash	—	%	0-5%	1.4	%	0.5	%
Total	100.0	%		100.0	%	100.0	%

These ranges are targets and deviations may occur from time-to-time due to market fluctuations. Portfolio assets are typically rebalanced to the allocation targets at least annually.

The fair values of the Pension Trust's assets, all of which are valued based on quoted market prices in active markets for identified assets (Level 1), were as follows (in thousands):



	December 31,
Asset Class:	2014		2013
Cash and cash equivalents	$	3,477	$	1,224
Equity investments(a):
U.S. large cap equity	81,662		100,384
International equity	28,992		36,812
U.S. mid-cap equity	35,715		25,143
Fixed income investments:
Intermediate-term bond(b)	69,250		34,091
Long-term bond(c)	25,495		60,111
Total	$	244,591	$	257,765

_______________________________________________________________________________


(a)	Equity investments include investments in domestic and international mutual funds and U.S. common stocks investing in large- and mid-capitalization companies. Investments in mutual funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date and are traded on listed exchanges.

(b)

This fund seeks maximum total return through a diversified portfolio of fixed income instruments of varying maturities, which may be represented by forward or derivatives such as options, futures, contracts, or swap agreements. Fixed income instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public or private-sector entities. This fund also invests in high yield securities, mortgage-related securities and securities denominated in foreign currencies. This fund is valued at the net asset value per share multiplied by the number of shares held as of the measurement date and is traded on a listed exchange.

(c)

This fund invests in a diversified portfolio consisting primarily of high-quality bonds and other fixed income securities, including U.S. government obligations, mortgage-and asset-backed securities, corporate and municipal bonds, and collateralized mortgage obligations of varying maturities. This fund is valued at the net asset value per share multiplied by the number of shares held as of the measurement date and is traded on a listed exchange.

The expected long-term return on assets of the Pension Trust is established at the beginning of each year by the Company's Benefits Committee in consultation with the plans' actuaries and outside investment advisor. A building block approach is used in determining the long-term rate of return for plan assets. Historical market returns are studied and long-term risk/return relationships between equity and fixed income asset classes are analyzed. This analysis supports the widely accepted fundamental investment principle that assets with greater risk generate higher returns over long periods of time. The historical impact of returns in one asset class on returns of another asset class is reviewed to evaluate portfolio diversification benefits. Current market factors including inflation rates and interest rate levels are considered before assumptions are developed. The long-term portfolio return is established via the building block approach by adding interest rate risk and equity risk premiums to the anticipated long-term rate of inflation. Proper consideration is given to the importance of portfolio diversification and periodic rebalancing. Peer data and historical return assumptions are reviewed to check for reasonableness. For the determination of net periodic benefit cost in 2015, the Company will utilize an expected long-term return on plan assets of 6.25%.

Assumed healthcare cost trend rates, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension and healthcare plans. A one-percentage-point change in the rate for each of these assumptions would have had the following effects as of and for the year ended December 31, 2014 (in thousands):



	Increase (Decrease)
	1-Percentage Point Increase			1-Percentage Point Decrease
Healthcare cost trend:
Effect on total service and interest cost components	$	6,244		$	(5,002	)
Effect on other postretirement benefit obligation	$	92,287		$	(74,174	)
Discount rate:
Effect on other postretirement service and interest cost components	$	48		$	(184	)
Effect on other postretirement benefit obligation	$	(77,097	)	$	95,043
Effect on current other postretirement expense	$	(5,634	)	$	6,820
Effect on pension service and interest cost components	$	(167	)	$	150
Effect on pension benefit obligation	$	(38,267	)	$	47,783
Effect on current year pension expense	$	(1,813	)	$	3,138
Expected return on plan assets:
Effect on current year pension expense	$	(2,512	)	$	2,512
Rate of compensation increase:
Effect on pension service and interest cost components	$	790		$	(692	)
Effect on pension benefit obligation	$	6,383		$	(5,749	)
Effect on current year pension expense	$	1,228		$	(1,120	)

The Company does not have a minimum pension plan funding requirement for fiscal year 2015. The Company expects to pay $25.7 million in 2015 for benefits related to its other postretirement benefit plans. The following estimated benefit payments from the plans, which reflect expected future service as appropriate, are expected to be paid as follows (in thousands):



	Pension Benefits		Other Postretirement Benefits
2015	$	17,670	$	25,740
2016	$	15,232	$	27,252
2017	$	16,148	$	28,600
2018	$	17,051	$	29,886
2019	$	17,955	$	30,801
Years 2020-2024	$	100,590	$	162,291

UMWA Pension and Benefit Trusts

The Company is required under its agreement with the UMWA to contribute to multi-employer plans providing pension, healthcare and other postretirement benefits. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:


•	Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.


