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 rest of the plans are 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 957m (1,658). The major change was that the defined benefit obligation decreased with SEK 676m, mainly due to movements in exchange rates. The unrecognized actuarial losses in the plans for post-employment benefits decreased with SEK 405m to SEK 1,333m (1,738). The decrease is mainly due to strong performance of the plan assets.

Amounts recognized in balance sheet
	December 31, 2010				December 31, 2009
	Pension benefits	Healthcare benefits	Other post-employment benefits	Total	Pension benefits	Healthcare benefits	Other post-employment benefits	Total
Present value of funded obligations	18,332	2,068	—	20,400	19,008	2,055	—	21,063
Fair value of plan assets	–18,069	–1,340	—	–19,409	–17,749	–1,259	—	–19,008
Surplus/deficit	263	728	—	991	1,259	796	—	2,055
Present value of unfunded obligations	666	—	657	1,323	601	—	735	1,336
Unrecognized actuarial losses(-) /gains(+)	–1,532	232	–33	–1,333	–2,081	352	–9	–1,738
Unrecognized past-service cost	–1	1	–24	–24	–6	11	–15	–10
Effect of limit on assets	—	—	—	—	15	—	—	15
Net provisions for post-employment benefits	–604	961	600	957	–212	1,159	711	1,658
Whereof reported as
Prepaid pension cost in other non-current assets¹⁾	1,529	—	—	1,529	510	—	—	510
Provisions for post-employment benefits	925	961	600	2,486	298	1,159	711	2,168

1) Pension assets are related to Canada, Sweden, Switzerland and the United Kingdom.


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, 2009	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	–70	–84	–43	–197
Net provision for post-employment benefits, December 31, 2009	–212	1,159	711	1,658
Expenses for defined post-employment benefits	226	37	51	314
Contributions by employer	–626	–192	–72	–890
Exchange differences and other changes	8	–43	–90	–125
Net provision for post-employment benefits, December 31, 2010	–604	961	600	957


Amounts recognized in income statement
	December 31, 2010				December 31, 2009
	Pension benefits	Healthcare benefits	Other post-employment benefits	Total	Pension benefits	Healthcare benefits	Other post-employment benefits	Total
Current service cost	312	1	4	317	248	1	4	253
Interest cost	957	114	35	1,106	990	134	43	1,167
Expected return on plan assets	–1,140	–90	—	–1,230	–935	—	—	–935
Amortization of actuarial losses/gains	92	–10	—	82	91	–11	—	80
Amortization of past-service cost	5	–6	2	1	–14	–14	2	–26
Losses/gains on curtailments and settlements	15	28	10	53	–30	–31	8	–53
Effect of limit on assets	–15	—	—	–15	15	—	—	15
Total expenses for defined post-employment benefits	226	37	51	314	365	79	57	501
Expenses for defined contribution plans	—	—	—	427	—	—	—	376
Total expenses for post-employment benefits	—	—	—	741	—	—	—	877
Actual return on plan assets	–1,864	—	—	–1,864	–2,065	—	—	–2,065

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
	2010				2009
	Pension benefits	Healthcare benefits	Other post-employment benefits	Total	Pension benefits	Healthcare benefits	Other post-employment benefits	Total
Opening balance, January 1	19,610	2,055	734	22,399	19,934	2,369	882	23,185
Current service cost	312	1	4	317	248	1	4	253
Interest cost	957	114	35	1,106	990	134	43	1,167
Contributions by plan participants	41	21	—	62	44	25	—	69
Actuarial losses/gains	222	150	26	398	341	–90	–25	226
Past-service cost	—	—	15	15	–20	–13	—	–33
Curtailments/special termination benefit cost	10	32	12	54	–69	—	–1	–70
Liabilities extinguished on settlements	–2	—	–3	–5	–4	—	7	3
Exchange differences on foreign plans	–1,054	–117	–94	–1,265	–690	–148	–45	–883
Benefits paid	–1,098	–199	–72	–1,369	–1,164	–236	–131	–1,531
Other	—	11	—	11	—	13	—	13
Closing balance, December 31	18,998	2,068	657	21,723	19,610	2,055	734	22,399


