WACKER Group employees can avail themselves of various post-employment pension plans, which depend on the legal, economic, and fiscal conditions prevailing in the respective countries. These pension plans generally take account of employees’ length of service and salary levels.
The company pension plan makes a distinction between defined contribution and defined benefit plans. Defined contribution plans lead to no further obligation for the company beyond paying contributions into special-purpose funds. Pension obligations result additionally from defined benefit plans in the form of entitlements to future pensions and ongoing payments for eligible active and former employees of the WACKER Group and their surviving dependents.
Employees in Germany have the option of converting part of their payout into direct benefit commitments. Benefit plans taken out by December 31, 2000 are measured (in accordance with the projected unit credit method) at the value of years’ service to date/years served to retirement (pro rata temporis), whereas any benefit plans taken out on or after January 1, 2001 are measured at the present value of the defined benefit obligation. In view of their pension-like character, obligations relating to the medical care of retired employees (USA) and severance payments are likewise included under pension provisions.
Group companies have both defined contribution and defined benefit plans. They are financed on one hand by funds/Pensionskasse der Wacker Chemie VVaG, and on the other by provisions in the form of direct commitments.
The obligations from direct benefit plans are calculated using the projected unit credit method, which takes account of future payout and pension adjustments. The current service cost of pension benefit claimants results from the planned development of the provisions for expected future pension payments. Any differences between those pension obligations calculated as planned and the defined benefit obligation at year-end are treated as actuarial gains or losses and are spread over the average remaining service of the plan participants during the follow-up periods, insofar as these differences exceed 10% of the greater of the present value of the defined benefit obligation and the cash value of the plan assets. WACKER does not apply the right to recognise actuarial gains and losses in the period in which they occur directly in other comprehensive income. We don’t judge that accounting policy a better faithful representation of the long term nature of pension liabilities.
In compliance with their respective national legislation, some relatively small foreign subsidiaries take on pension-related obligations arising from severance payments after the scheduled termination of employment. These obligations are likewise reported as pension provisions.
All of these obligations are financed only in part by means of provisions. Group pension obligations are financed to a considerable degree by externally invested plan assets. In the case of both Wacker Chemie AG and the German Group companies, these assets are handled by Pensionskasse der Wacker Chemie VVaG.
The funding of Pensionskasse der Wacker Chemie VVaG by the German domestic Group companies is included in expenses for pensions. The pension obligations resulting from the application of the projected unit credit method are reduced by the fair value of the plan assets and by still unrecognized actuarial losses, or increased by still unrecognized actuarial gains. If the plan assets exceed the obligation from the pension commitment, an asset is generally recorded. It can, however, be capitalized only on the condition that the reporting entity can draw commercial benefits from these assets, e.g. in the form of refunds from the plan or reductions in future contributions to the plan (“asset ceiling” pursuant to IAS 19.58 ff.). As Pensionskasse der Wacker Chemie VVaG sets its contributions in the manner stipulated by supervisory bodies, there is no access to the surplus fund assets in Germany. Surplus amounts are therefore not capitalized. Unless the fund assets cover the obligation, the net obligation is shown as a liability under pension provisions.
Pension obligations in Germany are calculated in accordance with the biometric calculation principles based on Prof. Dr. Klaus Heubeck guideline tables from 2005. Pension obligations abroad are calculated in accordance with locally applicable principles and parameters. The calculations are based on actuarial valuations that take account of the following parameters:
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Parameters |
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% |
Germany |
USA |
Japan |
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2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
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Actuarial interest rate |
5.75 |
5.50 |
6.00 |
6.00 |
2.25 |
2.25 |
Payment trend |
3.00 |
3.00 |
3.5 / 3.0 |
3.00 / 3.50 |
– |
– |
Expected return on assets |
5.25 |
6.00 |
7.5 / 8.0 |
7.50 |
– |
– |
The expected return on plan assets was estimated based on past trends and anticipated values for the following year. Interest income may vary in the fund’s individual asset classes. The percentage rate chosen corresponds to the average rate of all asset types.
To arrive at the amount recognized as a defined benefit liability, the plan assets taken out in funds are balanced against the defined benefit obligation at year-end (financial status). Provisions for pensions are obtained after the actuarial profits and losses not yet recognized are deducted or added as appropriate.
