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Pension and Other Post-retirement Benefits | 12 Months Ended
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Dec. 31, 2019
Retirement Benefits [Abstract] |
Pension and Other Post-retirement Benefits | Pension and Other Post-retirement Benefits Prior to the Rowan Transaction, Rowan established various defined-benefit pension plans and a post-retirement health and life insurance plan that provide benefits upon retirement for certain full-time employees. The defined-benefit pension plans include: (1) the Rowan Pension Plan; (2) Restoration Plan of Rowan Companies, Inc. (the “Rowan SERP”); (3) the Norway Onshore Plan; and (4) the Norway Offshore Plan. The Retiree Life & Medical Supplemental Plan of Rowan Companies, Inc. (the “Retiree Medical Plan”) provides post-retirement health and life insurance benefits. On November 27, 2017, Rowan purchased annuities to cover post-65 retiree medical benefits for current retirees as of the purchase date. The annuity purchase settled post-65 medical benefits (i.e., Health Reimbursement Account, or “HRA”, amounts) for affected participants, with the insurer taking responsibility for all benefit payments on and after January 1, 2019. As a result of the Rowan Transaction, we assumed these plans and obligations, which were remeasured as of the Transaction Date. Each of the plans has a benefit obligation that exceeds the fair value of plan assets. As of the Transaction Date, the net projected benefit obligations totaled $239.3 million, of which $19.2 million was classified as current. The current and non-current portions of the net benefit obligations are included in accrued liabilities and other liabilities in our consolidated balance sheet, respectively. The most significant of the assumed plans is the Rowan Pension Plan, which had a net projected benefit obligation of $202.1 million. Prior to the Transaction Date, Rowan amended the Rowan Pension Plan to freeze the plan as to any future benefit accruals. As a result, eligible employees no longer receive pay credits in the pension plan and newly hired employees are not eligible to participate in the pension plan. The following table presents the changes in benefit obligations and plan assets for the year ended December 31, 2019 and the funded status and weighted-average assumptions used to determine the benefit obligation at year end (dollars in millions):
|  | 2019
|  | Pension Benefits |  | Other Benefits |  | Total
Projected benefit obligation: |  |  |  |  |  |
Balance, April 11 |  | $ | 800.1 |  |  | $ | 15.9 |  |  | $ | 816.0 |
Interest cost |  | 21.3 |  |  | 0.4 |  |  | 21.7 |
Service cost |  | 1.5 |  |  | — |  |  | 1.5 |
Actuarial loss |  | 43.8 |  |  | 0.2 |  |  | 44.0 |
Benefits paid |  | (34.1 | ) |  | (0.4 | ) |  | (34.5 | )
Foreign currency adjustments |  | (0.2 | ) |  | — |  |  | (0.2 | )
Balance, December 31 |  | $ | 832.4 |  |  | $ | 16.1 |  |  | $ | 848.5 |
Plan assets |  |  |  |  |  |
Fair value, April 11 |  | $ | 576.8 |  |  | $ | — |  |  | $ | 576.8 |
Actual return |  | 43.6 |  |  | — |  |  | 43.6 |
Employer contributions |  | 12.8 |  |  | — |  |  | 12.8 |
Benefits paid |  | (34.1 | ) |  | — |  |  | (34.1 | )
Foreign currency adjustments |  | (0.2 | ) |  | — |  |  | (0.2 | )
Fair value, December 31 |  | $ | 598.9 |  |  | — |  |  | $ | 598.9 |
Net benefit liabilities |  | $ | 233.5 |  |  | $ | 16.1 |  |  | $ | 249.6 |
Amounts recognized in consolidated balance sheet: |  |  |  |  |  |
Accrued liabilities |  | $ | (1.4 | ) |  | $ | (1.5 | ) |  | $ | (2.9 | )
Other liabilities (long-term) |  | (232.1 | ) |  | (14.6 | ) |  | (246.7 | )
Net benefit liabilities |  | $ | (233.5 | ) |  | $ | (16.1 | ) |  | $ | (249.6 | )
Accumulated contributions in excess of (less than) net periodic benefit cost |  | $ | (206.2 | ) |  | $ | (15.9 | ) |  | $ | (222.1 | )
Amounts not yet reflected in net periodic benefit cost: |  |  |  |  |  |
Actuarial loss |  | $ | (27.3 | ) |  | $ | (0.2 | ) |  | $ | (27.5 | )
Total accumulated other comprehensive loss |  | (27.3 | ) |  | (0.2 | ) |  | (27.5 | )
Net benefit liabilities |  | $ | (233.5 | ) |  | $ | (16.1 | ) |  | $ | (249.6 | )
Weighted-average assumptions: |  |  |  |  |  |
Discount rate |  | 3.16 | % |  | 3.06 | % |  |
Rate of compensation increase |  | — | % |  | — | % |  |
The projected benefit obligations for pension benefits in the preceding table reflect the actuarial present value of benefits accrued based on services rendered to date and include the estimated effect of future salary increases. The accumulated benefit obligations, which are presented below for all plans in the aggregate at December 31, 2019, are based on services rendered to date, but exclude the effect of future salary increases (in millions):
|  | 2019
Accumulated benefit obligation |  | $ | 844.3 |
The components of net periodic pension cost and the weighted-average assumptions used to determine net periodic pension cost were as follows (dollars in millions):
|  | April 11, 2019 - December 31, 2019
Service cost (1) |  | $ | 1.5 |
Interest cost (2) |  | 21.3 |
Expected return on plan assets (2) |  | (27.1 | )
Net periodic pension cost (benefit) |  | $ | (4.3 | )
Discount rate |  | 3.82 | %
(1) | Included in contract drilling and general and administrative expense in our consolidated statements of operations.
