18. Pension plans and other long-term employee benefits
The Group operates in and outside of Switzerland different pension plans for employees that satisfy the participation criteria. Among these plans are defined contribution and defined benefit plans that cover most of the employees against retirement, disability and death.
18.1 DEFINED CONTRIBUTION PLANS
The Group offers to employees that satisfy the eligibility criteria defined contribution plans in different locations. The Group is obliged to pay a fixed percentage of the annual pay to these pension schemes. To some of these plans, the employees also have to make contributions. These are typically deducted by the employer from the monthly salary and paid to the pension fund. Apart from the payment of the contributions, the employer has no further obligation to these pension funds or to the employees.
In 2014 the employer contributions to Defined Contribution Plans amounted to CHF 8.5 million (CHF 7.5 million in 2013).
18.2 MULTI-Employer Plans
The Group offers to employees that satisfy the eligibility criteria defined contribution plans in different locations. Some subsidiaries in the US are affiliated to a multi-employer plan. Based on the terms of the plan, the plan qualifies as a defined benefit plan. The Lindt & Sprüngli Group is in discussion with the trustees of the plan to obtain the information, that are required to recognize the plan as a defined benefit plan. At the time of the preparation of this disclosure note, the necessary information to estimate in a reasonable way the share of the Groups' defined benefit liability was not yet available. In particular, the plan was not yet able to provide the participation data for the former employees with vested rights and the pensioners relating to the Group that would have allowed estimating the defined benefit obligation. Based on this situation and as required by IAS 19, the plan is currently treated as a defined contribution plan. The Group is analyzing the situation on an ongoing basis. As soon as sufficient information is available to reasonably estimate the pension liability, the plan will be recognized as a defined benefit plan in the balance sheet. This change in accounting principle will be recognized in equity.
The employer contribution to this plan is calculated based on the working hours of the active employees. For each hour a fixed contribution is paid to the plan. This fixed amount is determined based on a collective agreement with the relevant unions.
In 2014 the employer contribution to the multi-employer plan amounts to CHF 1.5 million (CHF 1.1 million in 2013). In 2015 the employer contribution is estimated at CHF 1.8 million. The increase in 2015 compared to 2014 is related to the acquisition of Russell Stover Candies, LCC (12 months of contribution in 2015 compared to only four months in 2014).
The Group can be liable to the plan for other entities' obligations under the terms and conditions as the minimum funding requirements may lead to higher contributions. This is the case if another affiliated company gets insolvent.
If the affiliation contract to the plan is terminated, the Group must pay a withdrawal liability. The withdrawal liability is calculated based on the total contributions of the afiliated employers and the employer contributions of the Group to the plan. Based on the latest available information of the multi-employer plan at December 31, 2012, the total withdrawal liability of the plan amounts to USD 4.9 billion. The Group's share of the withdrawal liability is at 0.9% for 2014.
18.3 Defined Benefit Plans and other long-term employee benefits plans
The Group finances Defined Benefit Plans for the employees that satisfy the criteria to join such plans. The most significant Defined Benefit Plans are located in Switzerland, Germany, USA, France, and Italy.
In addition to these plans, the Group operates jubilee benefit plans and other plans with benefits depending on the past years of service. These plans qualify as other long-term employee benefits under IAS 19.
a) Employee benefits plans in Switzerland
The Group operates different pension schemes in Switzerland. They are either organized through a separate foundation or through an affiliation to a collective foundation of an insurance company. The foundations are governed by foundation boards. The foundation boards are made up by an equal number of employee and employer representatives. The members of the foundation board are obliged by the law and the plan rules to act in the interest of the member (active employees and pensioners) only. Since the decisions are taken by the foundation boards, the only influence of the group is through its representatives.
The main duties of the foundation boards include the decision about the plan rules including the level of the contributions, the organization and the investment strategy.
The benefits are mainly depending on the insured salary and the years of service. For some of the plans the benefits are depending on retirement savings account. At retirement age, the insured members can choose whether to take a pension for life, which includes a spouse's pension, or a lump sum. In addition to retirement benefits, the plan benefits also include disability and death benefits. Insured members may also buy into the scheme to improve their pension provision up to the maximum amount permitted under the rules or may withdraw funds early for the purchase of a residential property for their own use. On leaving the company, the retirement savings will be transferred to the pension institution of the new employer or to a vested benefits institution. This type of benefit may result in pension payments varying considerably between individual years.
In defining the benefits, the minimum requirements of the Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) and its implementing provisions must be observed. The BVG defines the minimum pensionable salary and the minimum retirement credits. The interest rate applicable to these minimum retirement savings is set by the Swiss Federal Council at least once every two years. In 2014, the rate was 1.75% (1.5 % in 2013).
The structure of the plan and the legal provisions of the BVG mean that the employer is exposed to actuarial risks. The main risks are investment risk, the inflation risk if it results in a salary increase, the interest risk, the disability risk and the risk of longevity.
