(16) Retirement Plans:

The following tables provide the components of net periodic benefit cost:



	Pension Benefits				Pension Benefits
	For the three months ended				For the nine months ended
	September 30,				September 30,

	2013		2012		2013		2012
($ in thousands)
Components of net periodic pension benefit cost
Service cost	$	12,141	$	11,782	$	37,809	$	32,766
Interest cost on projected benefit obligation		18,827		19,204		56,587		58,520
Expected return on plan assets		(23,585)		(23,655)		(72,765)		(71,832)
Amortization of prior service cost /(credit)		2		(50)		6		(150)
Amortization of unrecognized loss		10,798		6,845		30,942		22,418
Net periodic pension benefit cost		18,183		14,126		52,579		41,722
Pension settlement costs		40,309		-		40,309		-
Total periodic pension benefit cost	$	58,492	$	14,126	$	92,888	$	41,722



	Postretirement Benefits				Postretirement Benefits
	Other Than Pensions (OPEB)				Other Than Pensions (OPEB)
	For the three months ended				For the nine months ended
	September 30,				September 30,

	2013		2012		2013		2012
($ in thousands)
Components of net periodic postretirement benefit cost
Service cost	$	3,088	$	2,999	$	9,446	$	8,109
Interest cost on projected benefit obligation		4,181		4,462		13,061		13,382
Expected return on plan assets		(25)		(20)		(111)		(130)
Amortization of prior service cost/(credit)		(1,526)		(2,545)		(4,576)		(7,551)
Amortization of unrecognized loss		1,695		1,831		6,151		5,653
Net periodic postretirement benefit cost	$	7,413	$	6,727	$	23,971	$	19,463

During the first nine months of 2013 and 2012, we capitalized $14.9 million and $11.7 million, respectively, of pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities. Based on current assumptions and plan asset values, we estimate that our 2013 pension and OPEB expenses will be approximately $100 million, excluding the impact of lump sum settlement accounting, as discussed below, and before amounts capitalized into the cost of capital expenditures (they were $81.6 million in 2012 before amounts capitalized into the cost of capital expenditures).

Our pension plan contains provisions that provide certain employees with the option of receiving lump sum payment upon retirement. The Company’s accounting policy is to record these payments as a settlement only if, in the aggregate, they exceed the sum of the annual service and interest costs for the plan’s net periodic pension benefit cost. During the nine months ended September 30, 2013, lump sum pension settlement payments to terminated or retired individuals amounted to $149.0 million, which exceeded the settlement threshold of $125.4 million, and as a result, the Company was required to recognize a non-cash settlement charge of $40.3 million during the third quarter of 2013. The non-cash charge was required to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the pension plan. This non-cash charge reduced our recorded net income and retained earnings, with an offset to accumulated other comprehensive loss in shareholders’ equity of Frontier. Because the cash settlement annual threshold of $125.4 million was exceeded in the third quarter, additional pension settlement charges will be required in the fourth quarter of 2013. The amount of the non-cash settlement charge to be recorded will be dependent on the level of lump sum benefit payments made in the fourth quarter of 2013. As a result of the recognition of the settlement charge in the third quarter of 2013, the net pension plan liability was remeasured as of September 30, 2013 to be $447.8 million, as compared to the $697.9 million measured and recorded at December 31, 2012. The remeasured funded status of the pension plan would be 71% as of September 30, 2013 as compared to 64% as of December 31, 2012. The Company did not record any adjustment to the pension plan liability, beyond the settlement charge, as a result of this remeasurement. The net pension liability will be remeasured and the appropriate adjustments will be recorded in the fourth quarter of 2013.

On September 12, 2013, the Company contributed three real estate properties to its qualified defined benefit pension plan. None of the buildings were under state regulation that required individual public utility commission approval. The pension plan obtained independent appraisals of the properties and, based on these appraisals, the pension plan recorded the contributions at their fair value of $18.2 million. The Company has entered into leases for the contributed properties for 15 years at a combined aggregate annual rent of approximately $1.6 million. The properties are managed on behalf of the pension plan by an independent fiduciary, and the terms of the leases were negotiated with the fiduciary on an arm’s-length basis.

The contribution and leaseback of the properties was treated as a financing transaction and, accordingly, the Company will continue to depreciate the carrying value of the properties in its financial statements and no gain or loss was recognized. An obligation of $18.2 million was recorded in our consolidated balance sheet within “Other liabilities” for $18.1 million and within “Other current liabilities” for $0.1 million and these liabilities will be reduced by a portion of the lease payments made to the pension plan.

We made total contributions to our pension plan during the nine months ended September 30, 2013 of $57.1 million, consisting of cash payments of $38.9 million and the contribution of real property with a fair value of $18.2 million, as described above. An additional real property contribution with a fair value of $5.2 million was made in October 2013, for a total contribution of $62.3 million in 2013. There are no further contributions required in 2013.

The Company’s pension plan assets have decreased from $1,253.6 million at December 31, 2012 to $1,181.1 million at September 30, 2013, a decrease of $72.5 million, or 6%. This decrease is a result of benefit payments of $194.7 million (primarily $149.0 million of lump sum settlements), offset by positive investment returns of $65.1 million, cash contributions of $38.9 million and real property contributions of $18.2 million during the first nine months of 2013.