PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:

Pension

CONSOL Energy has non-contributory defined benefit retirement plans. Effective December 31, 2015, CONSOL Energy's qualified defined benefit retirement plan was frozen. The benefits for these plans are based primarily on years of service and employees' pay. CONSOL Energy's qualified pension plan allows for lump-sum distributions of benefits earned up until December 31, 2005, at the employees' election. Pursuant to a separation and distribution agreement entered into by and between CONSOL Energy Inc. (now known as CNX Resources Corporation (“CNX”)) and CONSOL Mining Corporation (now known as CONSOL Energy Inc. (“CEIX”)) dated November 28, 2017, and related ancillary agreements (the “Transaction Agreements”), the sponsorship of the qualified pension plan was transferred to CEIX.

On August 31, 2015, the qualified pension plan was remeasured to reflect an announced plan amendment that reduced accruals of pension benefits as of January 1, 2016. The plan amendment called for a hard freeze of the qualified defined benefit pension plan on January 1, 2016 for all remaining participants in the plan. The modifications to the pension plan resulted in a $26,352 reduction in the pension liability. The amendment resulted in a remeasurement of the qualified pension plan at August 31, 2015, which increased the pension liability by $17,793.

In the third quarter of 2015, CONSOL Energy remeasured its pension plan as a result of the previously discussed plan amendment. In conjunction with this remeasurement, the method used to estimate the service and interest components of net periodic benefit cost for pension was changed. This change was also made to other postretirement benefits in the fourth quarter during the annual remeasurement of that plan. This change, compared to the previous method, resulted in a decrease in the service and interest components for pension cost in the third quarter. Historically, these service and interest cost components have been estimated utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. CONSOL Energy elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. This change was made to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change was immaterial to CONSOL Energy's financial statements. CONSOL Energy accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and, accordingly, accounted for it prospectively.

According to the Defined Benefit Plans Topic of the FASB Accounting Standards Codification, if the lump sum distributions made during a plan year, which for CONSOL Energy is January 1 to December 31, exceed the total of the projected service cost and interest cost for the plan year, settlement accounting is required. Lump sum payments exceeded this threshold during the years ended December 31, 2017, 2016, and 2015. Accordingly, CONSOL Energy recognized settlement expense of $10,153, $22,196, and $19,053 for the years ended December 31, 2017, 2016 and 2015 respectively, in Operating and Other Costs in the Consolidated Statements of Income.

Other Postretirement Benefit Plans

Certain subsidiaries of CONSOL Energy provide medical and prescription drug benefits to retired employees covered by the Coal Industry Retiree Health Benefit Act of 1992 (the Coal Act). Represented hourly employees are eligible to participate based upon the terms of the National Bituminous Coal Wage Agreement of 2011.

On May 31, 2015, the Salaried OPEB and P&M OPEB plans were remeasured to reflect another plan amendment which eliminated Salaried and P&M OPEB benefits at December 31, 2015. The amendment to the OPEB plans resulted in a $43,598 reduction in the OPEB liability. The amendment also resulted in a remeasurement of the OPEB plan at May 31, 2015, which decreased the liability by $1,070. CONSOL Energy recognized income of $235,541 related to amortization of prior service credits, coupled with recognition of actuarial losses in Operating and Other Costs in the Consolidated Statements of Income for the year ended December 31, 2015 as a result of the changes made to the Salaried and P&M OPEB plans.

The Company implemented cost containment changes related to pharmacy benefits on January 1, 2017 and increased member responsibility when using out-of-network providers and facilities effective March 27, 2017. These plan design changes resulted in a $28,164 reduction in the OPEB liability during the year ended December 31, 2016.

The reconciliation of changes in the benefit obligation, plan assets and funded status of these plans at December 31, 2017 and 2016 is as follows:



	Pension Benefits						Other Postretirement Benefits
	at December 31,						at December 31,
	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of period	$	735,177		$	751,617		$	700,085		$	671,755
Service cost	2,948			1,533			—			—
Interest cost	25,265			25,048			23,945			24,241
Actuarial loss (gain)	35,281			46,885			(101,379		)	77,640
Plan amendments	—			—			—			(28,164		)
Plan settlements	(29,142		)	(54,197		)	—			—
Benefits and other payments	(35,539		)	(35,709		)	(31,088		)	(45,387		)
Benefit obligation at end of period	$	733,990		$	735,177		$	591,563		$	700,085

Change in plan assets:
Fair value of plan assets at beginning of period	$	632,434		$	669,039		$	—		$	—
Actual return on plan assets	110,311			50,575			—			—
Company contributions	1,181			2,726			31,088			45,387
Benefits and other payments	(35,539		)	(35,709		)	(31,088		)	(45,387		)
Plan settlements	(29,142		)	(54,197		)	—			—
Fair value of plan assets at end of period	$	679,245		$	632,434		$	—		$	—

