Employees at Wacker Chemie AG and other German Group companies are granted a basic pension plan via Pensionskasse der Wacker Chemie VVaG, a legally independent German pension fund. The pension fund is financed by member and company contributions. The payments comprise old-age, disability and survivor benefits.

The pension fund is a small mutual insurance company within the meaning of Section 53 of the German Insurance Supervision Act and is regulated by Section 118 b (3) of this act. It is thus subject to the provisions that apply to German insurers and is monitored by the Federal Financial Supervisory Authority. There are statutory minimum financing obligations.

Employees who joined the pension plan by the end of 2004 receive a basic pension based on a defined benefit obligation, which is to be taken into consideration in determining pension obligations. The pension amount is the same regardless both of the employee’s age when paying contributions and of the interest generated from assets. A new basic-pension model applies for employees who joined the pension fund on or after January 1, 2005. Under that model, the guaranteed payments are based on a fixed interest rate and the benefit amount depends on the age at which the employee pays contributions. Annual profit distributions can increase the future payment. These plans do not affect the determination of pension obligations because of their insurance-related characteristics and are thus classified as defined contribution plans.

In addition, employees in Germany may make voluntary payments to the “PK+” supplementary insurance fund of Pensionskasse der Wacker Chemie VVaG. Contributions in connection with retirement benefit plans governed by the collective bargaining agreements concerning one-off payments, retirement benefits and “Working Life and Demography” are paid into the voluntary supplementary insurance fund. Voluntary payments to supplementary insurance funds are also not taken into account when determining pension obligations because of their insurance-related characteristics and are thus classified as defined contribution plans.

In addition to the pension fund commitments, employees in Germany receive direct commitments in the form of an additional pension. The additional pension insures salary elements above and beyond the pension insurance contribution assessment ceiling. Employees who joined the company before the end of 2004 – and their surviving dependents – receive a pension. The amount of that pension depends on the average salary earned during the period of employment with WACKER (career average plan). For employees who joined the plan on or after January 1, 2005, a certain percentage of the salary exceeding the pension insurance contribution assessment ceiling is paid in. This capital accrues interest. The benefits may be drawn as a life-long pension or, in the case of commitments from 2005 onward, as a lump sum. Employees and their surviving dependents are eligible to receive benefits. Employee entitlements are included when measuring pension obligations, regardless of whether the employees joined the company before the end of 2004 or after the beginning of 2005.

Executive Board members are granted individual pension commitments. For more information on Executive Board member pension plans, please refer to the Corporate Governance Report.

Employees in Germany with salaries above the standard pay scale may pay into an employee-financed pension plan (deferred compensation). This plan affords employees the option of converting part of their future salary claims into equivalent pension capital. Pension capital accrues interest according to the date the pension plan was entered into (commitment) at either 7 percent (1996 –2001), 6 percent (2002 –2010) or 5 percent (2011 –2013). Plans bearing 7 percent or 6 percent interest may be drawn in the form of either a pension or a lump sum. Plans bearing 5 percent interest are paid out exclusively in lump-sum form.

Pension commitments made by December 31, 2000 are measured (in accordance with the projected unit credit method) at the present value of years’ service to date/years served to retirement, whereas any commitments made on or after January 1, 2001 are measured at the present value of the defined benefit obligation.

Pension entitlements in Germany are protected against insolvency by the pension guarantee fund (Pensionssicherungsverein a. G). This insolvency insurance is capped. There are no statutory minimum financing obligations.

Various pension plans are available for employees of foreign subsidiaries, subject to the statutory provisions applicable in the respective countries. With the exception of the US pension plans, these pension plans are not significant to the Group.

In the US, defined benefit plans exist for employees of Siltronic Corporation Portland and Wacker Chemicals Corporation. However, both plans were closed for new applications effective after December 31, 2003, and defined benefits are carried only for legacy policies. Retirement benefits are paid out on a monthly basis as from age 65 and are based on the last average salary paid. Special provisions apply to early retirement as of age 55 depending on the employee’s years of service. In view of their pension-like character, obligations relating to medical care of retired employees and severance payments are likewise included under pension provisions. New employees are offered only defined contribution plans.

The present value of defined benefit plans may be reconciled with the provisions recognized in the balance sheet as follows:

Net Liability of Defined Benefit Obligations

Changes in the Net Liability of Defined Benefit Obligations

The effects from settlements and curtailments in 2012 basically concern the disposal in connection with the closure of part of Siltronic Corporation’s Portland production facility.

