Siemens 2008 Annual Report Download - page 186

90 Management’s discussion and analysis
Siemens’ funding policy for its pension funds is part of its overall commitment to sound nancial management,
which also includes an ongoing analysis of the structure of its pension liabilities, particularly the duration by
class of beneciaries. To balance return and risk, Siemens has developed a pension benet risk management
concept. As prime risk we have identied a decline in the principle plans’ funded status as a result of adverse
developments of plan assets and/or dened benet obligations. We monitor our investments and our dened
benet obligations in order to measure such prime risk. The prime risk quanties the expected maximum
decline in the funded status for a given condence level over a given time horizon. A risk budget on group level
forms the basis for the determination 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 with the participation of senior external experts of the international asset management and
insurance industry to allow for an integral view on pension assets and pension liabilities. We select asset manag-
ers based on our quantitative and qualitative analysis and subsequently constantly 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 signicant dened benets. However, in order to reduce the Company’s exposure to certain
risks associated with dened benet plans, such as longevity, in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 several years. The benets of these new plans are based predominantly on con-
tributions made by the Company and are still affected by longevity, ination adjustments and compensation
increases to a minor extent only. We expect to continue to review the need for the implementation of similar
plan designs outside Germany in the coming years to better control future benet obligations and related costs.
For more information on Siemens pension plans, see “Notes to Consolidated Financial Statements.”