•	If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.


•	The Employee Retirement Income Security Act of 1974 ("ERISA"), as amended in 1980, imposes certain liabilities on contributors to multi-employer pension plans in the event of a contributor's withdrawal from the plan.

At December 31, 2014, approximately 49.5% of Walter Energy's workforce was represented by the UMWA and covered under the Company's collective bargaining agreement which began July 11, 2012 and expires December 31, 2016.

UMWA 1974 Pension Plan

The Company is required under the agreement with the UMWA to pay amounts to the 1974 UMWA Pension Plan ("the 1974 Pension Plan") based principally on hours worked by UMWA represented employees. The required contribution called for by the Company's current collective bargaining agreement is $5.50 per hour worked. This cost is recognized as an expense in the year the payments are assessed. The benefits provided by the 1974 Pension Plan to the participating employees are determined based on age and years of service at retirement. The Company was listed in the 1974 Pension Plan's Form 5500, filed April 11, 2014, as providing more than 5 percent of the total contributions for the 2012 plan year.

As of June 30, 2014, the most recent date for which information is available, the 1974 Pension Plan was underfunded. This determination was made in accordance with ERISA calculations. In October 2014, the Company received notice from the trustees of the 1974 Pension Plan stating that the plan is considered to be in "critical" status for the plan year beginning July 1, 2014. The Pension Protection Act ("Pensions Act") requires a funded percentage of 80% be maintained for this multi-employer pension plan. If the plan is determined to have a funded percentage of less than 80% it will be deemed to be "endangered." The plan will be considered "seriously endangered" if the number of years to reach a projected funding deficiency equals 7 or less in addition to having a funded percentage of less than 80%, and if less than 65%, it will be deemed to be in "critical" status. The funded percentage certified by the actuary for the 1974 Pension Plan was determined to be less than 65.0% under the Pension Act. As a result of the 1974 Pension Plan entering "critical" status, the Pensions Act requires a surcharge of 5% of the contributions otherwise required under the current collective bargaining agreement be contributed which will increase the contribution rate from $5.50 to $5.78 per hour. Subject to certain exceptions, the surcharge will increase to 10%, or $6.05 per hour, on July 1, 2015. Additionally as a result of the 1974 Pension Plan's "critical" status, Federal law requires pension plans to adopt a rehabilitation plan aimed at restoring the financial health of the plan. The law permits pension plans to reduce, or even eliminate, benefits called "adjustable benefits" as part of a rehabilitation plan.

The Company faces risks and uncertainties by participating in the 1974 Pension Plan. All assets contributed to the plan are pooled and available to provide benefits for all participants and beneficiaries. As a result, contributions made by the Company benefit the employees of other employers. If the 1974 Pension Plan fails to meet ERISA's minimum funding requirements or fails to develop and adopt a rehabilitation plan, a nondeductible excise tax of five percent of the accumulated funding deficiency may be imposed on an employer's contribution to this multi-employer pension plan. As a result of the 1974 Pension Plan entering "seriously endangered" status for the plan year beginning July 1, 2011, the plan adopted a Funding Improvement Plan as of May 25, 2012 in an effort to improve the plan's funding situation. The Funding Improvement Plan states that the plan must avoid a funding deficiency for any plan year during the funding improvement period and improve the plan's funded status by at least 20% over a 15-year period. The Funding Improvement Period began July 1, 2014 and ends June 30, 2029. The Funding Improvement Plan calls for increased contributions beginning January 1, 2017 and lasting throughout the improvement period so that the plan can meet the applicable benchmarks and emerge from seriously endangered status by the end of the Funding Improvement Period. The Funding Improvement Plan and the corresponding contribution schedules were updated on April 26, 2013 and May 21, 2014, to reflect the experience of the plan.

