Siemens 2006 Annual Report Download - page 191

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts) 187
The accrued benefit cost is equal to the PBO when the assumptions used to calculate the
PBO such as discount rate, compensation increase rate and pension progression rate are
achieved. In the case of funded plans, the market value of the external assets is offset against
the benefit obligations. The net liability or asset recorded on the balance sheet is equal to the
under- or overfunding of the PBO in this case, when the expected return on plan assets is sub-
sequently realized.
Differences between actual experience and assumptions made for the discount rate, com-
pensation increase rate and pension progression rate, as well as the differences between actual
and expected returns on plan assets, result in the asset or liability related to pension plans
being different than the under- or overfunding of the PBO. Such a difference also occurs when
the assumptions used to value the PBO are adjusted at the measurement date. If the difference
is so significant that the current benefit obligation represented by the ABO (or the amount
thereof not funded by plan assets) exceeds the liability recorded on the balance sheet, such
liability must be increased. The unfunded portion of the ABO is referred to as the Minimum
Liability and an accrued pension liability that is at least equal to this Minimum Liability
amount should be recognized without affecting the Consolidated Statements of Income. The
required increase in the liability is referred to as the additional minimum liability (AML), and
its offsetting AML adjustment results in the recognition of either an intangible asset or as a
component of shareholders’ equity (AOCI). The treatment as a separate component of share-
holders’ equity is recorded, net of tax, as a reduction of shareholders’ equity. The recognition
of the AML results in the elimination of any existing prepaid pension asset balance on a plan
by plan basis.
The Consolidated Balance Sheets include the following significant components related to
pension plans and similar commitments based upon the situation as of September 30, 2006
and 2005:
Notes to Consolidated Financial Statements
2006 2005
Accumulated other comprehensive income (9,413) (10,879)
thereof principal pension benefit plans (9,122) (10,573)
Less income tax effect 3,576 4,109
thereof principal pension benefit plans 3,372 3,824
Accumulated other comprehensive income, net of income taxes (5,837) (6,770)
thereof principal pension benefit plans (5,750) (6,749)
Principal pension benefit plans 2,039 2,749
Principal other postretirement benefit plans 1,223 1,317
Other 1,222 852
Reclassification to Liabilities held for disposal (383) (1)
Accruals for pension plans and similar commitments 4,101 4,917