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€ million |
Germany |
Foreign |
Total |
Total |
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Change in defined benefit obligation (DBO) |
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DBO Jan. 1 |
1,379.1 |
109.1 |
1,488.2 |
1,605.6 |
Service cost |
31.9 |
3.9 |
35.8 |
42.4 |
Interest cost |
74.3 |
6.6 |
80.9 |
71.7 |
Contributions by beneficiaries |
9.5 |
0.2 |
9.7 |
9.6 |
Actuarial profits (–) and losses (+) |
4.9 |
1.8 |
6.7 |
–173.2 |
Pension payments |
–56.1 |
–3.9 |
–60.0 |
–55.7 |
Change in scope of consolidation |
0.6 |
– |
0.6 |
– |
Exchange rate differences |
– |
7.0 |
7.0 |
–11.5 |
Other changes |
– |
– |
– |
–0.7 |
DBO Dec. 31 |
1,444.2 |
124.7 |
1,568.9 |
1,488.2 |
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Change in fund assets |
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Fund assets at present value Jan. 1 |
1,209.9 |
82.2 |
1,292.1 |
1,279.0 |
Return on fund assets |
–100.2 |
–20.8 |
–121.0 |
41.3 |
Employer contributions |
45.6 |
15.9 |
61.5 |
13.2 |
Contributions by beneficiaries |
9.5 |
0.2 |
9.7 |
9.6 |
Pension payments |
–40.9 |
–3.4 |
–44.3 |
–41.8 |
Exchange rate differences |
– |
3.5 |
3.5 |
–8.9 |
Other changes |
– |
– |
– |
–0.3 |
Fund assets at present value Dec. 31 |
1,123.9 |
77.6 |
1,201.5 |
1,292.1 |
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Financial status |
320.3 |
47.1 |
367.4 |
196.1 |
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Actuarial profits/losses still unrecognized |
–36.7 |
–33.3 |
–70.0 |
–28.6 |
Asset ceiling (IAS 19.58 ff.) |
75.7 |
– |
75.7 |
200.2 |
Similar obligations |
1.1 |
1.9 |
3.0 |
1.5 |
Pension provisions |
360.4 |
15.7 |
376.1 |
369.2 |
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Extent to which provisions financed the DBO |
396.0 |
47.1 |
443.1 |
396.3 |
Of which German-based companies in 2007 |
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369.4 |
Of which foreign subsidiaries in 2007 |
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26.9 |
The pension expenses incurred as a result of defined benefit plans and the sum total of all pension expenses consist of the following:
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€ million |
2008 |
2007 |
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Service cost |
–35.8 |
–42.2 |
Interest cost |
–80.9 |
–71.7 |
Expected return on fund assets |
79.4 |
76.6 |
Amortization of actuarial profits and losses |
–169.5 |
105.7 |
“Asset ceiling” effect |
124.5 |
–111.9 |
Plan curtailments and settlements |
– |
–0.6 |
Other |
0.5 |
–0.4 |
Pension expenses from defined benefit plans |
–81.8 |
–44.5 |
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Pension expenses from defined contribution plans |
–3.6 |
–1.3 |
Other pension expenses |
4.2 |
–2.3 |
Pension expenses |
–81.2 |
–48.1 |
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Contributions to state pension plans |
–52.1 |
–51.3 |
Expenses for post-employment benefits |
–133.3 |
–99.4 |
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Of which included in personnel expenses (functional costs) |
–131.8 |
–104.3 |
Of which included in other financial result |
–1.5 |
4.9 |
Deviations between the obligations and the plan assets due to the assumptions and the actual developments:
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€ million |
2008 |
2007 |
2006 |
2005 |
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Projected benefit obligation |
1,568.9 |
1,488.2 |
1,605.6 |
1,626.0 |
Experience-based adjustments contained therein |
–206.7 |
12.6 |
–12.3 |
–14.7 |
Fund assets |
1,201.5 |
1,292.1 |
1,279.0 |
1,208.1 |
Experience-based contained therein |
186.8 |
34.3 |
–7.1 |
–81.8 |
Financing status |
367.4 |
196.1 |
326.6 |
417.9 |
In 2009, we expect contributions to plan assets to amount to €24.6 million.
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Composition of the Plan Assets |
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% |
2008 |
2007 |
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Total |
Of which |
Of which |
Total |
Of which |
Of which |
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Real estate |
16.9 |
11.8 |
5.1 |
16.8 |
11.6 |
5.2 |
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Loans/fixed-interest securities |
47.7 |
47.7 |
– |
38.5 |
38.5 |
– |
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Shares/funds2 |
34.4 |
34.4 |
– |
38.8 |
38.8 |
– |
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Cash and cash equivalents |
1.0 |
1.0 |
– |
5.9 |
5.9 |
– |
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Total |
100.0 |
94.9 |
5.1 |
100.0 |
94.8 |
5.2 |
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