Siemens 2007 Annual Report Download - page 153

Management’s discussion and analysis 153
Management’s discussion and analysis
Siemens’ funding policy for its pension funds is part of its overall commitment
to sound fi nancial management, which also includes an ongoing analysis of the
structure of its pension liabilities, particularly the duration by class of benefi cia-
ries. To balance return and risk, Siemens has developed a pension benefi t risk
management concept. As prime risk we have identifi ed a decline in the principle
plans’ funded status as a result of adverse developments of plan assets and/or
defi ned benefi t obligations. We monitor our investments and our defi ned benefi t
obligations in order to measure such prime risk. The prime risk quantifi es the
expected maximum decline in the funded status for a given confi dence level over
a given time horizon. A risk budget on group level forms the basis for the determi-
nation of our investment strategy, i.e. the strategic assets class allocation of prin-
ciple plan assets and the degree of interest rate risk hedging. Both, risk budget
and investment strategy, are regularly reviewed by external experts of the inter-
national insurance industry to allow for an integral view on pension assets and
pension liabilities. We select asset managers based on our quantitative and quali-
tative analysis and subsequently monitor their performance and risk, both on a
stand-alone basis, as well as in the broader portfolio context. We review the asset
allocation of each plan in light of the duration of the related pension liabilities
and analyze trends and events that may affect asset values in order to initiate
appropriate measures at a very early stage.
Siemens also regularly reviews the design of its pension plans. Historically,
the majority of Siemens pension plans have included signifi cant defi ned benefi ts.
However, in order to reduce the Company’s exposure to certain risks associated
with defi ned benefi t plans, such as longevity, infl ation, effects of compensation
increases and other factors, we implemented new pension plans in some of our
major subsidiaries including Germany, the U.S. and the U.K. during the last sev-
eral years. The benefi ts of these new plans are based predominantly on contribu-
tions made by the Company and, to a minor extent, the effects of longevity, infl a-
tion adjustments and compensation increases. We expect to continue to review the
need for the implementation of similar plan designs outside Germany in the com-
ing years to better control future benefi t obligations and related costs.
For more information on Siemens pension plans, see “Notes to Consolidated
Financial Statements.”