Annual report pursuant to Section 13 and 15(d)

Pension and Other Postretirement Benefits

v3.25.0.1
Pension and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2024
Share-Based Payment Arrangement [Abstract]  
Pension and Other Postretirement Benefits Pension and Other Postretirement Benefits
 
TPL has a defined contribution plan available to all eligible employees. Qualifying participants may receive a matching contribution based on the amount participants contribute to the plan up to 6% of their qualifying compensation. TPL contributed approximately $0.9 million, $0.8 million and $0.7 million to the defined contribution plan for the years ended December 31, 2024, 2023 and 2022, respectively.
 
The Restated Texas Pacific Land Corporation Employees’ Pension Plan (the “Pension Plan”) is a noncontributory defined benefit pension plan qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the “Code”), and is available to all eligible employees who have completed one year of continuous service with TPL during which they completed at least 1,000 hours of service. The Pension Plan provides for a normal retirement benefit at age 65. Contributions to the Pension Plan reflect benefits accrued with respect to participants’ services to date, as well as the amount actuarially determined to pay lifetime benefits to participants and their beneficiaries upon retirement.
 
During 2024, the Company irrevocably transferred $3.4 million of the Pension Plan’s defined benefit obligations and related plan assets to a third-party insurance company in an annuity buyout. The transaction resulted in no changes to the benefits to be received by the retired and deferred vested participants. The Company recognized a realized non-cash settlement gain on the annuity buyout of $0.7 million. The gain is included in other income (expense) on the consolidated statement of income.

Effective December 31, 2024, the Pension Plan was frozen for benefit accruals and closed to new participants. This event resulted in a non-cash curtailment gain of $3.9 million for the year ended December 31, 2024. The gain is included in other income (expense) on the consolidated statement of income.
The following table sets forth the Pension Plan’s changes in benefit obligation, changes in fair value of assets, and funded status as of December 31, 2024 and 2023 using a measurement date of December 31 (in thousands):

  December 31, 2024 December 31, 2023
Change in projected benefits obligation:
Projected benefit obligation at beginning of year
 $ 10,553  $ 8,177 
Curtailment gain (3,864) — 
Annuity buyout settlement (3,439) — 
Service cost
 1,848  1,537 
Interest cost
 503  423 
Actuarial gain (loss) (1,812) 658 
Benefits paid
 (222) (242)
 Projected benefit obligation at end of year
 $ 3,567  $ 10,553 
Change in Pension Plan assets:
Fair value of Pension Plan assets at beginning of year $ 14,201  $ 11,650 
Annuity buyout settlement (3,439) — 
Actual return on Pension Plan assets 2,071  725 
Contributions by employer
 —  2,068 
Benefits paid
 (222) (242)
Fair value of Pension Plan assets at end of year 12,611  14,201 
Funded status at end of year $ 9,044  $ 3,648 
 
The projected Pension Plan benefit obligation as of December 31, 2024 was impacted by changes in assumptions used as of that date compared to assumptions used as of December 31, 2023. These changes included an increase in the discount rate from 5.00% as of December 31, 2023 to 5.75% as of December 31, 2024. The effect of the assumption changes was a decrease in the projected benefit obligation of approximately $1.9 million.

Amounts recognized on the consolidated balance sheets as of December 31, 2024 and 2023 consisted of (in thousands):
  December 31, 2024 December 31, 2023
Assets $ 9,044  $ 3,648 
Liabilities —  — 
  $ 9,044  $ 3,648 

The Pension Plan asset is included in other assets on the consolidated balance sheets.

Amounts recognized in accumulated other comprehensive income on the consolidated balance sheets consisted of the following as of December 31, 2024 and 2023 (in thousands):
  December 31, 2024 December 31, 2023
Net actuarial gain $ 4,371  $ 2,319 
Amounts recognized in accumulated other comprehensive income, before taxes 4,371  2,319 
Income tax expense (918) (488)
Amounts recognized in accumulated other comprehensive income, after taxes $ 3,453  $ 1,831 
 
Net periodic pension (benefit) cost for the years ended December 31, 2024, 2023 and 2022 included the following components (in thousands):
Years Ended December 31,
  2024 2023 2022
Components of net periodic (benefit) cost:
Curtailment gain $ (3,864) $ —  $ — 
Realized gain on settlement (752) —  — 
Service cost 1,848  1,537  2,870 
Interest cost 503  423  336 
Expected return on Pension Plan assets (964) (807) (741)
Recognized actuarial (gain) loss (114) (130) 41 
Net periodic pension (benefit) cost $ (3,343) $ 1,023  $ 2,506 
 
Service cost, a component of net periodic pension (benefit) cost, is reflected in our consolidated statements of income and total comprehensive income within salaries and related employee expenses. The other components of net periodic pension (benefit) cost are included in other income, net on the consolidated statements of income and total comprehensive income.

