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, the UK, Switzerland, Germany, France, Italy and Sweden. The Italian and French plans are unfunded and the rest of the plans are funded.
In Sweden, in addition to benefits relating to retirement pensions, there is also a family pension for many of the Swedish employees. This commitment is classified as a multi-employer defined benefit plan and administered by Alecta. 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 –139m (287), i.e., an asset. The decrease in net liability of SEK 426m is mainly due to benefits paid directly by the company. The unrecognized actuarial losses in the plans for post-employment benefits increased with SEK 1,214m to SEK 4,706m (3,492). The increase is mainly due to sharp falls in discount rates, however, compensated by strong asset performance.
| Amounts recognized in balance sheet | |||||||||
| December 31, 2012 | December 31, 2011 | ||||||||
| Pension benefits | Healthcare benefits | Other post-employment benefits | Total | Pension benefits | Healthcare benefits | Other post-employment benefits | Total | ||
| Present value of funded obligations | 21,154 | 2,137 | — | 23,291 | 19,973 | 2,249 | — | 22,222 | |
| Fair value of plan assets | –18,793 | –1,391 | — | –20,184 | –18,468 | –1,331 | — | –19,799 | |
| Surplus/deficit | 2,361 | 746 | — | 3,107 | 1,505 | 918 | — | 2,423 | |
| Present value of unfunded obligations | 812 | — | 666 | 1,478 | 739 | — | 638 | 1,377 | |
| Unrecognized actuarial losses(-) /gains(+) | –4,508 | –96 | –102 | –4,706 | –3,360 | –87 | –45 | –3,492 | |
| Unrecognized past-service cost | — | — | –18 | –18 | — | — | –21 | –21 | |
| Net provisions for post-employment benefits | –1,335 | 650 | 546 | –139 | –1,116 | 831 | 572 | 287 | |
| Whereof reported as | |||||||||
| Prepaid pension cost in other non-current assets1) | 1,875 | — | — | 1,875 | 1,824 | — | — | 1,824 | |
| Provisions for post-employment benefits | 540 | 650 | 546 | 1,736 | 708 | 831 | 572 | 2,111 | |
| 1) Pension assets are related to Canada, Norway, Sweden, Switzerland and the United Kingdom. | |||||||||
| Amounts recognized in income statement | |||||||||
| December 31, 2012 | December 31, 2011 | ||||||||
| Pension benefits | Healthcare benefits | Other post-employment benefits | Total | Pension benefits | Healthcare benefits | Other post-employment benefits | Total | ||
| Current service cost | 218 | 1 | 4 | 223 | 198 | 1 | 4 | 203 | |
| Interest cost | 809 | 82 | 25 | 916 | 865 | 93 | 28 | 986 | |
| Expected return on plan assets | –1,142 | –90 | — | –1,232 | –1,099 | –88 | — | –1,187 | |
| Amortization of actuarial losses/gains | 159 | — | — | 159 | 29 | –8 | — | 21 | |
| Other | 11 | — | 4 | 15 | –2 | –3 | 11 | 6 | |
| Total expenses for defined post-employment benefits | 55 | –7 | 33 | 81 | –9 | –5 | 43 | 29 | |
| Expenses for defined contribution plans | — | — | — | 446 | — | — | — | 396 | |
| Total expenses for post-employment benefits | — | — | — | 527 | — | — | — | 425 | |
| Actual return on plan assets | –1,929 | — | — | –1,929 | –735 | — | — | –735 | |
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 | |||||||||
| 2012 | 2011 | ||||||||
| Pension benefits | Healthcare benefits | Other post-employment benefits | Total | Pension benefits | Healthcare benefits | Other post-employment benefits | Total | ||
| Opening balance, January 1 | 20,712 | 2,249 | 638 | 23,599 | 18,998 | 2,068 | 657 | 21,723 | |
| Current service cost | 218 | 1 | 4 | 223 | 198 | 1 | 4 | 203 | |
| Interest cost | 809 | 82 | 25 | 916 | 865 | 93 | 28 | 986 | |
| Contributions by plan participants | 40 | 15 | — | 55 | 41 | 16 | — | 57 | |
| Actuarial losses/gains | 2,059 | 77 | 62 | 2,198 | 1,458 | 190 | 16 | 1,664 | |
| Exchange-rate differences on foreign plans | –736 | –126 | –25 | –887 | 215 | 38 | –6 | 247 | |
| Benefits paid | –1,090 | –163 | –37 | –1,290 | –1,062 | –168 | –65 | –1,295 | |
| Settlements and other | –46 | 2 | –1 | –45 | 1 | 11 | 4 | 14 | |
| Closing balance, December 31 | 21,966 | 2,137 | 666 | 24,769 | 20,712 | 2,249 | 638 | 23,599 | |
| Reconciliation of change in fair value of plan assets | |||||||||
| 2012 | 2011 | ||||||||
| Pension benefits | Healthcare benefits | Other post-employment benefits | Total | Pension benefits | Healthcare benefits | Other post-employment benefits | Total | ||
| Opening balance, January 1 | 18,468 | 1,331 | — | 19,799 | 18,069 | 1,340 | — | 19,409 | |
| Expected return on plan assets | 1,142 | 90 | — | 1,232 | 1,099 | 88 | — | 1,187 | |
| Actuarial gains/losses | 634 | 63 | — | 697 | –344 | –108 | — | –452 | |
| Contributions by employer | 305 | 134 | 37 | 476 | 479 | 143 | 65 | 687 | |
| Contributions by plan participants | 40 | 15 | — | 55 | 41 | 16 | — | 57 | |
| Exchange-rate differences on foreign plans | –652 | –79 | — | –731 | 185 | 17 | — | 202 | |
