EMPLOYEE BENEFIT PLANS

Pension and Other Postretirement Benefits

On March 1, 2016 and in conjunction with the Employee Transfer, we transferred to NuStar Services Co $32.7 million in benefit obligations associated with pension and other postretirement benefit plans. As a result of the Employee Transfer, our consolidated balance sheet as of December 31, 2016 no longer reflects these liabilities, which were primarily reported in “Long-term liabilities” on our consolidated balance sheet as of December 31, 2015. Additionally, we transferred an accumulated other comprehensive income balance related to the unrecognized components of net periodic benefit cost (income) of $4.2 million.

Prior to the Employee Transfer, NuStar Energy reimbursed NuStar GP, LLC for expenses incurred under these plans. Effective March 1, 2016, NuStar Services Co pays employee costs directly and assumed sponsorship and responsibility for the employee related benefit plans discussed below. As such, the information in the tables and discussion below is for the years ended December 31, 2015 and 2014, as applicable.

Thrift Plans

The NuStar Thrift Plan (the Thrift Plan) is a qualified defined contribution plan that became effective June 26, 2006. Participation in the Thrift Plan is voluntary and is open to eligible employees upon their date of hire. 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 made 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. Our matching contributions to the Thrift Plan for the years ended December 31, 2015 and 2014 totaled $6.3 million and $5.9 million, respectively.

NuStar GP, LLC also maintained 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 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 provides eligible employees with retirement income as calculated under a cash balance formula. Under the cash balance formula, benefits are determined based on age, service and interest credits, and employees become fully vested in their benefits upon attaining three years of vesting service. Prior to January 1, 2014, eligible employees were covered under either a cash balance formula or a final average pay formula (FAP). Effective January 1, 2014, the Pension Plan was amended to freeze the FAP benefits as of December 31, 2013, and going forward, all eligible employees are covered under the cash balance formula discussed above.

NuStar GP, LLC also maintained an excess pension plan (the Excess Pension Plan), which is a nonqualified deferred compensation plan that provides benefits to a select group of management or other highly compensated employees. Neither the Excess Thrift Plan nor the Excess Pension Plan is intended to constitute either a qualified plan under the provisions of Section 401 of the Code or a funded plan subject to the Employee Retirement Income Security Act.

The Pension Plan, Excess Pension Plan and the supplemental executive retirement plan (the SERP), which has no participants following final payouts in 2014, are collectively referred to as the Pension Plans in the tables and discussion below. Our other postretirement benefit plans included a contributory medical benefits plan for employees that retired prior to April 1, 2014. For employees that retire on or after April 1, 2014, we provided partial reimbursement for eligible third-party health care premiums. We use December 31 as the measurement date for pension and other postretirement plans.

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 year ended December 31, 2015 were as follows:



	Pension Plans			Other Postretirement Benefit Plans
	(Thousands of Dollars)
Change in benefit obligation:
Benefit obligation, January 1	$	106,848		$	10,484
Service cost	7,676			470
Interest cost	4,389			448
Benefits paid	(4,338		)	(507		)
Participant contributions	—			203
Actuarial gain	(5,373		)	(1,056		)
Benefit obligation, December 31	$	109,202		$	10,042
Change in plan assets:
Plan assets at fair value, January 1	$	83,365		$	—
Actual return on plan assets	645			—
Company contributions	8,034			304
Benefits paid	(4,338		)	(507		)
Participant contributions	—			203
Plan assets at fair value, December 31	$	87,706		$	—
Reconciliation of funded status:
Fair value of plan assets at December 31	$	87,706		$	—
Less: Benefit obligation at December 31	109,202			10,042
Funded status at December 31	$	(21,496	)	$	(10,042	)
Amounts recognized in the consolidated balance sheet: (a)
Accrued compensation expense	$	(71	)	$	(304	)
Long-term liabilities	(21,425		)	(9,738		)
Net pension liability	$	(21,496	)	$	(10,042	)


(a)	For the Pension Plan, since assets exceeded the present value of expected benefit payments for the following 12 months, all of the liability was noncurrent. For the Excess Pension Plan and the other postretirement benefit plans, since there were no assets, the current liability was the present value of expected benefit payments for the following 12 months; the remainder was noncurrent.

The accumulated benefit obligation is the present value of benefits earned to date, assuming no future salary increases. The aggregate accumulated benefit obligation for our Pension Plans as of December 31, 2015 was $108.2 million.

