NOTE 13 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, 2017 and a statement of the funded status as of September 30, 2018 and 2017:


	2018		2017
	(in thousands)
Accumulated Benefit Obligation	$	106,205	$	109,976
Changes in projected benefit obligations
Projected benefit obligation at beginning of year	$	109,976	$	109,731
Interest cost		4,077		4,053
Actuarial (gain) loss		(2,143)		3,633
Benefits paid		(5,705)		(7,441)
Projected benefit obligation at end of year	$	106,205	$	109,976
Change in plan assets
Fair value of plan assets at beginning of year	$	92,816	$	90,748
Actual return on plan assets		7,754		9,470
Employer contribution		32		39
Benefits paid		(5,705)		(7,441)
Fair value of plan assets at end of year	$	94,897	$	92,816
Funded status of the plan at end of year	$	(11,308)	$	(17,160)

The amounts recognized in the Consolidated Balance Sheets at September 30, 2018 and 2017 are as follows (in thousands):


Accrued liabilities	$	(58)	$	(45)
Noncurrent liabilities-other		(11,250)		(17,115)
Net amount recognized	$	(11,308)	$	(17,160)

The amounts recognized in Accumulated Other Comprehensive Income (Loss) at September 30, 2018 and 2017, and not yet reflected in net periodic benefit cost, are as follows (in thousands):


Net actuarial loss		$	(21,693)		$	(28,873)

The amount recognized in Accumulated Other Comprehensive Income (Loss) 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 $1.2 million.

The weighted average assumptions used for the pension calculations were as follows:


	September 30,
	2018		2017		2016
Discount rate for net periodic benefit costs	3.79	%	3.64	%	4.27	%
Discount rate for year-end obligations	4.27	%	3.79	%	3.64	%
Expected return on plan assets	6.06	%	6.17	%	5.89	%

The mortality table issued by the Society of Actuaries in October 2018 was used for the September 30, 2018 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 year 2018. In fiscal year 2019, we do not expect minimum contributions required by law to be needed. However, we may make contributions in fiscal year 2019 if needed to fund unexpected distributions in lieu of liquidating pension assets.

Components of the net periodic pension expense (benefit) were as follows:


	Year Ended September 30,
	2018		2017		2016
	(in thousands)
Interest cost	$	4,077	$	4,053	$	4,266
Expected return on plan assets		(5,555)		(5,130)		(5,616)
Recognized net actuarial loss		1,926		2,891		2,083
Settlement		913		1,640		4,964
Net pension expense	$	1,361	$	3,454	$	5,697

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).


Year Ended September 30,
2019		2020		2021		2022		2023		2024 – 2028		Total
$	18,075	$	7,433	$	5,684	$	6,351	$	6,665	$	31,813	$	76,021

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 Pension 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 2019 and the asset allocation for the Pension Plan at the end of fiscal years 2018 and 2017, by asset category, follows:


			Percentage
			of Plan
	Target		Assets at
	Allocation		September 30,
Asset Category	2019		2018		2017
U.S. equities	45	%	52	%	50	%
International equities	20		15		16
Fixed income	35		33		34
Real estate and other	—		—		—
Total	100	%	100	%	100	%

Plan Assets

The fair value of Pension Plan assets at September 30, 2018 and 2017, summarized by level within the fair value hierarchy described in Note 12—Fair Value Measurement of Financial Instruments, are as follows:


	Fair Value as of September 30, 2018
	Total		Level 1		Level 2		Level 3
	(in thousands)
Short-term investments	$	2,745	$	2,745	$	—	$	—
Mutual funds:
Domestic stock funds		18,361		18,361		—		—
Bond funds		17,918		17,918		—		—
Balanced funds		17,977		17,977		—		—
International stock funds		14,548		14,548		—		—
Total mutual funds		68,804		68,804		—		—
Domestic common stock		23,232		20,771		2,461		—
Oil and gas properties		116		—		—		116
Total	$	94,897	$	92,320	$	2,461	$	116


	Fair Value as of September 30, 2017
	Total		Level 1		Level 2		Level 3
	(in thousands)
Short-term investments	$	3,488	$	3,488	$	—	$	—
Mutual funds:
Domestic stock funds		18,377		18,377		—		—
Bond funds		18,357		18,357		—		—
Balanced funds		18,222		18,222		—		—
International stock funds		14,583		14,583		—		—
Total mutual funds		69,539		69,539		—		—
Domestic common stock		19,692		19,692		—		—
Oil and gas properties		97		—		—		97
Total	$	92,816	$	92,719	$	—	$	97

The Pension Plan’s financial assets utilizing Level 1 inputs are valued based on quoted prices in active markets for identical securities. The Pension Plan’s Level 2 financial assets include foreign common stock. 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 fiscal years ended September 30, 2018 and 2017:


	Oil and Gas Properties
	Year Ended
	September 30,
	2018		2017
	(in thousands)
Balance, beginning of year	$	97	$	177
Unrealized gains (losses) relating to property still held at the reporting date		19		(80)
Balance, end of year	$	116	$	97

Defined Contribution Plan

Substantially all employees on the U.S. 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 $26.6 million, $16.6 million and $21.6 million in fiscal years 2018, 2017 and 2016, respectively.

During fiscal year 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. Partial plan terminations result in affected participants becoming fully vested in Company contributions and actual earnings thereon at the termination date. As a result of the partial plan termination status, we accrued additional employer contributions totaling $6.3 million in general and administrative expense in fiscal year 2016.