General
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Last Update:
March 1, 2012
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20 – Provisions for pensions and similar obligations

In addition to state pension plans, most employees are entitled to Company pension benefits from either defined contribution or defined benefit plans. Benefits generally depend on years of service, contributions or compensation, and take into consideration the legal framework of labor, tax and social security laws of the countries where the companies are located. To limit the risks of changing market conditions as well as demographic developments, employees have been almost exclusively offered defined contribution plans in recent years.

For BASF SE and German Group companies, a basic level of benefits is provided by BASF Pensionskasse VVaG, a legally independent funded plan which is financed by contributions of employees and the employer and the return on its assets. BASF SE will ensure the necessary contributions to adequately finance the benefits promised by BASF Pensionskasse VVaG. Some of the benefits financed via the BASF Pensionskasse VVaG are subject to adjustments that must be borne by the companies to the extent that these cannot be borne by BASF Pensionskasse VVaG due to the regulations imposed by the German supervisory authority. Additional occupational pension commitments at German Group companies are financed almost exclusively via pension provisions.

In the case of non-German subsidiaries, defined pension benefits are covered in some cases by pension provisions, but mainly by external insurance companies or pension funds.

The measurement date for the pension plans is set as December 31. The most recent actuarial mortality tables are used, which in Germany are derived from the BASF Group population.

The valuations using the projected unit credit method per IAS 19 were carried out under the following assumptions:

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Assumptions used to determine the defined benefit obligation as of December 31 (weighted average in %)

 

 

Germany

 

Foreign

 

2011

2010

 

2011

2010

Discount rate

5.00

5.00

 

4.34

4.74

Projected increase of wages and salaries

2.75

2.75

 

3.71

3.79

Projected pension increase

2.00

1.75

 

0.70

1.00

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Assumptions used to determine expenses for pension plans (weighted average in %)

 

Germany

 

Foreign

 

2011

2010

 

2011

2010

Discount rate

5.00

5.50

 

4.74

5.17

Projected increase of wages and salaries

2.75

2.75

 

3.79

3.91

Projected pension increase

1.75

2.00

 

1.00

0.92

Expected return on plan assets

5.28

5.13

 

5.49

6.28

The assumptions used to ascertain the defined benefit obligation as of December 31 are used in the following year to determine the expenses for pension plans.

Similar obligations for North American Group companies from assuming health care and life insurance costs for retired employees and their dependents were measured using actuarial principles and are included in the overall value. The assumed rate of increase in health care costs is 8% per year (2010: 8%) until 2012, followed by a straight-line reduction until a rate of increase of 5% per year is reached by 2018 (2010: 5%). A change in the underlying rate of increase in health care costs by one percentage point would have the following effects:

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Sensitivity of health care costs (million €)

 

 

Increase by one percentage point

Decrease by one percentage point

Accumulated post-employment benefit obligation

17

(31)

Effect on pension cost

1

(2)

The assumptions regarding the overall expected long-term rate of return are based on forecasts of expected individual asset class returns and the desired portfolio structure. The forecasts are based on long-term historical average returns and take into consideration the current yield level and the inflation trend. In 2011, the discount rate used in this calculation was adjusted to account for developments in the capital markets.

The target asset allocation has been defined by using asset liability studies and is reviewed regularly. Accordingly, plan assets are aligned with long-term pension liabilities, taking into consideration investment risks and adherence to government regulations. The existing portfolio structure is oriented towards the target asset allocation. In addition, current market assessments are taken into consideration. In order to mitigate risks and maximize returns, a widely spread global portfolio of individual asset classes is held.

