(18) Retirement Plans:

We sponsor a noncontributory defined benefit pension plan covering a significant number of our former and current employees and other postretirement benefit plans that provide medical, dental, life insurance and other benefits for covered retired employees and their beneficiaries and covered dependents. The pension plan and postretirement benefit plans are closed to the majority of our newly hired employees. The benefits are based on years of service and final average pay or career average pay. Contributions are made in amounts sufficient to meet ERISA funding requirements while considering tax deductibility. Plan assets are invested in a diversified portfolio of equity and fixed-income securities and alternative investments.

The accounting results for pension and other postretirement benefit costs and obligations are dependent upon various actuarial assumptions applied in the determination of such amounts. These actuarial assumptions include the following: discount rates, expected long-term rate of return on plan assets, future compensation increases, employee turnover, healthcare cost trend rates, expected retirement age, optional form of benefit and mortality. We review these assumptions for changes annually with our independent actuaries. We consider our discount rate and expected long-term rate of return on plan assets to be our most critical assumptions.

The discount rate is used to value, on a present value basis, our pension and other postretirement benefit obligations as of the balance sheet date. The same rate is also used in the interest cost component of the pension and postretirement benefit cost determination for the following year. The measurement date used in the selection of our discount rate is the balance sheet date. Our discount rate assumption is determined annually with assistance from our independent actuaries based on the pattern of expected future benefit payments and the prevailing rates available on long-term, high quality corporate bonds that approximate the benefit obligation.

As of December 31, 2018, 2017 and 2016, we utilized an estimation technique that is based upon a settlement model (Bond:Link) that permits us to closely match cash flows to the expected payments to participants. This rate can change from year-to-year based on market conditions that affect corporate bond yields.

As a result of the technique described above, Frontier is utilizing a discount rate of 4.30% as of December 31, 2018 for its qualified pension plan, compared to rates of 3.70% and 4.10% in 2017 and 2016, respectively. The discount rate for postretirement plans as of December 31, 2018 was a range of 4.30% to 4.40% compared to a range of 3.70% to 3.80% in 2017 and 4.10% to 4.30% in 2016.

The Pension Plan contains provisions that provide certain employees with the option of receiving a lump sum payment upon retirement. Frontier’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 Pension Plan’s net periodic pension benefit cost. During year ended December 31, 2018, lump sum pension settlement payments to terminated or retired individuals amounted to $254 million, which exceeded the settlement threshold of $216 million, and as a result, Frontier recognized non-cash settlement charges totaling $41 million during 2018. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the Pension Plan. These non-cash charges increased our recorded net loss and accumulated deficit, with an offset to accumulated other comprehensive loss in shareholders’ equity.

Our Pension Plan assets decreased from $2,674 million at December 31, 2017 to $2,348 million at December 31, 2018, a decrease of $326 million, or 12%. This decrease was a result of benefit payments of $317 million inclusive of lump sum payments and investment management and administrative fees, partially offset by contributions of $150 million and negative investment returns of $159 million.

The expected long-term rate of return on plan assets is applied in the determination of periodic pension and postretirement benefit cost as a reduction in the computation of the expense. In developing the expected long-term rate of return assumption, we considered published surveys of expected market returns, 10 and 20 year actual returns of various major indices, and our own historical 5 year, 10 year and 20 year investment returns. The expected long-term rate of return on plan assets is based on an asset allocation assumption of 40% in long-duration fixed income securities, and 60% in equity securities and other investments. We review our asset allocation at least annually and make changes when considered appropriate. Our pension asset investment allocation decisions are made by the Retirement Investment & Administration Committee (RIAC), a committee comprised of members of management, pursuant to a delegation of authority by the Board of Directors. Asset allocation decisions take into account expected market return assumptions of various asset classes as well as expected pension benefit payment streams. When analyzing anticipated benefit payments, management considers both the absolute amount of the payments as well as the timing of such payments. Our expected long-term rate of return on plan assets was 7.50% in 2018 and 2017. For 2019, we will assume a rate of return of 7.50%. Our pension plan assets are valued at fair value as of the measurement date. The measurement date used to determine pension and other postretirement benefit measures for the pension plan and the postretirement benefit plan is December 31. The remeasured funded status of the Pension Plan was approximately 74%, as of December 31, 2018.

