EMPLOYEE BENEFIT PLANS

The NuStar Thrift Plan

The NuStar Thrift Plan (the Thrift Plan) is a qualified employee profit-sharing plan that became effective June 26, 2006. Participation in the Thrift Plan is voluntary and is open to substantially all NuStar GP, LLC employees upon their date of hire, except for part-time employees (as defined in the Thrift Plan), who become eligible upon completing one year of service (as defined in the Thrift Plan). Thrift Plan participants can contribute from 1% up to 30% of their total annual compensation to the Thrift Plan in the form of pre-tax and/or after tax employee contributions. NuStar GP, LLC makes matching contributions in an amount equal to 100% of each participant’s employee contributions up to a maximum of 6% of the participant’s total annual compensation. Effective May 1, 2010, Thrift Plan participants may designate all or any portion of their contributions as Roth 401(k) contributions as defined in the Code. Our matching contributions to the Thrift Plan for the years ended December 31, 2012, 2011 and 2010 totaled $6.9 million, $6.5 million and $5.9 million, respectively.

NuStar GP, LLC also maintains an excess thrift plan (the Excess Thrift Plan) that became effective July 1, 2006. The Excess Thrift Plan is a nonqualified deferred compensation plan that provides benefits to those employees of NuStar GP, LLC whose compensation and/or annual contributions under the Thrift Plan are subject to the limitations applicable to qualified retirement plans under the Code.

Pension and Other Postretirement Benefits

The NuStar Pension Plan (the Pension Plan) is a qualified non-contributory defined benefit pension plan that became effective July 1, 2006. The Pension Plan covers substantially all of NuStar GP, LLC’s employees and generally provides eligible employees with retirement income calculated under a final average pay formula (FAP) or a cash balance formula. Employees hired before January 1, 2011 are covered under FAP, which is based on years of service and compensation during their period of service, and employees become fully vested in their benefits upon attaining five years of vesting service. Employees hired on January 1, 2011 and after are covered under the cash balance formula, which is based on age, service and interest credits, and employees become fully vested in their benefits upon attaining three years of vesting service.

NuStar GP, LLC also maintains an excess pension plan (the Excess Pension Plan) and a supplemental executive retirement plan (the SERP). The Excess Pension Plan and the SERP are nonqualified deferred compensation plans that provide benefits to a select group of management or other highly compensated employees of NuStar GP, LLC.

None of the Excess Thrift Plan, the Excess Pension Plan or the SERP is intended to constitute either a qualified plan under the provisions of Section 401 of the Code or a funded plan subject to ERISA.

NuStar GP, LLC also provides a medical benefits plan for retired employees, referred to as other postretirement benefits.

NuStar Energy reimbursed and will continue to reimburse all costs incurred by us related to these employee benefit plans at cost. We charged NuStar Energy $17.9 million, $13.7 million, and $13.1 million for the years ended December 31, 2012, 2011 and 2010, respectively, for these employee benefit plans. Our current and noncurrent liabilities for these employee benefits are included in “Accrued compensation expense” and “Long-term liabilities,” respectively, on our consolidated balance sheets.

The Pension Plan, Excess Pension Plan and SERP are collectively referred to as the Pension Plans in the tables and discussion below. We use December 31 as the measurement date for our pension and other postretirement plans.

Effective January 1, 2013, Asphalt JV employees became employees of NuStar Asphalt Refining, LLC and are no longer part of NuStar GP, LLC's employee benefit plans. Disposition charges of $5.7 million related to employee benefit expenses associated with the Asphalt Sale were recognized by Asphalt JV for the year ended December 31, 2012.

The changes in the benefit obligation, the changes in fair value of plan assets, the funded status and the amounts recognized in our consolidated balance sheet for our Pension Plans and other postretirement benefit plans as of and for the years ended December 31, 2012 and 2011 were as follows:



