Note 22 - Post employment benefits

Post-employment benefits

The Group sponsors pension plans in many of the countries in which it has significant activities. Pension plans can be defined contribution or defined benefit plans or a combination of both. Under defined benefit pension plans, the company enters into a commitment to provide post-employment benefits based upon one or several parameters for which the outcome is not known at present. For example, benefits can be based on final salary, on career average salary, or on a fixed amount of money per year of employment. Under defined contribution plans, the company’s commitment is to make periodic payments to independent authorities or investment plans, and the level of benefits depends on the actual return on those investments. Some plans combine the promise to make periodic payments with a promise of a guaranteed minimum return on the investments. These plans are also defined benefit plans.

In some countries, the companies make provisions for compulsory severance payments. These provisions cover the Group’s commitment to pay employees a lump sum upon reaching retirement age, or upon the employees’ dismissal or resignation. These plans are listed below as Other post-employment benefits.

In addition to providing pension benefits and compulsory severance payments, the Group provides healthcare benefits, for some of its employees in certain countries, mainly in the US.

The Group’s major defined benefit plans cover employees in the US, UK, Switzerland, Germany, France, Italy and Sweden. The Italian and French plans are unfunded and the plans in the US, UK, Switzerland and Sweden are funded. During 2009, the German plans, which earlier were unfunded, have been partly funded.

A small number of the Group’s employees in Sweden is covered by a multi-employer defined benefit pension plan administered by Alecta Pension Insurance. It has not been possible to obtain the necessary information for the accounting of this plan as a defined benefit plan, and therefore, it has been accounted for as a defined contribution plan.

Below are set out schedules which show the obligations of the plans in the Electrolux Group, the assumptions used to determine these obligations and the assets relating to the benefit plans, as well as the amounts recognized in the income statement and balance sheet. The schedules also include a reconciliation of changes in net provisions during the year, a reconciliation of changes in the present value of the obligation during the year and a reconciliation of the changes in the fair value of plan assets.

The provisions for post-employment benefits amounted to SEK 1,658m (6,448). The major change was that the fair value of the plan assets increased with SEK 5,019m mainly due to extra cash contributions in the United Kingdom, US and Germany. The unrecognized actuarial losses in the plans for post-employment benefits decreased with SEK 993m to SEK 1,738m (2,731). The decrease is mainly due to strong performance of the plan assets and movements in foreign exchange rates.


Amounts recognized in balance sheet
	December 31, 2009				December 31, 2008
	Pension benefits	Healthcare benefits	Other post-employment benefits	Total	Pension benefits	Healthcare benefits	Other post-employment benefits	Total
Present value of funded obligations	19,008	2,055	—	21,063	16,341	—	—	16,341
Fair value of plan assets	–17,749	–1,259	—	–19,008	–13,987	–2	—	–13,989
Surplus/deficit	1,259	796	—	2,055	2,354	–2	—	2,352
Present value of unfunded obligations	601	—	735	1,336	3,591	2,369	884	6,844
Unrecognized actuarial losses (–) /gains(+)	–2,081	352	–9	–1,738	–2,991	298	–38	–2,731
Unrecognized past-service cost	–6	11	–15	–10	–43	44	–18	–17
Effect of limit on assets	15	—	—	15	—	—	—	—
Net provisions for post-employment benefits	–212	1,159	711	1,658	2,911	2,709	828	6,448
Whereof reported as
Prepaid pension cost in other non-current assets¹⁾	510	—	—	510	416	—	—	416
Provisions for post-employment benefits	298	1,159	711	2,168	3,327	2,709	828	6,864

1) Pension assets are related to Sweden and Switzerland.


Reconciliation of changes in net provisions for post-employment benefits
	Pension benefits	Healthcare benefits	Other post-employment benefits	Total
Net provision for post-employment benefits, January 1, 2008	2,706	2,329	804	5,839
Expenses for defined post-employment benefits	453	116	34	603
Contributions by employer	–643	–196	–125	–964
Exchange differences	395	460	115	970
Net provision for post-employment benefits, December 31, 2008	2,911	2,709	828	6,448
Expenses for defined post-employment benefits	365	79	57	501
Contributions by employer	–3,418	–1,545	–131	–5,094
Exchange differences and other changes	–70	–84	–43	–197
Net provision for post-employment benefits, December 31, 2009	–212	1,159	711	1,658


