13. 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 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 non-matching contribution. The ARLP Partnership's contribution expense for the PSSP was approximately $18.2 million, $22.6 million and $21.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.

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 Pension Plan is currently closed to new applicants and effective January 31, 2017, participants within the Pension Plan ("Participants") are no longer receiving benefit accruals for service. The amendment did not affect pension benefits accrued prior to January 31, 2017. All Participants can participate in enhanced provisions under the PSSP. The benefit formula for the Pension Plan is a fixed-dollar unit based on years of service.

The following sets forth changes in benefit obligations and plan assets for the years ended December 31, 2016 and 2015 and the funded status of the Pension Plan reconciled with the amounts reported in our consolidated financial statements at December 31, 2016 and 2015, respectively:


	2016		2015
	(dollars in thousands)
Change in benefit obligations:
Benefit obligations at beginning of year	$	107,476	$	109,626
Service cost		2,205		2,473
Interest cost		4,493		4,296
Actuarial (gain) loss		901		(6,420)
Benefits paid		(3,091)		(2,499)
Plan amendments		1,498		—
Benefit obligations at end of year		113,482		107,476

Change in plan assets:
Fair value of plan assets at beginning of year		68,445		69,521
Employer contribution		2,608		3,116
Actual return on plan assets		3,450		(1,693)
Benefits paid		(3,091)		(2,499)
Fair value of plan assets at end of year		71,412		68,445
Funded status at the end of year	$	(42,070)	$	(39,031)

Amounts recognized in balance sheet:
Non-current liability	$	(42,070)	$	(39,031)
	$	(42,070)	$	(39,031)

Amounts recognized in accumulated other comprehensive income consists of:
Prior service credit	$	(1,498)	$	—
Net actuarial loss		(38,424)		(38,787)
	$	(39,922)	$	(38,787)

Weighted-average assumptions to determine benefit obligations as of December 31,
Discount rate		4.06%		4.27%
Expected rate of return on plan assets		7.00%		7.50%

Weighted-average assumptions used to determine net periodic benefit cost for the year ended December 31,
Discount rate		4.27%		3.92%
Expected return on plan assets		7.50%		8.00%

The actuarial loss component of the change in benefit obligation in 2016 was primarily attributable to a decrease in the discount rate compared to December 31, 2015 offset in part by improved life expectancies and updated retirement and withdrawal rate estimates. The actuarial gain component of the change in benefit obligation in 2015 was primarily attributable to an increase in the discount rate compared to December 31, 2014 and the adoption of newly issued mortality tables reflecting improved life expectancies offset in part by updated retirement and withdrawal rate estimates.

The expected long-term rate of return used to determine the pension liability is based on a 1.5% active management premium in addition to an asset allocation assumption of:


		Expected long-
	Asset allocation	term rate of
As of December 31, 2016	assumption	return
Domestic equity securities	70%	6.4%
Foreign equity securities	10%	6.8%
Fixed income securities/cash	20%	3.0%
	100%

The actual return on plan assets was 5.9% and (2.0%) for the years ended December 31, 2016 and 2015, respectively.


	2016		2015		2014
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,205	$	2,473	$	2,174
Interest cost		4,493		4,296		4,074
Expected return on plan assets		(5,138)		(5,590)		(5,475)
Amortization of net loss		2,952		3,354		773
Net periodic benefit cost	$	4,512	$	4,533	$	1,546


	2016		2015
	(in thousands)
Other changes in plan assets and benefit obligation recognized in accumulated other comprehensive income:
Prior service credit	$	(1,498)	$	—
Net actuarial loss		(2,589)		(863)
Reversal of amortization item:
Net actuarial loss		2,952		3,354
Total recognized in accumulated other comprehensive income (loss)		(1,135)		2,491
Net periodic benefit cost		(4,512)		(4,533)
Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	(5,647)	$	(2,042)

Estimated future benefit payments as of December 31, 2016 are as follows:


Year Ended
December 31,	(in thousands)

2017	$	3,332
2018		3,733
2019		4,112
2020		4,531
2021		4,889
2022-2026		28,766
	$	49,363

The ARLP Partnership expects to contribute $3.3 million to the Pension Plan in 2017. The estimated net actuarial loss for the Pension Plan that will be amortized from AOCI into net periodic benefit cost during the 2017 fiscal year is $3.1 million.

