14. EMPLOYEE BENEFIT PLANS

Defined Contribution Plans—The ARLP Partnership's eligible employees currently participate in a defined contribution profit sharing and savings plan ("PSSP") that it sponsors. The PSSP covers substantially all regular full-time employees. PSSP participants may elect to make voluntary contributions to this plan up to a specified amount of their compensation. The ARLP Partnership makes matching contributions based on a percent of an employee's eligible compensation and also makes an additional nonmatching contribution. The ARLP Partnership's contribution expense for the PSSP was approximately $18.9 million, $15.6 million and $13.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. The increases in contribution expense are primarily attributable to increased headcount and higher salaries and wages included in the matching calculation.

Defined Benefit Plan—Eligible employees at certain of the ARLP Partnership's mining operations participate in a defined benefit plan (the "Pension Plan") that it sponsors. The benefit formula for the Pension Plan is a fixed-dollar unit based on years of service. Effective during 2008, new employees of these participating operations are no longer eligible to participate in the Pension Plan, but are eligible to participate in the PSSP that the ARLP Partnership sponsors. Additionally, certain employees participating in the Pension Plan, for some of those participating operations, had the one-time option during 2008 to remain in the Pension Plan or participate in enhanced benefit provisions under the PSSP.

The following sets forth changes in benefit obligations and plan assets for the years ended December 31, 2012 and 2011 and the funded status of the Pension Plan reconciled with the amounts reported in our consolidated financial statements at December 31, 2012 and 2011, respectively (dollars in thousands):

	2012			2011

Change in benefit obligations:
Benefit obligations at beginning of year	$	73,730		$	57,278
Service cost		2,682			2,312
Interest cost		3,246			3,184
Actuarial loss		8,318			12,260
Benefits paid		(1,508	)		(1,304	)

Benefit obligations at end of year		86,468			73,730

Change in plan assets:
Fair value of plan assets at beginning of year		46,192			43,982
Employer contribution		5,029			4,860
Actual return on plan assets		5,677			(1,346	)
Benefits paid		(1,508	)		(1,304	)

Fair value of plan assets at end of year		55,390			46,192

Funded status at the end of year	$	(31,078	)	$	(27,538	)

Amounts recognized in balance sheet:
Non-current liability	$	(31,078	)	$	(27,538	)

	$	(31,078	)	$	(27,538	)

Amounts recognized in accumulated other comprehensive income consists of:
Net actuarial loss	$	(33,356	)	$	(28,620	)

Weighted-average assumptions to determine benefit obligations as of December 31,
Discount rate		3.99	%		4.49	%
Expected rate of return on plan assets		8.00	%		7.90	%
Weighted-average assumptions used to determine net periodic benefit cost for the year ended December 31,
Discount rate		4.49	%		5.56	%
Expected return on plan assets		7.90	%		8.35	%

The actuarial loss component of the change in benefit obligation in 2012 was primarily attributable to a decrease in the discount rate partially offset by an increase in the actual rate of return on plan assets compared to December 31, 2011. The actuarial loss component of the change in benefit obligation in 2011 was primarily attributable to a decrease in the discount rate and the actual rate of return on plan assets compared to December 31, 2010.

The expected long-term rate of return assumption is based on broad equity and bond indices, the investment goals and objectives, the target investment allocation and on the long-term historical rates of return for each asset class. The expected long-term rate of return used to determine the ARLP Partnership's pension liability was 8.0% based on the above factors and an asset allocation assumption of 70.0% invested in domestic equity securities with an expected long-term rate of return of 8.5%, 10.0% invested in international equities with an expected long-term rate of return of 3.3% and 20.0% invested in fixed income securities with an expected long-term rate of return of 6.0%. Expected long-term rate of return is based on a 20-year-average annual total return for each investment group. The actual return on plan assets was 14.8% and (2.7)% for the years ended December 31, 2012 and 2011, respectively.

