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
	2013			2012			2011			2013			2012			2011
Discount rate		4.25	%		5.00	%		5.50	%		4.38	%		4.95	%		5.47	%
Compensation increases		4.00	%		4.00	%		4.00	%		4.83	%		4.91	%		4.91	%
Return on plan assets		7.50	%		7.50	%		7.50	%		7.50	%		7.50	%		7.50	%

Net pension cost for 2013, 2012 and 2011 included the following components:

	(Stated in millions)

	US									International
	2013			2012			2011			2013			2012			2011
Service cost - benefits earned during the period	$	80		$	68		$	59		$	127		$	86		$	64
Interest cost on projected benefit obligation		150			152			150			253			241			226
Expected return on plan assets		(200	)		(185	)		(170	)		(384	)		(328	)		(279	)
Amortization of net loss		122			95			89			155			76			31
Amortization of prior service cost		12			12			12			117			120			120
	$	164		$	142		$	140		$	268		$	195		$	162

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
	2013			2012			2013			2012
Discount rate		4.85	%		4.25	%		4.76	%		4.38	%
Compensation increases		4.00	%		4.00	%		4.80	%		4.83	%

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

	(Stated in millions)

	US						International
	2013			2012			2013			2012
Change in Projected Benefit Obligations
Projected benefit obligation at beginning of year	$	3,558		$	3,073		$	5,798		$	4,666
Service cost		80			68			127			86
Interest cost		150			152			253			241
Contributions by plan participants		—			—			104			97
Actuarial (gains) losses		(232)			399			(168	)		786
Currency effect		—			—			30			62
Benefits paid		(138	)		(134	)		(163	)		(140	)
Projected benefit obligation at end of year	$	3,418		$	3,558		$	5,981		$	5,798
Change in Plan Assets
Plan assets at fair value at beginning of year	$	2,910		$	2,655		$	5,120		$	4,097
Actual return on plan assets		356			336			836			490
Currency effect		—			—			35			62
Company contributions		141			53			314			514
Contributions by plan participants		—			—			104			97
Benefits paid		(138	)		(134	)		(163	)		(140	)
Plan assets at fair value at end of year	$	3,269		$	2,910		$	6,246		$	5,120
(Unfunded Liability) / Asset	$	(149	)	$	(648	)	$	265		$	(678	)
Amounts Recognized in Balance Sheet
Postretirement Benefits	$	(149	)	$	(648	)	$	(5	)	$	(687	)
Other Assets		—			—			270			9
	$	(149	)	$	(648	)	$	265		$	(678	)
Amounts Recognized in Accumulated Other Comprehensive Loss
Actuarial losses	$	687		$	1,197		$	882		$	1,234
Prior service cost		78			90			418			598
	$	765		$	1,287		$	1,300		$	1,832
Accumulated benefit obligation	$	3,158		$	3,262		$	5,593		$	5,401

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			2013			2012			Target			2013			2012
Equity securities		45 - 55	%		50	%		47	%		50 - 70	%		60	%		56	%
Debt securities		33 - 45			40			42			25 - 40			31			35
Cash and cash equivalents		0 - 3			2			2			0 - 3			3			3
Alternative investments		0 - 10			8			9			0 - 20			6			6
		100	%		100	%		100	%		100	%		100	%		100	%

Schlumberger’s investment policy includes guidelines and procedures designed to ensure that assets are prudently invested in order 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 target asset allocations are reviewed periodically. Schlumberger may utilize certain derivative instruments, such as options, futures, swaps and forwards, within the plans to manage risks, 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 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, 2013 and 2012, 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
	2013								2012
	Total		Level One		Level Two		Level Three		Total		Level One		Level Two		Level Three
Asset Category:
Cash and Cash Equivalents	$	77	$	24	$	53	$	—	$	56	$	5	$	51	$	—
Equity Securities:
US ^(a)		1,068		625		443				868		502		366
International^(b)		572		454		118				513		406		107
Debt Securities:
Corporate bonds^(c)		548				548				495				495
Government and government-related debt securities ^(d)		639		161		478				638		157		481
Collateralized mortgage obligations and mortgage backed securities^(e)		99				99				99				99
Alternative Investments:
Private equity ^(f)		204						204		185						185
Real estate ^(g)		62						62		56						56
Total	$	3,269	$	1,264	$	1,739	$	266	$	2,910	$	1,070	$	1,599	$	241

