Siemens 2013 Annual Report Download - page 294

92 A. To our Shareholders 117 B. Corporate Governance 155 C. Combined Management Report
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Trust. Individual benefits under the frozen legacy plans are
based on eligible compensation levels or ranking within the
Company hierarchy and years of service. In connection with
the implementation of the BSAV, benefits provided under the
frozen legacy plans funded via a CTA, the Siemens Pension
Trust were modified to substantially eliminate the effects of
compensation increases by freezing the accretion of benefits
under the majority of these plans. However, these frozen
plans still expose the Company to actuarial risks such as in-
vestment risk, interest rate risk and longevity risk. Further-
more, deferred compensation plans are offered which are also
funded via a CTA. In Germany no legal or regulatory minimum
funding requirements apply. The Trusts, which are legally
separate from the Company, manage their plan assets as
trustees, in accordance with the respective trust agreements
with the Company.
U.S.:
Siemens Corporation in the U.S. sponsors one major defined
benefit plan, the Siemens Pension Plan, which is frozen to new
entrants and accretion of new benefits (with the exception of
one small group of union employees). Employees of Siemens
U.S. companies hired prior to April st,  participate in the
Siemens Pension Plan. Most of the defined benefit plan partici-
pants’ benefits are calculated using a cash balance formula; al-
though a small group of participants are eligible for a benefit
based on a final average pay formula. This frozen defined
benefit plan exposes the Company to actuarial risks such as
investment risk, interest rate risk, longevity risk and salary
increase risk.
The defined benefit plan assets are held in a Master Trust.
Siemens Corporation, as the sponsoring employer, has dele-
gated investment oversight of the plans’ assets to the Invest-
ment Committee. The Investment Committee members have a
fiduciary duty to act solely in the best interests of the benefi-
ciaries according to the trust agreement and U.S. law. The
Committee has established an Investment Policy Statement
which articulates the goals and objectives of the plans’ invest-
ment management, including diversifying the assets of the
Master Trust with the intention of appropriately addressing
concentration risks. The trustee of the Master Trust acts only
by direction of the Investment Committee. It is responsible for
the safekeeping of the trust, but generally has no decision
making authority over the plan assets. The legal and regulato-
ry framework for the plans is based on the applicable U.S. leg-
islation Employee Retirement Income Security Act (ERISA).
Based on this legislation a funding valuation is prepared annu-
ally. There is a regulatory requirement to maintain a minimum
funding level of % in the defined benefit plans in order to
avoid benefit restrictions.
U.K.:
Siemens plc in the U.K. sponsors a frozen defined benefit plan
and a defined contribution plan for all new employees and for
the active service of those members who have participated in
the frozen defined benefit plan. There are several smaller de-
fined benefit plans which result from previous acquisitions,
those plans are in the process of being merged or de-risked.
The goal is to have only one legacy plan for closed or frozen
defined benefits. For most of the defined benefit plan mem-
bers an inflation increase of the accrued benefits until the start
of retirement is mandatory. Furthermore, the plans expose the
Company to actuarial risks such as: investment risk, interest
rate risk, longevity risk and salary increase risk. The funding
environment is determined by the Pension Regulator and the
applicable social and labor laws. The defined benefit plans are
governed by a benefit trust whose decision making body is a
Board of Trustees who have a fiduciary duty to act in the best
interests of the beneficiaries according to the trust agreement
and law. The required funding is determined by a funding val-
uation carried out every third year based on legal require-
ments, which measures the liabilities on a government bond
basis rather than under a high quality corporate bond basis as
under IAS R, thus the technical funding deficit is usually
larger. The funding valuation assumptions are being negotiat-
ed between the Company and the Trustees. The latest funding
valuation in U.K. in calendar year  resulted in a technical
underfunding of GBP  (€,) million, based on the as-
sumptions at that date. As a result, in fiscal , Siemens en-
tered into an agreement with the trustees to provide an annual
payment of GBP  (€) million for the next  years, begin-
ning in fiscal . In addition to these payments the Company
is obliged to pay GBP  (€) million until the next funding
valuation, when the funding requirements will be updated
based on new assumptions. This valuation will take place ap-
proximately end of calendar year .
Switzerland:
According to the Swiss law “Berufliches Vorsorgegesetz” (BVG)
each employer has to grant post-employment benefits for
qualifying employees. Siemens Switzerland sponsors funded
defined benefit plans for its qualifying employees. These plans
are administered by foundations that are legally separated
from the entity and are subject to the BVG. For the main pen-
sion fund, which represents % of the defined benefit obliga-
tion in Switzerland, the board of the pension fund is composed
of an equal number of representatives from both employer and
employees. For the other pension funds the employer has the
majority of the seats in the foundation board. The board of the
pension funds is required by law and by the regulations of the
funds to act in the interest of the fund and of all stakeholders
in the schemes, i.e. active employees and retirees. The board