Philips 2004 Annual Report Download - page 143

The Company also sponsors defined-contribution and similar type of plans for a significant
number of salaried employees. The total cost of these plans amounted to EUR 54 million in
2004 (2003: EUR 46 million, 2002: EUR 88 million).
The contributions to multi-employer plans amounted to EUR 1 million (2003: EUR 2 million,
2002: EUR 1 million).
Cash flows
The Company expects considerable cash outflows in relation to employee benefits which are
estimated to amount to EUR 445 million in 2005 (2004: EUR 465 million), consisting of EUR 311
million employer contributions to defined-benefit pension plans, EUR 56 million employer
contributions to defined-contribution plans, and EUR 78 million expected cash outflows in
relation to unfunded pension plans. The employer contributions to defined-benefit plans are
expected to amount to EUR 241 million for the Netherlands and EUR 70 million for other
countries.
Estimated future pension benefit payments
The following benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:
2005 1,069
2006 1,131
2007 1,191
2008 1,257
2009 1,316
Years 2010 – 2014 7,527
2003 2004
Netherlands other total Netherlands other total
The accumulated benefit obligation for all defined-benefit
pension plans was 11,465 6,257 17,722 11,996 6,687 18,683
Plan assets: investment policies/strategies
The investment strategy for the plan assets (investment plan) in general is annually determined
by the Board of Trustees of the various plans after consultation with the sponsoring company
and the pension plans actuary. The investment plan sets out the target strategic weights, the
zones for tactical asset allocation and other investment guidelines for the investment manager,
such as target geographical allocations and target credit ratings.
The pension plans invest in the global equity and debt markets, with the exception of
investment instruments which are linked to the sponsor. Derivatives are used to achieve quick
changes in tactical asset allocation and duration, and may also be used to limit the plan’s
exposure to interest rate risk and price risk on investments. In order to keep the plan’s
investment strategy in balance with the structure of its pension benefit obligation, asset-liability
reviews are carried out periodically. The structure of the pension benefit obligation,
expectations and scenarios with regard to the long-term rate of return on assets, acceptable
ranges for contributions and risk parameters are the input for these reviews.
The expected long-term rates of return on assets are based on a scenario analysis of the
development of the global economy and consequently the development of financial markets.
142 Philips Annual Report 2004
Financial statements of the Philips Group