Amounts recognized in income statement
	December 31, 2009				December 31, 2008
	Pension benefits	Healthcare benefits	Other post-employment benefits	Total	Pension benefits	Healthcare benefits	Other post-employment benefits	Total
Current service cost	248	1	4	253	223	1	4	228
Interest cost	990	134	43	1,167	922	128	45	1,095
Expected return on plan assets	–935	—	—	–935	–929	—	—	–929
Amortization of actuarial losses/gains	91	–11	—	80	172	–1	—	171
Amortization of past-service cost	–14	–14	2	–26	27	–5	2	24
Losses/gains on curtailments and settlements	–30	–31	8	–53	38	–7	–17	14
Effect of limit on assets	15	—	—	15	–21	—	—	–21
Other	—	—	—	—	21	—	—	21
Total expenses for defined
post-employment benefits	365	79	57	501	453	116	34	603
Expenses for defined contribution plans	—	—	—	376	—	—	—	343
Total expenses for post-employment benefits	—	—	—	877	—	—	—	946
Actual return on plan assets	–2,065	—	—	–2,065	736	—	—	736

For the Group, total expenses for pensions, healthcare and other post-employment benefits have been recognized as operating expenses and classified as cost of goods sold, selling expenses or administrative expenses depending on the function of the employee. In the Parent Company a similar classification has been made.


Reconciliation of change in present value of defined benefit obligation for
funded and unfunded obligations
	2009				2008
	Pension benefits	Healthcare benefits	Other post- employment benefits	Total	Pension benefits	Healthcare benefits	Other post- employment benefits	Total
Opening balance, January 1	19,934	2,369	882	23,185	17,482	2,272	843	20,597
Current service cost	248	1	4	253	223	1	4	228
Interest cost	990	134	43	1,167	922	128	45	1,095
Contributions by plan participants	44	25	—	69	47	23	—	70
Actuarial losses/gains	341	–90	–25	226	798	–247	8	559
Past-service cost	–20	–13	—	–33	23	–1	—	22
Curtailments/special termination benefit cost	–69	—	–1	–70	41	—	—	41
Liabilities extinguished on settlements	–4	—	7	3	—	—	–14	–14
Exchange differences on foreign plans	–690	–148	–45	–883	1,434	399	121	1,954
Benefits paid	–1,164	–236	–131	–1,531	–1,057	–219	–125	–1,401
Other	—	13	—	13	21	13	—	34
Closing balance, December 31	19,610	2,055	734	22,399	19,934	2,369	882	23,185


Reconciliation of change in fair value of plan assets
	2009				2008
	Pension benefits	Healthcare benefits	Other post- employment benefits	Total	Pension benefits	Healthcare benefits	Other post- employment benefits	Total
Opening balance, January 1	13,987	2	—	13,989	14,008	—	—	14,008
Expected return on plan assets	935	—	—	935	929	—	—	929
Actuarial gains/losses	1,130	—	—	1,130	–1,665	—	—	–1,665
Settlements	–4	—	—	–4	—	—	—	—
Contributions by employer	3,418	1,545	131	5,094	643	196	125	964
Contributions by plan participants	44	25	—	69	47	23	—	70
Exchange differences on foreign plans	–597	–77	—	–674	1,082	2	—	1,084
Benefits paid	–1,164	–236	–131	–1,531	–1,057	–219	–125	–1,401
Other	—	—	—	—	—	—	—	—
Closing balance, December 31	17,749	1,259	—	19,008	13,987	2	—	13,989

The pension plan assets include ordinary shares issued by AB Electrolux with a fair value of SEK 75m (20). In 2010, the Group expects to pay the total of SEK 898m in contributions by employer and benefits paid directly by the company. In 2009, this amounted to SEK 5,094m, of which SEK 4,714m were contributions to the Group’s pension funds.


Major categories of plan assets as a percentage
of total plan assets
	December 31,
%	2009	2008
European equities	10	10
North American equities	18	9
Other equities	11	8
European bonds	21	23
North American bonds	23	32
Alternative investments¹⁾	9	9
Property	4	3
Cash and cash equivalents	4	6
Total	100	100

1) Includes hedge funds and infrastructure investments.

