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EMPLOYEE BENEFIT PLANS | 12 Months Ended
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Sep. 30, 2016
EMPLOYEE BENEFIT PLANS |
EMPLOYEE BENEFIT PLANS | NOTE 9 EMPLOYEE BENEFIT PLANS We maintain a domestic noncontributory defined benefit pension plan covering certain U.S. employees who meet certain age and service requirements. In July 2003, we revised the Helmerich & Payne, Inc. Employee Retirement Plan ("Pension Plan") to close the Pension Plan to new participants effective October 1, 2003, and reduce benefit accruals for current participants through September 30, 2006, at which time benefit accruals were discontinued and the Pension Plan was frozen. The following table provides a reconciliation of the changes in the pension benefit obligations and fair value of Pension Plan assets over the two-year period ended September 30, 2016 and a statement of the funded status as of September 30, 2016 and 2015:
|  | 2016 |  | 2015 |
|  | (in thousands) |
Accumulated Benefit Obligation |  | $ | 109,731 |  | $ | 107,417 |
Changes in projected benefit obligations |  |  |  |  |  |  |
Projected benefit obligation at beginning of year |  | $ | 107,417 |  | $ | 111,108 |
Interest cost |  |  | 4,266 |  |  | 4,584 |
Actuarial loss |  |  | 15,051 |  |  | 2,741 |
Benefits paid |  |  | (17,003 | ) |  | (11,016 | )
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Projected benefit obligation at end of year |  | $ | 109,731 |  | $ | 107,417 |
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Change in plan assets |  |  |  |  |  |  |
Fair value of plan assets at beginning of year |  | $ | 98,060 |  | $ | 108,157 |
Actual return on plan assets |  |  | 9,653 |  |  | (1,324 | )
Employer contribution |  |  | 38 |  |  | 2,243 |
Benefits paid |  |  | (17,003 | ) |  | (11,016 | )
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Fair value of plan assets at end of year |  | $ | 90,748 |  | $ | 98,060 |
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Funded status of the plan at end of year |  | $ | (18,983 | ) | $ | (9,357 | )
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The amounts recognized in the Consolidated Balance Sheets at September 30, 2016 and 2015 are as follows (in thousands):
Accrued liabilities |  | $ | (45 | ) | $ | (44 | )
Noncurrent liabilities—other |  |  | (18,938 | ) |  | (9,313 | )
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Net amount recognized |  | $ | (18,983 | ) | $ | (9,357 | )
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The amounts recognized in Accumulated Other Comprehensive Income at September 30, 2016 and 2015, and not yet reflected in net periodic benefit cost, are as follows (in thousands):
Net actuarial loss |  | $ | (34,112 | ) | $ | (30,144 | )
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The amount recognized in Accumulated Other Comprehensive Income and not yet reflected in periodic benefit cost expected to be amortized in next year's periodic benefit cost is a net actuarial loss of $2.3 million. The weighted average assumptions used for the pension calculations were as follows:
|  | Years Ended September 30, |
|  | 2016 |  | 2015 |  | 2014 |
Discount rate for net periodic benefit costs |  |  | 4.27 | % |  | 4.32 | % |  | 4.80 | %
Discount rate for year-end obligations |  |  | 3.64 | % |  | 4.27 | % |  | 4.32 | %
Expected return on plan assets |  |  | 5.89 | % |  | 6.26 | % |  | 6.61 | %
The mortality table issued by the Society of Actuaries in October 2016 was used for the September 30, 2016 pension calculation. The new mortality information reflects improved life expectancies and projected mortality improvements. We did not make any contributions to the Pension Plan in fiscal 2016. In fiscal 2017, we do not expect minimum contributions required by law to be needed. However, we may make contributions in fiscal 2017 if needed to fund unexpected distributions in lieu of liquidating pension assets. Components of the net periodic pension expense (benefit) were as follows:
|  | Years Ended September 30, |
|  | 2016 |  | 2015 |  | 2014 |
|  | (in thousands) |
Interest cost |  | $ | 4,266 |  | $ | 4,584 |  | $ | 4,763 |
Expected return on plan assets |  |  | (5,616 | ) |  | (6,855 | ) |  | (6,789 | )
Recognized net actuarial loss |  |  | 2,083 |  |  | 1,308 |  |  | 873 |
Settlement |  |  | 4,964 |  |  | 2,873 |  |  | 1,376 |
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Net pension expense |  | $ | 5,697 |  | $ | 1,910 |  | $ | 223 |
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We record settlement expense when benefit payments exceed the total annual service and interest costs. The following table reflects the expected benefits to be paid from the Pension Plan in each of the next five fiscal years, and in the aggregate for the five years thereafter (in thousands).
