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Pension and Other Benefit Plans
12 Months Ended
Dec. 31, 2012
Pension and Other Benefit Plans

18.    Pension and Other Benefit Plans

Pension Plans

Schlumberger sponsors several defined benefit pension plans that cover substantially all US employees hired prior to October 1, 2004. The benefits are based on years of service and compensation, on a career-average pay basis.

In addition to the United States defined benefit pension plans, Schlumberger sponsors several other international defined benefit pension plans. The most significant of these international plans are the International Staff Pension Plan and the UK pension plan (collectively, the “International plans”). The International Staff Pension Plan covers certain international employees and is based on years of service and compensation on a career-average pay basis. The UK plan covers employees hired prior to April 1, 1999, and is based on years of service and compensation, on a final salary basis.

The weighted-average assumed discount rate, compensation increases and the expected long-term rate of return on plan assets used to determine the net pension cost for the US and International plans were as follows:

 

     US     International  
      2012     2011     2010     2012     2011     2010  

Discount rate

     5.00     5.50     6.00     4.95     5.47     5.89

Compensation increases

     4.00     4.00     4.00     4.91     4.91     4.93

Return on plan assets

     7.50     7.50     8.50     7.50     7.50     8.00

Net pension cost for 2012, 2011 and 2010 included the following components:

 

(Stated in millions)

 

 
     US     International  
      2012     2011     2010     2012     2011     2010  

Service cost – benefits earned during the period

   $ 68      $ 59      $ 56      $ 86      $ 64      $ 51   

Interest cost on projected benefit obligation

     152        150        142        241        226        208   

Expected return on plan assets

     (185     (170     (191     (328     (279     (228

Amortization of net loss

     93        90        60        76        31        19   

Amortization of prior service cost

     16        12        4        120        120        113   

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 144      $ 141      $ 71      $ 195      $ 162      $ 163   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The weighted-average assumed discount rate and compensation increases used to determine the projected benefit obligations for the US and International plans were as follows:

 

     US     International  
      2012     2011     2012     2011  

Discount rate

     4.25     5.00     4.38     4.95

Compensation increases

     4.00     4.00     4.83     4.91

The changes in the projected benefit obligation, plan assets and funded status of the plans were as follows:

 

                

(Stated in millions)

 

 
     US     International  
     2012     2011     2012     2011  

Change in Projected Benefit Obligations

        

Projected benefit obligation at beginning of year

   $ 3,073      $ 2,769      $ 4,666      $ 4,088   

Service cost

     68        59        86        64   

Interest cost

     152        150        241        226   

Contributions by plan participants

                   97        102   

Actuarial losses

     399        225        786        321   

Currency effect

                   62        (8

Benefits paid

     (134     (130     (140     (127

 

   

 

 

   

 

 

   

 

 

 

Projected benefit obligation at end of year

   $ 3,558      $ 3,073      $ 5,798      $ 4,666   
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in Plan Assets

        

Plan assets at fair value at beginning of year

   $ 2,655      $ 2,635      $ 4,097      $ 3,764   

Actual return on plan assets

     336        78        490          

Currency effect

                   62        (6

Company contributions

     53        72        514        364   

Contributions by plan participants

                   97        102   

Benefits paid

     (134     (130     (140     (127

 

   

 

 

   

 

 

   

 

 

 

Plan assets at fair value at end of year

   $ 2,910      $ 2,655      $ 5,120      $ 4,097   
  

 

 

   

 

 

   

 

 

   

 

 

 

Unfunded Liability

   $ (648   $ (418   $ (678   $ (569
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts Recognized in Balance Sheet

        

Postretirement Benefits

   $ (648   $ (418   $ (687   $ (569

Other Assets

                   9          

 

   

 

 

   

 

 

   

 

 

 
   $ (648   $ (418   $ (678   $ (569
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts Recognized in Accumulated Other Comprehensive Loss

        

Actuarial losses

   $ 1,197      $ 1,048      $ 1,234      $ 1,002   

Prior service cost

     90        101        598        729   

 

   

 

 

   

 

 

   

 

 

 
   $ 1,287      $ 1,149      $ 1,832      $ 1,731   
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated benefit obligation

   $ 3,262      $ 2,861      $ 5,401      $ 4,336   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

The unfunded liability represents the difference between the plan assets and the projected benefit obligation (“PBO”). The PBO represents the actuarial present value of benefits based on employee service and compensation and includes an assumption about future compensation levels. The accumulated benefit obligation represents the actuarial present value of benefits based on employee service and compensation, but does not include an assumption about future compensation levels.

The weighted-average allocation of plan assets and the target allocation by asset category are as follows:

 

     US     International  
     Target     2012     2011     Target     2012     2011  

Equity securities

     45 – 55     47     47     50 – 70     56     51

Debt securities

     33 – 45        42        39        25 – 40        35        38   

Cash and cash equivalents

     0 – 3        2        6        0 – 3        3        4   

Alternative investments

     0 – 10        9        8        0 – 20        6        7   

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Schlumberger’s investment policy includes various guidelines and procedures designed to ensure that assets are prudently invested in a manner necessary to meet the future benefit obligation of the pension plans. The policy does not permit the direct investment of plan assets in any Schlumberger security. Schlumberger’s investment horizon is long-term and accordingly the target asset allocations encompass a strategic, long-term perspective of capital markets, expected risk and return behavior and perceived future economic conditions. The key investment principles of diversification, assessment of risk and targeting the optimal expected returns for given levels of risk are applied. The target asset allocation is reviewed periodically and is determined based on a long-term projection of capital market outcomes, inflation rates, fixed income yields, returns, volatilities and correlation relationships. The inclusion of any given asset class in the target asset allocation is considered in relation to its impact on the overall risk/return characteristics as well as its impact on the overall investment return. As part of its strategy, Schlumberger may utilize certain derivative instruments, such as options, futures, swaps and forwards, within the plans to manage risks (currency, interest rate, etc.), as a substitute for physical securities or to obtain exposure to different markets.

Asset performance is monitored frequently with an overall expectation that plan assets will meet or exceed the weighted index of its target asset allocation and component benchmark over rolling five-year periods.

The expected long-term rate of return on assets assumptions reflect the average rate of earnings expected on funds invested or to be invested. The assumptions have been determined by reflecting expectations regarding future rates of return for the portfolio considering the asset allocation and related historical rates of return. The appropriateness of the assumptions is reviewed annually.

The fair value of Schlumberger’s pension plan assets at December 31, 2012 and 2011, by asset category, are presented below and were determined based on valuation techniques categorized as follows:

 

   

Level One: The use of quoted prices in active markets for identical instruments.

 

   

Level Two: The use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or other inputs that are observable in the market or can be corroborated by observable market data.

 

   

Level Three: The use of significantly unobservable inputs that typically require the use of management’s estimates of assumptions that market participants would use in pricing.

 

(Stated in millions)

 

 
     US Plan Assets  
     2012      2011  
     Total      Level
One
     Level
Two
     Level
Three
     Total      Level
One
     Level
Two
     Level
Three
 

Asset Category:

                       

Cash and Cash Equivalents

   $ 56       $ 5       $ 51       $       $ 147       $ 39       $ 108       $   

Equity Securities:

                       

US (a)

     868         502         366            806         471         335      

International (b)

     513         406         107            453         369         84      

Debt Securities:

                       

Corporate bonds (c)

     495            495            340            340      

Government and government-related debt securities (d)

     638         157         481            545         146         399      

Government agency collateralized mortgage obligations and mortgage backed securities (e)

     88            88            96            96      

Other collateralized mortgage obligations and mortgage-backed securities (f)

     11            11            58            58      

Alternative Investments:

                       

Private equity (g)

     185               185         160               160   

Real estate (h)

     56               56         50               50   

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,910       $ 1,070       $ 1,599       $ 241       $ 2,655       $ 1,025       $ 1,420       $ 210   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Stated in millions)

 

 
     International Plan Assets  
     2012      2011  
     Total      Level
One
     Level
Two
     Level
Three
     Total      Level
One
     Level
Two
     Level
Three
 

Asset Catergory:

                       

Cash and Cash Equivalents

   $ 168       $ 157       $ 11       $       $ 152       $ 152       $       $   

Equity Securities:

                       

US (a)

     1,583         1,152         431            1,170         1,018         152      

International (b)

     1,258         765         493            937         651         286      

Debt Securities:

                       

Corporate bonds (c)

     540            540            399            399      

Government and government-related debt securities (d)

     976            976            808            808      

Government agency collateralized mortgage obligations and mortgage backed securities (e)

     196            196            268            268      

Other collateralized mortgage obligations and mortgage-backed securities (f)

     93            93            93            93      

Alternative Investments:

                       

Private equity (g)

     128               128         150               150   

Real estate (h)

     55               55         62               62   

Other

     123               123         58               58   

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,120       $ 2,074       $ 2,740       $ 306       $ 4,097       $ 1,821       $ 2,006       $ 270   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) US equities include companies that are well diversified by industry sector and equity style (i.e., growth and value strategies). Active and passive management strategies are employed. Investments are primarily in large capitalization stocks and, to a lesser extent, mid- and small-cap stocks.

 

(b) International equities are invested in companies that are traded on exchanges outside the US and are well diversified by industry sector, country and equity style. Active and passive strategies are employed. The vast majority of the investments are made in companies in developed markets with a small percentage in emerging markets.

 

(c) Corporate bonds consist primarily of investment grade bonds from diversified industries.

 

(d) Government and government-related debt securities are comprised primarily of inflation protected US treasuries and, to a lesser extent, other government-related securities.

 

(e) Government agency collateralized mortgage obligations and mortgage backed-securities are debt obligations that represent claims to the cash flows from pools of mortgage loans which are purchased from banks, mortgage companies, and other originators and then assembled into pools by governmental and quasi-governmental entities.

 

(f) Other collateralized mortgage obligations and mortgage-backed securities are debt obligations that represent claims to the cash flows from pools of mortgage loans which are purchased from banks, mortgage companies, and other originators and then assembled into pools by private entities.

