APC 2015 Annual Report Download - page 225

2015 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC 223
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER31,2015
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note22 Pensions and other post-employment benefit obligations
The Group has set up various post-employment benefi t plans for
employees covering pensions, termination benefi ts, healthcare, life
insurance and other benefi ts, as well as long-term benefi t plans
for current employees, primarily long service awards and similar
benefi ts, mainly in France, Australia and China.
Assumptions and sensitivity analysis
Actuarial valuations are generally performed each year. Theassumptions used vary according to the economic conditions prevailing in the
country concerned, as follows:
Weighted average rate Of which US
Dec.31, 2015 Dec.31, 2014 Dec.31, 2015 Dec.31, 2014
Discount rate 3.75% 3.47% 4.23% 3.95%
Rate of compensation increases 3.25% 3.00% N/A N/A
Interest income (1) 3.60% 4.46% 3.89% 4.75%
(1) Under IAS19 revised , the rate applied in the calculation of the interest income (previously expected return on plan assets) is the discount
rate at the beginning of the period.
The discount rate is determined on the basis of the interest rate
for investment-grade (AA) corporate bonds or, if a liquid market
does not exist, government bonds with a maturity that matches
the duration of the benefi t obligation. In the United States, the
average discount rate is determined on the basis of a yield curve for
investment-grade (AA and AAA) corporate bonds.
The discount rate currently stands at 2.10% for 10- year duration
and 2.40% for 15- year duration in the euro zone, 4.23% in the
United States and 3.80% in the United Kingdom.
A 0.5 point increase in the discount rate would reduce pension and
termination benefi t obligations by around EUR669million and the
service cost by EUR2million. A 0.5 point decrease would increase
pension and termination benefi t obligations by EUR747million and
the service cost by EUR3million.
The post-employment healthcare obligation mainly concerns the
United States. A one point increase in the healthcare costs rate
would increase the post-employment healthcare obligation by
EUR25million and the sum of the service cost and interest cost
by EUR1 million. A one point decrease in healthcare costs rate
would decrease the post-employment the healthcare obligation by
EUR22million and the sum of the service cost and interest cost by
EUR1million.
In2015, the rate of healthcare cost increases in the United States is
based on a decreasing trend from 8.33% in2016 to 4.5% in2028
for pre 65-year old retirees and from 6.33% in2016 to 4.5% in2022
for post 65-year old retirees. In2014, the rate of healthcare cost
increases in the United States was based on a decreasing trend
from 8.67% in2015 to 4.5% in2028 for pre 65-year old retirees and
from 6.67% in2015 to 4.5% in2022 for post 65-year old retirees.
The rate in France is estimated at 4% in2014 and in 2015.
Pensions and termination benefits
Pension obligations primarily concern the Group’s North American
and European subsidiaries. These plans feature either a lump-sum
payment on the employee’s retirement or regular pension payments
after retirement. The amount is based on years of service, grade
and end-of-career salary. The average duration of the North
American plans is 11.3years. Pension obligations also include top-
hat payments granted to certain senior executives guaranteeing
supplementary retirement income beyond that provided by general,
mandatory pension schemes.
The majority of benefi t obligations under these plans, which represent
96% of the Group’s total commitment or EUR10,365 million at
December31, 2015, are partially or fully funded through payments
to external funds. These funds are not invested in Group assets.
External funds are invested in equities (around 13%), bonds
(around81%), real estate (around 2%) and cash and others assets
(around 4%).
The m ain contributions are primarily for the North American plans
and amount to EUR89 million in 2015. They are estimated at
EUR53million for2016, EUR84million for2017 and EUR65million
for2018.
At December 31, 2015, provisions for pensions and termination
benefi ts total EUR1,089million, compared with EUR1,459million
in 2014. These provisions have been included in non-current
liabilities, as the current portion was not considered material in
relation to the total liability.