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Baker Hughes Incorporated71
Baker Hughes Incorporated
Notes to Consolidated Financial Statements
Health Care Cost Trend Rates
Assumed health care cost trend rates have a significant effect on the amounts reported for other postretirement
benefits. As of December 31, 2013, the health care cost trend rate was 7.7% for employees under age 65,
declining gradually each successive year until it reaches 4.5%. A one percentage point change in assumed health
care cost trend rates would have had the following effects on 2013:
One Percentage
Point Increase
One Percentage
Point Decrease
Effect on total of service and interest cost components $ 0.2 $ (0.2)
Effect on postretirement welfare benefit obligation $ 4.1 $ (4.1)
Plan Assets
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 consultants assist such committees in developing
asset allocation strategies to determine our expected rates of return and expected risk for various investment
portfolios. The investment committees considered these strategies in the formal establishment of the current asset-
mix targets based on the projected risk and return levels for all major asset classes.
The majority of investments are held in the form of units of funds. The funds hold underlying securities and are
redeemable as of the measurement date. Investments in equities and fixed-income funds are generally measured
at fair value based on daily closing prices provided by active exchanges or on the basis of observable, market-
based inputs. Investments in hedge funds are generally measured at fair value on the basis of their net asset
values, which are provided by the investment sponsor or third party administrator. The fair values of private equity
investments and real estate funds are based on appraised values developed using comparable market transactions
or discounted cash flows.
U.S. Qualified Pension Plan
The investment policy of the U.S. Plan was developed after examining the historical relationships of risk and
return among asset classes and the relationship 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 evaluating risk, the investment committee for the
U.S. Plan (“U.S. Committee”) reviews the long-term characteristics of various asset classes, focusing on balancing
risk with expected return. Accordingly, the U.S. Committee selected the following six asset classes as allowable
investments for the assets of the U.S. Plan: U.S. equities, non-U.S. equities, global fixed-income securities, real
estate, hedge funds and private equity.
The fair value of the assets in our U.S. Plan at December 31, 2013 and 2012, by asset category, are presented
below and were determined based on valuation techniques categorized as follows:
• Level One: The use of quoted prices in active markets for identical financial instruments.
• Level Two: The use of quoted prices for similar instruments in active markets or quoted prices for identical
or similar instruments in markets that are not active or other inputs that are observable in the market or can
be corroborated by observable market data.
• Level Three: The use of significantly unobservable inputs that typically require the use of management's
estimates of assumptions that market participants would use in pricing.