Baker Hughes 2007 Annual Report Download - page 35

2007 Proxy Statement 17
an employee is fully vested in his Thrift Plan Base Contribution
if the employee retires at age 65 or later, or terminates
employment with three years of service, or the employee’s
employment is terminated due to death or total and perma-
nent 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 2007 was 5%. An employee is fully vested in his or her
Pension 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 50% 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
special provisions for Senior Executives under the Pension Plan.
We adopted the SRP, which was amended and restated
effective January 1, 2005, 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฀
compensation on a tax-deferred basis.
Accordingly, Executive contributions include amounts
calculated 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 contri-
butions 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
limited to $225,000 and pre-tax employee contributions were
limited to $15,500 ($20,500 for employees age 50 or older)
in 2007. Additionally, Executives may elect to defer eligible
compensation each year instead of receiving that amount in
current compensation. The Company contributes matching,
base and pension contributions on compensation above the
compensation ceiling established by the Code and on the
Executive’s deferred compensation. Company contributions,
as a percentage of compensation, are made according to the
following schedule:
Base Pension Matching
Age 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
Company matching contributions. Beginning January 1, 2007
Executives generally are fully vested in pension contributions
after three years of service. Regardless of the number of years
of service, an Executive is fully vested in all contributions if the
Executive retires at age 65 or later, or upon the Executive’s
termination of employment due to the death or total and
permanent disability 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
annual installments for 15 years. 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 in funds
selected by us. Additional information regarding these benefits
and an accompanying narrative disclosure are provided in the
Pension Benefits Table and Nonqualified Deferred Compensa-
tion Table disclosed on pages 26 and 27.
Perquisites and Perquisite Allowance Payments
In order to remain competitive with the Peer Group and
ensure our ability to attract and retain capable Senior Execu-
tives, the Company also provides perquisites that are common
to executives in the United States and in our industry. The