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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Employee Benefit Plans EMPLOYEE BENEFIT PLANS
GE MULTI-EMPLOYER PLANS
Historically, we were allocated relevant participation costs for certain employees who participated in GE employee benefit plans as part of multi-employer plans. Certain of our U.S. employees were covered under various U.S. GE employee benefit plans, including GE's retirement plans (pension, retiree health and life insurance, and savings benefit plans). From January 1, 2019, these U.S. employees ceased to participate in the GE U.S. plans. In addition, certain United Kingdom (UK) employees participated in the GE UK Pension Plan. From May 1, 2019, these UK employees ceased to participate in the GE UK Pension Plan. Expenses associated with our participation in these plans were $3 million, $158 million and $132 million in the years ended December 31, 2019, 2018 and 2017, respectively. In 2019, the assets and liabilities of the GE UK Pension Plan related to the oil & gas businesses were transferred to us on a fully funded basis.
DEFINED BENEFIT PLANS
In addition to these GE plans, certain of our employees are also covered by company sponsored pension plans. Our primary pension plans in 2019 included four U.S. plans and seven non-U.S. pension plans, primarily in the UK, Germany, and Canada, all with pension assets or obligations greater than $20 million. We use a December 31 measurement date for these plans. These defined benefit plans generally provide benefits to employees based on formulas recognizing length of service and earnings; however, over half of these plans are either frozen or closed to new entrants. We also provide certain postretirement health care benefits (Other Postretirement Benefits), through an unfunded plan, to a closed group of U.S. employees who retire and meet certain age and service requirements.
Funded Status
The funded status position represents the difference between the benefit obligation and the plan assets. The projected benefit obligation (PBO) for pension benefits represents the actuarial present value of benefits attributed to employee services and compensation and includes an assumption about future compensation levels. The accumulated benefit obligation (ABO) is the actuarial present value of pension benefits attributed to employee
service to date at present compensation levels. The ABO differs from the PBO in that the ABO does not include any assumptions about future compensation levels. Below is the reconciliation of the beginning and ending balances of benefit obligations, fair value of plan assets and the funded status of our plans.
 
Pension Benefits
Other Postretirement
Benefits
  
2019
2018
2019
2018
Change in benefit obligation:
 
 
 
 
Benefit obligation at beginning of year
$
2,261

$
2,418

$
107

$
187

Service cost
21

21

1

2

Interest cost
90

71

4

5

Plan amendment
—

20

—

1

Actuarial loss (gain)
301

(93
)
(16
)
(23
)
Benefits paid
(102
)
(67
)
(16
)
(21
)
Curtailments
(21
)
(7
)
—

(5
)
Settlements
(36
)
(59
)
—

—

Transfer from GE - UK Plan
837

—

—

—

Other
15

16

—

(39
)
Foreign currency translation adjustments
85

(59
)
—

—

Benefit obligation at end of year
3,451

2,261

80

107

 
 
 
 
 
Change in plan assets:
 
 
 
 
Fair value of plan assets at beginning of year
1,866

2,059

—

—

Actual return on plan assets
314

(60
)
—

—

Employer contributions
23

51

16

21

Benefits paid
(102
)
(67
)
(16
)
(21
)
Settlements
(36
)
(59
)
—

—

Transfer from GE - UK Plan
851

—

—

—

Other
—

(9
)
—

—

Foreign currency translation adjustments
88

(49
)
—

—

Fair value of plan assets at end of year
3,004

1,866

—

—

 
 
 
 
 
Funded status - underfunded at end of year
$
(447
)
$
(395
)
$
(80
)
$
(107
)
 
 
 
 
 
Accumulated benefit obligation
$
3,401

$
2,225

$
80

$
107

The amounts recognized in the consolidated and combined statements of financial position consist of the following at December 31:
 
Pension Benefits
Other Postretirement
Benefits
  
2019
2018
2019
2018
Noncurrent assets
$
78

$
47

$
—

$
—

Current liabilities
(17
)
(13
)
(11
)
(19
)
Noncurrent liabilities
(508
)
(429
)
(69
)
(88
)
Net amount recognized
$
(447
)
$
(395
)
$
(80
)
$
(107
)