	2012			2011			2010

	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,682		$	2,312		$	2,214
Interest cost		3,246			3,184			2,924
Expected return on plan assets		(3,882	)		(3,877	)		(3,270	)
Amortization of net loss		1,788			537			366

Net periodic benefit cost	$	3,834		$	2,156		$	2,234

	2012			2011

	(in thousands)
Other changes in plan assets and benefit obligation recognized in accumulated other comprehensive income:
Net actuarial loss	$	(6,524	)	$	(17,483	)
Reversal of amortization item:
Net actuarial loss		1,788			537

Total recognized in accumulated other comprehensive loss		(4,736	)		(16,946	)
Net periodic benefit cost		(3,834	)		(2,156	)

Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	8,570		$	19,102

Estimated future benefit payments as of December 31, 2012 are as follows (in thousands):

Year Ending December 31,

2013	$	1,814
2014		2,046
2015		2,341
2016		2,641
2017		2,967
2018 - 2022		21,171

	$	32,980

The ARLP Partnership expects to contribute $2.4 million to the Pension Plan in 2013. The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the 2013 fiscal year is $2.2 million.

On July 6, 2012, new federal legislation entitled Moving Ahead for Progress in the 21^st Century Act was passed, which includes a provision aimed at stabilizing the interest rates used to calculate pension plan liabilities for pension funding purposes. The ARLP Partnership is currently evaluating the impact of this legislation; however, it anticipate that as a result of this new legislation, it will not make any further contributions during 2013 beyond the $2.4 million noted above.

As permitted under ASC 715, Compensation—Retirement Benefits, the amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the Pension Plan.

The compensation committee of the MGP Board of Directors ("MGP Compensation Committee") maintains a Funding and Investment Policy Statement ("Policy Statement") for the Pension Plan. The Policy Statement provides that the assets of the Pension Plan be invested in a prudent manner based on the stated purpose of the Pension Plan and diversified among a broad range of investments including domestic and international equity securities, domestic fixed income securities and cash equivalents. The Pension Plan allows for the utilization of options in a "collar strategy" to limit potential exposure to market fluctuations. The investment goal of the Pension Plan is to ensure that the assets provide sufficient resources to meet or exceed the benefit obligations as determined under terms and conditions of the Pension Plan. The Policy Statement provides that the Pension Plan shall be funded by employer contributions in amounts determined in accordance with generally accepted actuarial standards. The investment objectives as established by the Policy Statement are, first, to increase the value of the assets under the Pension Plan and, second, to control the level of risk or volatility of investment returns associated with Pension Plan investments.

The ARLP Partnership had unfunded benefit obligations of approximately $31.1 million and $27.5 million at December 31, 2012 and 2011, respectively. In general, increases in benefit obligations will be offset by employer contributions and market returns. However, general market conditions may result in market losses. When the Pension Plan experiences market losses, significant variations in the funded status of the Pension Plan can, and often do, occur. Actuarial methods utilized in determining required future employer contributions take into account the long-term effect of market losses and result in increased future employer contributions, thus offsetting such market losses. Conversely, the long-term effect of market gains will result in decreased future employer contributions. Total account performance is reviewed at least annually, using a dynamic benchmark approach to track investment performance.

The MGP Compensation Committee has selected an investment manager to implement the selection and on-going evaluation of Pension Plan investments. The investments shall be selected from the following assets classes, which includes mutual funds, collective funds, or the direct investment in individual stocks, bonds or cash equivalent investments, including: (a) money market accounts, (b) U.S. Government bonds, (c) corporate bonds, (d) large, mid, and small capitalization stocks, and (e) international stocks. The Policy Statement provides the following guidelines and limitations, subject to exceptions authorized by the MGP Compensation Committee under unusual market conditions: (i) the maximum investment in any one stock should not exceed 10.0% of the total stock portfolio, (ii) the maximum investment in any one industry should not exceed 30.0% of the total stock portfolio, and (iii) the average credit quality of the bond portfolio should be at least AA with a maximum amount of non-investment grade debt of 10.0%.

The Policy Statement's asset allocation guidelines are as follows:

	Percentage of Total Portfolio

	Minimum			Target			Maximum
Domestic equity securities		50	%		70	%		90	%
Foreign equity securities		0	%		10	%		20	%
Fixed income securities/cash		5	%		20	%		40	%

Domestic equity securities primarily include investments in individual common stocks or registered investment companies that hold positions in companies that are based in the U.S. Foreign equity securities primarily include investments in individual common stocks or registered investment companies that hold positions in companies based outside the U.S. Fixed income securities primarily include individual bonds or registered investment companies that hold positions in U.S. Treasuries, U.S. government obligations, corporate bonds, mortgage-backed securities and preferred stocks. Short-term market conditions may result in actual asset allocations that fall outside the minimum or maximum guidelines reflected in the Policy Statement.