The pension obligations are calculated by taking account of company-specific and country-specific biometric calculation principles and parameters. The calculations are based on actuarial valuations that factor in the following parameters:

Life expectancy calculations in Germany are based on Prof. Dr. Klaus Heubeck’s modified 1998 guideline tables. The pension fund portfolio (basic pension) is based on the official mortality tables (reduction of male mortality to 75 percent of the guideline table value, and 85 percent for females). The portfolio for other pension commitments is based on a reduction of male mortality to 60 percent of the Heubeck values and 85 percent for women, which takes into account in particular the recognized connection between life expectancy and the amount of pension paid (“Influence of socio-economic status”). For the US, the RP-2000 Combined Healthy Fully Generational Mortality Table (Scale AA to 2020) is used for men and women.

The discount rates and salary increase rates underlying the calculation of the pension obligation were determined in line with the general economic situation and by applying uniform standards. The discount rate is based on a yield curve that is derived from the yields of country-specific, high-grade, fixed-interest corporate bonds with maturities corresponding to the pension obligations. The discount rate takes account of the WACKER-specific, expected future cash flows for these obligations.

The following sensitivity analysis involves an adjustment of only one assumption – i.e. the other assumptions remain unchanged from the original valuation, so that the sensitivity of each individual assumption can be observed in isolation. As a consequence, possible correlation effects between the individual assumptions cannot be taken into consideration. Due to the first-time adoption of IAS 19 (revised in 2011), there are no reference figures from the previous periods for the sensitivity analyses.

The following table shows the possible changes in the present value of pension obligations resulting from changes in the basic actuarial assumptions.

Pensionskasse der Wacker Chemie VVaG invests plan assets pursuant to statutory provisions and the provisions of its by-laws. The company pension fund invests nearly half of its assets in equity funds and fixed-income funds. The other half is invested directly in promissory notes (German Schuldscheindarlehen), real estate, real estate mortgages and private equity. The remaining part of assets is retained for liquidity purposes. The investment strategy follows the investment guideline provided by the executive board of the pension fund.

The plan assets of pension funds set up in the US are generally invested in stocks and funds in accordance with the applicable investment provisions.

The composition of plan assets for the Group is shown in the following table:

WACKER Group was using € 80.2 million of plan assets for its own purposes as of December 31, 2013. The asset mentioned is the real estate used by Wacker Chemie AG for its headquarters in Munich.

In addition to the usual actuarial risks, the risk connected with the defined benefit obligation relates in particular to financial risks connected with plan assets. In Germany, substantial amounts of the defined benefit obligation are administered by the pension fund. The current and future relationship between the portfolio structure and obligations are analyzed and projected as part of an annual asset-liability study. The result is the long-term return required of the pension fund. On this basis, the pension fund defines a strategic target portfolio. This leads to an annual review and coordination of the required return, company contributions of sponsoring entities and strategic asset allocation.

All capital investments are exposed to market price fluctuation risks. These risks may comprise shifts in interest rates, share prices or exchange rates. The pension fund aims to limit losses to a pre-defined amount using overlay management. The pension fund uses derivatives only to reduce risk.

In addition to actuarial risks, the defined benefit plans used in the US are also subject to market-price fluctuation risks because plan assets are invested in stocks and funds.

Applicable statutes and by-laws require WACKER to reduce under-funding of pension plans by increasing the amount of liquid funds.

Actuarial risks arise in particular in connection with the life expectancy of the beneficiaries and the interest rate guarantee risk. Commitments granted in Germany up to 2004 in particular have a high guaranteed interest rate that cannot be achieved in the current market environment without taking risks. The interest rate guarantee risk is regularly monitored as part of the risk management process. It constitutes a major focus of the company pension fund when determining the long-term interest requirements and how to fulfill them. Interest rate guarantee risks also affect the deferred compensation plans.

In 2013, benefits in the amount of € 66.7 (2012: € 64.1 million) were paid under pension plans in Germany and € 6.3 million (2012: € 6.1 million) under pension plans outside of Germany. WACKER anticipates that pension payments will reach approximately € 80.0 million in the coming fiscal year. Employer contributions to plan assets will amount to around € 40.0 million in 2014. The weighted duration of pension obligations as of December 31, 2013 was 18.3 years in Germany and 13.5 years in the US.

Projected Payment Periods for Pension Benefits

Composition of Pension Expenses