Information for the plans with ABOs in excess of plan assets is as follows at December 31:
 
Pension Benefits
Other Postretirement
Benefits
  
2019
2018
2019
2018
Projected benefit obligation
$
1,814

$
1,621

n/a

n/a

Accumulated benefit obligation
$
1,763

$
1,585

$
80

$
107

Fair value of plan assets
$
1,288

$
1,179

n/a

n/a


Net Periodic Cost (Income)
The components of net periodic cost (income) are as follows for the years ended December 31:
 
Pension Benefits
Other Postretirement
Benefits
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Service cost
$
21

 
$
21

 
$
37

 
$
1

 
$
2

 
$
2

Interest cost
90

 
71

 
51

 
4

 
5

 
6

Expected return on plan assets
(122
)
 
(121
)
 
(81
)
 
—

 
—

 
—

Amortization of prior service credit
1

 
—

 
—

 
(3
)
 
(5
)
 
(3
)
Amortization of net actuarial loss (gain)
17

 
10

 
12

 
(7
)
 
(2
)
 
(2
)
Curtailment / settlement loss (gain)
9

 
2

 
(45
)
(1) 
—

 
(5
)
 
2

Net periodic cost (income)
$
16

 
$
(17
)
 
$
(26
)
 
$
(5
)
 
$
(5
)
 
$
5

(1) 
As a result of the acquisition of BHI, we obtained a non-contributory pension plan (the Baker Hughes Incorporated Pension Plan or BHIPP). In 2017, the Compensation Committee of the Board of Directors approved amendments to the BHIPP to close the plan to new participants and freeze accruals of future service-related benefits effective as of December 31, 2017. As a result of these actions, the Company recorded a curtailment gain of $45 million. The curtailment was recorded by the Company during the fourth quarter of 2017 and included in the “Other non operating income (loss), net” caption of the consolidated and combined statements of income (loss).
The service cost component of the net periodic cost (benefit) is included in "operating income (loss)" and all other components are included in "Other non operating income, net" caption of the consolidated and combined statements of income (loss).
Assumptions Used in Benefit Calculations
Accounting requirements necessitate the use of assumptions to reflect the uncertainties and the length of time over which the pension obligations will be paid. The actual amount of future benefit payments will depend upon when participants retire, the amount of their benefit at retirement and how long they live. To reflect the obligation in today’s dollars, we discount the future payments using a rate that matches the time frame over which the payments will be made. We also need to assume a long-term rate of return that will be earned on investments used to fund these payments.
Weighted average assumptions used to determine benefit obligations for these plans are as follows for the years ended December 31:
 
Pension Benefits
Other Postretirement
Benefits
  
2019
2018
2019
2018
Discount rate
2.34
%
3.43
%
2.89
%
3.92
%
Rate of compensation increase
3.11
%
3.78
%
n/a

n/a


Weighted average assumptions used to determine net periodic cost for these plans are as follows for the years ended December 31:
 
Pension Benefits
Other Postretirement 
Benefits
 
2019
2018
2017
2019
2018
2017
Discount rate
3.43
%
2.99
%
3.24
%
3.92
%
3.32
%
3.72
%
Expected long-term return on plan assets
5.48
%
5.94
%
6.26
%
n/a

n/a

n/a


We determine the discount rate using a bond matching model, whereby the weighted average yields on high-quality fixed-income securities have maturities consistent with the timing of benefit payments. Lower discount rates increase the size of the benefit obligations and pension expense in the following year; higher discount rates reduce the size of the benefit obligation and subsequent-year pension expense. The compensation assumption is used in our active plans to estimate the annual rate at which the pay for plan participants will grow. If the rate of growth assumed increases, the size of the pension obligations will increase.
The expected return on plan assets is the estimated long-term rate of return that will be earned on the investments used to fund the pension obligations. To determine this rate, we consider the current and target composition of plan investments, our historical returns earned, and our expectations about the future.
Assumed health care cost trend rates can have a significant effect on the amounts reported for Other Postretirement Benefits. As of December 31, 2019, the health care cost trend rate was 6.50%, declining gradually each successive year until it reaches 4.50%. A one percentage point change in assumed health care cost trend rates would have been immaterial in 2019.
Accumulated Other Comprehensive Loss
The amount recorded before-tax in accumulated other comprehensive loss related to employee benefit plans consists of the following at December 31:
 
