Frontier Communications 2013 Annual Report Download - page 94

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, 2013 and 2012, we utilized an estimation technique that is based upon a settlement
model (Bond:Link) that permits us to more 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.
In determining the discount rate as of December 31, 2011, we considered, among other things, the yields
on the Citigroup Above Median Pension Curve, the Towers Watson Index, the general movement of interest
rates and the changes in those rates from one period to the next.
As a result of the change described above, Frontier is utilizing a discount rate of 4.90% as of December
31, 2013 for its qualified pension plan, compared to rates of 4.00% and 4.50% in 2012 and 2011, respectively.
The discount rate for postretirement plans as of December 31, 2013 was a range of 4.90% to 5.20% compared
to a range of 4.00% to 4.20% in 2012 and 4.50% to 4.75% in 2011.
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 2013, 2012 and 2011, our expected long-term rate of return on plan assets was 8.00%, 7.75% and
8.00%, respectively. For 2014, 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.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements