EMPLOYEE BENEFIT PLANS

Employee Transfer

On March 1, 2016, and in conjunction with the Employee Transfer, we assumed $22.5 million and $10.2 million in benefit obligations associated with the pension plans and other postretirement benefit plans, respectively. Prior to the Employee Transfer, we reimbursed all costs incurred by NuStar GP, LLC related to these employee benefit plans at cost. For comparability purposes this footnote presents information related to these benefit plans on a combined basis for periods prior to the Employee Transfer and after the Employee Transfer, including changes in the benefit obligation and fair value of plan assets, components of net periodic benefit cost (income), and adjustments to other comprehensive income (loss). Consequently, certain amounts presented below will differ from amounts reflected in our consolidated financial statements. See Note 17 for additional discussion on the Employee Transfer.

Thrift Plans

The NuStar Thrift Plan (the Thrift Plan) is a qualified defined contribution plan that became effective June 26, 2006. Participation in the Thrift Plan is voluntary and open to substantially all our domestic employees upon their dates of hire. Thrift Plan participants can contribute from 1% up to 30% of their total annual compensation to the Thrift Plan in the form of pre-tax and/or after tax employee contributions. We make matching contributions in an amount equal to 100% of each participant’s employee contributions up to a maximum of 6% of the participant’s total annual compensation. The matching contributions to the Thrift Plan for the years ended December 31, 2017, 2016 and 2015 totaled $6.9 million, $6.6 million and $6.3 million, respectively.

The NuStar Excess Thrift Plan (the Excess Thrift Plan) is a nonqualified deferred compensation plan that became effective July 1, 2006. The Excess Thrift Plan provides benefits to those employees whose compensation and/or annual contributions under the Thrift Plan are subject to the limitations applicable to qualified retirement plans under the Code.

We also maintain several other defined contribution plans for certain international employees located in Canada, the Netherlands and the United Kingdom. For the years ended December 31, 2017, 2016 and 2015, our costs for these plans totaled $2.5 million, $2.4 million and $2.6 million, respectively.

Pension and Other Postretirement Benefits

The NuStar Pension Plan (the Pension Plan) is a qualified non-contributory defined benefit pension plan that provides eligible U.S. employees with retirement income as calculated under a cash balance formula. Under the cash balance formula, benefits are determined based on age, service and interest credits, and employees become fully vested in their benefits upon attaining three years of vesting service. Prior to January 1, 2014, eligible employees were covered under either a cash balance formula or a final average pay formula (FAP). Effective January 1, 2014, the Pension Plan was amended to freeze the FAP benefits as of December 31, 2013, and going forward, all eligible employees are covered under the cash balance formula discussed above.

We also maintain an excess pension plan (the Excess Pension Plan), which is a nonqualified deferred compensation plan that provides benefits to a select group of management or other highly compensated employees. Neither the Excess Thrift Plan nor the Excess Pension Plan is intended to constitute either a qualified plan under the provisions of Section 401 of the Code or a funded plan subject to the Employee Retirement Income Security Act.

The Pension Plan and Excess Pension Plan are collectively referred to as the Pension Plans in the tables and discussion below. Our other postretirement benefit plans include a contributory medical benefits plan for U.S. employees that retired prior to April 1, 2014 and for employees that retire on or after April 1, 2014, a partial reimbursement for eligible third-party health care premiums. We use December 31 as the measurement date for our pension and other postretirement plans.

The changes in the benefit obligation, the changes in fair value of plan assets, the funded status and the amounts recognized in the consolidated balance sheets for our Pension Plans and other postretirement benefit plans as of and for the years ended December 31, 2017 and 2016 were as follows:



	Pension Plans						Other Postretirement Benefit Plans
	2017			2016			2017			2016
	(Thousands of Dollars)
Change in benefit obligation:
Benefit obligation, January 1	$	127,402		$	109,202		$	11,061		$	10,042
Service cost	8,955			7,703			456			419
Interest cost	4,507			4,023			430			401
Benefits paid	(5,941		)	(2,554		)	(342		)	(422		)
Participant contributions	—			—			215			253
Actuarial loss	14,894			9,028			590			368
Benefit obligation, December 31	$	149,817		$	127,402		$	12,410		$	11,061
Change in plan assets:
Plan assets at fair value, January 1	$	107,644		$	87,706		$	—		$	—
Actual return on plan assets	17,070			6,891			—			—
Employer contributions	11,105			15,601			127			169
Benefits paid	(5,941		)	(2,554		)	(342		)	(422		)
Participant contributions	—			—			215			253
Plan assets at fair value, December 31	$	129,878		$	107,644		$	—		$	—
Reconciliation of funded status:
Fair value of plan assets at December 31	$	129,878		$	107,644		$	—		$	—
Less: Benefit obligation at December 31	149,817			127,402			12,410			11,061
Funded status at December 31	$	(19,939	)	$	(19,758	)	$	(12,410	)	$	(11,061	)
Amounts recognized in the consolidated balance sheets (a):
Accrued liabilities	$	(210	)	$	(162	)	$	(376	)	$	(321	)
Other long-term liabilities	(19,729		)	(19,596		)	(12,034		)	(10,740		)
Net pension liability	$	(19,939	)	$	(19,758	)	$	(12,410	)	$	(11,061	)


(a)	For the Pension Plan, since assets exceed the present value of expected benefit payments for the next 12 months, all of the liability is noncurrent. For the Excess Pension Plan and the other postretirement benefit plans, since there are no assets, the current liability is the present value of expected benefit payments for the next 12 months; the remainder is noncurrent.

The accumulated benefit obligation is the present value of benefits earned to date, assuming no future salary increases. The aggregate accumulated benefit obligation for our Pension Plans as of December 31, 2017 and 2016 was $146.3 million and $125.0 million, respectively. As of December 31, 2017 and 2016, the aggregate accumulated benefit obligation for the Pension Plans exceeded plan assets.

The components of net periodic benefit cost (income) related to our Pension Plans and other postretirement benefit plans were as follows:



	Pension Plans									Other Postretirement Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2017			2016			2015			2017			2016			2015
	(Thousands of Dollars)
Service cost	$	8,955		$	7,703		$	7,676		$	456		$	419		$	470
Interest cost	4,507			4,023			4,389			430			401			448
Expected return on plan assets	(6,411		)	(5,407		)	(5,018		)	—			—			—
Amortization of prior service credit	(2,059		)	(2,063		)	(2,063		)	(1,145		)	(1,145		)	(1,145		)
Amortization of net actuarial loss	1,484			1,091			1,845			191			181			269
Net periodic benefit cost (income)	$	6,476		$	5,347		$	6,829		$	(68	)	$	(144	)	$	42

We amortize prior service costs and credits on a straight-line basis over the average remaining service period of employees expected to receive benefits under our Pension Plans and other postretirement benefit plans (“Amortization of prior service credit” in table above). We amortize the actuarial gains and losses that exceed 10 percent of the greater of the projected benefit obligation or market-related value of plan assets (smoothed asset value) over the average remaining service period of active employees expected to receive benefits under our Pension Plans and other postretirement benefit plans (“Amortization of net actuarial loss” in table above).

Adjustments to other comprehensive (loss) income related to our Pension Plans and other postretirement benefit plans were as follows:



	Pension Plans									Other Postretirement Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2017			2016			2015			2017			2016			2015
	(Thousands of Dollars)
Net unrecognized (loss) gain arising during the year:
Net actuarial (loss) gain	$	(4,235	)	$	(7,544	)	$	1,000		$	(590	)	$	(368	)	$	1,056
Net (gain) loss reclassified into income:
Amortization of prior service credit	(2,059		)	(2,063		)	(2,063		)	(1,145		)	(1,145		)	(1,145		)
Amortization of net actuarial loss	1,484			1,091			1,845			191			181			269
Net gain reclassified into income	(575		)	(972		)	(218		)	(954		)	(964		)	(876		)

Income tax benefit (expense)	162			57			(362		)	22			3			(382		)
Total changes to other comprehensive (loss) income	$	(4,648	)	$	(8,459	)	$	420		$	(1,522	)	$	(1,329	)	$	(202	)

The amounts recorded as a component of “Accumulated other comprehensive loss” on the consolidated balance sheets related to our Pension Plans and other postretirement benefit plans were as follows:



	Pension Plans						Other Postretirement Benefit Plans
	December 31,						December 31,
	2017			2016			2017			2016
	(Thousands of Dollars)
Unrecognized actuarial loss	$	(31,178	)	$	(28,427	)	$	(4,154	)	$	(3,755	)
Prior service credit	16,604			18,663			9,464			10,609
Deferred tax asset	219			57			25			3
Accumulated other comprehensive (loss) income, net of tax	$	(14,355	)	$	(9,707	)	$	5,335		$	6,857

The following pre-tax amounts in accumulated other comprehensive loss as of December 31, 2017 are expected to be recognized as components of net periodic benefit cost (income) in 2018:



	Pension Plans			Other Postretirement Benefit Plans
	(Thousands of Dollars)
Actuarial loss	$	2,174		$	214
Prior service credit	$	(2,057	)	$	(1,145	)

Investment Policies and Strategies

The investment policies and strategies for the assets of our qualified Pension Plan incorporate a well-diversified approach that is expected to earn long-term returns from capital appreciation and a growing stream of current income. This approach recognizes that assets are exposed to risk, and the market value of the Pension Plan’s assets may fluctuate from year to year. Risk tolerance is determined based on our financial ability to withstand risk within the investment program and the willingness to accept return volatility. In line with the investment return objective and risk parameters, the Pension Plan’s mix of assets includes a diversified portfolio of equity and fixed-income instruments. The aggregate asset allocation is reviewed on an annual basis. As of December 31, 2017, the target allocations for plan assets are 65% equity securities and 35% fixed income investments, with certain fluctuations permitted.

The overall expected long-term rate of return on plan assets for the Pension Plan is estimated using various models of asset returns. Model assumptions are derived using historical data with the assumption that capital markets are informationally efficient. Three models are used to derive the long-term expected returns for each asset class. Since each method has distinct advantages and disadvantages and differing results, an equal weighted average of the methods’ results is used.

Fair Value of Plan Assets

We disclose the fair value for each major class of plan assets in the Pension Plan into three levels: Level 1, defined as observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active; and Level 3, defined as unobservable inputs for which little or no market data exists.

The major classes of plan assets measured at fair value for the Pension Plan were as follows:



	December 31, 2017
	Level 1		Level 2		Level 3		Total
	(Thousands of Dollars)
Cash equivalent securities	$	381	$	—	$	—	$	381
Equity securities:
U.S. large cap equity fund (a)	—		75,353		—		75,353
International stock index fund (b)	14,480		—		—		14,480
Fixed income securities:
Bond market index fund (c)	39,664		—		—		39,664
Total	$	54,525	$	75,353	$	—	$	129,878



	December 31, 2016
	Level 1		Level 2		Level 3		Total
	(Thousands of Dollars)
Cash equivalent securities	$	738	$	—	$	—	$	738
Equity securities:
U.S. large cap equity fund (a)	—		64,813		—		64,813
International stock index fund (b)	10,459		—		—		10,459
Fixed income securities:
Bond market index fund (c)	31,634		—		—		31,634
Total	$	42,831	$	64,813	$	—	$	107,644


(a)	This fund is a low-cost equity index fund not actively managed that tracks the S&P 500. Fair values were estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.


(b)	This fund tracks the performance of the Total International Composite Index.


(c)	This fund tracks the performance of the Barclays Capital U.S. Aggregate Bond Index.

Contributions to the Pension Plans

For the year ended December 31, 2017, we contributed $11.1 million and $0.1 million to the Pension Plans and other postretirement benefit plans, respectively. During 2018, we expect to contribute approximately $11.2 million and $0.4 million to the Pension Plans and other postretirement benefit plans, respectively, which principally represents contributions either required by regulations or laws, or with respect to unfunded plans, necessary to fund current benefits.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the years ending December 31:



	Pension Plans		Other Postretirement Benefit Plans
	(Thousands of Dollars)
2018	$	8,823	$	376
2019	$	9,699	$	416
2020	$	10,432	$	434
2021	$	11,050	$	464
2022	$	11,650	$	497
Years 2023-2027	$	64,799	$	3,090

Assumptions

The weighted-average assumptions used to determine the benefit obligations were as follows:



	Pension Plans				Other Postretirement Benefit Plans
	December 31,				December 31,
	2017		2016		2017		2016
Discount rate	3.72	%	4.33	%	3.82	%	4.49	%
Rate of compensation increase	3.51	%	3.51	%	n/a		n/a

The weighted-average assumptions used to determine the net periodic benefit cost (income) were as follows:



	Pension Plans						Other Postretirement Benefit Plans
	Year Ended December 31,						Year Ended December 31,
	2017		2016		2015		2017		2016		2015
Discount rate	4.33	%	4.61	%	4.22	%	4.49	%	4.75	%	4.34	%
Expected long-term rate of return on plan assets	6.00	%	6.25	%	6.50	%	n/a		n/a		n/a
Rate of compensation increase	3.51	%	3.51	%	3.51	%	n/a		n/a		n/a

The assumed health care cost trend rates were as follows:



	December 31,
	2017		2016
Health care cost trend rate assumed for next year	6.84	%	6.84	%
Rate to which the cost trend rate was assumed to decrease (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2028		2028

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. We sponsor a contributory postretirement health care plan for employees that retired prior to April 1, 2014. The plan has an annual limitation (a cap) on the increase of the employer’s share of the cost of covered benefits. The cap on the increase in employer’s cost is 2.5% per year. The assumed increase in total health care cost exceeds the 2.5% indexed cap, so increasing or decreasing the health care cost trend rate by 1% does not materially change our obligation or expense for the postretirement health care plan.