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 US 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 hired prior to July 1, 2014 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 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
	2017			2016			2015			2017			2016			2015
Discount rate		4.20	%		4.50	%		4.15	%		4.13	%		4.36	%		4.07	%
Compensation increases		4.00	%		4.00	%		4.00	%		4.81	%		4.81	%		4.79	%
Return on plan assets		7.25	%		7.25	%		7.25	%		7.40	%		7.40	%		7.40	%

Net pension cost for 2017, 2016 and 2015 included the following components:

(Stated in millions)

	US									International
	2017			2016			2015			2017			2016			2015
Service cost - benefits earned during the period	$	57		$	62		$	86		$	95		$	110		$	167
Interest cost on projected benefit obligation		175			177			170			306			311			297
Expected return on plan assets		(242	)		(235	)		(229	)		(541	)		(517	)		(498	)
Amortization of prior service cost		12			12			12			97			122			121
Amortization of net loss		39			79			123			120			78			170
	$	41		$	95		$	162		$	77		$	104		$	257

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
	2017			2016			2017			2016
Discount rate		3.70	%		4.20	%		3.55	%		4.13	%
Compensation increases		4.00	%		4.00	%		4.81	%		4.81	%

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

(Stated in millions)

	US						International
	2017			2016			2017			2016
Change in Projected Benefit Obligations
Projected benefit obligation at beginning of year	$	4,240		$	4,025		$	7,793		$	7,340
Service cost		57			62			95			110
Interest cost		175			177			306			311
Contribution by plan participants		-			-			88			117
Actuarial (gains) losses		325			137			616			477
Currency effect		-			-			147			(290	)
Benefits paid		(194	)		(183	)		(293	)		(272	)
Other		-			22			-			-
Projected benefit obligation at end of year	$	4,603		$	4,240		$	8,752		$	7,793
Change in Plan Assets
Plan assets at fair value at beginning of year	$	3,625		$	3,467		$	7,194		$	6,832
Actual return on plan assets		622			320			1,216			715
Currency effect		-			-			161			(318	)
Company contributions		5			4			88			130
Contributions by plan participants		-			-			88			117
Benefits paid		(194	)		(183	)		(293	)		(272	)
Other		-			17			53			(10	)
Plan assets at fair value at end of year	$	4,058		$	3,625		$	8,507		$	7,194
Unfunded Liability	$	(545	)	$	(615	)	$	(245	)	$	(599	)
Amounts Recognized in Balance Sheet
Postretirement Benefits	$	(545	)	$	(615	)	$	(418	)	$	(724	)
Other Assets		-			-			173			125
	$	(545	)	$	(615	)	$	(245	)	$	(599	)
Amounts Recognized in Accumulated Other Comprehensive Loss
Actuarial losses	$	887		$	982		$	1,419		$	1,644
Prior service cost		30			42			17			114
	$	917		$	1,024		$	1,436		$	1,758
Accumulated benefit obligation	$	4,347		$	3,999		$	8,400		$	7,454

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 allocations by asset category are as follows:

	US									International
	Target			2017			2016			Target			2017			2016
Equity securities	37 - 56		%		51	%		52	%	45 - 71		%		64	%		64	%
Debt securities	35 - 62				38			37		20 - 35				23			25
Cash and cash equivalents	0 - 3				3			2		0 - 5				4			2
Alternative investments	0 - 10				8			9		0 - 25				9			9
		100	%		100	%		100	%		100	%		100	%		100	%

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 rate of return on assets assumptions reflect the long-term average rate of earnings expected on funds invested or to be invested. The assumptions have been determined based on 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, 2017 and 2016, by asset category, is presented below and was 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 significant 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
	2017								2016
			Level		Level		Level				Level		Level		Level
	Total		One		Two		Three		Total		One		Two		Three
Asset Category:
Cash and Cash Equivalents	$	112	$	92	$	20	$	-	$	60	$	15	$	45	$	-
Equity Securities:
US ^(a)		1,324		1,148		176				1,210		1,049		161
International^(b)		757		747		10				662		649		13
Debt Securities
Corporate bonds^(c)		771				771				625				625
Government and government-related debt securities^(d)		656		163		493				643		164		479
Collateralized mortgage obligations and mortgage backed securities^(e)		108				108				92				92
Alternative Investments:
Private equity ^(f)		183						183		191						191
Real estate ^(g)		147						147		142						142
Total	$	4,058	$	2,150	$	1,578	$	330	$	3,625	$	1,877	$	1,415	$	333

(Stated in millions)