 

(g) Private equity includes investments in several fund of funds limited partnerships.

 

(h) Real estate primarily includes investments in real estate limited partnerships, concentrated in commercial real estate.

 

The funding policy is to annually contribute amounts that are based upon a number of factors including the actuarial accrued liability, amounts that are deductible for income tax purposes, legal funding requirements and available cash flow. Schlumberger currently anticipates contributing approximately $650 million to its postretirement benefit plans in 2013, subject to market and business conditions.

Postretirement Benefits Other than Pensions

Schlumberger provides certain health care benefits to former US employees who have retired.

The actuarial assumptions used to determine the accumulated postretirement benefit obligation and net periodic benefit cost for the US postretirement medical plan were as follows:

 

     Benefit Obligation
at December 31,
    Net Periodic Benefit Cost
for the year
 
     2012     2011     2012     2011     2010  

Discount rate

     4.25     5.00     5.00     5.50     6.00

Return on plan assets

                   7.00     7.00     8.00

Current medical cost trend rate

     7.50     8.00     8.00     8.00     8.00

Ultimate medical cost trend rate

     5.00     5.00     5.00     5.00     5.00

Year that the rate reaches the ultimate trend rate

     2023        2018        2018        2017        2016   

The net periodic benefit cost for the US postretirement medical plan included the following components:

 

(Stated in millions)

 

 
     2012     2011     2010  

Service cost – benefits earned during the period

   $ 29      $ 24      $ 23   

Interest cost on projected benefit obligation

     58        57        58   

Expected return on plan assets

     (30     (20     (6

Amortization of net loss

     16        13        11   

Amortization of prior service credit

     (8     (12     (21

 

   

 

 

   

 

 

 
   $ 65      $ 62      $ 65   
  

 

 

   

 

 

   

 

 

 

The changes in the accumulated postretirement benefit obligation, plan assets and funded status were as follows:

 

(Stated in millions)

 

 
     2012     2011  

Change in Accumulated Postretirement Benefit Obligation

    

Benefit obligation at beginning of year

   $ 1,188      $ 1,051   

Service cost

     29        24   

Interest cost

     58        57   

Contributions by plan participants

     6        6   

Actuarial losses

     171        90   

Benefits paid

     (42     (40

 

   

 

 

 

Benefit obligation at end of year

   $ 1,410      $ 1,188   
  

 

 

   

 

 

 

Change in Plan Assets

    

Plan assets at fair value at beginning of year

   $ 443      $ 290   

Company contributions

     106        165   

Contributions by plan participants

     6        6   

Benefits paid

     (42     (40

Actual return on plan assets

     63        22   

 

   

 

 

 

Plan assets at fair value at end of year

   $ 576      $ 443   
  

 

 

   

 

 

 

Unfunded Liability

   $ (834   $ (745
  

 

 

   

 

 

 

Amounts Recognized in Accumulated
Other Comprehensive Loss

    

Actuarial losses

   $ 411      $ 286   

Prior service cost

     (16     (24

 

   

 

 

 
   $ 395      $ 262   
  

 

 

   

 

 

 

The unfunded liability is included in Postretirement Benefits in the Consolidated Balance Sheet.

The assets of the US postretirement medical plan are invested 63% in US equity securities and 37% in government and government-related debt securities. The fair value of these assets were determined based on quoted prices in active markets for identical instruments.

Assumed health care cost trend rates have a significant effect on the amounts reported for the US postretirement medical plan. A one percentage point change in assumed health care cost trend rates would have the following effects:

 

(Stated in millions)

 

 
     One percentage
point increase
     One percentage
point decrease
 

Effect on total service and interest cost components

   $ 18       $ (14

Effect on accumulated postretirement benefit obligation

   $ 287       $ (203

Other Information

The expected benefits to be paid under the US and International pension plans as well as the postretirement medical plan (which is disclosed net of the annual Medicare Part D subsidy, which ranges from $4 million to $11 million per year) were as follows:

 

(Stated in millions)

 

 
     Pension Benefits      Postretirement
Medical Plan
 
     US      International     

2013

   $ 141       $ 179       $ 48   

2014

     145         193         51   

2015

     151         208         54   

2016

     158         223         58   

2017

     166         242         62   

2018-2022

     971         1,397         380   

Included in Accumulated other comprehensive loss at December 31, 2012 are non-cash pretax charges which have not yet been recognized in net periodic benefit cost. The estimated amounts that will be amortized from the estimated portion of each component of Accumulated other comprehensive loss which is expected to be recognized as a component of net periodic benefit cost during the year ending December 31, 2013 are as follows:

 

(Stated in millions)

 

 
     Pension
Plans
     Postretirement
Medical

Plan
 

Net actuarial losses

   $ 249       $ 27   

Prior service cost (credit)

   $ 133       $ (4

In addition to providing defined pension benefits and a postretirement medical plan, Schlumberger and its subsidiaries have other deferred benefit programs, primarily profit sharing and defined contribution pension plans. Expenses for these programs were $620 million, $582 million and $403 million in 2012, 2011 and 2010, respectively.