Reconciliation of change in fair value of plan assets
	2010				2009
	Pension benefits	Healthcare benefits	Other post-employment benefits	Total	Pension benefits	Healthcare benefits	Other post-employment benefits	Total
Opening balance, January 1	17,749	1,259	—	19,008	13,987	2	—	13,989
Expected return on plan assets	1,140	90	—	1,230	935	—	—	935
Actuarial gains/losses	581	53	—	634	1,130	—	—	1,130
Settlements	—	—	—	—	–4	—	—	–4
Contributions by employer	626	192	72	890	3,418	1,545	131	5,094
Contributions by plan participants	41	21	—	62	44	25	—	69
Exchange differences on foreign plans	–974	–76	—	–1,050	–597	–77	—	–674
Benefits paid	–1,098	–199	–72	–1,369	–1,164	–236	–131	–1,531
Other	4	—	—	4	—	—	—	—
Closing balance, December 31	18,069	1,340	—	19,409	17,749	1,259	—	19,008

The pension plan assets include ordinary shares issued by AB Electrolux with a fair value of SEK 86m (75). In 2011, the Group expects to pay a total of SEK 667m in contributions to the funds and payments of benefits directly to the employees. In 2010, this amounted to SEK 890m, of which SEK 579m were contributions to the Group’s pension funds.


Major categories of plan assets as a percentage of total plan assets
	December 31,
%	2010	2009
European equities	16	10
North American equities	16	18
Other equities	10	11
European bonds	19	21
North American bonds	22	23
Alternative investments¹⁾	13	9
Property	3	4
Cash and cash equivalents	1	4
Total	100	100

1) Includes hedge funds and infrastructure investments.

Principal actuarial assumptions at balance-sheet date expressed as a weighted average
	December 31,
%	2010	2009
Discount rate	5.2	5.2
Expected long-term return on assets	6.8	6.9
Expected salary increases	3.8	3.8
Annual increase of healthcare costs	8.0	8.5

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. In Sweden, mortgage bonds are used for determining 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.
Expected salary increases are based on local conditions in each country.
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
	2010		2009
	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	11	–9	12	–10
Effect on defined benefit obligation	210	–181	202	–174


Amounts for annual periods
	December 31,
	2010	2009	2008	2007	2006
Defined benefit obligation	–21,723	–22,399	–23,185	–20,597	–21,883
Plan assets	19,409	19,008	13,989	14,008	14,010
Surplus/deficit	–2,314	–3,391	–9,196	–6,589	–7,873
Experience adjustments on plan liabilities	425	222	217	–221	221
Experience adjustments on plan assets	634	1,130	–1,665	–38	121

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 the Swedish Pension Foundation (PRI) 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, 2009	1,179	356	1,535
Current service cost	9	21	30
Interest cost	51	16	67
Other increase of present value	25	28	53
Benefits paid	–47	–47	–94
Closing balance, December 31, 2009	1,217	374	1,591
Current service cost	31	13	44
Interest cost	62	19	81
Other decrease of present value	—	—	—
Benefits paid	–44	–36	–80
Closing balance, December 31, 2010	1,266	370	1,636


Change in fair value of plan assets
	Funded
Opening balance, January 1, 2009	1,257
Actual return on plan assets	269
Contributions and compensation to/from the fund	61
Closing balance, December 31, 2009	1,587
Actual return on plan assets	110
Contributions and compensation to/from the fund	61
Closing balance, December 31, 2010	1,758


Amounts recognized in balance sheet
	December 31,
	2010	2009
Present value of pension obligations	–1,636	–1,591
Fair value of plan assets	1,758	1,587
Surplus/deficit	122	–4
Limitation on assets in accordance with Swedish accounting principles	–492	–370
Net provisions for pension obligations	–370	–374
Whereof reported as provisions for pensions	–370	–374


Amounts recognized in income statement
	2010	2009
Current service cost	44	30
Interest cost	81	67
Total expenses for defined benefit pension plans	125	97
Insurance premiums	74	21
Total expenses for defined contribution plans	74	21
Special employer’s contribution tax	46	39
Cost for credit insurance	1	2
Total pension expenses	246	159
Compensation from the pension fund	—	—
Total recognized pension expenses	246	159

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, 2010, to SEK 2,086m (1,882) and the pension commitments to SEK 1,505m (1,447). The Swedish Group companies recorded a liability to the pension fund as per December 31, 2010, in the amount of SEK 58m (73). Contributions to the pension foundation during 2010 amounted to SEK 73m (74) regarding the pension liability at December 31, 2008. No contributions have been made from the pension foundation to the Swedish Group companies in 2008, 2009 and 2010.