Funded status:
Current liabilities	$	(1,785	)	$	(2,871	)	$	(37,464	)	$	(40,611	)
Noncurrent liabilities	(52,960		)	(99,872		)	(554,099		)	(659,474		)
Net obligation recognized	$	(54,745	)	$	(102,743	)	$	(591,563	)	$	(700,085	)

Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$	243,456		$	295,152		$	301,901		$	426,392
Prior service credit	(869		)	(1,372		)	(25,759		)	(28,164		)
Net amount recognized (before tax effect)	$	242,587		$	293,780		$	276,142		$	398,228

The components of net periodic benefit cost are as follows:



	Pension Benefits									Other Postretirement Benefits
	For the Years Ended December 31,									For the Years Ended December 31,
	2017			2016			2015			2017			2016		2015
Components of net periodic benefit cost:
Service cost	$	2,948		$	1,533		$	8,256		$	—		$	—	$	—
Interest cost	25,265			25,048			31,655			23,945			24,241		27,238
Expected return on plan assets	(42,383		)	(46,674		)	(51,528		)	—			—		—
Amortization of prior service credits	(502		)	(502		)	(579		)	(2,405		)	—		(336,327		)
Recognized net actuarial loss	8,896			9,163			20,870			23,112			19,168		102,875
Curtailment loss	—			—			5			—			—		—
Settlement loss (gain)	10,153			22,196			19,053			—			—		(8,932		)
Net periodic benefit cost (credit)	$	4,377		$	10,764		$	27,732		$	44,652		$	43,409	$	(215,146	)

Amounts included in accumulated other comprehensive loss which are expected to be recognized in 2018 net periodic benefit costs:



				Other
	Pension			Postretirement
	Benefits			Benefits
Prior service credit recognition	$	(502	)	$	(2,405	)
Actuarial loss recognition	$	8,715		$	16,205

CONSOL Energy utilizes a corridor approach to amortize actuarial gains and losses that have been accumulated under the Pension Plan. Cumulative gains and losses that are in excess of 10% of the greater of either the projected benefit obligation (PBO) or the market-related value of plan assets are amortized over the expected remaining future lifetime of all plan participants for the Pension Plan.

CONSOL Energy also utilizes a corridor approach to amortize actuarial gains and losses that have been accumulated under the OPEB Plan. Cumulative gains and losses that are in excess of 10% of the greater of either the accumulated postretirement benefit obligation (APBO) or the market-related value of plan assets are amortized over the average future remaining lifetime of the current inactive population for the OPEB plan.

The following table provides information related to pension plans with an accumulated benefit obligation in excess of plan assets:



	As of December 31,
	2017		2016
Projected benefit obligation	$	733,990	$	735,177
Accumulated benefit obligation	$	733,949	$	733,542
Fair value of plan assets	$	679,245	$	632,434

Assumptions:

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



	Pension Benefits				Other Postretirement Benefits
	at December 31,				at December 31,
	2017		2016		2017		2016
Discount rate	3.65	%	4.31	%	3.65	%	4.22	%
Rate of compensation increase	3.73	%	3.90	%	—		—

The discount rates are determined using a Company-specific yield curve model (above-mean) developed with the assistance of an external actuary. The Company-specific yield curve models (above-mean) use a subset of the expanded bond universe to determine the Company-specific discount rate. Bonds used in the yield curve are rated AA by Moody's or Standard & Poor's as of the measurement date. The yield curve models parallel the plans' projected cash flows, and the underlying cash flows of the bonds included in the models exceed the cash flows needed to satisfy the Company's plans.

The weighted-average assumptions used to determine net periodic benefit costs are as follows:



	Pension Benefits						Other Postretirement Benefits
	For the Years Ended						For the Years Ended
	December 31,						December 31,
	2017		2016		2015		2017		2016		2015
Discount rate	4.27	%	4.52	%	4.07	%	4.22	%	4.50	%	4.03	%
Expected long-term return on plan assets	6.90	%	7.25	%	7.75	%	—		—		—
Rate of compensation increase	3.90	%	3.80	%	3.80	%	—		—		—

The long-term rate of return is the sum of the portion of total assets in each asset class held multiplied by the expected return for that class, adjusted for expected expenses to be paid from the assets. The expected return for each class is determined using the plan asset allocation at the measurement date and a distribution of compound average returns over a twenty year time horizon. The model uses asset class returns, variances and correlation assumptions to produce the expected return for each portfolio. The return assumptions used forward-looking gross returns influenced by the current Treasury yield curve. These returns recognize current bond yields, corporate bond spreads and equity risk premiums based on current market conditions.