The employee and employer's contributions are set by the foundation board. The employer has to finance at least 50% of the total contributions. Contributions can also be financed through employer welfare fund or finance foundations of the employer. In the event of a shortfall, recapitalization contributions to eliminate the gap in coverage may be levied from both the employer and the employee.
Beside the pension schemes, there are employer foundations that have as a main task to finance the pension schemes. The board members of these foundations are appointed exclusively by the employer.
In March 2013, the Board of the foundation “Fonds für Pensionsergänzungen der Chocoladefabriken Lindt & Sprüngli AG” has restructured the pension fund schemes within the Group. As a consequence assets from one of the pension funds have been transferred to an employer fund and two other nonprofit funds. The value of assets transferred to the two non-profit funds, which are no longer in the scope of IAS 19, amounted to CHF 286.0 million. Under IFRIC 14 the net assets of the employer fund had to be considered as an economic benefit of the employer and to be fully recognized as an asset in the consolidated balance sheet of the Group, resulting in an increase of financial assets and deferred tax liabilities of CHF 855.0 million in 2013 (before the transfer of the pension assets to the two non-profit funds).
b) Employee benefits plans in Germany
In Germany the group operates different company pension plans. These plans are based on different rules and agreements between the employer and employees. For certain management employees individual agreements are applied. The plan provides benefits in the event of retirement, disability and death. Depending on the plan rules, the benefits are either paid as pensions for life or as lump sums. The most significant plans are financed directly by the employer. Upon termination of the employment prior to retirement, the vested benefits remain preserved as required by the German pension law.
The plans are regulated by the German pension law (Betriebsrentengesetz). The most significant risks in these plans are the life expectancy risk, the salary increase risk, and the inflation risk that might result in pension adjustments.
c) Employee benefits plans in the US
In relation to the acquisition of Russell Stover Candies, LLC two defined benefit plans and one multi-employer plan (see note 18.2) have been assumed by the Group. The first defined benefit plan is a closed defined benefit plan. The old age benefits are calculated based on the years of service and a fixed USD amount. The benefits are typically provided as annual old age pensions for life. Next to the old age benefits, the plan provides death benefits. The plan is financed in full by the employer. Plan participant's contributions are not allowed. Due to the plan characteristics, the employer is exposed to different actuarial risks, in special to the risk of the development of the future life expectancy.
In the second defined benefit plan the employee receives a lump sum equal to the savings account at retirement. In addition to the savings account, the return on the investments chosen by the employee are reimbursed. The underlying assets are separated in a trust but do not qualify as defined benefit assets under IAS 19 as the assets are available to the creditors. Nevertheless, the trust reimburses the Company for the payments of the benefits. For this plan there is no actuarial risk, as long as the investments of the trust cover the investments chosen by the employees.
d) Other employee benefits plans
The other plans are located in France, Italy and Austria. These plans are based on the local legal requirements.
The last actuarial valuation was prepared at December 31, 2014 by independent actuaries. The market value of assets at December 31, 2014 was estimated based on the information available at the moment of preparing the results.
The main assumptions on which the actuarial calculations are based can be summarized as follows:
|Pension plans||Other long-term employee benefits|
|Future salary increases||1.5%||1.6%|
|Future pension adjustments||0.5%||0.6%|
For the countries with material pension obligations the following assumptions about the life expectancy at age 65 were taken into account:
|Retirement in 20 years (age of 45 at balance sheet date)|
|Retirement at balance sheet date (age of 65)|
The amounts recognized in the income statement and in the Other Comprehensive Income (OCI) can be summarized as follows:
|Pension plans||Other long-term employee benefits|
|Employee benefits expense|
|Total service cost|
|Current service cost||12.6||13.0||0.6||0.6|
|Past service cost und curailments||0.1||0.6||–||–|
|Net interest cost||– 19.8||– 10.4||0.2||0.3|
|Liability management cost||0.8||0.6||–||–|
|Actuarial gains and losses||–||–||0.6||–|
|Total defined benefit cost (+) / gain (–) of the period||– 6.3||3.8||1.4||0.9|
|Valuation components accounted for in OCI|
|Actuarial gains and losses|
|Arising from changes in demographic assumptions||–||0.3||–||–|
|Arising from changes in financial assumptions||62.3||– 22.9||–||–|
|Arising from experiences||– 0.8||2.4||–||–|
|Return on plan assets (excl. amounts in net interest)||– 193.2||– 344.9||–||–|