	International Plan Assets
	2017								2016
			Level		Level		Level				Level		Level		Level
	Total		One		Two		Three		Total		One		Two		Three
Asset Category:
Cash and Cash Equivalents	$	307	$	69	$	238	$	-	$	184	$	135	$	49	$	-
Equity Securities:
US ^(a)		3,286		2,642		644				2,854		2,324		530
International^(b)		2,160		1,871		289				1,726		1,475		251
Debt Securities
Corporate bonds^(c)		841				841				685				685
Government and government-related debt securities^(d)		985		11		974				1,001		10		991
Collateralized mortgage obligations and mortgage backed securities^(e)		150				150				130				130
Alternative Investments:
Private equity ^(f)		477						477		385						385
Real estate ^(g)		168						168		106						106
Other		133						133		123						123
Total	$	8,507	$	4,593	$	3,136	$	778	$	7,194	$	3,944	$	2,636	$	614

^(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)

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, quasi-governmental and private entities.

^(f)	Private equity includes investments in several funds of funds.

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

Schlumberger’s 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 expects to contribute approximately $125 million to its postretirement benefit plans in 2018, subject to market and business conditions.

Postretirement Benefits Other Than Pensions

Schlumberger provides certain healthcare benefits to certain former US employees who have retired. Effective April 1, 2015, Schlumberger changed the way it provides healthcare coverage to certain retirees who are age 65 and over. Under the amended plan, these retirees transferred to individual coverage under the Medicare Exchange. Schlumberger subsidizes the cost of the program by providing these retirees with a Health Reimbursement Account. The annual subsidy may be increased based on medical cost inflation, but it will not be increased by more than 5% in any given year.

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 Obligations						Net Periodic Benefit
	At December 31,						Cost for the Year
	2017			2016			2017			2016			2015
Discount rate		3.70	%		4.20	%		4.20	%		4.50	%		4.15	%
Return on plan assets	-			-				7.00	%		7.00	%		7.00	%
Current medical cost trend rate		7.25	%		7.25	%		7.25	%		7.50	%		7.00	%
Ultimate medical cost trend rate		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Year that the rate reaches the ultimate trend rate	2026			2026			2026			2026			2023

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

(Stated in millions)

	2017			2016			2015
Service cost	$	29		$	30		$	42
Interest cost		46			47			48
Expected return on plan assets		(60	)		(57	)		(52	)
Amortization of prior service credit		(29	)		(32	)		(32	)
Amortization of net loss		-			-			13
	$	(14	)	$	(12	)	$	19

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

(Stated in millions)

	2017			2016
Change in Projected Benefit Obligations
Benefit obligation at beginning of year	$	1,108		$	1,103
Service cost		29			30
Interest cost		46			47
Contribution by plan participants		8			8
Actuarial gains		71			(32	)
Benefits paid		(49	)		(48	)
Benefit obligation at end of year	$	1,213		$	1,108
Change in Plan Assets
Plan assets at fair value at beginning of year	$	952		$	884
Actual return on plan assets		143			68
Company contributions		40			40
Contributions by plan participants		8			8
Benefits paid		(49	)		(48	)
Plan assets at fair value at end of year	$	1,094		$	952
Unfunded Liability	$	(119	)	$	(156	)
Amounts Recognized in Accumulated Other Comprehensive Loss
Actuarial losses	$	36		$	62
Prior service credit		(215	)		(243	)
	$	(179	)	$	(181	)

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

The assets of the US postretirement medical plan are invested 59% in equity securities and 41% in debt securities at December 31, 2017. The fair value of these assets was primarily determined based on Level Two valuation techniques.

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

(Stated in millions)

	One Percentage		One Percentage
	Point Increase		Point Decrease
Effect on total service and interest cost components	$	3	$	(3	)
Effect on accumulated postretirement benefit obligation	$	35	$	(30	)

Other Information

The expected benefits to be paid under the US and International pension plans as well as the postretirement medical plan are as follows:

(Stated in millions)

	Pension Benefits				Postretirement
	US		International		Medical Plan
2018	$	201	$	281	$	53
2019	$	207	$	294	$	55
2020	$	212	$	307	$	58
2021	$	218	$	320	$	60
2022	$	224	$	333	$	61
2023-2027	$	1,215	$	1,895	$	333

Included in Accumulated other comprehensive loss at December 31, 2017 are non-cash pretax charges which have not yet been recognized in net periodic benefit cost. 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, 2018 is as follows:

(Stated in millions)

			Postretirement
	Pension Plans		Medical Plan
Net actuarial losses	$	209	$	-
Prior service cost (credit)	$	23	$	(28	)

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 $413 million, $445 million and $565 million in 2017, 2016 and 2015, respectively.