NOTE 9 — PENSIONS AND POSTRETIREMENT BENEFITS

The ETSWDC sponsors a noncontributory defined benefit pension plan and a contributory other post-retirement benefit plan (collectively, the “Plans”) covering substantially all ETSWDC employees who were employed prior to March 31, 2008. Subsequent to March 31, 2008, the Plans were closed to new employees. The tables below set forth the benefit obligation, fair value of plan assets, and the funded status of the Plans; amounts recognized in the Partnership’s financial statements; and the principal weighted average assumptions used.

Obligation and Funded Status

The Plans have accumulated benefit obligations in excess of plan assets as shown in the table below:


		December 31, 2013
		Pension Benefits		Postretirement Benefits
Projected benefit obligation	$	23,592	$	3,922
Accumulated benefit obligation		22,724		3,922
Fair value of plan assets		20,466		1,438

The change in the combined projected benefit obligation of the Plans and the change in the assets at fair value are as follows:


	Year Ended December 31, 2013
		Pension Benefits		Postretirement Benefits
Change in Benefit Obligation
Benefit obligation at beginning of year	$	-	$	-
2013 East Texas Oil Field Acquisition		24,697		8,326
Service cost		135		29
Interest cost		429		145
Plan participant contributions		-		25
Actuarial (gain) loss		(1,136)		(4,364)
Benefits paid		(533)		(239)
Benefit obligation at end of year		23,592		3,922
Change in Plan Assets
Fair value of plan assets at beginning of year		-		-
2013 East Texas Oil Field Acquisition		19,518		1,466
Actual return on plan assets		1,127		91
Employer contributions		354		95
Plan participant contributions		-		25
Benefits paid		(533)		(239)
Fair value of plan assets at end of year		20,466		1,438
Under funded status at end of year	$	(3,126)	$	(2,484)

Amounts Recognized in the Balance Sheet

Amounts recognized in the balance sheet consist of the following:


		Pension Benefits				Postretirement Benefits
		Year Ended				Year Ended
		December 31,				December 31,
		2013		2012		2013		2012
Current liabilities	$	-	$	-	$	-	$	-
Long-term liabilities		3,126		-		2,484		-
	$	3,126	$	-	$	2,484	$	-

Components of Net Periodic Benefit Cost and Other Comprehensive Income

Net periodic benefit costs recognized in the consolidated statements of operations consist of the following for the indicated periods:


		Pension Benefits				Postretirement Benefits
		Year Ended				Year Ended
		December 31,				December 31,
		2013		2012		2013		2012
Service cost	$	135	$	-	$	29	$	-
Interest cost		429		-		145		-
Expected return on plan assets		(529)		-		(35)		-
Net periodic postretirement benefit costs	$	35	$	-	$	139		-

Amounts recognized in accumulated other comprehensive income consist of the following:


		Pension Benefits				Postretirement Benefits
		Year Ended				Year Ended
		December 31,				December 31,
		2013		2012		2013		2012
Prior service cost	$	-	$	-	$	-	$	-
Net actuarial gain:
Liability gain due to assumption change		735		-		(2,189)		-
Liability gain due to participant experience		401		-		(2,175)		-
Asset return gain		598		-		(56)		-
Net actuarial gain		1,734		-		(4,420)		-
Total	$	1,734	$	-	$	(4,420)	$	-

Estimated Future Benefit Payments

The following estimated benefit payments under the Plans, which reflect expected future service, as appropriate, are expected to be paid as follows:


		Pension Benefits		Other Benefits
2014	$	1,430	$	180
2015		1,530		240
2016		1,530		230
2017		1,590		240
2018		1,620		250
2019-2023		8,390		1,260

The ETSWDC expects to contribute approximately $1.1 million and $0.2 million to the pension and other postretirement plan, respectively, in 2014.

Assumptions

Assumptions used to determine projected postretirement benefit obligations and postretirement costs are as follows:


	Pension Benefits				Postretirement Benefits
	Year Ended				Year Ended
	December 31,				December 31,
	2013			2012	2013		2012
Discount rate	4.50		%	-	4.50	%	-
Rate of compensation increase	3.00		%	-	N/A		N/A
Health care cost trend rate:
Pre - 65 rate	N/A			N/A	7.00	%	-
Post - 65 rate	N/A			N/A	5.00	%	-
Expected long-term rates of return on plan assets	6.75	%		-	6.75	%	-

Assumptions used to determine net periodic benefit costs are as follows:


