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Employee and Retiree Benefit Plans

12 Months Ended

Dec. 31, 2020

Note L – Employee and Retiree Benefit Plans

PENSION AND OTHER POSTRETIREMENT PLANS – The Company has defined benefit pension plans that are principally noncontributory and cover most full-time employees. All pension plans are funded except for the U.S. and Canadian nonqualified supplemental plans and the U.S. directors’ plan. All U.S. tax qualified plans meet the funding requirements of federal laws and regulations. Contributions to foreign plans are based on local laws and tax regulations. The Company also sponsors health care and life insurance benefit plans, which are not funded, that cover most retired U.S. employees. The health care benefits are contributory; the life insurance benefits are noncontributory.

Upon the disposal of Murphy’s former U.K. downstream assets, the Company retained all vested defined benefit pension obligations associated with former employees of this business. No additional benefits will accrue to these former U.K. employees under the Company’s retirement plan after the date of their separation from Murphy.

GAAP requires the Company to recognize the overfunded or underfunded status of its defined benefit plans as an asset or liability in its consolidated balance sheet and to recognize changes in that funded status between periods through accumulated other comprehensive loss.

On May 6, 2020, the Company announced that it was closing its headquarters office in El Dorado, Arkansas, its office in Calgary, Alberta, and consolidating all worldwide staff activities to its existing office location in Houston, Texas. As a result of this decision and the subsequent restructuring activities, a pension remeasurement was triggered and the Company incurred pension curtailment and special termination benefit charges as a result of the associated reduction in force. The Company elected the use of a practical expedient to perform the pension remeasurement as of May 31, 2020, which resulted in an increase in our pension and other postretirement benefit liabilities of $63.0 million (as of May 31, 2020) due to a lower discount rate and lower plan assets compared to December 31, 2019.

The tables that follow provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for the years ended December 31, 2020 and 2019 and a statement of the funded status as of December 31, 2020 and 2019.


	Pension Benefits			Other Postretirement Benefits
(Thousands of dollars)	2020		2019	2020	2019
Change in benefit obligation
Obligation at January 1	$	883,269	777,645	108,401	94,779
Service cost	7,967		7,964	1,373	1,559
Interest cost	21,127		27,835	2,626	3,864
Participant contributions	—		11	2,225	1,930
Actuarial loss (gain)	107,258		103,374	3,758	10,503
Medicare Part D subsidy	—		—	243	234
Exchange rate changes	7,074		7,687	13	30
Benefits paid	(46,066)		(41,247)	(4,238)	(4,498)

Curtailments	(7,596)		—	(6,023)	—
Special termination benefits	8,434		—	—	—

Obligation at December 31	981,467		883,269	108,378	108,401
Change in plan assets
Fair value of plan assets at January 1	547,484		487,094	—	—
Actual return on plan assets	48,115		70,893	—	—
Employer contributions	30,178		25,915	1,770	2,333
Participant contributions	—		11	2,225	1,930
Medicare Part D subsidy	—		—	243	234
Exchange rate changes	7,009		7,328	—	—
Benefits paid	(46,066)		(41,247)	(4,238)	(4,497)
Other	—		(2,510)	—	—
Fair value of plan assets at December 31	586,720		547,484	—	—
Funded status and amounts recognized in the Consolidated Balance Sheets at December 31
Deferred charges and other assets	4,572		5,353	—	—
Other accrued liabilities	(9,468)		(8,810)	(5,298)	(5,234)
Deferred credits and other liabilities	(389,851)		(332,328)	(103,080)	(103,167)
Fund Status and net plan liability recognized at December 31	$	(394,747)	(335,785)	(108,378)	(108,401)

At December 31, 2020, amounts included in Accumulated other comprehensive loss (AOCL) in the Consolidated Balance Sheets, before reduction for associated deferred income taxes, which have not been recognized in net periodic benefit expense are shown in the following table.


(Thousands of dollars)	Pension Benefits		Other Postretirement Benefits
Net actuarial gain (loss)	$	(313,317)	3,707
Prior service cost	(2,731)		—
	$	(316,048)	3,707

The table that follows includes projected benefit obligations, accumulated benefit obligations and fair value of plan assets for plans where the accumulated benefit obligation exceeded the fair value of plan assets.


