Baker Hughes 2009 Annual Report Download - page 31

2009 Proxy Statement 21
the employee’s eligible compensation. Such contributions vest
immediately. In addition, we make cash contributions for all
eligible employees between 2% and 5% of their salary
depending on the employee’s age. These cash contributions
become fully vested to the employee after three years of ser-
vice. However, regardless of the number of years of service, an
employee is fully vested in his Thrift Plan Base Contribution if
the employee retires at age 65 or later, or terminates employ-
ment with three years of service, or the employee’s employ-
ment is terminated due to death or total and permanent
disability. The Thrift Plan does not provide our employees the
option to invest directly in the Company’s stock.
We adopted the Pension Plan, effective January 1, 2002,
to supplement the benefits provided through our primary
retirement vehicle, the Thrift Plan. The Pension Plan is a tax-
qualified, defined benefit plan funded entirely by us. Under
the provisions of the Pension Plan, a cash balance account is
established for each participant. Age-based pay credits are
made quarterly to the accounts as a percentage of eligible
compensation. Eligible compensation generally means all
wages, salaries and fees for services from the Company.
The following are the quarterly pay crediting rates under
the Pension Plan:
Pay Credit as a Percentage of
Age at End of Quarter Quarterly Eligible Compensation
Under age 35 2.0%
35– 39 2.5%
40– 44 3.0%
45– 49 3.5%
50 and older 4.0%
In addition to pay credits, cash balance accounts are cred-
ited with interest credits based on the balance in the account
on the last day of the quarter, using the annual rate of interest
on 30-year Treasury securities as specified by the Secretary of
Treasury for the month of August of the preceding calendar
year. The interest rate used for determining interest credits in
2009 was 4.5%. An employee is fully vested in his or her Pen-
sion Plan account after three years of service. Regardless of
the number of years of service, an employee is fully vested if
the employee retires at age 65 or later, or retires at age 55
with three years of service, or the employee’s employment is
terminated due to death or total and permanent disability. In
addition, employees who were 55 years or older on January 1,
2002 had their prior years of service with us counted for vest-
ing purposes. Pension Plan benefits in excess of $1,000 are
payable in the form of a joint and 75% survivor annuity for
married individuals, or subject to spousal consent, or if unmar-
ried, a single lump sum or single life annuity. There are no spe-
cial provisions for Senior Executives under the Pension Plan.
We adopted the SRP, which was amended and restated
effective January 1, 2009, to:
• allow Executives to continue saving toward retirement
when, due to compensation and contribution ceilings estab-
lished under the Code, they can no longer contribute to the
Thrift Plan;
• provide Company base, pension and matching contributions
that cannot be contributed to the Thrift Plan and Pension
Plan due to compensation and contribution ceilings estab-
lished under the Code; and
• enable covered Executives to defer base and incentive com-
pensation on a tax-deferred basis.
Accordingly, Executive contributions include amounts cal-
culated from an Executive’s Thrift Plan pre-tax election on file
as of the prior year end on compensation not eligible under
the Thrift Plan due to the Code’s compensation limit. The
Company contributes matching, base and pension contribu-
tions on compensation not eligible under the Thrift Plan or
Pension Plan based on the Code’s compensation limit. Eligible
compensation under the Thrift Plan and Pension Plan was lim-
ited to $245,000 and pre-tax employee contributions were
limited to $16,500 ($22,000 for employees age 50 or older) in
2009. Additionally, Executives may elect to defer eligible com-
pensation each year instead of receiving that amount in cur-
rent compensation. The Company contributes matching, base
and pension contributions on compensation above the com-
pensation ceiling established by the Code and on the Exec-
utive’s deferred compensation. Company contributions, as
a percentage of compensation, are made according to the
following schedule:
Age Base Pension Matching
Contribution Contribution Contribution
Under Age 35 2.00% 2.00% 5%
35–39 2.50% 2.50% 5%
40–44 3.00% 3.00% 5%
45–49 3.50% 3.50% 5%
50–54 4.00% 4.00% 5%
55–59 4.50% 4.00% 5%
60 or older 5.00% 4.00% 5%
An Executive is fully vested in his or her deferrals and Com-
pany matching contributions. Beginning January 1, 2007 Exec-
utives generally are fully vested in pension contributions after
three years of service. Regardless of the number of years of ser-
vice, an Executive is fully vested in all contributions if the Execu-
tive retires at age 65 or later, or upon the Executive’s termination
of employment due to the death or total and permanent disabil-
ity of the Executive. Distribution payments are made upon some
specified period after separation from service in accordance
with Section 409A of the Code. The methods of distribution
include a single lump sum cash payment or annual installments
for 2–20 years, with the default election being a lump sum
distribution. In-service withdrawals are allowed in compliance
with Section 409A of the Code. Hardship withdrawals are
allowed in cases of unforeseen severe financial emergencies.
All distribution and withdrawal elections are made during
annual enrollment except for hardship withdrawals.
The assets of the SRP are invested by the trustee of the
SRP rabbi trust. Additional information regarding these bene-
fits and an accompanying narrative disclosure are provided in
the Pension Benefits Table and Nonqualified Deferred Com-
pensation Table disclosed on page 31.