Asset allocations as of December 31,

Domestic equity securities	64	%	64	%
Foreign equity securities	16	%	16	%
Fixed income securities/cash	20	%	20	%

	100	%	100	%

The ARLP Partnership considers multiple factors in its investment strategy. The following factors have been taken into consideration with respect to the Pension Plan's long-term investment goals and objectives and in the establishment of the Pension Plan's target investment allocation:

•

The long-term nature of providing retirement income benefits to Pension Plan participants;

•

The projected annual funding requirements necessary to meet the benefit obligations;

•

The current level of benefit payments to Pension Plan participants and beneficiaries; and

•

Ongoing analysis of economic conditions and investment markets.

As required by FASB ASC 715, the following information discloses the fair values of the Pension Plan assets, by asset category, for the periods indicated (in thousands):

	December 31, 2012							December 31, 2011

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	652	$	—		$	—	$	467	$	—		$	—
Equity securities(a):
U.S. large-cap growth		6,210		—			—		5,404		—			—
U.S. large-cap value		8,219		—			—		6,744		—			—
Fixed income securities:
U.S. Treasury securities(b)		1,781		—			—		1,815		—			—
Corporate bonds(c)		—		2,266			—		—		2,093			—
Taxable municipal bonds(c)		—		202			—		—		315			—
International bonds(c)		—		579			—		—		528			—
Equity mutual funds(d):
U.S. large-cap growth		—		3,458			—		—		3,902			—
U.S. large-cap value		—		1,661			—		—		2,628			—
U.S. large-cap blend		—		2,180			—		—		—			—
U.S. mid-cap growth		—		4,497			—		—		3,688			—
U.S. mid-cap value		—		4,439			—		—		3,782			—
U.S. small-cap growth		—		1,099			—		—		1,887			—
U.S. small-cap value		—		1,158			—		—		1,907			—
U.S. small-cap blend		—		2,232			—		—		—			—
International		—		5,185			—		—		5,513			—
International small/mid-cap blend		—		1,686			—		—		—			—
Emerging Markets		—		2,241			—		—		1,849			—
Fixed income mutual funds(d):
Corporate bond		—		799			—		—		602			—
Mortgage backed-securities		—		1,265			—		—		1,037			—
Short term investment grade bond		—		1,673			—		—		—			—
Intermediate investment grade bond		—		1,023			—		—		1,444			—
High yield bond		—		553			—		—		515			—
International bond		—		262			—		—		242			—
Stock market index options(e):
Puts		—		63			—		—		116			—
Calls		—		(53	)		—		—		(361	)		—
Accrued income(f)		—		60			—		—		75			—

Total	$	16,862	$	38,528		$	—	$	14,430	$	31,762		$	—

(a): Equity securities include investments in publicly-traded common stock and preferred stock. Publicly-traded common stocks are traded on a national securities exchange and investments in common and preferred stocks are valued using quoted market prices multiplied by the number of shares owned.
(b): U.S. Treasury securities include agency and treasury debt. These investments are valued using dealer quotes in an active market.
(c): Bonds are valued utilizing a market approach that includes various valuation techniques and sources such as value generation models, broker quotes in active and non-active markets, benchmark yields and securities, reported trades, issuer spreads, and/or other applicable reference data. The corporate bonds and notes category is primarily comprised of U.S. dollar denominated, investment grade securities. Less than 5 percent of the securities have a rating below investment grade.
(d): Mutual funds are valued daily in actively traded markets by an independent custodian for the investment manager. For purposes of calculating the value, portfolio securities and other assets for which market quotes are readily available are valued at market value. Market value is generally determined on a basis of last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services. Investments initially valued in currencies other than the U.S. dollars are converted to the U.S. dollar using exchange rates obtained from pricing services.
(e): Options are valued utilizing a market approach that includes various valuation techniques and sources such as value generation models, broker quotes in active and non-active markets, reported trades, issuer spreads, and/or other applicable reference data.
(f): Accrued income represents dividends declared, but not received, on equity securities owned at December 31, 2012.

Pension Plan assets for which the fair value is based on quoted prices in active markets for identical assets are considered to be valued with Level 1 inputs in the fair value hierarchy. Pension Plan assets for which the fair value is based on quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active are considered to be valued with Level 2 inputs in the fair value hierarchy.