	Projected Benefit Obligations			Accumulated Benefit Obligations		Fair Value of Plan Assets
(Thousands of dollars)	2020		2019	2020	2019	2020	2019
Funded qualified plans where accumulated benefit obligation exceeds fair value of plan assets	$	762,134	688,249	753,475	676,177	564,238	525,108
Unfunded nonqualified and directors’ plans where accumulated benefit obligation exceeds fair value of plan assets	201,372		177,999	198,792	171,934	—	—
Unfunded other postretirement plans	108,378		108,401	108,378	108,401	—	—

The table that follows provides the components of net periodic benefit expense for each of the three years ended December 31, 2020.


	Pension Benefits				Other Postretirement Benefits
(Thousands of dollars)	2020		2019	2018	2020	2019	2018
Service cost	$	7,967	7,964	8,994	1,373	1,559	1,965
Interest cost	21,127		27,835	26,168	2,626	3,864	3,427
Expected return on plan assets	(24,316)		(25,719)	(29,236)	—	—	—
Amortization of prior service cost (credit)	640		964	1,021	—	—	(38)

Recognized actuarial loss	22,828		14,106	21,893	(31)	(193)	—
Net periodic benefit expense	28,246		25,150	28,840	3,968	5,230	5,354
Termination benefits expense	8,434		—	—	—	—	—
Curtailment expense	586		—	—	(1,825)	—	—
Total net periodic benefit expense	$	37,266	25,150	28,840	2,143	5,230	5,354

The preceding tables in this note include the following amounts related to foreign benefit plans.


	Pension Benefits			Other Postretirement Benefits
(Thousands of dollars)	2020		2019	2020	2019
Benefit obligation at December 31	$	230,101	209,923	492	387
Fair value of plan assets at December 31	221,463		197,965	—	—
Net plan liabilities recognized	(8,638)		(11,957)	492	387
Net periodic benefit expense (benefit)	437		(933)	46	147

The following table provides the weighted-average assumptions used in the measurement of the Company’s benefit obligations at December 31, 2020 and 2019 and net periodic benefit expense for 2020 and 2019.


	Benefit Obligations								Net Periodic Benefit Expense
	Pension Benefits				Other Postretirement Benefits				Pension Benefits				Other Postretirement Benefits
	December 31,				December 31,				Year				Year
	2020		2019		2020		2019		2020		2019		2020		2019
Discount rate	2.25	%	3.85	%	2.50	%	3.42	%	2.75	%	3.35	%	3.16	%	4.42	%
Expected return on plan assets	4.43	%	5.05	%	—		—		4.43	%	5.05	%	—		—
Rate of compensation increase	3.04	%	3.28	%	—		—		3.28	%	3.52	%	—		—

The discount rates used for determining the plan obligations and expense are based on the universe of high-quality corporate bonds that are available within each country. Cash flow analyses are performed in which a spot yield curve is used to discount projected benefit payment streams for the most significant plans. The discounted cash flows are used to determine an equivalent single rate which is the basis for selecting the discount rate within each country. Expected plan asset returns are based on long-term expectations for asset portfolios with similar investment mix characteristics. Expected compensation increases are based on anticipated future averages for the Company.

Benefit payments, reflecting expected future service as appropriate, which are expected to be paid in future years from the assets of the plans or by the Company are shown in the following table.


(Thousands of dollars)	Pension Benefits		Other Postretirement Benefits
2021	$	45,903	5,298
2022	47,205		5,268
2023	46,996		5,251
2024	47,589		5,224
2025	47,346		5,182
2026-2031	242,700		25,954

For purposes of measuring postretirement benefit obligations at December 31, 2020, the future annual rates of increase in the cost of health care were assumed to be 6.2% for 2020 decreasing each year to an ultimate rate of 4.5% in 2038 and thereafter.

During 2020, the Company made contributions of $30.5 million to its domestic defined benefit pension plans and $1.8 million to its domestic postretirement benefits plan. During 2021, Company currently expects to make contributions of $31.3 million to its domestic defined benefit pension plans, $5.3 million to its foreign defined benefit pension plans and $5.3 million to its domestic postretirement benefits plan.

Plan Investments – Murphy Oil Corporation maintains an Investment Policy Statement (Statement) that establishes investment standards related to its funded domestic qualified retirement plan. The Statement specifies that all assets will be held in a Trust sponsored by the Company, which is administrated by a trustee appointed by the Investment Committee (Committee). Members of the Committee are appointed by the Chief Executive Officer of Murphy. The Committee hires Investment Managers to invest trust assets within the guidelines established by the Committee as allowed by the Statement. The investment goals call for a portfolio of assets consisting of equity, fixed income and cash equivalent securities. The primary consideration for investments is the preservation of capital, and investment growth should exceed the rate of inflation. The Committee has directed the asset investment advisors of its benefit plans to maintain a portfolio consisting of both equity and fixed income securities. The Company believes that over time a balanced to slightly heavier weighting of the portfolio in equity securities compared to fixed income securities represents the most appropriate long-term mix for future investment return on assets held by domestic plans.

