18.ACCRUED WORKERS’ COMPENSATION AND PNEUMOCONIOSIS BENEFITS

Certain of the ARLP Partnership’s mine operating entities are liable under state statutes and the Federal Coal Mine Health and Safety Act of 1969, as amended, to pay pneumoconiosis, or black lung, benefits to eligible employees and former employees and their dependents. In addition, the ARLP Partnership is liable for workers’ compensation benefits for traumatic injuries. Both black lung and traumatic claims are covered through the ARLP Partnership’s self-insured programs.

The ARLP Partnership’s black lung benefits liability is calculated using the service cost method that considers the calculation of the actuarial present value of the estimated black lung obligation. The ARLP Partnership’s actuarial calculations are based on numerous assumptions including disability incidence, medical costs, mortality, death benefits, dependents and interest rates. Actuarial gains or losses are amortized over the remaining service period of active miners.

The ARLP Partnership provides income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. Workers’ compensation laws also compensate survivors of workers who suffer employment related deaths. The ARLP Partnership’s liability for traumatic injury claims is the estimated present value of current workers’ compensation benefits, based on its actuarial estimates. The ARLP Partnership’s actuarial calculations are based on a blend of actuarial projection methods and numerous assumptions including claim development patterns, mortality, medical costs and interest rates. The discount rate used to calculate the estimated present value of future obligations for black lung was 4.16%, 3.82% and 4.69% at December 31, 2015, 2014 and 2013, respectively, and for workers’ compensation was 3.63%, 3.41% and 4.11% at December 31, 2015, 2014 and 2013, respectively.

The black lung and workers’ compensation expense consists of the following components for the year ended December 31, 2015, 2014 and 2013:

	2015		2014		2013
			(in thousands)
Black lung benefits:
Service cost	$	3,081	$	3,424	$	3,810
Interest cost	2,094		2,262		2,253
Net amortization	(451)		(1,051)		670

Total black lung	4,724		4,635		6,733
Workers’ compensation expense (benefit)	9,759		7,776		(110)

Total expense	$	14,483	$	12,411	$	6,623

The following is a reconciliation of the changes in the black lung benefit obligation recognized in AOCI for the years ended December 31, 2015, 2014 and 2013:

	2015		2014		2013
			(in thousands)

Net actuarial (loss) gain	$	(750)	$	(2,029)	$	16,750
Reversal of amortization item:
Net actuarial (gain) loss	(451)		(1,051)		670

Total recognized in accumulated other comprehensive income (loss)	$	(1,201)	$	(3,080)	$	17,420

The following is a reconciliation of the changes in workers’ compensation liability (including current and long-term liability balances) at December 31, 2015 and 2014:

	2015		2014
	(in thousands)

Beginning balance	$	57,557	$	62,909
Accruals	13,220		14,978
Payments	(8,906)		(10,563)
Interest accretion	1,954		2,585
Valuation gain	(9,267)		(12,352)


Ending balance	$	54,558	$	57,557

The valuation gain component of the change in benefit obligation in 2015 was primarily attributable to favorable changes in claims development and an increase in the discount rate used to calculate the estimated present value of future obligations. The 2014 valuation gain was primarily attributable to favorable reserve adjustments for claims incurred in prior years partially offset by a decrease in the discount rate used to calculate the estimated present value of future obligations.

The following is a reconciliation of the changes in black lung benefit obligations at December 31, 2015 and 2014:

	2015		2014
	(in thousands)

Benefit obligations at beginning of year	$	56,386	$	49,560
Service cost	3,081		3,424
Interest cost	2,094		2,262
Actuarial loss	750		2,029
Acquisition	790		-
Benefits and expenses paid	(1,408)		(889		)


Benefit obligations at end of year	$	61,693	$	56,386

	2015		2014		2013
			(in thousands)
Amount recognized in accumulated other comprehensive income consist of:
Net actuarial (gain) loss	$	(4,230)	$	(5,431)	$	(8,511)

The actuarial loss component of the change in benefit obligations in 2015 was primarily attributable to unfavorable changes in anticipated claims development and filing assumptions and higher expected claim benefit costs partially offset by an increase in the discount rate used to calculate the estimated present value of future obligations. The actuarial loss component of the change in benefit obligations in 2014 was primarily attributable to a decrease in the discount rate used to calculate the estimated present value of future obligations as well as unfavorable changes in claims development and disability incident rate assumptions.

Summarized below is information about the amounts recognized in the accompanying consolidated balance sheets for black lung and workers’ compensation benefits at December 31, 2015 and 2014:

	2015		2014
	(in thousands)

Black lung claims	$	61,693	$	56,386
Workers’ compensation claims	54,558		57,557

Total obligations	116,251		113,943
Less current portion	(8,688)		(8,868		)


Non-current obligations	$	107,563	$	105,075

Both the black lung and workers’ compensation obligations were unfunded at December 31, 2015 and 2014.

As of December 31, 2015 and 2014, the ARLP Partnership had $90.0 million and $79.3 million, respectively, in surety bonds and letters of credit outstanding to secure workers’ compensation obligations.