Years Ended September 30,
2017 |  | 2018 |  | 2019 |  | 2020 |  | 2021 |  | 2022 - 2026 |  | Total
$13,976 |  | $5,859 |  | $6,013 |  | $7,094 |  | $5,674 |  | $33,078 |  | $71,694
Included in the Pension Plan is an unfunded supplemental executive retirement plan. INVESTMENT STRATEGY AND ASSET ALLOCATION Our investment policy and strategies are established with a long-term view in mind. The investment strategy is intended to help pay the cost of the Plan while providing adequate security to meet the benefits promised under the Pension Plan. We maintain a diversified asset mix to minimize the risk of a material loss to the portfolio value that might occur from devaluation of any single investment. In determining the appropriate asset mix, our financial strength and ability to fund potential shortfalls are considered. Pension Plan assets are invested in portfolios of diversified public-market equity securities and fixed income securities. The Pension Plan does not directly hold securities of the Company. The expected long-term rate of return on Pension Plan assets is based on historical and projected rates of return for current and planned asset classes in the Pension Plan's investment portfolio after analyzing historical experience and future expectations of the return and volatility of various asset classes. The target allocation for 2017 and the asset allocation for the Pension Plan at the end of fiscal 2016 and 2015, by asset category, follows:
|  | Target Allocation |  | Percentage of Plan Assets at September 30, |
Asset Category |  | 2017 |  | 2016 |  | 2015 |
U.S. equities |  |  | 55 | % |  | 62 | % |  | 59 | %
International equities |  |  | 13 |  |  | 12 |  |  | 13 |
Fixed income |  |  | 27 |  |  | 21 |  |  | 23 |
Real estate and other |  |  | 5 |  |  | 5 |  |  | 5 |
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Total |  |  | 100 | % |  | 100 | % |  | 100 | %
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PLAN ASSETS The fair value of Pension Plan assets at September 30, 2016 and 2015, summarized by level within the fair value hierarchy described in Note 8, are as follows:
|  | Fair Value as of September 30, 2016 |
|  | Total |  | Level 1 |  | Level 2 |  | Level 3 |
|  | (in thousands) |
Short-term investments |  | $ | 467 |  | $ | 467 |  | $ | — |  | $ | — |
Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic stock funds |  |  | 36,107 |  |  | 36,107 |  |  | — |  |  | — |
Bond funds |  |  | 22,809 |  |  | 22,809 |  |  | — |  |  | — |
International stock funds |  |  | 11,334 |  |  | 11,334 |  |  | — |  |  | — |
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Total mutual funds |  |  | 70,250 |  |  | 70,250 |  |  | — |  |  | — |
Domestic common stock |  |  | 18,305 |  |  | 18,305 |  |  | — |  |  | — |
Foreign equity stock |  |  | 1,549 |  |  | 1,549 |  |  | — |  |  | — |
Oil and gas properties |  |  | 177 |  |  | — |  |  | — |  |  | 177 |
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Total |  | $ | 90,748 |  | $ | 90,571 |  | $ | — |  | $ | 177 |
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|  | Fair Value as of September 30, 2015 |
|  | Total |  | Level 1 |  | Level 2 |  | Level 3 |
|  | (in thousands) |
Short-term investments |  | $ | 2,248 |  | $ | 2,248 |  | $ | — |  | $ | — |
Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic stock funds |  |  | 40,072 |  |  | 40,072 |  |  | — |  |  | — |
Bond funds |  |  | 25,344 |  |  | 25,344 |  |  | — |  |  | — |
International stock funds |  |  | 12,644 |  |  | 12,644 |  |  | — |  |  | — |
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Total mutual funds |  |  | 78,060 |  |  | 78,060 |  |  | — |  |  | — |
Domestic common stock |  |  | 15,883 |  |  | 15,883 |  |  | — |  |  | — |
Foreign equity stock |  |  | 1,482 |  |  | 1,482 |  |  | — |  |  | — |
Oil and gas properties |  |  | 387 |  |  | — |  |  | — |  |  | 387 |
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Total |  | $ | 98,060 |  | $ | 97,673 |  | $ | — |  | $ | 387 |
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The Pension Plan's financial assets utilizing Level 1 inputs are valued based on quoted prices in active markets for identical securities. The Plan has no assets utilizing Level 2. The Pension Plan's assets utilizing Level 3 inputs consist of oil and gas properties. The fair value of oil and gas properties is determined by Wells Fargo Bank, N.A., based upon actual revenue received for the previous twelve-month period and experience with similar assets. The following table sets forth a summary of changes in the fair value of the Pension Plan's Level 3 assets for the years ended September 30, 2016 and 2015:
|  | Oil and Gas Properties |
|  | Years Ended September 30, |
|  | 2016 |  | 2015 |
|  | (in thousands) |
Balance, beginning of year |  | $ | 387 |  | $ | 301 |
Unrealized gains (losses) relating to property still held at the reporting date |  |  | (210 | ) |  | 86 |
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Balance, end of year |  | $ | 177 |  | $ | 387 |
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DEFINED CONTRIBUTION PLAN Substantially all employees on the United States payroll may elect to participate in our 401(k)/Thrift Plan by contributing a portion of their earnings. We contribute an amount equal to 100 percent of the first five percent of the participant's compensation subject to certain limitations. The annual expense incurred for this defined contribution plan was $21.6 million, $24.8 million and $32.3 million in fiscal 2016, 2015 and 2014, respectively. During fiscal 2016, we determined that employee workforce reductions which started during 2015 and continued into 2016 due to reduced drilling activity resulted in a partial plan termination of the 401(k)/Thrift Plan. All affected participants were fully vested in their accounts. As a result of the partial plan termination status, we recorded additional employer contributions totaling $6.3 million in general and administrative expense.

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