| Benefits paid | –1,090 | –163 | –37 | –1,290 | –1,062 | –168 | –65 | –1,295 | |
| Settlements and other | –54 | — | — | –54 | 1 | 3 | — | 4 | |
| Closing balance, December 31 | 18,793 | 1,391 | — | 20,184 | 18,468 | 1,331 | — | 19,799 | |
The pension plan assets include ordinary shares issued by AB Electrolux with a fair value of SEK 77m (49). In 2013, the Group expects to pay a total of
| Major categories of plan assets as a percentage of total plan assets | ||
| December 31, | ||
| % | 2012 | 2011 |
| European equities | 11 | 10 |
| North American equities | 17 | 15 |
| Other equities | 10 | 10 |
| European bonds | 20 | 19 |
| North American bonds | 21 | 24 |
| Other bonds | 3 | 4 |
| Alternative investments1) | 12 | 12 |
| Property | 5 | 5 |
| Cash and cash equivalents | 1 | 1 |
| Total | 100 | 100 |
| 1) Includes hedge funds and infrastructure investments. | ||
| Principal actuarial assumptions at balance-sheet date expressed as a weighted average | ||
| December 31, | ||
| % | 2012 | 2011 |
| Discount rate | 3.5 | 4.1 |
| Expected long-term return on assets | 6.4 | 6.5 |
| Expected salary increases | 3.7 | 3.7 |
| Annual increase of healthcare costs | 8.0 | 8.0 |
- 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. In Sweden and Norway, 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 | |||||
| 2012 | 2011 | ||||
| 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 | 8 | –7 | 9 | –8 | |
| Effect on defined benefit obligation | 244 | –207 | 245 | –209 | |
| Amounts for annual periods | |||||
| December 31, | |||||
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Defined benefit obligation | –24,769 | –23,599 | –21,723 | –22,399 | –23,185 |
| Plan assets | 20,184 | 19,799 | 19,409 | 19,008 | 13,989 |
| Surplus/deficit | –4,585 | –3,800 | –2,314 | –3,391 | –9,196 |
| Experience adjustments on plan liabilities | 176 | 208 | 425 | 222 | 217 |
| Experience adjustments on plan assets | 697 | –452 | 634 | 1,130 | –1,665 |
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:
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The pension liability calculated according to Swedish accounting principles does not take into account future salary increases.
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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.
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Changes in the discount rate and other actuarial assumptions are recognized immediately in the profit or loss and the balance sheet.
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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, 2011 | 1,266 | 370 | 1,636 |
| Current service cost | 118 | 43 | 161 |
| Interest cost | 60 | 17 | 77 |
| Other change of present value | — | — | — |
| Benefits paid | –49 | –35 | –84 |
| Closing balance, December 31, 2011 | 1,395 | 395 | 1,790 |
| Current service cost | 32 | 38 | 70 |
| Interest cost | 59 | 17 | 76 |
| Other change of present value | — | — | — |
| Benefits paid | –56 | –36 | –92 |
| Closing balance, December 31, 2012 | 1,430 | 414 | 1,844 |
| Change in fair value of plan assets | |
| Funded | |
| Opening balance, January 1, 2011 | 1,758 |
| Actual return on plan assets | –38 |
| Contributions and compensation to/from the fund | 7 |
| Closing balance, December 31, 2011 | 1,727 |
| Actual return on plan assets | 167 |
| Contributions and compensation to/from the fund | –49 |
| Closing balance, December 31, 2012 | 1,845 |
| Amounts recognized in balance sheet | ||
| December 31, | ||
| 2012 | 2011 | |
| Present value of pension obligations | –1,844 | –1,790 |
| Fair value of plan assets | 1,845 | 1,727 |
| Surplus/deficit | 1 | –63 |
| Limitation on assets in accordance with Swedish accounting principles | –415 | –332 |
| Net provisions for pension obligations | –414 | –395 |
| Whereof reported as provisions for pensions | –578 | –395 |
| Amounts recognized in income statement | ||
| 2012 | 2011 | |
| Current service cost | 70 | 161 |
| Interest cost | 76 | 77 |
| Total expenses for defined benefit pension plans | 146 | 238 |
| Insurance premiums | 71 | 69 |
| Total expenses for defined contribution plans | 71 | 69 |
| Special employer’s contribution tax | 32 | 63 |
| Cost for credit insurance | 2 | 1 |
| Total pension expenses | 251 | 371 |
| Compensation from the pension fund | –49 | –43 |
| Total recognized pension expenses | 202 | 328 |
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, 2012, to SEK 2,186m (2,048) and the pension commitments to SEK 1,698m (1,657). The Swedish Group companies recorded a liability to the pension fund as per December 31, 2012, in the amount of SEK 193m (152). Contributions to the pension foundation during 2012 amounted to SEK 0m (58) regarding the pension liability at December 31, 2011. Contributions from the pension foundation during 2012 amounted to SEK 59m (52).