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56 B a k e r H u g h e s I n c o r p o r a t e d
Health Care Cost Trend Rates
Assumed health care cost trend rates have a significant
effect on the amounts reported for other postretirement bene-
fits. As of December 31, 2010, the health care cost trend rate
was 8.0% for employees under age 65 and 6.5% for partici-
pants over age 65, with each declining gradually each succes-
sive year until it reaches 4.5% for both employees under age
65 and over age 65 in 2021. A one percentage point change
in assumed health care cost trend rates would have had the
following effects on 2010:
One Percentage One Percentage
Point Increase Point Decrease
Effect on total of service and
interest cost components $ 0.3 $ (0.3)
Effect on postretirement welfare
benefit obligation 5.9 (5.6)
Plan Assets – U.S. Pension Plan
We have investment committees that meet regularly to
review the portfolio returns and to determine asset-mix targets
based on asset/liability studies. Third-party investment consul-
tants assist us in developing asset allocation strategies to
determine our expected rates of return and expected risk for
various investment portfolios. The investment committees con-
sidered these strategies in the formal establishment of the cur-
rent asset-mix targets based on the projected risk and return
levels for all major asset classes.
The investment policy of the U.S. pension plan (the “U.S.
Plan”) was developed after examining the historical relation-
ships of risk and return among asset classes and the relation-
ship between the expected behavior of the U.S. Plan’s assets
and liabilities. The investment policy of the U.S. Plan is
designed to provide the greatest probability of meeting or
exceeding the U.S. Plan’s objectives at the lowest possible risk.
In establishing its risk tolerance, the investment committee
for the U.S. Plan (“U.S. Committee”) considers its ability to
withstand short-term and intermediate-term volatility in mar-
ket conditions. The U.S. Committee also reviews the long-term
characteristics of various asset classes, focusing on balancing
risk with expected return. Accordingly, the U.S. Committee
selected the following four asset classes as allowable invest-
ments for the assets of the U.S. Plan: U.S. equities, Real Estate,
U.S. fixed-income securities, and non-U.S. equities.