The assumed health care cost trend rates are as follows:



	At December 31,
	2017		2016
Health care cost trend rate for next year	6.06	%	6.31	%
Rate to which the cost trend is assumed to decline (ultimate trend rate)	4.50	%	4.50	%
Year that the rate reaches ultimate trend rate	2038		2038

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



	1 Percentage		1 Percentage
	Point Increase		Point Decrease
Effect on total of service and interest cost components	$	3,536	$	(2,962	)
Effect on accumulated postretirement benefit obligation	$	71,922	$	(60,924	)

Plan Assets:

The Company’s overall investment strategy is to meet current and future benefit payment needs through diversification across asset classes, fund strategies and fund managers to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation. Consistent with the objectives of the Pension Trust and in consideration of the Trust’s current funded status and the current level of market interest rates, the Retirement Board, as appointed by the CONSOL Energy Board of Directors (the “Retirement Board”) has approved an asset allocation strategy that will change over time in response to future improvements in the Trust’s funded status and/or changes in market interest rates. Such changes in asset allocation strategy are intended to allocate additional assets to the fixed income asset class should the Trust’s funded status improve. In this framework, the current target allocation for plan assets is 26% U.S. equity securities, 16.5% non-U.S. equity securities, 7.5% global equity securities and 50% fixed income. Both the equity and fixed income portfolios are comprised of both active and passive investment strategies. The Trust is primarily invested in Mercer Common Collective Trusts. Equity securities consist of investments in large and mid/small cap companies; non-U.S. equities are derived from both developed and emerging markets. Fixed income securities consist of U.S. as well as international instruments, including emerging markets. The core domestic fixed income portfolios invest in government, corporate, asset-backed securities and mortgage-backed obligations. The average quality of the fixed income portfolio must be rated at least “investment grade” by nationally recognized rating agencies. Within the fixed income asset class, investments are invested primarily across various strategies such that the overall profile strongly correlates with the interest rate sensitivity of the Trust’s liabilities in order to reduce the volatility resulting from the risk of changes in interest rates and the impact of such changes on the Trust’s overall financial status. Derivatives, interest rate swaps, options and futures are permitted investments for the purpose of reducing risk and to extend the duration of the overall fixed income portfolio; however, they may not be used for speculative purposes. All or a portion of the assets may be invested in mutual funds or other commingled vehicles so long as the pooled investment funds have an adequate asset base relative to their asset class; are invested in a diversified manner; and have management and/or oversight by an Investment Advisor registered with the SEC. The Retirement Board reviews the investment program on an ongoing basis including asset performance, current trends and developments in capital markets, changes in Trust liabilities and ongoing appropriateness of the overall investment policy.

The fair values of plan assets at December 31, 2017 and 2016 by asset category are as follows:



	Fair Value Measurements at December 31, 2017								Fair Value Measurements at December 31, 2016
			Quoted								Quoted
			Prices in								Prices in
			Active								Active
			Markets for		Significant		Significant				Markets for		Significant		Significant
			Identical		Observable		Unobservable				Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Asset Category
Cash/Accrued Income	$	5,202	$	5,202	$	—	$	—	$	639	$	639	$	—	$	—
US Equities (a)	12		12		—		—		11		11		—		—
Mercer Common Collective Trusts (b)	674,031		—		—		—		631,784		—		—		—
Total	$	679,245	$	5,214	$	—	$	—	$	632,434	$	650	$	—	$	—

__________


(a)	This category includes investments in US common stocks and corporate debt.


(b)	Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the total.

There are no investments in CONSOL Energy stock held by these plans at December 31, 2017 or 2016.

There are no assets in the other postretirement benefit plans at December 31, 2017 or 2016.

Cash Flows:

If necessary, CONSOL Energy intends to contribute to the pension trust using prudent funding methods. However, the Company does not expect to contribute to the pension plan trust in 2018. Pension benefit payments are primarily funded from the Pension Trust. CONSOL Energy expects to pay benefits of $1,785 from the non-qualified pension plan in 2018. CONSOL Energy does not expect to contribute to the other postemployment plan in 2018 and intends to pay benefit claims as they are due.

The following benefit payments, reflecting expected future service, are expected to be paid:



			Other
	Pension		Postretirement
	Benefits		Benefits
2018	$	44,778	$	37,464
2019	$	44,035	$	37,163
2020	$	43,117	$	37,071
2021	$	42,124	$	36,862
2022	$	42,644	$	36,228
Year 2023-2027	$	206,682	$	172,756