	Pension Plans						Other Postretirement Benefit Plans
	2012			2011			2012			2011
	(Thousands of Dollars)
Change in benefit obligation:
Benefit obligation, January 1	$	78,017		$	50,292		$	18,672		$	15,368
Service cost	15,614			12,484			1,258			1,040
Interest cost	4,012			2,881			976			888
Transfer to joint venture	—			—			(90		)	—
Disposition charges (a)	4,397			—			1,284			—
Plan amendments	(295		)	—			(2,420		)	—
Benefits paid	(1,647		)	(1,217		)	(149		)	(126		)
Participants contributions	—			—			62			69
Actuarial loss	18,359			13,577			2,622			1,433
Curtailment (a)	(4,411		)	—			(1,253		)	—
Benefit obligation, December 31	$	114,046		$	78,017		$	20,962		$	18,672
Change in plan assets:
Plan assets at fair value, January 1	$	53,787		$	46,877		$	—		$	—
Actual return on plan assets	6,063			934			—			—
Company contributions	11,066			7,193			87			57
Benefits paid	(1,647		)	(1,217		)	(149		)	(126		)
Participants contributions	—			—			62			69
Plan assets at fair value, December 31	$	69,269		$	53,787		$	—		$	—
Reconciliation of funded status:
Fair value of plan assets at December 31	$	69,269		$	53,787		$	—		$	—
Less: Benefit obligation at December 31	114,046			78,017			20,962			18,672
Funded status at December 31	$	(44,777	)	$	(24,230	)	$	(20,962	)	$	(18,672	)
Amounts recognized in the consolidated balance sheets:
Accrued compensation expense	$	(137	)	$	(99	)	$	(243	)	$	(162	)
Long-term liabilities	(44,640		)	(24,131		)	(20,719		)	(18,510		)
Net pension liability	$	(44,777	)	$	(24,230	)	$	(20,962	)	$	(18,672	)


(a)	Disposition charges and curtailment in 2012 relate to Asphalt JV. Disposition charges have been reimbursed to us by Asphalt JV, and curtailment impacts our accumulated other comprehensive loss.

The components of net periodic benefit cost related to our Pension Plans and other postretirement benefit plans, which are reimbursed to us by NuStar Energy, were as follows:



	Pension Plans									Other Postretirement Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2012			2011			2010			2012		2011		2010
	(Thousands of Dollars)
Components of net periodic benefit cost:
Service cost	$	15,614		$	12,484		$	11,384		$	1,258	$	1,040	$	904
Interest cost	4,012			2,881			2,233			976		888		832
Expected return on plan assets	(3,917		)	(3,617		)	(2,314		)	—		—		—
Amortization of prior service credit	(18		)	(18		)	(18		)	—		—		—
Amortization of net loss	1,393			485			542			139		71		83
Net periodic benefit cost before disposition charges	17,084			12,215			11,827			2,373		1,999		1,819
Disposition charges	4,397			—			—			1,284		—		—
Net periodic benefit cost	$	21,481		$	12,215		$	11,827		$	3,657	$	1,999	$	1,819

Adjustments recognized in other comprehensive (loss) income related to our Pension Plans and other postretirement benefit plans were as follows:



	Pension Plans									Other Postretirement Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2012			2011			2010			2012			2011			2010
	(Thousands of Dollars)
Net unrecognized (loss) gain arising during the year:
Net actuarial (loss) gain	$	(11,800	)	$	(16,260	)	$	366		$	(1,368	)	$	(1,433	)	$	(84	)
Prior service credit	295			—			—			2,420			—			—
Net unrealized (loss) gain arising during the year	(11,505		)	(16,260		)	366			1,052			(1,433		)	(84		)
Net loss reclassified into income:
Amortization of prior service credit	(18		)	(18		)	(18		)	—			—			—
Amortization of net loss	1,393			485			542			139			71			83
Net loss reclassified into income	1,375			467			524			139			71			83

Income tax benefit (expense)	4,269			6,064			(136		)	(390		)	535			31
Total changes in other comprehensive (loss) income	$	(5,861	)	$	(9,729	)	$	754		$	801		$	(827	)	$	30

The amounts recorded as a component of accumulated other comprehensive loss related to our Pension Plans and other postretirement benefit plans were as follows:



	Pension Plans									Other Postretirement Benefit Plans
	December 31,									December 31,
	2012			2011			2010			2012			2011			2010
	(Thousands of Dollars)
Unrecognized actuarial loss (a)	$	(36,476	)	$	(26,069	)	$	(10,294	)	$	(5,188	)	$	(3,959	)	$	(2,597	)
Prior service credit (a)	380			103			121			2,420			—			—
Deferred tax asset	14,414			10,145			4,081			1,171			1,561			1,026
Accumulated other comprehensive loss, net of tax	$	(21,682	)	$	(15,821	)	$	(6,092	)	$	(1,597	)	$	(2,398	)	$	(1,571	)


(a)	Represents the balance of accumulated other comprehensive loss that has not been recognized as a component of net periodic benefit cost.

In 2013, we expect to recognize $2.1 million and $0.2 million of the unrecognized actuarial loss for Pension Plans and other postretirement benefit plans, respectively. The aggregate accumulated benefit obligation for our Pension Plans as of December 31, 2012 and 2011 was $84.6 million and $56.9 million, respectively. As of December 31, 2012 and 2011, the aggregate benefit obligation for the Pension Plans exceeded plan assets.