The MGP Compensation Committee has appointed an investment manager with full investment authority with respect to Pension Plan investments subject to investment guidelines and compliance with ERISA or other applicable laws. The investment manager employs a series of asset allocation strategy phases to glide the portfolio risk commensurate with both plan characteristics and market conditions. The objective of the allocation policy is to reach and maintain fully funded status. The total portfolio allocation will be adjusted as the funded ratio of the Pension Plan changes and market conditions warrant. The target allocation includes investments in equity and fixed income commingled investment funds. Total account performance is reviewed at least annually, using a dynamic benchmark approach to track investment performance. General asset allocation guidelines at December 31, 2016 are as follows:


	Percentage of Total Portfolio
	Minimum	Target	Maximum

Equity securities	45%	62%	80%
Fixed income securities	10%	33%	55%
Real estate	0%	5%	10%

Equity securities include domestic equity securities, developed international securities, emerging markets equity securities and real estate investment trust. Fixed income securities include domestic and international investment grade fixed income securities, high yield securities and emerging markets fixed income securities. Fixed income futures may also be utilized within the fixed income securities asset allocation.

The following information discloses the fair values of the Pension Plan assets, by asset category, for the periods indicated:


	December 31, 2016								December 31, 2015
	Level 1 (a)		Level 2 (a)		Level 3 (a)		Total		Level 1 (a)		Level 2 (a)		Level 3 (a)		Total
		(in thousands)
Cash and cash equivalents	$	1,137	$	—	$	—	$	1,137	$	883	$	—	$	—	$	883
Equity securities (b):
U.S. large-cap growth		—		—		—		—		17,977		—		—		17,977
U.S. large-cap value		—		—		—		—		17,635		—		—		17,635
U.S. small/mid-cap blend		—		—		—		—		7,609		—		—		7,609
International large-cap core		—		—		—		—		3,257		—		—		3,257
Fixed income securities:
U.S. Treasury securities (c)		—		—		—		—		1,234		—		—		1,234
Corporate bonds (d)		—		—		—		—		—		1,938		—		1,938
Preferred stock		—		—		—		—		—		—		—		—
Taxable municipal bonds (d)		—		—		—		—		—		182		—		182
International bonds (d)		—		—		—		—		—		319		—		319
Equity mutual funds (e):
U.S. mid-cap growth		—		—		—		—		—		4,948		—		4,948
International		—		—		—		—		—		3,322		—		3,322
Fixed income mutual funds (e):
Corporate bond		—		—		—		—		—		4,668		—		4,668
Mortgage backed-securities		—		—		—		—		—		1,277		—		1,277
Short term investment grade bond		—		—		—		—		—		1,322		—		1,322
Intermediate investment grade bond		—		—		—		—		—		801		—		801
High yield bond		—		—		—		—		—		693		—		693
International bond		—		—		—		—		—		226		—		226
Stock market index options (f):
Puts		—		—		—		—		143		—		—		143
Calls		—		—		—		—		(54)		—		—		(54)
Accrued income (g)		—		—		—		—		—		65		—		65
	$	1,137	$	—	$	—		1,137	$	48,684	$	19,761	$	—		68,445

Commingled investment funds measured at net asset value (h):
Equities - U.S. large-cap								21,082								—
Equities - U.S. small-cap								6,531								—
Equities - International developed markets								11,074								—
Equities - International emerging markets								4,614								—
Fixed income - Investment grade								16,823								—
Fixed income - High yield								4,543								—
Real estate								4,259								—
Other								1,349								—
Total							$	71,412							$	68,445

(a)

See Note 2 – Summary of Significant Accounting Policies – Fair Value Measurements for more information regarding the definitions of fair value hierarchy levels.

(b)

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.

(c)

U.S. Treasury securities include agency and treasury debt. These investments are valued using dealer quotes in an active market.

(d)

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.

(e)

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.

(f)

Options are valued utilizing quotes in active markets.

(g)

Accrued income represents dividends declared, but not received, on equity securities owned at December 31, 2016 and 2015.

(h)

Investments measured at fair value using the net asset value per share (or its equivalent) have not been classified within the fair value hierarchy. The fair values of all commingled investment funds are determined based on the net asset values per unit of each of the funds. The net asset values per unit represent the aggregate value of the fund's assets at fair value less liabilities, divided by the number of units outstanding.

See Note 2 – Summary of Significant Accounting Policies for more information on our accounting policy for pension benefits.