|Return on reimbursment (excluding interest income)||0.3||–||–||–|
|Changes in asset ceiling||–||– 851.5||–||–|
|Total defined benefit cost (+) / gain (–) recognized in OCI||– 131.4||– 1,216.6||–||–|
|Total defined benefit cost (+) / gain (–)||– 137.7||– 1,212.8||–||–|
The changes in pension obligations, pension assets and the asset ceiling can be summarized as follows:
Changes in the present value of the defined benefit obligation
|Pension plans||Other long-term employee benefits|
|Defined benefit obligation as at January 1||438.5||448.1||8.3||9.4|
|Current service cost||12.6||13.0||0.6||0.7|
|Plan participants' contributions||4.9||3.9||–||–|
|Interest expense on the net present value of the obligation||11.4||10.0||0.2||0.3|
|Actuarial gains (–) / losses (+)||61.5||– 21.0||0.6||–|
|Past service (gain) / loss||0.2||0.6||–||–|
|Liabilities assumed in business combinations||36.3||–||–||–|
|Benefits paid through pension assets||– 13.9||– 14.6||–||–|
|Benefits paid by employer||– 9.0||– 3.0||– 1.5||– 2.1|
|Currency exchange differences||– 0.2||1.5||– 0.1||–|
|Defined benefit obligation as at December 31||542.3||438.5||8.1||8.3|
Changes in the fair value of plan assets
|Fair value of plan assets as at January 1||1,344.8||1,272.9|
|Plan participants' contributions||4.9||3.9|
|Contributions by employer||3.8||2.8|
|Return on plan assets (excl. Interest income)||193.2||344.9|
|Transfer of assets||–||– 288.5|
|Assets assumed in business combinations||14.7||–|
|Benefits paid through pension assets||– 13.9||– 14.6|
|Liability management cost||– 0.7||– 0.7|
|Fair value of plan assets as at December 31||1,578.5||1,344.8|
Development of reimbursement rights 1)
|Reimbursement rights as at January 1||–|
|Interest income on reimbursements||0.2|
|Return on reimbursement (excluding interest income)||– 0.3|
|Reimbursements to employer||– 5.5|
|Reimbursement rights as at December 31||13.1|
1) Relates exclusively to reimbursment rights of newly acquired company Russell Stover Candies, LLC.
Change in the asset ceiling
|Asset ceiling at January 1||–||851.5|
|Interest income recognized in OCI||–||3.5|
|Change in asset ceiling recognized in OCI||–||– 855.0|
|Fair value of plan assets as at December 31||–||–|
The net position of pension obligations in the balance sheet can be summarized as follows:
Amount recognized in the balance sheet
|Pension plans||Other long-term employee benefits|
|Present value of funded obligation||508.7||419.2||–||–|
|Fair value of plan assets||– 1,578.5||– 1,344.8||–||–|
|Underfunding (+) / Overfunding (–)||– 1,069.8||– 925.6||–||–|
|Present value of unfunded obligations||33.5||19.2||8.1||8.3|
|Net pension liability (+) / asset (–)||– 1,036.3||– 906.4||8.1||8.3|
|Thereof pension liabilities||172.2||110.5||8.1||8.3|
|Thereof pension assets 1)||– 1,208.4||– 1,016.9||–||–|
1) See note 9.
The plan assets are mainly managed by the Swiss pension plans and employer funds. The foundation boards issue investment guidelines for the plan assets which include the tactical asset allocation and the benchmarks for comparing the results with a general investment universe. The pension plans are also subject to the legal requirements on diversification and safety laid down by the BVG. Investment in bonds have in general at least an A rating, investments in real estate are typically held directly by the plans.
The foundation boards of the pension funds regularly review whether the chosen investment strategy is appropriate in view of the the pension benefits to be provided and whether the risk capability is in line with the demographic structure. Compliance with the investment guidelines and the investment results of the investment advisors are reviewed by the foundation boards of the pension funds.
The investments in the employer foundation and primarily in the finance foundation are mainly invested in shares of the Group.
The pension assets mainly consist of the following categories of securities:
|CHF million||listed||not listed||Total||listed||not listed||Total|
|Qualified insurance policies||–||17.3||17.3||–||15.6||15.6|
The plan assets include investments in the Group with a market value of CHF 1,168.4 million at December 31, 2014 (CHF 1,019.4 million at December 31, 2013). Moreover, the Group has occupied property from the pension funds with a market value of CHF 16.8 million at December 31, 2014 (CHF 13.8 million at December 31, 2013).
In 2014 the assets provided a return of CHF 227.7 million (CHF 368.9 million in 2013). In 2015 the expected employer contributions amount to CHF 2.9 million and the expected payments for pensions by the employer to CHF 2.8 million.
The following table provides a breakdown of the defined benefit obligations among active insured members, former members with vested benefits, and members receiving pensions:
The average duration of the liabilities at December 31, 2014 is 17.8 years (16.4 years at December 31, 2013).
The following table shows the impact of the change of the discount rate, salary increase, and pension indexation on the present value of the defined benefit obligation:
|Increase (+) / decrease (–) of assumptions by||+0.25%||–0.25%||+0.25%||–0.25%|
|Discount rate||– 21.9||23.5||– 16.6||17.9|
|Salary increase||8.8||– 8.7||6.4||– 6.4|
|Pension indexations||14.1||– 13.2||11.3||– 10.2|