Note 12— Employee Benefit Plans

Defined Benefit Plans

Noble Drilling (Land Support) Limited, an indirect, wholly-owned subsidiary of Noble-UK (“NDLS”), maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (referred to as our “non-U.S. plan”).

In addition to the non-U.S. plan discussed above, we have a U.S. noncontributory defined benefit pension plan that covers certain salaried employees and a U.S. noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified U.S. plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust (the “Trust”). The benefits from these plans are based primarily on years of service and, for the salaried plan, employees' compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified U.S. plans when required. The benefit amount that can be covered by the qualified U.S. plans is limited under ERISA and the Internal Revenue Code of 1986. Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salaried U.S. plan. We refer to the qualified U.S. plans and the excess benefit plan collectively as the “U.S. plans.”

During the fourth quarter of 2016, we approved amendments, effective as of December 31, 2016, to our non-U.S. and U.S. defined benefit plans. With these amendments, employees and alternate payees will accrue no future benefits under the plans after December 31, 2016. However, these amendments will not affect any benefits earned through that date.

A reconciliation of the changes in projected benefit obligations (“PBO”) for our non-U.S. and U.S. plans is as follows:



	Years Ended December 31,
	2018						2017
	Non-U.S.			U.S.			Non-U.S.			U.S.
Benefit obligation at beginning of year	$	61,952		$	235,175		$	72,347		$	216,577
Service cost	—			—			—			—
Interest cost	1,747			8,179			2,151			8,593
Actuarial loss (gain)	(2,683		)	(20,673		)	(11,265		)	19,113
Plan amendments	285			—			—			—
Benefits paid	(3,282		)	(7,218		)	(2,836		)	(6,795		)
Settlements and curtailments	—			(4,519		)	(4,825		)	(2,313		)
Foreign exchange rate changes	(3,121		)	—			6,380			—
Benefit obligation at end of year	$	54,898		$	210,944		$	61,952		$	235,175

A reconciliation of the changes in fair value of plan assets is as follows:



	Years Ended December 31,
	2018						2017
	Non-U.S.			U.S.			Non-U.S.			U.S.
Fair value of plan assets at beginning of year	$	77,141		$	189,240		$	71,286		$	171,240
Actual return on plan assets	(1,366		)	(16,326		)	5,594			24,760
Employer contributions	—			4,553			651			2,348
Benefits paid	(3,282		)	(7,218		)	(2,836		)	(6,795		)
Settlement and curtailment	—			(4,519		)	(4,597		)	(2,313		)
Foreign exchange rate changes	(3,896		)	—			7,043			—
Fair value of plan assets at end of year	$	68,597		$	165,730		$	77,141		$	189,240

The funded status of the plans is as follows:



	Years Ended December 31,
	2018					2017
	Non-U.S.		U.S.			Non-U.S.		U.S.
Funded status	$	13,699	$	(45,214	)	$	15,189	$	(45,935	)

Amounts recognized in the Consolidated Balance Sheets consist of:



	Years Ended December 31,
	2018					2017
	Non-U.S.		U.S.			Non-U.S.		U.S.
Other assets (noncurrent)	$	13,699	$	—		$	15,189	$	—
Other liabilities (current)	—		(1,062		)	—		(2,312		)
Other liabilities (noncurrent)	—		(44,152		)	—		(43,623		)
Net amount recognized	$	13,699	$	(45,214	)	$	15,189	$	(45,935	)

Amounts recognized in AOCI consist of:



	Years Ended December 31,
	2018						2017
	Non-U.S.			U.S.			Non-U.S.			U.S.
Net actuarial loss	$	3,622		$	45,358		$	2,258		$	39,569
Prior service cost	273			—			—			—
Deferred income tax asset	(670		)	(9,524		)	(375		)	(13,849		)
Accumulated other comprehensive loss	$	3,225		$	35,834		$	1,883		$	25,720

Pension costs include the following components:



	Years Ended December 31,
	2018						2017						2016
	Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.
Service cost	$	—		$	—		$	—		$	—		$	2,914		$	6,647
Interest cost	1,747			8,179			2,151			8,593			2,412			9,557
Return on plan assets	(2,762		)	(11,914		)	(2,879		)	(11,764		)	(3,393		)	(12,389		)
Amortization of prior service cost	—			—			—			—			104			118
Recognized net actuarial loss	—			1,642			743			1,464			142			4,398
Settlement and curtailment gains	—			135			(838		)	82			600			200
Net pension benefit cost (gain)	$	(1,015	)	$	(1,958	)	$	(823	)	$	(1,625	)	$	2,779		$	8,531

There is less than $0.1 million and $2.8 million estimated net actuarial losses and prior service costs for the non-U.S. plan and the U.S. plans, respectively, that will be amortized from AOCI into net periodic pension cost in 2019.

During the years ended December 31, 2018, 2017 and 2016, we adopted the Retirement Plan (“RP”) mortality tables with the Mortality Projection (“MP”) scale as issued by the Society of Actuaries for each of the respective years. The RP 2018, 2017 and 2016 mortality tables represent the new standard for defined benefit mortality assumptions due to adjusted life expectancies. The adoption of the updated mortality tables and the mortality improvement scales decreased our pension liability on our U.S. plans by approximately $0.6 million, $1.6 million and $2.9 million as of December 31, 2018, 2017 and 2016.

During the fourth quarter of 2018, the UK High Court made a judgement confirming that UK pension schemes are required to equalize male and female members’ benefits for the effect of guaranteed minimum pensions (GMP). We have accounted for the impact of the GMP equalization as a plan amendment to our non-U.S. plan, and the impact is included as a prior service cost as of December 31, 2018, which will be amortized over the average life expectancy of the members at that date.

Defined Benefit Plans—Disaggregated Plan Information

Disaggregated information regarding our non-U.S. and U.S. plans is summarized below:



	Years Ended December 31,
	2018				2017
	Non-U.S.		U.S.		Non-U.S.		U.S.
Projected benefit obligation	$	54,898	$	210,944	$	61,952	$	235,175
Accumulated benefit obligation	54,898		210,944		61,952		235,175
Fair value of plan assets	68,597		165,730		77,141		189,240

The following table provides information related to those plans in which the PBO exceeded the fair value of the plan assets at December 31, 2018 and 2017. The PBO is the actuarially computed present value of earned benefits based on service to date and includes the estimated effect of any future salary increases. Employees and alternate payees have no longer accrued future benefits under the plans since December 31, 2016.



	Years Ended December 31,
	2018				2017
	Non-U.S.		U.S.		Non-U.S.		U.S.
Projected benefit obligation	$	—	$	210,944	$	—	$	235,175
Fair value of plan assets	—		165,730		—		189,240

The PBO for the unfunded excess benefit plan was $10.5 million at December 31, 2018 as compared to $16.4 million in 2017, and is included under “U.S.” in the above tables.

The following table provides information related to those plans in which the accumulated benefit obligation (“ABO”) exceeded the fair value of plan assets at December 31, 2018 and 2017. The ABO is the actuarially computed present value of earned benefits based on service to date, but differs from the PBO in that it is based on current salary levels. Employees and alternate payees have no longer accrued future benefits under the plans since December 31, 2016.



	Years Ended December 31,
	2018				2017
	Non-U.S.		U.S.		Non-U.S.		U.S.
Accumulated benefit obligation	$	—	$	210,944	$	—	$	235,175
Fair value of plan assets	—		165,730		—		189,240

The ABO for the unfunded excess benefit plan was $10.5 million at December 31, 2018 as compared to $16.4 million in 2017, and is included under “U.S.” in the above tables.