Pension Benefits

The following tables set forth the pension plan’s projected benefit obligations, fair values of plan assets and the pension benefit liability recognized on our consolidated balance sheets as of December 31, 2018 and 2017 and the components of total pension benefit cost for the years ended December 31, 2018, 2017 and 2016:



($ in millions)	2018		2017

Change in projected benefit obligation (PBO)
PBO at beginning of year	$	3,363	$	3,465
Service cost		90		97
Interest cost		125		127
Actuarial (gain) loss		(88)		214
Benefits paid		(63)		(59)
Settlements		(254)		(486)
Special termination benefits		-		5
PBO at end of year	$	3,173	$	3,363

Change in plan assets
Fair value of plan assets at beginning of year	$	2,674	$	2,766
Actual return on plan assets		(159)		378
Employer contributions		150		206
Settlements		(254)		(486)
Differential payment received from Verizon		-		(131)
Benefits paid		(63)		(59)
Fair value of plan assets at end of year	$	2,348	$	2,674

Funded status	$	(825)	$	(689)

Amounts recognized in the consolidated balance sheet
Pension and other postretirement benefits - current	$	-	$	-
Pension and other postretirement benefits - noncurrent	$	(825)	$	(689)
Accumulated other comprehensive loss	$	754	$	556



($ in millions)	2018		2017		2016

Components of total pension benefit cost
Service cost	$	90	$	97	$	88
Interest cost on projected benefit obligation		125		127		122
Expected return on plan assets		(192)		(186)		(168)
Amortization of unrecognized loss		24		30		40
Net periodic pension benefit cost		47		68		82
Pension settlement costs		41		83		-
Special termination benefits		-		5		23
Total pension benefit cost	$	88	$	156	$	105

The expected amortization of deferred unrecognized loss, included in Other comprehensive loss, in 2019 is $57 million.

We capitalized $26 million, $26 million and $25 million of pension and OPEB expense into the cost of our capital expenditures during the years ended December 31, 2018, 2017 and 2016, respectively, as the costs relate to our engineering and plant construction activities.

The plan’s weighted average asset allocations at December 31, 2018 and 2017 by asset category are as follows:



	2018		2017
Asset category:
Equity securities	48	%	50	%
Debt securities	40	%	40	%
Alternative investments	12	%	10	%
Total	100	%	100	%

The plan’s expected benefit payments over the next 10 years are as follows:



($ in millions)	Amount

2019	$	256
2020		252
2021		251
2022		246
2023		244
2024-2028		1,165
Total	$	2,414

In 2018, required pension plan contributions were approximately $150 million, consisting of cash payments of $113 million and the contribution of real property with a fair value of $37 million. See Note 6 for further discussion of contributed real estate.

In 2017, required pension plan contributions were approximately $75 million, net of the Differential (as defined below), consisting of all cash payments. As part of the CTF Acquisition, Verizon was required to make a cash payment to Frontier for the difference in assets initially transferred by Verizon into the Pension Plan and the related obligation (the Differential). In 2017, we received the $131 million Differential payment from Verizon, and have remitted an equivalent amount to the Pension Plan as of December 31, 2017. As the Differential was reflected as a receivable of the Pension Plan at December 31, 2016, the cash funding had no impact to plan assets.

In 2016, required pension plan contributions were $28 million, consisting of cash payments of $13 million and the contribution of real property with a fair value of $15 million. See Note 8 for further discussion of contributed real estate.

The accumulated benefit obligation for the plan was $3,106 million and $3,268 million at December 31, 2018 and 2017, respectively.

Assumptions used in the computation of annual pension costs and valuation of the year-end obligations were as follows:



	2018		2017		2016
Discount rate - used at year end to value obligation	4.30	%	3.70	%	4.10	%
Discount rate - used at beginning of year to compute annual cost	3.70	%	4.10	%	4.50	%
Expected long-term rate of return on plan assets	7.50	%	7.50	%	7.50	%
Rate of increase in compensation levels	2.00	%	2.50	%	2.50	%

Postretirement Benefits Other Than Pensions - “OPEB”

The following tables set forth the OPEB plans’ benefit obligations, fair values of plan assets and the postretirement benefit liability recognized on our consolidated balance sheets as of December 31, 2018 and 2017 and the components of total postretirement benefit cost for the years ended December 31, 2018, 2017 and 2016.



