Pension and Other Post-retirement Benefit Plans

12 Months Ended

Dec. 31, 2011

Pension and Other Post-retirement Benefit Plans

Pension and Other Post-retirement Benefit Plans

13.Pension and Other Post-retirement Benefit Plans

The following table sets forth the defined benefit pension and other post-retirement benefit plans’ funded status and amounts recognized for those plans in the Company’s Consolidated Balance Sheets:

	For the Years Ended December 31,
	2011		2010		2011			2010
	Pension Benefits				Other Benefits
	(Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	61,452	$	63,801	$	34,706		$	37,423
Service cost	500		600		620			616
Interest cost	3,115		3,390		1,771			1,974
Actuarial loss (gain)	3,842		1,545		1,602			(898)
Benefits paid	(5,776)		(6,053)		(3,406)			(4,409)
Expenses paid	(440)		(599)		-			–
Settlements	(808)		(1,236)		-			–
Special termination benefits	-		4		-			–
Benefit obligation at end of year	$	61,885	$	61,452	$	35,293		$	34,706
Change in plan assets:
Fair value of plan assets at beginning of year	$	48,083	$	48,998	-			$	–
Actual gain on plan assets	599		5,719		-			–
Contributions	4,293		1,254		$	19		–
Benefits paid	(5,776)		(6,053)		-			–
Expenses paid	(440)		(599)		-			–
Settlements	(808)		(1,236)		-			–
Fair value of plan assets at end of year	$	45,951	$	48,083	$	19		$	–
Funded status at end of year	$	(15,934)	$	(13,369)	$	(35,274)		$	(34,706)
Amounts recognized in the statement of financial position consist of:
Current liabilities	$	-	$	(2)	$		(3,619)	$	(3,938)
Noncurrent liabilities	$	(15,934)	(13,367)		(31,655)			(30,768)
Net amount recognized	$	(15,934)	$	(13,369)	$	(35,274)		$	(34,706)
Amounts recognized in accumulated other comprehensive income, net of tax, consist of:
Net loss	$	24,373	$	20,995	$	13,797		$	13,616
Net prior service (credit)	-		–		(1,890)			(2,805)
Net amount recognized	$	24,373	$	20,995	$	11,907		$	10,811

The accumulated benefit obligation for all defined benefit pension plans was $61.9 million and $61.5 million at December 31, 2011 and 2010, respectively.  The Company uses a December 31 measurement date for its defined benefit pension and other post-retirement plans.

The Company’s costs related to its defined benefit pension and other post-retirement benefit plans were as follows:

	For the Years Ended December 31,
	2011		2010		2009		2011		2010		2009
	Pension Benefits						Other Benefits
	(Thousands)
Components of net periodic benefit cost:
Service cost	$	500	$	600	$	435	$	620	$	616	$	575
Interest cost	3,115		3,390		3,624		$	1,771	1,974		2,148
Expected return on plan assets	(4,070)		(4,289)		(4,578)		-		–		–
Amortization of prior service cost	-		–		16		$	(902)	(902)		(902)
Recognized net actuarial loss	1,471		1,323		1,191		$	1,605	1,652		1,797
Settlement loss and special termination benefits	530		569		838		-		–		–
Curtailment loss	-		–		39		-		–		–
Net periodic benefit cost	$	1,546	$ 1,593		$ 1,565		$	3,094	$	3,340	$	3,618

Under the 2006 Equitrans rate case settlement, the Company amortized post-retirement benefits other than pensions previously deferred over a five-year period.  Currently, the Company recognizes expenses for on-going post-retirement benefits other than pensions, which are subject to recovery in the approved rates.  The Company amortized post-retirement benefits other than pensions previously deferred of approximately $0.7 million and $1.4 million, respectively, for the years ended December 31, 2010 and 2009.  The previously deferred amounts were fully amortized in 2010.

	For the Years Ended December 31,
	2011	2010		2009		2011		2010		2009
	Pension Benefits					Other Benefits
	(Thousands)
Other changes in plan assets and benefit obligations recognized in other comprehensive income, net of tax:
Net (gain) loss	$3,378	$	(1,056)	$	(4,006)	$	181	$	(1,246)	$	(2,124)
Net prior service (credit) cost	–	–		(33)		915		281		472
Total recognized in other comprehensive income, net of tax	$3,378	(1,056)		(4,039)		$	1,096	(965)		(1,652)
Total recognized in net periodic benefit cost and other comprehensive income, net of tax	$4,924	$	537	$	(2,474)	$	4,190	$	2,375	$	1,966

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income, net of tax, into net periodic benefit cost over the next fiscal year is $1.1 million.  The estimated net loss and net prior service (credit) for the other post-retirement benefit plans that will be amortized from accumulated other comprehensive income, net of tax, into net periodic benefit cost over the next fiscal year are $0.9 million and $(0.5) million.