	Pension Benefits			Postretirement Benefits
	Year Ended			Year Ended
	December 31,			December 31,
	2013		2012	2013		2012
Discount rate	4.25	%	-	4.25	%	-
Expected long-term return on plan assets	6.75	%	-	5.75	%	-
Rate of compensation increase	3.50	%	-	N/A		-

Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:


	Postretirement Benefits
		1-Percentage-		1-Percentage-
		Point Increase		Point Decrease
Effect on total service and interest cost	$	26	$	22
Effect on postretirement benefit obligation		417		353

The following table presents the fair values of our pension plan assets by level within the fair value hierarchy, as of December 31, 2013


	December 31, 2013
		Level 1		Level 2		Level 3		Total
Equity securities:
Pooled Funds (1)	$	-	$	9,239	$	-	$	9,239
Fixed income securities:
Pooled Funds (2)		-		11,227		-		11,227
Total investments, at fair value	$	-	$	20,466	$	-	$	20,466

⁽¹⁾

Investments consist primarily of pooled separate accounts which focus on long-term growth of capital through U.S. and international securities.

⁽²⁾

Investments consist primarily of pooled separate accounts which focus on long-term growth of capital and preservation of equity though U.S. and international securities.

The following table presents the fair values of our postretirement benefit plan assets by level within the fair value hierarchy, as of December 31, 2013.


	December 31, 2013
		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	333	$	-	$	-	$	333
Equity securities:
Mutual Funds (1)		370		-		-		370
Fixed income securities:
Corporate bonds		735		-		-		735
Total investments, at fair value	$	1,438	$	-	$	-	$	1,438

⁽¹⁾

Investments consist primarily of mutual funds which focus on growth of capital and income maximization.

Plan Investment Policies and Strategies

The investment policies for the Plans reflect the funded status of the Plans and expectations regarding our future ability to make further contributions. Long-term investment goals are to: (1) manage the assets in accordance with the legal requirements of all applicable laws; (2) produce investment returns which meet or exceed the rates of return achievable in the capital markets while maintaining the risk parameters set by the Plans’ investment committees and protecting the assets from any erosion of purchasing power; and (3) position the portfolios with a long-term risk/return orientation.

Historical performance and future expectations suggest that common stocks will provide higher total investment returns than fixed income securities over a long-term investment horizon. Short-term investments are utilized for pension payments, expenses, and other liquidity needs. As such, the Plan’s targeted asset allocation is comprised of approximately 50 percent equity securities and approximately 50 percent high-yield bonds and other fixed income securities but may be adjusted to better match the plan's liabilities over time as the funded ratio (as defined by the investment policy) changes.

The Plans’ assets are managed by a third-party investment manager. The investment manager is limited to pursuing the investment strategies regarding asset mix and purchases and sales of securities within the parameters defined in the investment policy guidelines and investment management agreement. Investment performance and risk is measured and monitored on an ongoing basis through annual investment meetings and periodic cash flow studies.

Expected long-term return on plan assets

The overall expected long-term return on plan assets assumption is determined based on an asset rate-of-return modeling tool developed by a third-party investment group. The tool utilizes underlying assumptions based on actual returns by asset category and inflation and takes into account the Plans’ asset allocations to derive an expected long-term rate of return on those assets. Capital market assumptions reflect the long-term capital market outlook. The assumptions for equity and fixed income investments are developed using a building-block approach, reflecting observable inflation information and interest rate information available in the fixed income markets. Long-term assumptions for other asset categories are based on historical results, current market characteristics and the professional judgment of our internal and external investment teams.

Fair Value Measurements

Plan assets are measured at fair value. The following provides a description of the valuation techniques employed for each major plan asset class at December 31, 2013.

Cash and cash equivalents – Cash and cash equivalents include cash on deposit which are valued using a market approach and are considered Level 1.

Mutual funds – Investments in mutual funds are valued using a market approach. The shares or units held are traded on the public exchanges and such prices are Level 1 inputs.

Pooled funds – Investments in pooled funds are valued using a market approach at the net asset value of units held, but investment opportunities in such funds are limited to institutional investors on the behalf of defined benefit plans. The various funds consist of either an equity or fixed income investment portfolio with underlying investments held in U.S. and non-U.S. securities. Nearly all of the underlying investments are publicly-traded. The majority of the pooled funds are benchmarked against a relative public index. These are considered Level 2.

Corporate bonds – Investments in corporate bonds are valued using a market approach. Bonds are valued at the closing price reported on the active market on which the securities are traded and are considered Level 1.