Generally, no more than 10% of an Investment Manager’s portfolio is to be held in equity securities of any one issuer, and equity securities should have a minimum market capitalization of $100.0 million. Equities held in the trust should be listed on the New York or American Stock Exchanges, principal U.S. regional exchanges, major foreign exchanges or quoted in significant over-the-counter markets. Equity or fixed income securities issued by the Company may not be held in the trust. Fixed income securities include maturities greater than one year to maturity. The fixed income portfolio should not exceed an average maturity of 11 years. The portfolio may include investment grade corporate bonds, bond issues of the U.S. government, its agencies and government sponsored entities, government agency issued collateralized mortgage backed securities, agency issued mortgage backed securities, municipal bonds, asset backed securities, commercial mortgage backed securities and international and emerging markets bond funds. The Committee routinely reviews the investment performance of Investment Managers.

For the U.K. retirement plan, trustees have been appointed by the wholly-owned subsidiary that sponsors the plan for U.K. employees. The trustees have hired Hewitt Risk Management Services Limited (the Manager) as fiduciary investment manager of the plan’s assets. The trustees have adopted a de-risking strategy which permits the Manager discretion to vary the investment allocation as needed to meet a target return. The target return is reduced over time as pre-determined funding level triggers are met in proportion to pension liability changes. As of December 31, 2020, one of seven funding level triggers have been met which led to a reduction in growth assets to more low-risk assets. The plan primarily invests in two funds, the Delegated Growth Fund (DGF) and the Delegated Liability Fund (DLF). The DGF is diversified by style, strategy and asset

class by investing with underlying funds that may include equity funds, fixed income funds, debt funds, currency funds, hedge funds, fund of hedge funds and other collective investment schemes covering a broad range of asset classes and strategies. The DLF aims to provide returns in line with the liabilities of typical pension plans on an exposure basis in the relevant tenures and instruments (long/short, real/nominal). The DLF also holds cash as collateral for the leveraged positions along with small working cash balances to facilitate daily management of payments and receipts within the plan. The trustee routinely reviews the investment performance of the plan.

For the Canadian retirement plan, the wholly-owned subsidiary that sponsors the plan has a Statement of Investment Policies and Procedures (Policy) applicable to the plan assets. A pension committee appointed by the board of directors of the subsidiary oversees the plan, selects the investment advisors and routinely reviews performance of the asset portfolio. The Policy permits assets to be invested in various Canadian and foreign equity securities, various fixed income securities, real estate, natural resource properties or participation rights and cash. The objective for plan investments is to achieve a total rate of return equal to the long-term interest rate assumption used for the going-concern actuarial funding valuation.

The following table provides the asset allocation of each plan on December 31, 2020.


	Allocation of Plan Assets
	Domestic Plan		Canadian Plan		U.K. Plan
	Target	Allocation at	Target	Allocation at	Target	Allocation at
	Allocation	December 31, 2020	Allocation	December 31, 2020	Allocation	December 31, 2020
Equity securities	40-70%	56.0%	—%	31.0%	N/A	65.0%
Fixed income securities	28-60%	28.0%	98%	68.0%	N/A	11.7%
Alternatives	0-18%	11.4%	—%	—%	N/A	18.0%
Cash and equivalents	0-15%	4.6%	2%	1.0%	N/A	5.3%

The weighted average asset allocation for the Company’s funded pension benefit plans at December 31, 2020 and 2019 are presented in the following table.


	December 31,
	2020		2019
Equity securities	58.1	%	54.9	%
Fixed income securities	24.0		26.2
Alternatives	13.2		17.3
Cash equivalents	4.7		1.6
	100.0	%	100.0	%

The Company’s weighted average expected return on plan assets was 4.70% in 2020 and the return was determined based on an assessment of actual long-term historical returns and expected future returns for a portfolio with investment characteristics similar to that maintained by the plans. The 4.70% expected return was based on a weighted average expected future equity securities return of 3.90% and a fixed income securities return of 0.80%. There is also an average expected investment expense of 0.60%. Over the last 10 years, the return on funded retirement plan assets has averaged 7.55%.

At December 31, 2020, the fair value measurements of retirement plan assets within the fair value hierarchy are included in the table that follows.