Defined Benefit Plans—Key Assumptions

The key assumptions for the plans are summarized below:



	Years Ended December 31,
	2018		2017
	Non-U.S.	U.S.	Non-U.S.	U.S.
Weighted-average assumptions used to determine benefit obligations:
Discount Rate	2.90%	3.65% - 4.29%	2.60%	2.84% - 3.66%
Rate of compensation increase	N/A	N/A	N/A	N/A



	Years Ended December 31,
	2018		2017		2016
	Non-U.S.	U.S.	Non-U.S.	U.S.	Non-U.S.	U.S.
Weighted-average assumptions used to determine periodic benefit cost:
Discount Rate	2.60%	2.84% - 3.66%	2.48% - 2.70%	3.00% - 4.24%	2.15% - 3.90%	3.09% - 4.48%
Expected long-term return on assets	3.70%	5.75% - 6.50%	4.10%	6.00% - 6.50%	1.60% - 5.00%	7.00%
Rate of compensation increase	N/A	N/A	N/A	N/A	3.60% - 4.20%	N/A

The discount rates used to calculate the net present value of future benefit obligations for our U.S. plans is based on the average of current rates earned on long-term bonds that receive a Moody’s rating of “Aa” or better. We have determined that the timing and amount of expected cash outflows on our plans reasonably match this index. For our non-U.S. plan, the discount rate used to calculate the net present value of future benefit obligations is determined by using a yield curve of high quality bond portfolios with an average maturity approximating that of the liabilities.

In developing the expected long-term rate of return on assets, we considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets for the portfolio. To assist us with this analysis, we employ third-party consultants for our U.S. and non-U.S. plans that use a portfolio return model.

Defined Benefit Plans—Plan Assets

Non-U.S. Plan

The NDLS pension Scheme targets an asset allocation of 48.0% return-seeking securities (Growth) and 52.0% debt securities (Matching). The trustees have decided to implement a de-risking strategy whereby the level of investment risk reduces as the Scheme’s funding level improves. The overall investment objective of the Scheme, as adopted by the Scheme’s Trustees, is to reach a fully funded position on the agreed de-risking basis of Gilts - 0.45% per annum. The objectives within the Scheme’s overall investment strategy is to outperform the cash + 4% per annum long term objective for Growth assets and to sufficiently hedge interest rate and inflation risk within the Matching portfolio in relation to the Scheme’s liabilities. By achieving these objectives, the Trustees believe the Scheme will be able to avoid significant volatility in the contribution rate and provide sufficient assets to cover the Scheme’s benefit obligations. To achieve this the Trustees have given Mercer, the appointed investment manager, full discretion in the day-to-day management of the Scheme’s assets and implementation of the de-risking strategy, who in turn invests in multiple underlying investment managers where appropriate. The Trustees meet with Mercer periodically to review and discuss their investment performance.

The actual fair values of the non-U.S. plan are as follows:



	Year Ended December 31, 2018
			Estimated Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	151	$	151	$	—	$	—
Equity securities:
International companies	25,585		25,585		—		—
Fixed income securities:
Corporate bonds	42,861		42,861		—		—
Total	$	68,597	$	68,597	$	—	$	—



	Year Ended December 31, 2017
			Estimated Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	280	$	280	$	—	$	—
Equity securities:
International companies	54,145		54,145		—		—
Fixed income securities:
Corporate bonds	22,716		22,716		—		—
Other	—		—		—		—
Total	$	77,141	$	77,141	$	—	$	—

U.S. Plans

The fundamental objective of the Plan is to provide the capital assets necessary to meet the financial obligations made to Plan participants. In order to meet this objective, the Investment Policy Statement depicts how the investment assets of the Plan are to be managed in accordance with the overall target asset allocation of approximately 31.5% equity securities, 67.3% fixed income securities, and 1.2% in cash and equivalents. The target asset allocation is intended to generate sufficient capital to meet Plan obligations and provide a portfolio rate of return equal to or greater than the return realized using appropriate blended, market benchmark over a full market cycle (usually a three to five year time period). Actual allocations may deviate from the target range, however any deviation from the target range of asset allocations must be approved by the Trust’s governing committee.

