Philips 2014 Annual Report Download - page 153

Group nancial statements 12.9
Annual Report 2014 153
decrease in the Company’s dened-benet obligation
which is recognized in the 2014 income statement as a
past service cost gain of which EUR 1 million in
discontinued operations.
United Kingdom
The UK plan is executed by a Company Pension Fund.
In the UK plan the accrual of new benets ceased in
2011. A legally mandatory indexation for accrued
benets still applies. The Company does not pay
regular contributions, other than an agreed portion of
the administration costs.
In 2014 the Trustee of the UK Fund entered into two
further bulk insurance contracts - buy-ins - which
provide for payment in respect of a part of the Fund’s
pensioners. The asset value related to the buy-ins
included in the UK plan assets equals the dened-
benet obligation of the related pensioners and is EUR
1,299 million per December 31, 2014 which is some 30%
of the total assets.
United States
The US dened-benet plan covers certain hourly
workers and salaried workers hired before January 1,
2005.
The accrual for salaried workers in the US plan will end
per December 31, 2015 after which the remaining
members become eligible for the existing US DC plan.
In 2014 the Company adopted a new Mortality table as
published by the US Society of Actuaries which
increased the US plan’s dened-benet obligation with
some 6%. This eect is recognized in Other
comprehensive income under Remeasurements for
pension and other post-employment plans.
Indexation of benets is not mandatory. The Company
pays contributions for the annual service costs as well
as additional contributions to cover a decit. The assets
of the US plan are in a Trust governed by Trustees.
Risks related to dened-benet plans
These dened-benet plans except the Netherlands
plan expose the Company to various demographic and
economic risks such as longevity risk, investment risks,
currency and interest rate risk and in some cases
ination risk. The latter plays a role in the assumed
wage increase and in the UK plan where indexation is
mandatory. Pension fund Trustees are responsible for
and have full discretion over the investment strategy of
the plan assets. In general Trustees manage pension
fund risks by diversifying the investments of plan assets
and by (partially) matching interest rate risk of liabilities.
The Company has an active de-risking strategy in which
it constantly looks for opportunities to reduce the risks
associated with its dened-benet plans. Liability
driven investment strategies, lump sum cash-out
options, buy-ins, buy-outs and the above mentioned
2014 change in the funding agreement of the Dutch
plan are examples of that strategy. The larger plans are
either governed by independent Boards or by Trustees
who have a legal obligation to evenly balance the
interests of all stakeholders and operate under the local
regulatory framework.
Balance sheet positions
The net balance sheet position presented in this note
can be explained as follows:
• The surpluses in our plans in the Netherlands, UK as
well some other countries are not recognized as a net
dened-benet asset because in The Netherlands
the current surplus will not bring sucient future
economic benets to the Company (asset ceiling
restrictions) whereas the regulatory framework in the
other countries involved explicitly prohibits refunds
to the employer.
• The decit of the US dened-benet plan presented
under other liabilities and the provisions of the
unfunded plans therefore count for the largest part
of the net balance sheet position.
The measurement date for all dened-benet plans is
December 31.
Summary of pre-tax costs for post-
employment benets
The below table contains the total of current- and past
service costs, administration costs and settlement
results as included in Income from operations and the
interest cost as included in Financial expenses.
Philips Group
Pre-tax costs for post-employment benets in millions of EUR
2012 - 2014
2012 2013 2014
Dened-benet plans 290 297 245
included in operating cost 200 220 182
included in nancial expense 85 71 59
included in discontinued
operations 5 6 4
Dened-contribution plans including
multi-employer plans 144 142 148
included in operating cost 134 134 144
included in discontinued
operations 10 8 4