	(Stated in millions)

	International Plan Assets
	2013								2012
	Total		Level One		Level Two		Level Three		Total		Level One		Level Two		Level Three
Asset Category:
Cash and Cash Equivalents	$	267	$	127	$	140	$	—	$	168	$	157	$	11	$	—
Equity Securities:
US ^(a)		2,175		1,603		572				1,583		1,152		431
International^(b)		1,566		990		576				1,258		765		493
Debt Securities:
Corporate bonds^(c)		576				576				540				540
Government and government-related debt securities ^(d)		997		6		991				976				976
Collateralized mortgage obligations and mortgage backed securities ^(e)		301				301				289				289
Alternative Investments:
Private equity ^(f)		206						206		128						128
Real estate^(g)		60						60		55						55
Other		98						98		123						123
Total	$	6,246	$	2,726	$	3,156	$	364	$	5,120	$	2,074	$	2,740	$	306

^(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 fund of funds limited partnerships.

^(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 currently anticipates contributing approximately $500 million to its postretirement benefit plans in 2014, 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
	2013			2012			2013			2012			2011
Discount rate		4.85	%		4.25	%		4.25	%		5.00	%		5.50	%
Return on plan assets		—			—			7.00	%		7.00	%		7.00	%
Current medical cost trend rate		7.50	%		7.50	%		7.50	%		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			2023			2023			2018			2017

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

	(Stated in millions)

	2013			2012			2011
Service cost — benefits earned during the period	$	48		$	29		$	24
Interest cost on projected benefit obligation		56			58			57
Expected return on plan assets		(37	)		(30	)		(20	)
Amortization of net loss		23			16			13
Amortization of prior service credit		(4	)		(7	)		(11	)
	$	86		$	66		$	63

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

	(Stated in millions)

	2013			2012
Change in Accumulated Postretirement Benefit Obligation
Benefit obligation at beginning of year	$	1,410		$	1,188
Service cost		48			29
Interest cost		56			58
Contributions by plan participants		6			6
Actuarial (gains) losses		(232	)		171
Benefits paid		(41	)		(42	)
Benefit obligation at end of year	$	1,247		$	1,410
Change in Plan Assets
Plan assets at fair value at beginning of year	$	576		$	443
Company contributions		83			106
Contributions by plan participants		6			6
Benefits paid		(41	)		(42	)
Actual return on plan assets		107			63
Plan assets at fair value at end of year	$	731		$	576
Unfunded Liability	$	(516	)	$	(834	)
Amounts Recognized in Accumulated Other Comprehensive Loss
Actuarial losses	$	87		$	411
Prior service credit		(12	)		(16	)
	$	75		$	395

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

The assets of the US postretirement medical plan are invested 61% in equity securities and 39% debt securities at December 31, 2013. The fair value of these assets was primarily determined based on Level Two valuation techniques.

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	$	47	$	(33	)
Effect on accumulated postretirement benefit obligation	$	267	$	(195	)

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 $9 million per year) were as follows:

	(Stated in millions)

	Pension Benefits				Postretirement Medical Plan
	US		International		Postretirement Medical Plan
2014	$	147	$	204	$	46
2015		153		217		49
2016		160		236		53
2017		168		251		57
2018		177		275		61
2019 - 2023		1,038		1,562		376

Included in Accumulated other comprehensive loss at December 31, 2013 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, 2014 is as follows:

	(Stated in millions)

	Pension Plans		Postretirement Medical Plan
Net actuarial losses	$	153	$	2
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 $671 million, $620 million and $582 million in 2013, 2012 and 2011, respectively.