Philips 2014 Annual Report Download - page 152

Group nancial statements 12.9 20
152 Annual Report 2014
contracts and expected losses on existing projects /
orders totaling EUR 103 million (2013: 93 million),
provision for employee jubilee funds EUR 74 million
(2013: EUR 76 million), self-insurance liabilities of EUR
65 million (2013: EUR 56 million), provisions for rights of
return of EUR 52 million (2013: EUR 45 million),
provision for possible taxes/social security of EUR 97
million (2013: EUR 65 million) and provision for
decommissioning costs of EUR 36 million (2013: EUR 33
million).
Less than half of the provision for employee jubilee
funds, provision for possible taxes/social security and
provision for decommissioning costs is expected to be
utilized within next ve years. The provision for self-
insurance liabilities is expected to be used within the
next ve years. All other provisions are expected to be
utilized mainly within the next three years, except for
provision for rights of return, which the Company
expects to use within the next year.
Philips Group
Other provisions in millions of EUR
2012 - 2014
2012 2013 2014
Balance as of January 1 640 529 519
Changes:
Additions 322 198 213
Utilizations (489) (224) (153)
Releases (28) (48) (37)
Reclassication 84 80 17
Liabilities directly associated with
assets held for sale – (3) (13)
Accretion 1 – 6
Translation dierences (1) (13) 23
Balance as of December 31 529 519 575
20 Post-employment benets
Employee post-employment plans have been
established in many countries in accordance with the
legal requirements, customs and the local practice in
the countries involved.
The Company sponsors a number of dened-benet
pension plans. The benets provided by these plans are
based on employees’ years of service and
compensation levels. The Company also sponsors a
limited number of dened-benet retiree medical
plans. The benets provided by these plans are
typically covering a part of the healthcare insurance
costs after retirement. Most employees that take part in
a Company pension plan however are covered by
dened-contribution (DC) pension plans.
The largest dened-benet pension plans are in:
• The Netherlands,
• The United Kingdom (UK) and
• The United States (US).
Together these plans account for more than 90% of the
total dened-benet obligation and plan assets. Philips
is one of the sponsors of Philips Pensionskasse VVaG
in Germany, which is a multi-employer plan and is
accounted for as a DC plan.
The Netherlands
The pension plan in the Netherlands (the Flexplan) was
changed in 2014 following the new funding agreement
agreed with the Trustees of the Company Pension
Fund. Under the new funding agreement, which
became eective January 1, 2014, the Company has no
further nancial obligation to the Pension Fund other
than to pay an agreed xed contribution for the annual
accrual of active members. Executives are in a ‘hybrid
plan’ with an accrual rate of 1.25% per service year next
to a DC contribution, the level of which depends on the
executive grade. Both plans are executed by the
Company Pension Fund.
Although the new funding agreement de-risked the
plan, the annual premium can be subject to variability
after ve years due to potential discounts and as a
result, the plan continued to be accounted for as a
dened-benet plan. The other 2014 changes in the
plan were a new pensionable age of 67 (was 65) and
the introduction of an employee contribution. These
changes had no material impact on the existing
dened-benet obligation.
As part of the above changes, the Company agreed to
transfer a one-o EUR 600 million to the Company
Pension Fund of which EUR 433 million has been paid
in 2014. The remainder is to be settled before July 2015
and is included in the 2015 cash projection in this note.
In 2014 the Fund adopted the Prognosis mortality table
2014 with new experience rating which resulted in a
decrease of the Company’s dened-benet obligation.
This eect is recognized in Other comprehensive
income under Remeasurements for pension and other
post-employment plans.
New legislation eective January 1, 2015 introduces a
mandatory cap of EUR 100 thousand on the pension
salary for future pension accrual. The Company has
changed the pension plan accordingly at the end of
2014. For employees earning more than this cap the
Company has announced certain compensatory
measures and the introduction of a voluntary net
pension saving scheme for the salary part above the
cap. To limit the number of plans the Company further
announced to cease the executive pension plan and
transfer its members and their accrued dened-benet
rights to the Flexplan. Accrued dened-contribution
rights in the executive pension plan are optionally
transferred to either the Flexplan or an individual
product. The net pension saving scheme and the
individual product are with an external provider other
than the Company Pension Fund.
The net result of these changes was a EUR 68 million