Siemens 2012 Annual Report Download - page 182

1 A. To our Shareholders
21 B. Corporate Governance 49 C. Combined Management Report
50 C. Business and economic environment
64 C. Financial performance measures
69 C. Results of operations
82 C. Financial position
93 C. Net assets position
95 C. Overall assessment of the economic position
96 C. Subsequent events
97 C. Sustainability
111 C. Report on expected developments and
associated material opportunities and risks

...    
  
As of September , , the combined funded status of
Siemens’ pension plans showed an underfunding of €. bil-
lion, compared to an underfunding of €. billion as of Sep-
tember , . A significant increase in Siemens’ defined
benefit obligation (DBO) was only partly offset by an increase
in the fair value of Siemens’ funded pension plan assets.
The DBO of Siemens’ pension plans, which takes into account
future compensation and pension increases, amounted to
€. billion on September , , an increase of €. billion
from the DBO at the end of the prior fiscal year. The DBO in-
creased primarily due to a decrease in the discount rate for do-
mestic pension plans and almost all our foreign pension plans.
The fair value of Siemens’ funded pension plan assets as of
September , , was €. billion, compared to €. bil-
lion at the end of the prior fiscal year. The increase was mainly
due to the actual return on plan assets, which for fiscal 
amounted to €. billion, resulting from both fixed income and
equity investments. This represents a .% actual return. For
comparison, the expected return recognized through profit or
loss for fiscal  amounted to €. billion, which corresponds
to .%.
   ’  
(   )
September 30,  (9.0)
September 30,  (6.2)
1 Continuing operations.
The funding policy for our pension plans is part of our overall
commitment to sound financial management, which also in-
cludes ongoing analysis of the structure of its pension liabili-
ties. To balance return and risk, we have developed a pension
benefit risk management concept. We have identified that the
prime risk is a decline in the plans’ funded status as a result of
the adverse development of plan assets and / or defined benefit
obligations. The prime risk quantifies the expected maximum
decline in the plans’ funded status for a given confidence level
over a given time horizon. We monitor our investments and our
defined benefit obligations in order to measure such prime risk.
A risk budget on the Group level forms the basis for determining
of our investment strategy, i.e. the strategic allocation of plan
assets among asset classes and the degree of hedging for inter-
est rate risk. We regularly review both our risk budget and in-
vestment strategy with external experts from the international
asset management and insurance industry to afford an integrat-
ed view of pension assets and pension liabilities. We select asset
managers based on our quantitative and qualitative analysis,
and then continually monitor their performance and risk both
on a stand-alone basis, and 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 adversely affect asset values, so that we can initiate
appropriate countermeasures at a very early stage.
We also regularly review the design of our pension plans. His-
torically, the majority of our pension plans have included sig-
nificant defined benefits. However, in order to reduce exposure
to certain risks associated with defined benefit plans, such as
longevity, inflation, effects of compensation increases and oth-
er factors, we implemented new pension plans during the last
several years in some of our important regional companies in-
cluding those for Germany, the U.S. and the U.K. The benefits
of these new plans are based predominantly on the contribu-
tions we make. They are still affected by longevity, inflation ad-
justments and compensation increases, but only to a minor ex-
tent. We expect to continue evaluating the need to implement
similar plan designs in coming years, to better control future
benefit obligations and related costs.
The combined funded status of Siemens’ predominantly un-
funded other post-employment benefit plans amounted to an
underfunding of €. billion as of September , , com-
pared to an underfunding of €. billion at the end of the prior
fiscal year. The underfunding decreased mainly due to a plan
change of the main health care plan in the U.S. The group in-
surance program for a defined group of Siemens retirees is re-
placed by individual healthcare agreements between the af-
fected beneficiaries and healthcare insurance providers, result-
ing in a one-time reduction of current and future contributions.
For more information on Siemens’ pension plans, see  
 .     .