The following weighted average assumptions were used to determine the benefit obligations for the Company’s defined benefit pension and other post-retirement benefit plans:

	December 31,
	2011	2010	2011	2010
	Pension Benefits		Other Benefits
Discount rate	4.25%	5.50%	4.25%	5.50%
Rate of compensation increase	N/A	N/A	N/A	N/A

The following weighted average assumptions were used to determine the net periodic benefit cost for the Company’s defined benefit pension and other post-retirement benefit plans:

	For the Years Ended December 31,
	2011	2010	2011	2010
	Pension Benefits		Other Benefits
Discount rate	5.50%	5.75%	5.50%	5.75%
Expected return on plan assets	8.00%	8.00%	N/A	N/A
Rate of compensation increase	N/A	N/A	N/A	N/A

The expected rate of return is established at the beginning of the fiscal year to which it relates based upon information available to the Company at that time, including the plans’ investment mix and the forecasted rates of return on the types of securities held.  The Company considered the historical rates of return earned on plan assets, an expected return percentage by asset class based upon a survey of investment managers and the Company’s actual and targeted investment mix.  Any differences between actual experience and assumed experience are deferred as an unrecognized actuarial gain or loss.  The unrecognized actuarial gains or losses are amortized into the Company’s net periodic benefit cost.  The expected rate of return determined as of January 1, 2012 is 7.75%.  This assumption will be used to derive the Company’s 2012 net periodic benefit cost.  The rate of compensation increase is not applicable in determining future benefit obligations as a result of plan design.  Pension expense increases as the expected rate of return decreases or if the discount rate is lowered.

For measurement purposes, the annual rate of increase in the per capita cost of covered health care benefits in 2012 is 8.00% for both the Pre-65 and Post-65 medical charges.  The rates were assumed to decrease gradually to ultimate rates of 5.00% in 2018.

Assumed health care cost trend rates have an 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:

	One-Percentage-Point Increase						One-Percentage-Point Decrease
	2011		2010		2009		2011		2010		2009
	Pension Benefits						Other Benefits
	(Thousands)
Increase (decrease) to total of service and interest cost components	$	40	$	47	$	52	$	(39)	$	(46)	$	(51)
Increase (decrease) to post-retirement benefit obligation	$	730	$	756	$	836	$	(702)	$	(723)	$	(795)

The Company’s pension asset allocation at December 31, 2011 and 2010 and target allocation for 2012 by asset category are as follows:

Asset Category	Target Allocation 2012	Percentage of Plan Assets at December 31,
		2011	2010
Domestic broadly diversified equity securities	40% - 60%	48%	46%
Fixed income securities and inflation hedge securities	20% - 60%	39%	34%
International broadly diversified equity securities	5% - 15%	9%	14%
Other	0% - 15%	4%	6%
		100%	100%

The investment activities of the Company’s pension plan are supervised and monitored by the Benefits Investment Committee (BIC).  The BIC reports to the Compensation Committee of the Board of Directors and is comprised of the Chief Financial Officer and other officers and employees of the Company.  The BIC has developed an investment strategy that focuses on asset allocation, diversification and quality guidelines.  The investment goals of the BIC are to minimize high levels of risk at the total pension investment fund level.  The BIC monitors the asset allocation on a quarterly basis and adjustments are made, as needed, to rebalance the assets within the prescribed target ranges.  Comparative market and peer group benchmarks are utilized to ensure that each of the firm’s investment managers is performing satisfactorily.

The Company made cash contributions of approximately $4.3 million, $1.3 million and $11.6 million to its pension plan during 2011, 2010 and 2009, respectively to meet certain funding targets.  The Company expects to make cash payments of at least $3.6 million related to its pensions during 2012, which will meet the 80% funding obligation on its plan.  Pension plan cash contributions are designed to at least meet requirements of the 80% funding level.  The dollar amount of a cash contribution made in any particular year will vary as a result of gains or losses sustained by the pension plan during the year due to market conditions.  The Company does not expect these variations to have a significant effect on its financial position, results of operations or liquidity of the Company.

The following pension benefit payments, which reflect expected future service, are expected to be paid by the plan during each of the next five years and the five years thereafter: $6.4 million in 2012; $6.1 million in 2013; $6.2 million in 2014; $5.5 million in 2015; $5.3 million in 2016; and $23.4 million in the five years thereafter.

The following benefit payments for post-retirement benefits other than pensions, which reflect expected future service, are expected to be paid by the Company during each of the next five years and the five years thereafter: $3.7 million in 2012; $3.7 million in 2013; $3.6 million in 2014; and $3.4 million in 2015; $3.4 million in 2016; and $14.8 million in the five years thereafter.

Expense recognized by the Company related to its 401(k) employee savings plans totaled $10.1 million in 2011, $10.4 million in 2010 and $10.1 million in 2009.

The Company reports plan assets at fair value which is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  The disclosure below categorizes the assets by a fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement.  The three levels of the hierarchy are defined as follows:

Level 1 – Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Observable inputs, other than those included in Level 1, based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets.

Level 3 – Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.

Investments in the plan assets include mutual funds with a fair value of $20.0 million and $19.1 million as of December 31, 2011 and 2010, respectively.  These investments are based upon daily unadjusted quoted prices and therefore are considered Level 1.

Investments in the plan assets include common/collective trusts with a fair value of $25.9 million and $29.0 million as of December 31, 2011 and 2010, respectively.  These investments are valued at current market value of the underlying assets of the fund and therefore are considered Level 2.

As of December 31, 2011 and 2010, the plan does not hold any assets whose fair value is determined using unobservable inputs and therefore would be considered Level 3.