Principal actuarial assumptions at balance-sheet date expressed as a weighted average
	December 31,
%	2009	2008
Discount rate	5.2	5.2
Expected long-term return on assets	6.9	6.9
Expected salary increases	3.8	3.6
Annual increase of healthcare costs	8.5	9.0

When determining the discount rate, the Group uses AA-rated corporate bond indexes which match the duration of the pension obligations. If no corporate bond is available, government bonds are used to determine the discount rate.
Expected long-term return on assets is calculated by assuming that fixed-income holdings are expected to have the same return as ten-year corporate bonds. Equity holdings are assumed to return an equity-risk premium of 5% over ten-year government bonds. Alternative investments are assumed to return 4% over three-month Libor annually. The benchmark allocation for the assets is used when calculating the expected return, as this represents the long-term actual allocation.
The assumed healthcare cost-trend rate has a significant effect on the amounts recognized in the profit or loss. A one-percentage point change in the assumed medical cost-trend rate would have the following effects:

Healthcare benefits sensitivity analysis
	2009		2008
	One-percentage point increase	One-percentage point decrease	One-percentage point increase	One-percentage point decrease
Effect on aggregate of service cost and interest cost	12	–10	12	–10
Effect on defined benefit obligation	1,096	722	–114	–537


Amounts for annual periods
	December 31,
	2009	2008	2007	2006	2005
Defined benefit obligation	–22,399	–23,185	–20,597	–21,883	–26,733
Plan assets	19,008	13,989	14,008	14,010	15,602
Surplus/deficit	–3,391	–9,196	–6,589	–7,873	–11,131
Experience adjustments on plan liabilities	222	217	–221	221	–152
Experience adjustments on plan assets	1,130	–1,665	–38	121	513

Parent Company

According to Swedish accounting principles adopted by the Parent Company, defined benefit liabilities are calculated based upon officially provided assumptions, which differ from the assumptions used in the Group under IFRS. The pension benefits are secured by contributions to a separate fund or recorded as a liability in the balance sheet. The accounting principles used in the Parent Company’s separate financial statements differ from the IFRS principles, mainly in the following:

The pension liability calculated according to Swedish accounting principles does not take into account future salary increases.
The discount rate used in the Swedish calculations is set by PRI (Swedish Pension Foundation) and was 4.0% (4.0). The rate is the same for all companies in Sweden.
Changes in the discount rate and other actuarial assumptions are recognized immediately in the profit or loss and the balance sheet.
Deficit must be either immediately settled in cash or recognized as a liability in the balance sheet.
Surplus cannot be recognized as an asset, but may in some cases be refunded to the company to offset pension costs.

Change in present value of defined benefit pension obligation for funded and unfunded obligations
	Funded	Unfunded	Total
Opening balance, January 1, 2008	1,118	312	1,430
Current service cost	30	69	99
Interest cost	65	19	84
Other increase of present value	—	–15	–15
Benefits paid	–34	–29	–63
Closing balance, December 31, 2008	1,179	356	1,535
Current service cost	9	21	30
Interest cost	51	16	67
Other decrease of present value	25	28	53
Benefits paid	–47	–47	–94
Closing balance, December 31, 2009	1,217	374	1,591


Change in fair value of plan assets
	Funded
Opening balance, January 1, 2008	1,390
Actual return on plan assets	–133
Contributions and compensation to/from the fund	—
Closing balance, December 31, 2008	1,257
Actual return on plan assets	269
Contributions and compensation to/from the fund	61
Closing balance, December 31, 2009	1,587


Amounts recognized in balance sheet
	December 31,
	2009	2008
Present value of pension obligations	–1,591	–1,535
Fair value of plan assets	1,587	1,257
Surplus/deficit	–4	–278
Limitation on assets in accordance with Swedish accounting principles	–370	–78
Net provisions for pension obligations	–374	–356
Whereof reported as provisions for pensions	–374	–356


Amounts recognized in income statement
	2009	2008
Current service cost	30	99
Interest cost	67	84
Total expenses for defined benefit pension plans	97	183
Insurance premiums	21	21
Total expenses for defined contribution plans	21	21
Special employer’s contribution tax	39	53
Cost for credit insurance	2	1
Total pension expenses	159	258
Compensation from the pension fund	—	—
Total recognized pension expenses	159	258

The Swedish Pension Foundation

The pension liabilities of the Group’s Swedish defined benefit pension plan (PRI pensions) are funded through a pension foundation established in 1998. The market value of the assets of the foundation amounted at December 31, 2009, to SEK 1,882m (1,490) and the pension commitments to SEK 1,447m (1,403). The Swedish Group companies recorded a liability to the pension fund as per December 31, 2009, in the amount of SEK 73m (147). Contributions to the pension foundation during 2009, amounted to SEK 74m (0) regarding the pension liability at December 31, 2007. No contributions have been made from the pension foundation to the Swedish Group companies during 2009 and 2008.

Produced by Solberg