Frontier Communications 2011 Annual Report Download - page 94

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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-31
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 35% to 55% in fixed income securities, 35%
to 55% in equity securities and 5% to 15% in alternative 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 Retirement Plan Committee of the Board of Directors. The RIAC is
responsible for reporting its actions to the Retirement Plan Committee. 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. In 2011, 2010 and 2009, our expected long-term rate of return on plan assets was
8.00%. For 2012, we will assume a rate of return of 7.75%. 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.
Pension Benefits
The following tables set forth the pension plan’s projected benefit obligations and fair values of plan assets as of
December 31, 2011 and 2010 and the components of total periodic benefit cost for the years ended December 31, 2011,
2010 and 2009:
($ in thousands) 2011 2010
Change in projected benefit obligation (PBO)
PBO at beginning of year 1,644,657$ 890,576$
PBO for plans of Acquired Business at contracted discount rate - 581,256
Actuarial adjustment to PBO for plans of Acquired Business
(1)
- 64,098
Service cost 38,879 21,169
Interest cost 84,228 67,735
Actuarial loss/(gain) 160,390 87,024
Benefits paid (128,841) (67,270)
Special termination benefits - 69
PBO at end of year 1,799,313$ 1,644,657$
Change in plan assets
Fair value of plan assets at beginning of year 1,290,274$ 608,625$
Fair value of plan assets for Acquired Business as of
acquisition date - 581,256
Actual return on plan assets 19,883 154,554
Employer contributions 76,674 13,109
Benefits paid (128,841) (67,270)
Fair value of plan assets at end of year 1,257,990$ 1,290,274$
Funded status (541,323)$ (354,383)$
Amounts recognized in the consolidated balance sheet
Pension and other postretirement benefits (541,323)$ (354,383)$
Accumulated other comprehensive loss 575,163$ 349,264$
(1) Represents the difference between the contracted discount rate agreed upon in the Transaction and the discount rate
used by Frontier to value the liability on July 1, 2010 for financial reporting purposes.