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Portfolio structure of plan assets (%)

 

 

 

Target allocation

 

Share of plan assets

 

2012

 

2011

2010

Shares

27

 

28

31

Bonds

61

 

63

60

Property

5

 

4

4

Other

7

 

5

5

Total

100

 

100

100

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Development of defined benefit obligation (million €)

 

 

2011

2010

Defined benefit obligation as of January 1

17,695

15,264

Service cost

250

220

Interest cost

832

819

Benefits paid

(914)

(890)

Participants’ contributions

55

53

Actuarial losses

464

941

Acquisition-related effects

800

Settlements and other plan changes

5

(96)

Exchange differences

226

584

Defined benefit obligation as of December 31

18,613

17,695

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Development of plan assets (million €)

 

 

2011

2010

Plan assets as of January 1

15,226

13,810

Expected return on plan assets

818

765

Actuarial losses/gains

(328)

569

Employer contributions

180

181

Participants’ contributions

55

53

Benefits paid

(560)

(801)

Acquisition-related effects

249

Other changes

2

(62)

Exchange differences

179

462

Plan assets as of December 31

15,572

15,226

The actual return on plan assets amounted to €490 million in 2011 and €1,334 million in 2010. On December 31, 2011, plan assets contained securities issued by BASF Group companies with a market value of €27 million (December 31, 2010: €14 million). The market value of the properties of legally independent pension funds rented to BASF Group companies amounted to €48 million on December 31, 2011, and €49 million on December 31, 2010.

In 2010, BASF Pensionskasse was granted profit participation capital of €80 million to strengthen its financing. This does not represent a plan asset. No material transactions took place between the legally independent pension funds and BASF Group companies in 2011.

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Reconciliation of funded status to provisions for pensions and similar obligations (million €)

 

2011

2010

Plan assets as of December 31

15,572

15,226

Less defined benefit obligation as of December 31

18,613

17,695

Funded status

(3,041)

(2,469)

Unrecognized past service cost

(19)

(19)

Asset ceiling in accordance with IAS 19.58

(1)

(30)

Net obligation recognized on the balance sheet

(3,061)

(2,518)

Thereof defined benefit assets

128

260

pension provisions

(3,189)

(2,778)

Actuarial gains and losses are recognized directly in retained earnings in the reporting period in which they occur. Past service costs are amortized over the average service period of the entitled employees until the benefits become vested. Actuarial losses of €792 million in 2011 and €372 million in 2010 were recognized directly in retained earnings. Since the introduction of this accounting policy in 2004, total actuarial losses of €2,972 million have been recognized directly in retained earnings, not taking deferred taxes into account.

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Current funding situation of the plans (million €)

 

 

 

 

2011

 

2010

 

Defined benefit obligation

Plan assets

 

Defined benefit obligation

Plan assets

Unfunded pension plans

2,157

 

2,003

Partially funded pension plans

10,633

9,363

 

5,130

4,374

Total of pension plans that are not fully funded

12,790

9,363

 

7,133

4,374

Fully funded pension plans

5,823

6,209

 

10,562

10,852

 

18,613

15,572

 

17,695

15,226

The shift between plans with partial and full funding is caused by updated actuarial assumptions used to determine the defined benefit obligation and by the lower than expected plan assets.

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Deviation between actuarial assumptions and the actual development (million €)

 

2011

2010

2009

2008

2007

Defined benefit obligation

18,613

17,695

15,264

11,814

12,348

Thereof impact of experience adjustments

33

21

(2)

36

(172)

Plan assets

15,572

15,226

13,810

10,325

12,038

Thereof impact of experience adjustments

(328)

569

1,120

(2,163)

(121)

Funded status

(3,041)

(2,469)

(1,454)

(1,489)

(310)

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Expected payments resulting from pension obligations existing as of December 31, 2011 (million €)

2012

963

2013

992

2014

997

2015

1,026

2016

1,098

2017 until 2021

5,932

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Composition of expenses for pension plans (million €)

 

 

2011

2010

Service cost

250

220

Amortization of past service cost

(6)

(2)

Settlement losses/gains

5

(4)

Expenses for defined benefit plans charged to income from operations

249

214

Expenses for defined contribution plans charged to income from operations

216

194

Expenses for pension benefits charged to income from operations

465

408

 

 

 

Interest cost

832

819

Expected return on plan assets

(818)

(765)

Expenses for pension benefits in the financial result

14

54

In 2011, contributions to public pension plans were €550 million (2010: €473 million).

The estimated contribution payments for defined benefit plans for 2012 are €174 million.

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