($ in millions)	2018		2017

Change in benefit obligation
Benefit obligation at beginning of year	$	1,016	$	925
Service cost		21		21
Interest cost		38		40
Plan participants' contributions		7		7
Actuarial (gain) loss		(79)		54
Benefits paid		(38)		(31)
Benefit obligation at end of year	$	965	$	1,016

Change in plan assets
Fair value of plan assets at beginning of year	$	-	$	-
Plan participants' contributions		7		7
Employer contribution		31		24
Benefits paid		(38)		(31)
Fair value of plan assets at end of year	$	-	$	-

Funded status	$	(965)	$	(1,016)

Amounts recognized in the consolidated balance sheet
Pension and other postretirement benefits - current	$	(39)	$	(29)
Pension and other postretirement benefits - noncurrent	$	(926)	$	(987)
Accumulated other comprehensive (gain) loss	$	(41)	$	33



($ in millions)	2018		2017		2016

Components of total postretirement benefit cost
Service cost	$	21	$	21	$	19
Interest cost on projected benefit obligation		38		40		37
Amortization of prior service (credit) costs		(9)		(9)		(9)
Amortization of unrecognized loss		3		-		1
Net periodic postretirement benefit cost		53		52		48
Special termination benefits		-		-		3
Total postretirement benefit cost	$	53	$	52	$	51

The expected amortization of prior service credit in 2019 is $9 million and the expected amortization of unrecognized loss in 2019 is $3 million.

Assumptions used in the computation of annual OPEB costs and valuation of the year-end OPEB obligations were as follows:



	2018	2017	2016
Discount rate - used at year end to value obligation	4.30% - 4.40%	3.70% - 3.80%	4.10% - 4.30%
Discount rate - used to compute annual cost	3.70% - 3.80%	4.10% - 4.30%	4.50% - 4.70%

The OPEB plan’s expected benefit payments over the next 10 years are as follows:



($ in millions)	Gross Benefit		Medicare Part D Subsidy		Total

2019	$	39	$	-	$	39
2020		45		-		45
2021		50		-		50
2022		54		-		54
2023		57		-		57
2024-2028		320		2		322
Total	$	565	$	2	$	567

For purposes of measuring year-end benefit obligations, we used, depending on medical plan coverage for different retiree groups, a 6.50% annual rate of increase in the per-capita cost of covered medical benefits, gradually decreasing to 5.00% in the year 2025 and remaining at that level thereafter. The effect of a 1.00% increase in the assumed medical cost trend rates for each future year on the aggregate of the service and interest cost components of the total postretirement benefit cost would be $1 million and the effect on the accumulated postretirement benefit obligation for health benefits would be $19 million. The effect of a 1.00% decrease in the assumed medical cost trend rates for each future year on the aggregate of the service and interest cost components of the total postretirement benefit cost would be $(1) million and the effect on the accumulated postretirement benefit obligation for health benefits would be $(19) million.

The amounts in accumulated other comprehensive (gain) loss before tax that have not yet been recognized as components of net periodic benefit cost at December 31, 2018 and 2017 are as follows:



	Pension Plan				OPEB
($ in millions)	2018		2017		2018		2017
Net actuarial loss	$	754	$	556	$	(28)	$	54
Prior service cost (credit)		-		-		(13)		(21)
Total	$	754	$	556	$	(41)	$	33

The amounts recognized as a component of accumulated other comprehensive loss for the years ended December 31, 2018 and 2017 are as follows:



	Pension Plan				OPEB
($ in millions)	2018		2017		2018		2017
Accumulated other comprehensive (gain) loss at
beginning of year	$	556	$	647	$	33	$	(29)

Net actuarial loss recognized during year		(24)		(30)		(3)		-
Prior service credit recognized during year		-		-		9		9
Net actuarial (gain) loss occurring during year		263		22		(80)		53
Settlement loss recognized		(41)		(83)		-		-
Net amount recognized in comprehensive income
(loss) for the year		198		(91)		(74)		62
Accumulated other comprehensive (gain) loss at
end of year	$	754	$	556	$	(41)	$	33

401(k) Savings Plans

We sponsor employee retirement savings plans under section 401(k) of the Internal Revenue Code. The plans cover substantially all full-time employees. Under certain plans, we provide matching contributions. Employer contributions were $45 million, $48 million and $48 million for 2018, 2017 and 2016, respectively.