For investments in mutual funds, the assets of the Trust are subject to the guidelines and limits imposed by such mutual fund’s prospectus and the other governing documentation at the fund level.

No shares of Noble were included in equity securities at either December 31, 2018 or 2017.

The actual fair values of U.S. plan assets are as follows:



	Year Ended December 31, 2018
			Estimated Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	4,801	$	4,801	$	—	$	—
Equity securities:
United States	47,950		16,775		31,175		—
International	17,838		17,838		—		—
Fixed income securities:
Corporate bonds	64,802		59,648		5,154		—
Treasury bonds	30,339		30,339		—		—
Total	$	165,730	$	129,401	$	36,329	$	—



	Year Ended December 31, 2017
			Estimated Fair Value Measurements
	Carrying Amount		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	3,275	$	3,275	$	—	$	—
Equity securities:
United States	43,535		16,430		27,105		—
International	17,712		17,712		—		—
Fixed income securities:
Corporate bonds	40,793		40,793		—		—
Treasury bonds	83,925		83,925		—		—
Total	$	189,240	$	162,135	$	27,105	$	—

As of December 31, 2018, no single security made up more than 10 percent of total assets of either the U.S. or the non-U.S. plans.

Defined Benefit Plans—Cash Flows

In 2018, we made no contributions to our non-U.S. plan and contributions of $4.6 million to our U.S. plans. In 2017, we made total contributions of $0.7 million and $2.3 million to our non-U.S. and U.S. plans, respectively. In 2016, we made total contributions of $2.8 million and $0.4 million to our non-U.S. and U.S. plans, respectively. We expect our aggregate minimum contributions to our non-U.S. and U.S. plans in 2019, subject to applicable law, to be zero and $1.1 million, respectively. We continue to monitor and evaluate funding options based upon market conditions and may increase contributions at our discretion.

The following table summarizes our estimated benefit payments at December 31, 2018:



			Payments by Period
	Total		2019		2020		2021		2022		2023		Thereafter
Estimated benefit payments
Non-U.S. plans	$	38,334	$	3,255	$	3,372	$	3,492	$	3,617	$	3,747	$	20,851
U.S. plans	109,275		8,873		9,320		13,562		9,754		10,351		57,415
Total estimated benefit payments	$	147,609	$	12,128	$	12,692	$	17,054	$	13,371	$	14,098	$	78,266

Other Benefit Plans

We sponsor a 401(k) Restoration Plan, which is a nonqualified, unfunded employee benefit plan under which specified employees may elect to defer compensation in excess of amounts deferrable under our 401(k) savings plan. The 401(k) Restoration Plan has no assets, and amounts withheld for the 401(k) Restoration Plan are kept by us for general corporate purposes. The investments selected by employees and associated returns are tracked on a phantom basis. Accordingly, we have a liability to the employee for amounts originally withheld plus phantom investment income or less phantom investment losses. We are at risk for phantom investment income and, conversely, benefit should phantom investment losses occur. At both December 31, 2018 and 2017, our liability for the 401(k) Restoration Plan was $8.2 million and $8.8 million, respectively, and is included in “Accrued payroll and related costs.”

In 2005, we enacted a profit sharing plan, the Noble Drilling Services Inc. Profit Sharing Plan, which covers eligible employees, as defined in the plan. Participants in the plan become fully vested in the plan after three years of service. Profit sharing contributions are discretionary, require Board of Directors approval and are made in the form of cash. Contributions recorded related to this plan totaled $2.3 million, $3.1 million and $6.0 million, respectively, for three years ended December 31, 2018, 2017 and 2016.

We sponsor other retirement, health and welfare plans and a 401(k) savings plan for the benefit of our employees. The cost of maintaining these plans for continuing operations aggregated approximately $25.0 million, $27.6 million and $37.2 million in 2018, 2017 and 2016, respectively. We do not provide post-retirement benefits (other than pensions) or any post-employment benefits to our employees.