Retirement Plans

9 Months Ended

Sep. 30, 2021

Retirement Plans [Abstract]

Retirement Plans

(18) Retirement Plans:

Frontier recognizes actuarial gains (losses) for our pension and postretirement plans in the period they occur. The components of net periodic benefit cost other than the service cost component for our plans as well as any actuarial gains or losses are included in “Investment and other income (loss)” on the consolidated statement of operations.

The following tables provide the components of total pension benefit cost:

	Successor		Predecessor
	Pension		Pension
	For the three months		For the three months
	ended September 30,		ended September 30,
($ in millions)	2021		2020
Components of total pension benefit cost
Service cost	$	20	$	24
Interest cost on projected benefit obligation		26		26
Expected return on plan assets		(49)		(40)
Recognition of actuarial loss		-		29
Net periodic pension benefit cost	$	(3)	$	39
	Successor		Predecessor
	Pension		Pension
	For the five months		For the four months		For the nine months
	ended September 30,		ended April 30,		ended September 30,
($ in millions)	2021		2021		2020
Components of total pension benefit cost
Service cost	$	33	$	32	$	73
Interest cost on projected benefit obligation		44		31		84
Expected return on plan assets		(80)		(61)		(129)
Recognition of actuarial loss		-		24		76
Net periodic pension benefit cost		(3)		26		104
Pension settlement costs		-		-		159
Gain on disposal, net		-		-		(50)
Total pension benefit cost	$	(3)	$	26	$	213

The components of net periodic benefit cost other than the service cost component are included in “Investment and other income” on the consolidated statement of operations.

As part of fresh start accounting, Frontier revalued its net pension obligation as of April 30, 2021. In revaluating the pension benefit obligation, the assumed discount rate was 3.10% and the assumed rate of return on Plan assets was 7.5%. The discount rate increased compared to the 2.60% used in the December 31, 2020 valuation. This change as well as other changes in assumptions lead to a pension obligation decrease of $328 million.

The value of our pension plan assets increased $79 million from $2,507 million at December 31, 2020 to $2,586 million at April 30, 2021. This increase primarily resulted from contributions of $32 million and investment returns of $78 million, partially offset by benefit payments to participants of $25 million and plan expenses of $6 million.

The value of our pension plan assets increased $12 million from $2,586 million at April 30, 2021 to $2,598 million at September 30, 2021. This increase primarily resulted from investment returns of $68 million, partially offset by benefit payments to participants of $51 million and plan expenses of $5 million.

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 the nine months ended September 30, 2020, lump sum pension settlement payments to terminated or retired individuals amounted to $465 million, which exceeded the settlement threshold of $211 million, and as a result, Frontier recognized non-cash settlement charges totaling $159 million during the nine months ended September 30, 2020.

In 2020, we made $64 million in contributions to the pension plan. These represent the contributions for the 2019 plan year and reflect the fact that we received a pension funding waiver for all 2020 plan year contributions. The pension funding waiver was in the amount of $127 million and will be amortized over the next five years.

In 2021, we elected the provisions of American Rescue Plan Act, or ARPA retroactive to the 2019 plan year, which resulted in 1) a shortfall amortization period change from 7 to 15 years with a fresh start for the existing shortfall, commencing in the 2019 plan year and 2) interest rate stabilization, commencing in the 2020 plan year. These elections resulted in the creation of a funding balance that we used to satisfy certain required contributions in 2021. As a result of these changes, our pension plan contributions in the fiscal year 2021 are $42 million.

The following tables provide the components of total postretirement benefit cost:

	Successor		Predecessor
	Postretirement		Postretirement
	For the three months		For the three months
	ended September 30,		ended September 30,
($ in millions)	2021		2020
Components of net periodic postretirement benefit cost
Service cost	$	4	$	5
Interest cost on projected benefit obligation		7		8
Amortization of prior service credit		(2)		(8)
Recognition of actuarial loss		54		1
Net periodic postretirement benefit cost	$	63	$	6
	Successor		Predecessor
	Postretirement		Postretirement
	For the five months		For the four months		For the nine months
	ended September 30,		ended April 30,		ended September 30,
($ in millions)	2021		2021		2020
Components of net periodic postretirement benefit cost
Service cost	$	7	$	7	$	15
Interest cost on projected benefit obligation		12		9		24
Amortization of prior service credit		(3)		(10)		(24)
Recognition of actuarial loss		67		5		4
Net periodic postretirement benefit cost		83		11		19
One-time gain on sale		-		-		(24)
Net periodic postretirement benefit cost	$	83	$	11	$	(5)

As part of fresh start accounting, the Company remeasured its other postretirement benefit obligation as of April 30, 2021. The assumed discount rate for this remeasurement increased from 2.60% to 3.30%, resulting in a reduction of our postretirement benefit obligation of approximately $101 million. As such, the postretirement benefit obligation was reduced from $1,042 million as of December 31, 2020, to $941 million as of April 30, 2021.

In May and August of 2021, Frontier amended the medical coverage for certain postretirement benefit plans, which resulted in remeasurements of its other postretirement benefit obligation and prior service credits of $55 million and $2 million, respectively, which were deferred in Accumulated comprehensive income as of September 30, 2021.

The remeasurements resulted in decreases to the discount rate used to calculate the benefit obligation. The May remeasurement adjusted the discount rate from 3.30% to 3.20%, resulting in a remeasurement loss of approximately $13 million. The August remeasurement adjusted the discount rate from 3.20% to 2.80%, resulting in a remeasurement loss of approximately $54 million. As a result of fresh start accounting, Frontier updated its policy to recognize actuarial gains and losses in the period in which they occur. As such, these losses on remeasurement was recorded in Investment and other income, net on our consolidated statement of operations for the three and five months ended September 30, 2021.

During the four months of April 30, 2021, we capitalized $7 million of pension and OPEB expense into the cost of our capital expenditures, as the costs relate to our engineering and plant construction activities. During the three and five months ended September 30, 2021, we capitalized $6 million and $10 million of pension and OPEB expense, respectively. During the three and nine months ended September 30, 2020, we capitalized $5 million and $18 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.