Under current law governing multi-employer defined benefit plans, if the Company voluntarily withdrew from the 1974 Pension Plan, the Company would be required to make payments to the plan which would approximate its proportionate share of the multiemployer plan's unfunded vested benefit liabilities at the time of the withdrawal. The 1974 Pension Plan uses a modified "rolling five" year allocation method for calculating an employer's withdrawal liability share of the unfunded vested benefits. An employer would be obligated to pay its pro-rata share of the unfunded vested benefits based on the ratio of hours worked by the employer's employees during the previous five plan years for which contributions were due compared to the number of hours worked by all the employees of the employers from which contributions were due. The 1974 Pension Plan's unfunded vested benefits at June 30, 2014 was $4.3 billion. The Company's percentage of hours worked during the previous five plan years to the total hours worked by all plan participants during the same period was estimated to be approximately 15%. The Company does not have any intention to withdraw from the plan; however, if the Company were to withdraw from the plan before July 1, 2015, the Company's estimated withdrawal liability would be $661.2 million.

The following table provides additional information regarding the 1974 Pension Plan as of December 31, 2014 (in thousands):

Pension

Protection Act

Zone Status

Contributions of Walter

Energy

EIN/Pension

Plan Number

FIP/RP Status

Pending/Implemented

Surcharge

Imposed

Expiration Date of

Collective-Bargaining

Agreement

Pension Fund

2014

2013

2014

2013

2012

United Mine Workers of America 1974 Pension Plan(1)

52-1050282/002

Red

Yellow

Yes

17,854

19,670

20,948

Yes

12/31/2016

_______________________________________________________________________________


(1)	The enrolled actuary for the 1974 Pension Plan certified to the U.S. Department of the Treasury and the plan sponsor that the plan is in "Critical Status" for the plan year beginning July 1, 2014 and ending June 30, 2015. The plan adopted a funding improvement plan on May 25, 2012.

UMWA Benefit Trusts

The Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act") created two multiemployer benefit plans: (1) the United Mine Workers of America Combined Benefit Fund ("Combined Fund") into which the former UMWA Benefit Trusts were merged, and (2) the 1992 Benefit Fund. The Combined Fund provides medical and death benefits for all beneficiaries of the former UMWA Benefit Trusts who were actually receiving benefits as of July 20, 1992. The 1992 Benefit Fund provides medical and death benefits to orphan UMWA-represented members eligible for retirement on February 1, 1993, and who actually retired between July 20, 1992 and September 30, 1994. The Coal Act provides for the assignment of beneficiaries to former employers and the allocation of unassigned beneficiaries (referred to as orphans) to companies using a formula set forth in the Coal Act. The Coal Act requires that responsibility for funding the benefits to be paid to beneficiaries, be assigned to their former signatory employers or related companies. This cost is recognized as an expense in the year the payments are assessed. The Company's contributions to these funds for the years ended December 31, 2014, 2013 and 2012 were insignificant.

The UMWA 1993 Benefit Plan is a defined contribution plan that was created as the result of negotiations for the National Bituminous Coal Wage Agreement (NBCWA) of 1993. This plan provides healthcare benefits to orphan UMWA retirees who are not eligible to participate in the Combined Fund, the 1992 Benefit Fund or whose last employer signed the 1993, or a later, NBCWA and subsequently goes out of business. Contributions to the trust under the 2011 labor agreement were $1.10 per hour worked by UMWA represented employees for the years ended December 31, 2014, 2013 and 2012. Total contributions to the UMWA 1993 Benefit Plan in 2014, 2013 and 2012 were $3.6 million, $3.9 million and $4.2 million, respectively.

The NBCWA of 2011 established the UMWA 2012 Retiree Bonus Account Trust and Plan. The UMWA Retiree Bonus Account Trust is a defined contribution plan that provides funding for continued single sum payments to retirees and is administered by a board of trustees consisting of two trustees appointed by the UMWA and two trustees appointed by the Bituminous Coal Operators' Association (BCOA). The trust shall provide a one-time single sum bonus payment of $580 for most retirees or $455 for disabled and certain other retirees on November 1, 2015 and 2016. If the trustees determine that there are not sufficient assets in the trust to pay the projected bonus amounts, the employer will be required to pay the difference to its retirees. The 2012 Retiree Bonus Account Trust provides benefits to beneficiaries of the UMWA 1974 Pension Plan who have retired by July 1, 2011 or who retire by October 31, 2016. Contributions to the trust under the 2011 NBCWA are currently $1.56 per hour worked by UMWA represented employees, which began on February 1, 2013. Total contributions to the UMWA 2012 Retiree Bonus Account Trust in 2014, 2013 and 2012 were $5.1 million, $5.5 million, and $5.7 million, respectively.