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



	Pension Plans						Other Postretirement Benefit Plans
	Year Ended December 31,						Year Ended December 31,
	2015			2014			2015			2014
	(Thousands of Dollars)
Service cost	$	7,676		$	8,049		$	470		$	374
Interest cost	4,389			4,225			448			373
Expected return on plan assets	(5,018		)	(4,574		)	—			—
Amortization of prior service credit	(2,063		)	(2,063		)	(1,145		)	(1,145		)
Amortization of net actuarial loss	1,845			179			269			114
Other	—			(39		)	—			—
Net periodic benefit cost (income)	$	6,829		$	5,777		$	42		$	(284	)

We amortized the prior service credit shown in the table above on a straight-line basis of the credit over the average remaining service period of employees expected to receive benefits under our Pension Plans and other postretirement benefit plans. We amortized the net actuarial loss shown in the table above on a straight-line basis of the excess of the unrecognized loss over 10 percent of the greater of the projected benefit obligation or market-related value of plan assets (smoothed asset value) over the average remaining service period of active employees expected to receive benefits under our Pension Plans and other postretirement benefit plans.

Adjustments recognized in other comprehensive income (loss) 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,
	2015			2014			2015			2014
	(Thousands of Dollars)
Net unrecognized gain (loss) arising during the year:
Net actuarial gain (loss)	$	1,000		$	(14,716	)	$	1,056		$	(2,718	)
Net (gain) loss reclassified into income:
Amortization of prior service credit	(2,063		)	(2,063		)	(1,145		)	(1,145		)
Amortization of net actuarial loss	1,845			179			269			114
Net (gain) loss reclassified into income	(218		)	(1,884		)	(876		)	(1,031		)

Income tax (expense) benefit	(362		)	5,314			(382		)	984
Total changes in other comprehensive income (loss)	$	420		$	(11,286	)	$	(202	)	$	(2,765	)

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



	December 31, 2015
	Pension Plans			Other Postretirement Benefit plans
	(Thousands of Dollars)
Unrecognized actuarial loss (a)	$	(21,975	)	$	(3,568	)
Prior service credit (a)	20,727			11,754
Deferred tax asset (liability)	1,313			(3,726		)
Accumulated other comprehensive income, net of tax	$	65		$	4,460


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

Investment Policies and Strategies

The investment policies and strategies for the assets of our qualified Pension Plan incorporated a well-diversified approach that was expected to earn long-term returns from capital appreciation and a growing stream of current income. This approach recognized that assets are exposed to risk, and the market value of the Pension Plan’s assets may fluctuate from year to year. Risk tolerance was 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 included a diversified portfolio of equity and fixed-income instruments. The aggregate asset allocation was reviewed on an annual basis.

The overall expected long-term rate of return on plan assets for the Pension Plan was estimated using various models of asset returns. Model assumptions were derived using historical data with the assumption that capital markets are informationally efficient. Three models were 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 was used.

Fair Value of Plan Assets

We disclosed 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, 2015
	Level 1		Level 2		Level 3		Total
	(Thousands of Dollars)
Cash equivalent securities	$	739	$	—	$	—	$	739
Equity securities:
U.S. large cap equity fund (a)	—		52,086		—		52,086
International stock index fund (b)	8,522		—		—		8,522
Fixed income securities:
Bond market index fund (c)	26,359		—		—		26,359
Total	$	35,620	$	52,086	$	—	$	87,706


(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.

Assumptions

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



	December 31, 2015
	Pension Plans		Other Postretirement Benefit Plans
Discount rate	4.61	%	4.75	%
Rate of compensation increase	3.51	%	n/a

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



	Pension Plans				Other Postretirement Benefit Plans
	Year Ended December 31,				Year Ended December 31,
	2015		2014		2015		2014
Discount rate	4.22	%	5.04	%	4.34	%	5.28	%
Expected long-term rate of return on plan assets	6.50	%	6.75	%	n/a		n/a
Rate of compensation increase	3.51	%	3.51	%	n/a		n/a

The assumed health care cost trend rates were as follows:



	December 31, 2015
Health care cost trend rate assumed for 2016	6.81	%
Rate to which the cost trend rate was assumed to decrease to (the ultimate trend rate)	5.00	%
Year that the rate reached the ultimate trend rate	2026

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. Prior to the Employee Transfer, we sponsored a contributory postretirement health care plan for employees that retired prior to April 1, 2014. The plan had 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 was 2.5% per year. The assumed increase in total health care cost exceeded the 2.5% indexed cap, so increasing or decreasing the health care cost trend rate by 1% did not materially change our obligation or expense for the postretirement health care plan.