Other changes in Pension Plan assets and benefit obligations recognized in other comprehensive (income) loss for the years ended December 31, 2024, 2023 and 2022 were as follows (in thousands):
Years Ended December 31,
  2024 2023 2022
Net actuarial (gain) loss $ (2,919) $ 739  $ (4,422)
Recognized actuarial gain (loss) 866  130  (41)
Total recognized in other comprehensive (income) loss, before taxes $ (2,053) $ 869  $ (4,463)
Total recognized in net benefit cost and other comprehensive (income) loss, before taxes $ (5,396) $ 1,892  $ (1,958)
 
TPL reclassified $0.6 million (net of income tax benefit of $0.1 million) out of accumulated other comprehensive loss for net periodic pension (benefit) cost to other income, net for the year ended December 31, 2024, $0.5 million (net of income tax benefit of $0.1 million) for the year ended December 31, 2023 and $0.4 million (net of income tax benefit of $0.1 million) for the year ended December 31, 2022.

The following table summarizes the projected benefit obligation in excess of Pension Plan assets and Pension Plan assets in excess of accumulated benefit obligation as of December 31, 2024 and 2023 (in thousands):

  December 31, 2024 December 31, 2023
Projected benefit obligation in excess of Pension Plan assets:
Projected benefit obligation
 $ 3,567  $ 10,553 
Fair value of Pension Plan assets $ 12,611  $ 14,201 
Plan assets in excess of accumulated benefit obligation:
Accumulated benefit obligation
 $ 3,567  $ 6,417 
Fair value of Pension Plan assets $ 12,611  $ 14,201 
 
The following are weighted-average assumptions used to determine benefit obligations and costs as of December 31, 2024, 2023 and 2022:
Years Ended December 31,
  2024 2023 2022
Weighted average assumptions used to determine benefit obligations as of December 31:
Discount rate
 5.75  % 5.00  % 5.25  %
Rate of compensation increase
N/A (1)
7.29  % 7.29  %
Weighted average assumptions used to determine benefit costs for the years ended December 31:
Discount rate
 5.00  % 5.25  % 3.00  %
Expected return on Pension Plan assets 7.00  % 7.00  % 7.00  %
Rate of compensation increase
 7.29  % 7.29  % 7.29  %
(1)As the Pension plan was frozen effective December 31, 2024, this assumption is not applicable in the calculation of the benefit obligations as of December 31, 2024.
 
The expected return on Pension Plan assets assumption of 7.0% was selected by TPL based on historical real rates of return for the current asset mix and an assumption with respect to future inflation. The rate was determined based on a long-term allocation of about two-thirds fixed income and one-third equity securities; historical real rates of return of about 2.5% and 8.5% for fixed income and equity securities, respectively; and assuming a long-term inflation rate of 2.5%.
 
The Pension Plan has a formal investment policy statement. The Pension Plan’s investment objective is balanced income, with a moderate risk tolerance. This objective emphasizes current income through a 30.0% to 80.0% allocation to fixed income securities, complemented by a secondary consideration for capital appreciation through an equity allocation in the range of 20.0% to 60.0%. Diversification is achieved through investment in equities and bonds. The asset allocation is reviewed annually with respect to the target allocations and rebalancing adjustments and/or target allocation changes are made as appropriate. Our current funding policy is to maintain the Pension Plan’s fully funded status on an ERISA minimum funding basis.

The fair values of the Pension Plan assets (all considered Level 1 assets in the fair value hierarchy) are classified by major asset category as of December 31, 2024 and 2023, were as follows (in thousands):

December 31, 2024 December 31, 2023
Cash and cash equivalents — money markets $ 574  $ 1,179 
Equities 8,600  8,182 
Equity funds 1,049  401 
Fixed income funds —  1,000 
Taxable bonds 2,388  3,439 
Total $ 12,611  $ 14,201 

While no funding requirements are expected for 2025, management intends to fund the Pension Plan for 2025 to the extent of any minimum amount required under ERISA.
 
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the following 10-year period (in thousands):
 
Year ending December 31, Amount
2025 $ 32 
2026 37 
2027 43 
2028 93 
2029 93 
2030 to 2034 611