Baker Hughes 2007 Annual Report Download - page 145

62 Baker Hughes Incorporated
In selecting the expected rate of return on plan assets,
we consider the average rate of earnings expected on the
funds invested or to be invested to provide for the benefits of
these plans. This includes considering the trusts’ asset alloca-
tion and the expected returns likely to be earned over the life
of the plans.
Expected Cash Flows
For all pension plans, we make annual contributions to the
plans in amounts equal to or greater than amounts necessary
to meet minimum governmental funding requirements. As a
result of the merger of our U.S. plans effective January 1, 2007,
BHIPP is overfunded; therefore, we are not required nor do we
intend to make pension contributions to BHIPP in 2008, and
we currently estimate that we will not be required to make con-
tributions to BHIPP for four to seven years thereafter. In 2008,
we expect to contribute between $2.0 million and $3.0 million
to our nonqualified U.S. pension plans and between $13.0 mil-
lion and $15.0 million to the non-U.S. pension plans.
The following table presents the expected benefit pay-
ments over the next ten years. The U.S. and non-U.S. pension
benefit payments are made by the respective pension trust
funds. The other postretirement benefits are net of expected
Medicare subsidies of approximately $2.2 million per year and
are payments that are expected to be made by us.
U.S. Non-U.S. Other
Pension Pension Postretirement
Year Benefits Benefits Benefits
2008 $ 15.9 $ 12.7 $ 14.3
2009 17.0 12.6 15.0
2010 18.9 10.6 15.3
2011 21.4 10.0 15.9
2012 25.2 8.8 16.7
2013–2017 175.9 37.3 95.5
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, 2007, the health care cost trend rate
was 8.5% 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 5.0% for both employees under age
65 and over age 65 in 2012. A one percentage point change
in assumed health care cost trend rates would have had the
following effects on 2007:
One Percentage One Percentage
Point Increase Point Decrease
Effect on total of service and
interest cost components $ 0.5 $ (0.4)
Effect on postretirement welfare
benefit obligation 6.4 (5.8)
DEFINED CONTRIBUTION PLANS
During the periods reported, generally all of our U.S.
employees were eligible to participate in our sponsored Thrift
Plan, which is a 401(k) plan under the Internal Revenue Code
of 1986, as amended (“the Code”). The Thrift Plan allows
eligible employees to elect to contribute from 1% to 50% of
their salaries to an investment trust. Beginning January 1, 2007,
employee contributions are matched by the Company in cash
at the rate of $1.00 per $1.00 employee contribution for the
first 5% of the employee’s salary. In prior years, employee con-
tributions were matched in cash by us at the rate of $1.00 per
$1.00 employee contribution for the first 3% and $0.50 per
$1.00 employee contribution for the next 2% of the employee’s
salary. In all years, such contributions vest immediately. In addi-
tion, we make cash contributions for all eligible employees
between 2% and 5% of their salary depending on the
employee’s age. Such contributions are fully vested to the
employee after three years of employment. The Thrift Plan
provides for ten different investment options, for which the
employee has sole discretion in determining how both the
employer and employee contributions are invested. Our contri-
butions to the Thrift Plan and several other non-U.S. defined
contribution plans amounted to $130.7 million, $102.2 million
and $86.5 million in 2007, 2006 and 2005, respectively.
For certain non-U.S. employees who are not eligible to
participate in the Thrift Plan, we provide a non-qualified defined
contribution plan that provides basically the same benefits as
the Thrift Plan. In addition, we provide a non-qualified supple-
mental retirement plan (“SRP”) for certain officers and employees
whose benefits under the Thrift Plan and/or the U.S. defined
benefit pension plan are limited by federal tax law. The SRP
also allows the eligible employees to defer a portion of their
eligible compensation and provides for employer matching and
base contributions pursuant to limitations. Both non-qualified
plans are invested through trusts, and the assets and corre-
sponding liabilities are included in our consolidated balance
sheet. Our contributions to these non-qualified plans were
$11.0 million, $8.3 million and $7.2 million for 2007, 2006
and 2005, respectively.
In 2008, we expect to contribute between $142.0 million
and $153.0 million to our defined contribution plans.
POSTEMPLOYMENT BENEFITS
We provide certain postemployment disability income,
medical and other benefits to substantially all qualifying for-
mer or inactive U.S. employees. Income benefits for long-term
disability are provided through a fully-insured plan. The con-
tinuation of medical and other benefits while on disability
(“Continuation Benefits”) are provided through a qualified
self-insured plan. The accrued postemployment liability for
Continuation Benefits at December 31, 2007 and 2006 was
$14.4 million and $17.6 million, respectively, and is included
in other liabilities in our consolidated balance sheet.