			Fair Value Measurements Using
(Thousands of dollars)	Fair Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Domestic Plans
Equity securities:
U.S. core equity	$	67,326	67,326	—	—
U.S. small/midcap	28,953		28,953	—	—
Hedged funds and other alternative strategies	42,040		—	—	42,040
International commingled trust fund	76,095		987	55,433	19,675
Emerging market commingled equity fund	32,058		10,480	21,578	—
Fixed income securities:
U.S. fixed income	92,668		—	92,668	—
International commingled trust fund	9,456		—	9,456	—

Cash and equivalents	16,661		16,661	—	—
Total Domestic Plans	365,257		124,407	179,135	61,715
Foreign Plans
Equity securities funds	74,393		—	74,393	—
Fixed income securities funds	45,240		—	45,240	—
Diversified pooled fund	54,871		—	54,871	—
Other	35,970		—	—	35,970
Cash and equivalents	10,989		—	10,989	—
Total Foreign Plans	221,463		—	185,493	35,970
Total	$	586,720	124,407	364,628	97,685

At December 31, 2019, the fair value measurements of retirement plan assets within the fair value hierarchy are included in the table that follows.


			Fair Value Measurements Using
(Thousands of dollars)	Fair Value at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Domestic Plans
Equity securities:
U.S. core equity	$	63,169	63,169	—	—
U.S. small/midcap	26,062		26,062	—	—
Hedged funds and other alternative strategies	58,864		—	—	58,864
International commingled trust fund	73,783		924	55,798	17,061
Emerging market commingled equity fund	25,911		8,011	17,900	—
Fixed income securities:
U.S. fixed income	88,525		—	88,525	—
International commingled trust fund	8,720		—	8,720	—

Cash and equivalents	4,485		4,485	—	—
Total Domestic Plans	349,519		102,651	170,943	75,925
Foreign Plans
Equity securities funds	68,878		—	68,878	—
Fixed income securities funds	46,582		—	46,582	—
Diversified pooled fund	42,582		—	42,582	—
Other	35,661		—	—	35,661
Cash and equivalents	4,262		—	4,262	—
Total Foreign Plans	197,965		—	162,304	35,661
Total	$	547,484	102,651	333,247	111,586

The definition of levels within the fair value hierarchy in the tables above is included in Note Q – Assets and Liabilities Measured at Fair Value .

For domestic plans, U.S. core and small/midcap equity securities are valued based on daily market prices as quoted on national stock exchanges or in the over-the-counter market. Hedge funds and other alternative strategies funds consist of three investments. One of these investments is valued based on daily market prices as quoted on national stock exchanges, another investment is valued monthly based on net asset value and permits withdrawals semi-annually after a 90-day notice, and the third investment is also valued monthly based on net asset values and has a two-year lock-up period and a 95-day notice following the lock-up period. International equities held in a commingled trust are valued monthly based on prices as quoted on various international stock exchanges. The emerging market commingled equity fund is valued monthly based on net asset value. These commingled equity funds can be withdrawn monthly and have a 10-day notice period. U.S. fixed income securities are valued daily based on bids for the same or similar securities or using net asset values. International fixed income securities held in a commingled trust are valued on a monthly basis using net asset values. The fixed income emerging market mutual fund is valued daily based on net asset value. For foreign plans, the equity securities funds are comprised of U.K. and foreign equity funds valued daily based on fund net asset values. Fixed income securities funds are U.K. securities valued daily at net asset values. The diversified pooled fund is valued daily at net asset value and contains a combination of Canadian and foreign equity securities, Canadian fixed income securities and cash.

The effects of fair value measurements using significant unobservable inputs on changes in Level 3 plan assets are outlined below:


(Thousands of dollars)	Hedged Funds and Other Alternative Strategies
Total at December 31, 2018	$	35,029
Actual return on plan assets:
Relating to assets held at the reporting date	20,811

Purchases, sales and settlements	55,746
Total at December 31, 2019	111,586
Actual return on plan assets:
Relating to assets held at the reporting date	5,694

Purchases, sales and settlements	(19,595)
Total at December 31, 2020	$	97,685

THRIFT PLANS – Most full-time U.S. employees of the Company may participate in thrift or similar savings plans by allotting up to a specified percentage of their base pay. The Company matches contributions at a stated percentage of each employee’s allotment based on years of participation in the plans, with a maximum match of 6%. Amounts charged to expense for the Company’s match to these plans were $6.6 million in 2020, $8.4 million in 2019 and $5.2 million in 2018.