The allocations of plan assets for the Pension Plan were as follows:



	December 31,
	2012		2011
Equity securities	67	%	65	%
Fixed income securities	31	%	33	%
Cash equivalent securities	2	%	2	%

The investment policies and strategies for the assets of our qualified Pension Plan incorporate a well-diversified approach that is expected to earn long-term returns from capital appreciation and a growing stream of current income. This approach recognizes that assets are exposed to risk, and the market value of the Pension Plan’s assets may fluctuate from year to year. Risk tolerance is determined based on NuStar Energy’s financial ability to withstand risk within the investment program and the willingness to accept return volatility. In line with the investment return objective and risk parameters, the Pension Plan’s mix of assets includes a diversified portfolio of equity and fixed-income instruments. The aggregate asset allocation is reviewed on an annual basis and the allocation as of December 31, 2012 was in line with our target.

The overall expected long-term rate of return on plan assets for the Pension Plan is estimated using models of asset returns. Model assumptions are derived using historical data with the assumption that capital markets are informationally efficient. Three models are used to derive the long-term expected returns for each asset class. Since each method has distinct advantages and disadvantages and differing results, an equal weighted average of the methods’ results is used.

We disclose the fair value for each major class of plan assets in the Pension Plan into three levels: Level 1, defined as observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists.

The major classes of plan assets measured at fair value for the Pension Plan, were as follows:



	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Thousands of Dollars)
Asset class:
Cash equivalent securities	$	1,294	$	—	$	—	$	1,294
Equity securities:
U.S. large cap equity fund (a)	—		39,676		—		39,676
International stock index fund (b)	6,652		—		—		6,652
Fixed income securities:
Bond market index fund (c)	21,647		—		—		21,647
Total	$	29,593	$	39,676	$	—	$	69,269



	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(Thousands of Dollars)
Asset class:
Cash equivalent securities	$	1,054	$	—	$	—	$	1,054
Equity securities:
U.S. large cap equity fund (a)	—		29,945		—		29,945
International stock index fund (b)	4,779		—		—		4,779
Fixed income securities:
Bond market index fund (c)	18,009		—		—		18,009
Total	$	23,842	$	29,945	$	—	$	53,787


(a)	This fund is a low-cost equity index fund not actively managed that tracks the S&P 500. Fair values were estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.


(b)	This fund tracks the performance of the Total International Composite Index.


(c)	This fund tracks the performance of the Barclays Capital U.S. Aggregate Bond Index.

For the year ended December 31, 2012, we contributed $11.0 million to the Pension Plan. We expect to contribute approximately $9.0 million to the Pension Plan during 2013, which is our minimum required contribution under the Employee Retirement Income Security Act. Since costs incurred by us related to the Pension Plan and our other postretirement benefit plan are reimbursed by NuStar Energy, funding for these plans will primarily be provided by NuStar Energy.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the years ending December 31:



	Pension Plans		Other Postretirement Benefit Plans
	(Thousands of Dollars)
2013	$	3,926	$	243
2014	4,167		398
2015	5,107		597
2016	7,375		824
2017	7,247		993
Years 2018-2022	55,872		7,553

The weighted-average assumptions used to determine the benefit obligations were as follows:



	Pension Plans				Other Postretirement Benefit Plans
	December 31,				December 31,
	2012		2011		2012		2011
Discount rate	4.48	%	5.21	%	4.51	%	5.25	%
Rate of compensation increase	3.69	%	4.05	%	n/a		n/a

The weighted-average assumptions used to determine the net periodic benefit cost were as follows:



	Pension Plans						Other Postretirement Benefit Plans
	Year Ended December 31,						Year Ended December 31,
	2012		2011		2010		2012		2011		2010
Discount rate	5.21	%	5.82	%	6.16	%	5.25	%	5.80	%	6.14	%
Expected long-term rate of return on plan assets	7.00	%	7.50	%	7.50	%	n/a		n/a		n/a
Rate of compensation increase	4.05	%	4.07	%	4.56	%	n/a		n/a		n/a

The assumed health care cost trend rates were as follows:



	December 31,
	2012		2011
Health care cost trend rate assumed for next year	7.64	%	7.38	%
Rate to which the cost trend rate was assumed to decline (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reached the ultimate trend rate	2020		2018

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. We sponsor a contributory postretirement health care plan. The plan has an annual limitation (a cap) on the increase of the employer’s share of the cost of covered benefits. The cap on the increase in employer’s cost is 2.5% per year. The assumed increase in total health care cost exceeds the 2.5% indexed cap, so increasing or decreasing the health care cost trend rate by 1% does not materially change our obligation or expense for the postretirement health care plan.