17. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

RIGP and Retiree Medical Plan

Services Company, which employs the majority of our workforce, sponsors a RIGP, which is a defined benefit plan that generally guarantees employees hired before January 1, 1986 a retirement benefit based on years of service and the employee’s highest compensation for any consecutive 5-year period during the last 10 years of service or other compensation measures as defined under the respective plan provisions. The retirement benefit is subject to reduction at varying percentages for certain offsetting amounts, including benefits payable under a retirement and savings plan discussed further below. Services Company funds the plan through contributions to pension trust assets, generally subject to minimum funding requirements as provided by applicable law.

Services Company also sponsors an unfunded post-retirement benefit plan (the “Retiree Medical Plan”), which provides health care and life insurance benefits to certain of its retirees. To be eligible for these benefits, an employee must have been hired prior to January 1, 1991 and meet certain service requirements.

Pursuant to the VERP (defined in Note 23) and involuntary reduction in workforce (see Note 23), we recognized a settlement in the RIGP of approximately $14.0 million for the year ended December 31, 2009 as a result of participants in the RIGP receiving lump sum benefit payments. In addition, we recorded a curtailment in the Retiree Medical Plan of approximately $1.1 million for the year ended December 31, 2009 as a result of certain participants affected by the VERP and involuntary reduction in workplace being eligible for benefits under the Retiree Medical Plan.

The following table provides a reconciliation of projected benefit obligations, plan assets and the funded status of the RIGP and the Retiree Medical Plan for the periods indicated (in thousands):

		$00,000			$00,000			$00,000			$00,000
	RIGP						Retiree Medical Plan
	Year Ended December 31,						Year Ended December 31,
	2011			2010			2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	17,959		$	19,103		$	39,835		$	35,449
Service cost		284			263			303			295
Interest cost		827			906			1,927			1,982
Plan participants’ contributions		—			—			486			397
Actuarial loss (gain)		3,689			1,281			(781	)		4,490
Settlements		(1,375	)		—			—			—
Benefit payments		(93	)		(3,594	)		(2,773	)		(2,778	)

Benefit obligation at end of year	$	21,291		$	17,959		$	38,997		$	39,835


Change in plan assets:
Fair value of plan assets at beginning of year	$	4,807		$	5,427		$	—		$	—
Actual return on plan assets		890			244			—			—
Plan participants’ contributions		—			—			486			397
Employer contribution		2,389			2,730			2,287			2,381
Settlements		(1,375	)		—			—			—
Benefits paid		(93	)		(3,594	)		(2,773	)		(2,778	)

Fair value of plan assets at end of year	$	6,618		$	4,807		$	—		$	—


Funded status at end of year	$	(14,673	)	$	(13,152	)	$	(38,997	)	$	(39,835	)

Amounts recognized in our consolidated balance sheets consist of the following at the dates indicated (in thousands):

		$00,000		$00,000		$00,000			$00,000
	RIGP				Retiree Medical Plan
	December 31,				December 31,
	2011		2010		2011			2010
Liabilities:
Accrued employee benefit liabilities—current	$	—	$	—	$	3,071		$	3,817

Accrued employee benefit liabilities—noncurrent	$	14,673	$	13,152	$	35,926		$	36,018


AOCI:
Net actuarial loss	$	11,160	$	9,829	$	13,078		$	15,103
Prior service credit		—		—		(4,353	)		(7,318	)

Total	$	11,160	$	9,829	$	8,725		$	7,785

Information regarding the accumulated benefit obligation in excess of plan assets for the RIGP is as follows at the dates indicated (in thousands):


	RIGP
	December 31,
	2011		2010
Projected benefit obligation	$	21,291	$	17,959
Accumulated benefit obligation		14,687		11,119
Fair value of plan assets		6,618		4,807

The assumptions used in determining net benefit cost for the RIGP and the Retiree Medical Plan were as follows for the periods indicated:


	RIGP									Retiree Medical Plan
	Year Ended December 31,									Year Ended December 31,
	2011			2010			2009			2011			2010			2009
Weighted average expense assumptions:
Discount rate		4.7	%		5.3	%		5.5	%		5.1	%		5.8	%		5.8	%
Expected return on plan assets		6.0	%		6.0	%		7.5	%		N/A			N/A			N/A
Rate of compensation increase		4.0	%		4.0	%		4.0	%		N/A			N/A			N/A

The assumptions used in determining net benefit liabilities for the RIGP and the Retiree Medical Plan were as follows at the dates indicated:


	RIGP						Retiree Medical Plan
	December 31,						December 31,
	2011			2010			2011			2010
Weighted average balance sheet assumptions:
Discount rate		4.2	%		4.7	%		4.6	%		5.1	%
Expected return on plan assets		5.8	%		6.0	%		N/A			N/A

The expected return on plan assets was determined by a review of projected future returns along with historical returns of portfolios with similar investments as those in the plan.

The assumed annual rate of increase in the per capita cost of covered health care benefits as of December 31, 2011 in the Retiree Medical Plan was 8.0% for 2012, decreasing to 4.5% by 2021, remaining at that level thereafter.

Assumed healthcare cost trend rates may have a significant effect on the amounts reported for the Retiree Medical Plan. To illustrate, increasing or decreasing the assumed health care cost trend rates by one percentage point for each future year would have had the following effects on 2011 results:


	1% Increase		1% (Decrease)
Effect on total service cost and interest cost components	$	101		$	(90	)
Effect on postretirement benefit obligation		1,449			(1,301	)

The components of the net periodic benefit cost and other amounts recognized in OCI for the RIGP and the Retiree Medical Plan were as follows for the periods indicated (in thousands):


	RIGP									Retiree Medical Plan
	Year Ended December 31,									Year Ended December 31,
	2011			2010			2009			2011			2010			2009
Components of net periodic benefit cost:
Service cost	$	284		$	263		$	495		$	303		$	294		$	339
Interest cost		827			907			1,182			1,927			1,982			1,941
Expected return on plan assets		(347	)		(344	)		(570	)		—			—			—
Recognized gain due to curtailments		—			—			—			—			—			(749	)
Amortization of prior service cost benefit		—			(46	)		(485	)		(2,964	)		(2,964	)		(3,240	)
Actuarial loss due to settlements		694			—			7,280			—			—			—
Amortization of unrecognized losses		1,121			967			1,069			1,244			894			1,016

Net periodic benefit costs	$	2,579		$	1,747		$	8,971		$	510		$	206		$	(693	)


Other changes in plan assets and benefit obligations recognized in OCI:
Net actuarial loss (gain)	$	3,287		$	1,380		$	5,328		$	(781	)	$	4,490			875
Amortization of net actuarial gain		(1,815	)		(967	)		(1,069	)		(1,244	)		(894	)		(1,016	)
Actuarial loss due to settlements		—			—			(7,280	)		—			—			—
Amortization of prior service cost		—			46			485			2,964			2,964			3,240

Total recognized in OCI	$	1,472		$	459		$	(2,536	)	$	939		$	6,560		$	3,099

Total recognized in net period benefit cost and OCI	$	4,051		$	2,206		$	6,435		$	1,449		$	6,766		$	2,406

During the year ending December 31, 2012, we expect that the following amounts currently included in OCI will be recognized in our consolidated statement of operations (in thousands):


	RIGP		Retiree Medical Plan
Amortization of unrecognized losses	$	1,389	$	1,036
Amortization of prior service cost benefit		—		(2,964	)

We estimate the following benefit payments, which reflect expected future service, as appropriate, will be paid in the years indicated (in thousands):


	RIGP		Retiree Medical Plan
2012	$	2,413	$	3,141
2013		1,575		3,217
2014		1,730		3,229
2015		2,070		3,270
2016		2,264		3,236
Thereafter		10,861		13,937

We expect to contribute approximately $6.1 million to our benefit plans in 2012. Funding requirements for subsequent years are uncertain and will depend on whether there are any changes in the actuarial assumptions used to calculate plan funding levels, the actual return on plan assets and any legislative or regulatory changes affecting plan funding requirements. For tax planning, financial planning, cash flow management or cost reduction purposes, we may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

