Philips 2015 Annual Report Download - page 151

Group nancial statements 12.9
Annual Report 2015 151
Dened-benet plans: retiree medical plans
Movements in the net liability for retiree medical plans:
Philips Group
Liability for retiree medical plans in millions of EUR
2014 - 2015
2014 2015
Balance as of January 1 213 241
Service cost 2 -
Interest cost 11 12
Actuarial (gains) or losses arising from:
- Demographic assumptions 3 -
- Financial assumptions 9 (2)
- Experience adjustment (3) (17)
Past service cost - -
Benets paid (15) (13)
Exchange rate dierences 21 9
Balance as of December 31 241 230
Present value of funded obligations as of
December 31 - -
Present value of unfunded obligations as of
December 31 241 230
Funded status (241) (230)
Net balances (241) (230)
Classication of the net balance is as follows:
Provision for other postretirement benets (241) (230)
The weighted average assumptions used to calculate
the dened-benet obligations for retiree medical
plans as of December 31 were as follows:
Philips Group
Weighted average assumptions for retiree medical plans in %
2014 - 2015
2014 2015
Discount rate 5.0% 5.1%
Compensation increase (where applicable) 0.0% 0.0%
Assumed healthcare cost trend rates at December 31:
Philips Group
Assumed healthcare cost trend rates in %
2014 - 2015
2014 2015
Healthcare cost trend rate assumed for next
year 7.0% 7.5%
Rate that the cost trend rate will gradually reach 5.3% 5.3%
Year of reaching the rate at which it is assumed
to remain 2024 2025
The average duration of the dened-benet obligation
of the retiree medical plans is 8 years (2014: 8 years).
Investment policy in our largest pension plans
It must be acknowledged that trustees of the Philips
pension plans are responsible for and have full
discretion over the investment strategy of the plan
assets.
The plan assets of the Philips pension plan in the US are
invested in a well diversied portfolio. The interest rate
sensitivity of the xed income portfolio is closely
aligned to that of the plan’s pension liabilities. Any
contributions from the sponsoring company are used to
further increase the xed income part of the assets. As
part of the investment strategy, any additional
investment returns of the return portfolio are used to
further decrease the interest rate mismatch between
the plan assets and the pension liabilities.
Cash ows and costs in 2016
The Company expects considerable cash outows in
relation to post-employment benets which are
estimated to amount to EUR 660 million in 2016,
consisting of:
• EUR 209 million employer contributions to dened
benet pension plans
• EUR 372 million employer contributions to dened
contribution pension plans
• EUR 61 million expected cash outows in relation to
unfunded pension plans and
•EUR 18 million in relation to unfunded retiree medical
plans.
The employer contributions to dened benet pension
plans are expected to amount to EUR 174 million for the
US and EUR 35 million for other countries. For the
funding of the decit in the US plan the Group adheres
to the minimum funding requirements of the US
Pension Protection Act.
The service and administration cost for 2016 is
expected to amount to EUR 43 million, consisting of
EUR 42 million for dened-benet pension plans and
EUR 1 million for dened-benet retiree medical plans.
The interest expense for 2016 is expected to amount to
EUR 66 million, consisting of EUR 55 million for
dened-benet pension plans and EUR 11 million for
dened-benet retiree medical plans. The cost for
dened-contribution pension plans in 2016 is expected
to amount to EUR 204 million in the Netherlands and
EUR 168 million in other countries.
Sensitivity analysis
The table below illustrates the approximate impact on
the dened benet obligation (DBO) if the Company
were to change key assumptions. The DBO was
recalculated using a change in the assumptions of 1%
which overall is considered a reasonably possible
change. The impact on the DBO because of changes in
discount rate is normally accompanied by osetting
movements in plan assets, especially when using
matching strategies.