Pension Benefits
Other Postretirement
Benefits
  
2019
2018
2019
2018
Net actuarial loss (gain)
$
395

$
177

$
(38
)
$
(29
)
Net prior service cost (credit)
19

20

(15
)
(18
)
Total
$
414

$
197

$
(53
)
$
(47
)

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss and included in net periodic benefit cost in 2020 is $32 million and $1 million, respectively. The estimated net actuarial gain and prior service credit for the other postretirement benefits that will be amortized from accumulated other comprehensive loss and included in net periodic benefit cost in 2020 is $3 million and $3 million, respectively.
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 table below presents the fair value of the pension assets at December 31:
 
2019
2018
Equity securities


U.S. equity securities (1)
$
258

$
215

Global equity securities (1)
333

338

Debt securities


Fixed income and cash investment funds
1,858

937

Other debt securities
3

4

Private equities
51

60

Real estate
84

35

Other investments (2)
417

277

Total plan assets
$
3,004

$
1,866


(1) 
Include direct investments and investment funds.
(2) 
Consists primarily of asset allocation fund investments.
Plan assets valued using Net Asset Value (NAV) as a practical expedient amounted to $2,988 million and $1,802 million as of December 31, 2019 and 2018, respectively. The percentages of plan assets valued using NAV by investment fund type for equity securities, fixed income and cash, and alternative investments were 20%, 62%, and 18% as of December 31, 2019, respectively, and 30%, 48%, and 19% as of December 31, 2018, respectively. Those investments that were measured at fair value using NAV as practical expedient were excluded from the fair value hierarchy. The practical expedient was not applied for investments with a fair value of $14 million and $64 million as of December 31, 2019 and 2018, respectively. There were no investments classified within Level 3 in 2019 and 2018. The remaining investments were considered Level 1 and 2.
Funding Policy
The funding policy for our Pension Benefits is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. In 2019, we contributed approximately $23 million. We expect to contribute approximately $21 million to our pension plans in 2020.
We fund our Other Postretirement Benefits on a pay-as-you-go basis. In 2019, we funded $16 million and in 2020, we expect to fund approximately $11 million to such benefits.
The following table presents the expected benefit payments over the next 10 years. The U.S. and non-U.S. pension benefit payments are made by the respective pension trust funds.
Year
Pension
Benefits
Other Postretirement
Benefits
2020
 
$
136

 
 
$
11

 
2021
 
134

 
 
9

 
2022
 
136

 
 
7

 
2023
 
137

 
 
6

 
2024
 
142

 
 
6

 
2025-2029
 
749

 
 
24

 

Defined Contribution Plans
Our primary defined contribution plan during 2019 was the Company sponsored U.S. 401(k) plan (401(k) Plan).  The 401(k) Plan allows eligible employees to elect to contribute portions of their eligible compensation to an investment trust.  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 eligible compensation, and such contributions vest immediately.  In addition, we make cash contributions for all eligible employees of 4% of their eligible compensation and such contributions are fully vested to the employee after three years of employment.  During 2018, the legacy BHI employees participated in the 401(k) Plan whereas the legacy GE O&G employees continued to participate in the GE sponsored plan.  Beginning in 2019, certain legacy GE O&G employees were eligible to participate in our defined contribution plans, including our 401(k) Plan. Legacy BHI employees continued to participate in the 401(k) Plan during 2019. The 401(k) Plan provides several investment options, for which the employee has sole investment discretion, however, the 401(k) Plan does not offer Baker Hughes' common stock as an investment option.  Our costs for the 401(k) Plan and several other U.S. and non-U.S. defined contribution plans amounted to $235 million and $137 million, in 2019 and 2018, respectively.
Other
We have two non-qualified defined contribution plans that are invested through trusts.  The assets and corresponding liabilities were $276 million and $233 million at December 31, 2019 and 2018, respectively, and are included in "All other assets" and "Liabilities for pensions and other employee benefits" captions in our consolidated and combined statements of financial position.