We do not fund the Retiree Medical Plan and, accordingly, no assets are invested in the plan. A summary of investments in the RIGP are as follows at the dates indicated (in thousands):


	December 31,
	2011				2010
	Level 1		Level 3		Level 1		Level 3
Mutual fund—equity securities (1)	$	880	$	—	$	609	$	—
Mutual fund—money market		1,736		—		760		—
Coal lease (2)		—		3,468		—		3,438

Fair value of plan assets	$	2,616	$	3,468	$	1,369	$	3,438

(1)	This mutual fund generally seeks long-term growth of capital and income and invests in a portfolio consisting of 100% in equities.

(2)

This value was determined using an expected present value of future cash flows valuation model. This plan asset relates to a 20.8% interest in a coal lease, which derives value from specified minimum royalty payments received from CONSOL Energy Inc. related to coal reserves mined from two Pennsylvania mines owned by the lessor. The coal lease extends through 2023.

The following table summarizes the activity in our Level 3 pension assets for the periods indicated (in thousands):


	Year Ended December 31,
	2011			2010
Beginning balance, January 1	$	3,438		$	3,564
Lease payments received		296			392
Unrealized gain (loss)		30			(126	)
Transfers out of Level 3		(296	)		(392	)

Ending balance, December 31	$	3,468		$	3,438

The RIGP investment policy does not target specific asset classes, but seeks to balance the preservation and growth of capital in the plan’s mutual fund investments with the income derived with proceeds from the coal lease. While no significant changes in the asset allocation of the plan are expected during the upcoming year, Services Company may make changes at any time.

Retirement and Savings Plans

Services Company also sponsors a retirement and savings plan (the “Retirement and Savings Plan”) through which it provides retirement benefits for substantially all of its regular full-time employees located in the continental United States, except those covered by certain labor contracts. The eligible employees located in the Bahamas are covered by a separate retirement and savings plan.

The Retirement and Savings Plan offered to employees in the continental United States consists of two components. Under the first component, Services Company contributes 5% of each eligible employee’s covered salary to an employee’s separate account maintained in the Retirement and Savings Plan. Under the second component, Services Company makes a matching contribution into the employee’s separate account for 100% of an employee’s contribution to the Retirement and Savings Plan up to 5% (or 6% if an employee has over 20 years of service) of an employee’s eligible covered salary. Total costs of the Retirement and Savings Plan were approximately $8.5 million, $6.0 million and $7.1 million during the years ended December 31, 2011, 2010 and 2009, respectively.

The retirement and savings plan offered to employees located in the Bahamas consist of a matching contribution into the employee’s separate account for up to 12% of each eligible employee’s covered salary. The contribution is determined according to the period of employment, employees’ contribution to the plan and the gross salary. Total costs of the BORCO’s retirement and savings plan were approximately $0.7 million during the year ended December 31, 2011.

Additionally, pursuant to the BORCO acquisition in January 2011, we inherited BORCO’s defined contribution plan under which we pay fixed contributions to an individual account for each participant. The pension contribution for permanent employees is between 3% and 6% of regular earnings, depending on years of service and classification of employee. Total costs of BORCO’s defined contribution plan was approximately $0.6 million during the year ended December 31, 2011.

Services Company also participates in a multi-employer retirement income plan that provides benefits to employees covered by certain labor contracts. We do not administer these plans and contribute to them in accordance with the provisions of negotiated labor contracts. Pension expense for the plan was $0.3 million, $0.3 million and $0.3 million during the years ended December 31, 2011, 2010 and 2009, respectively.

In addition, Services Company contributes to a multi-employer postretirement benefit plan that provides health care and life insurance benefits to employees covered by certain labor contracts. We do not administer these plans and contribute to them in accordance with the provisions of negotiated labor contracts. The cost of providing these benefits was $0.2 million, $0.3 million and $0.2 million during the years ended December 31, 2011, 2010 and 2009, respectively.