(2) Included in other, net, in our consolidated statements of operations. The pension plans' investment objectives for fund assets are: to achieve over the life of the plans a return equal to the plans' expected investment return or the inflation rate plus 3%, whichever is greater, to invest assets in a manner such that contributions are minimized and future assets are available to fund liabilities, to maintain liquidity sufficient to pay benefits when due, and to diversify among asset classes so that assets earn a reasonable return with an acceptable level of risk. The plans employ several active managers with proven long-term records in their specific investment discipline. Target allocations among asset categories and the fair value of each category of plan assets as of December 31, 2019, classified by level within the US GAAP fair value hierarchy are presented below. The plans will reallocate assets in accordance with the allocation targets, after giving consideration to the expected level of cash required to pay current benefits and plan expenses (dollars in millions):
|  | Target range |  | Total |  | Quoted prices in active markets for identical assets (Level 1) |  | Significant observable inputs (Level 2) |  | Significant unobservable inputs (Level 3)
December 31, 2019 |  |  |  |  |  |  |  |  |  |
Equities: |  | 53% to 69% |  |  |  |  |  |  |  |
U.S. large cap |  | 22% to 28% |  | $ | 148.9 |  |  | $ | — |  |  | $ | 148.9 |  |  | $ | — |
U.S. small cap |  | 4% to 10% |  | 41.1 |  |  | — |  |  | 41.1 |  |  | — |
International all cap |  | 21% to 29% |  | 152.4 |  |  | — |  |  | 152.4 |  |  | — |
International small cap |  | 2% to 8% |  | 34.7 |  |  | — |  |  | 34.7 |  |  | — |
Real estate equities |  | 0% to 13% |  | 54.9 |  |  | — |  |  | 54.9 |  |  | — |
Fixed income: |  | 25% to 35% |  |  |  |  |  |  |  |  |  |
Cash and equivalents |  | 0% to 10% |  | 6.5 |  |  | 6.5 |  |  | — |  |  | — |
Aggregate |  | 9% to 19% |  | 76.7 |  |  | — |  |  | 76.7 |  |  | — |
Core plus |  | 9% to 19% |  | 77.6 |  |  | 77.6 |  |  | — |  |  | — |
Group annuity contracts |  |  |  | 6.1 |  |  | — |  |  | 6.1 |  |  | — |
Total |  |  |  | $ | 598.9 |  |  | $ | 84.1 |  |  | $ | 514.8 |  |  | $ | — |
Assets in the U.S. equities category include investments in common and preferred stocks (and equivalents such as American Depository Receipts and convertible bonds) and may be held through separate accounts, commingled funds or an institutional mutual fund. Assets in the international equities category include investments in a broad range of international equity securities, including both developed and emerging markets, and may be held through a commingled or institutional mutual fund. The real estate category includes investments in pooled and commingled funds whose objectives are diversified equity investments in income-producing properties. Each real estate fund is intended to provide broad exposure to the real estate market by property type, geographic location and size and may invest internationally. Securities in both the aggregate and core plus fixed income categories include U.S. government, corporate, mortgage- and asset-backed securities and Yankee bonds, and both categories target an average credit rating of “A” or better at all times. Individual securities in the aggregate fixed income category must be investment grade or above at the time of purchase, whereas securities in the core plus category may have a rating of “B” or above. Additionally, the core plus category may invest in non-U.S. securities. Assets in the aggregate and core plus fixed income categories are held primarily through a commingled fund and an institutional mutual fund, respectively. Group annuity contracts are invested in a combination of equity, real estate, bond and other investments in connection with a pension plan in Norway. The following is a description of the valuation methodologies used for the pension plan assets as of December 31, 2019:
• | Fair values of all U.S. equity securities, the international all cap equity securities and aggregate fixed income securities categorized as Level 2 were held in commingled funds which were valued daily based on a net asset value.
• | Fair value of international small cap equity securities categorized as Level 2 were held in a limited partnership fund which was valued monthly based on a net asset value.
• | The real estate equities categorized as Level 2 were held in two accounts (a commingled fund and a limited partnership). The assets in the commingled fund were valued monthly based on a net asset value and the assets in the limited partnership were valued quarterly based on a net asset value.
• | Cash and equivalents categorized as Level 1 were valued at cost, which approximates fair value.
• | Fair value of mutual fund investments in core plus fixed income securities categorized as Level 1 were based on quoted market prices which represent the net asset value of shares held.
To develop the expected long-term rate of return on assets assumption, we considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the plans’ other asset classes and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plans, which was 6.48% at December 31, 2019. We currently expect to contribute approximately $35.7 million to our pension plans in 2020 and to directly pay other post-retirement benefits of approximately $1.5 million. Estimated future annual benefit payments from plan assets are presented below. Such amounts are based on existing benefit formulas and include the effect of future service (in millions):
|  | Pension Benefits |  | Other Post-Retirement Benefits
Year ended December 31, |  |  |  |
2020 |  | $ | 45.0 |  |  | $ | 1.5 |
2021 |  | 45.0 |  |  | 1.4 |
2022 |  | 44.6 |  |  | 1.3 |
2023 |  | 44.2 |  |  | 1.3 |
2024 |  | 43.9 |  |  | 1.3 |
2025 through 2029 |  | 213.6 |  |  | 5.3 |

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