Post-employment benefits, such as pensions, healthcare and other benefits are mainly settled by means of regular payments to independent authorities or bodies that assume pension obligations and administer pensions through defined-contribution plans. The remaining post-employment benefits are defined-benefit plans; that is, the obligations remain within the Volvo Group or are secured by own pension foundations. Costs and the obligations at the end of the period for defined-benefit plans are calculated based on actuarial assumptions and measured on a discounted basis. The Volvo Group defined-benefit plans relate mainly to subsidiaries in the U.S. and comprise both pensions and other benefits, such as healthcare. Other large-scale defined-benefit plans apply for salaried employees in Sweden (mainly through the Swedish ITP pension plan) and employees in France and Great Britain. See note 1 for further information about the accounting principles.

The following tables disclose information about defined-benefit plans in the Volvo Group. Volvo reports the difference between the obligations and the plan assets adjusted for unrecognized actuarial gains and losses in the balance sheet. The information refers to assumptions applied for actuarial calculations, periodical costs and the value of obligations and plan assets at year-end. The tables also include reconciliation of obligations and plan assets during the year and the difference between fair values and carrying amounts reported on the balance sheet date.
Summary of provision for    
post-employment benefits 2009 2010
Obligations 38,070 36,121
Fair value of plan assets 22,610 22,954
Funded status (15,460) (13,167)
     
Unrecognized actuarial (gains) and losses 9,155 6,995
Unrecognized past service costs 303 310
Net provisions for post-employment benefits (6,002) (5,862)
Assumptions applied for December 31 December 31
actuarial calculations, % 2009 2010
Sweden    
Discount rate (1 4.00 4.75
Expected return on plan assets (2 6.00 6.00
Expected salary increases 3.00 3.00
Inflation 1.50 1.50
     
United States    
Discount rate (1 (3 4.00–5.75 3.25-5.50
Expected return on plan assets (2 7.65 7.65
Expected salary increases 3.00 3.00
Inflation 2.00 2.00
     
France    
Discount rate (1 4.50 4.50
Expected salary increases 1.00–3.00 1.00-3.00
Inflation 1.50 1.50
     
Great Britain    
Discount rate (1 5.50 5.40-5.50
Expected return on plan assets (2 5.00–6.30 5.00
Expected salary increases 3.50 3.70-3.85
Inflation 3.00 3.20
     

1) The discount rate for each country is determined by reference to market yields on high-quality corporate bonds. In countries where there is no deep market in such bonds, the market yields on government bonds are used. The discount rate for the Swedish pension obligation 2010 is determined by reference to mortgage bonds.

2) Applicable for the following accounting period. These assumptions reflect the expected long-term return rate on plan assets, based upon historical yield rates for different categories of investments and weighted in accordance with the foundation's investment policy. The expected return has been calculated net of administrative expenses and applicable taxes.

3) For all plans except one the discont rate used is within the range 4.75-5.50% (5.00-5.75).

Pension costs 2009 2010
Current year service costs 969 896
Interest costs 1,684 1,510
Expected return on plan assets (1,362) (1,402)
Actuarial gains and losses (1 504 420
Past service costs    
– Unvested 18 19
– Vested (314) 28
  of which effect of agreement with UAW in Mack Trucks (317) -
Curtailments and settlements 36 (38)
Termination benefits 40 34
Pension costs for the period, defined-benefit plans 1,575 1,467
     
Pension costs for defined-contribution plans 3,116 3,273
Total pension costs for the period 4,691 4,740

1) For each plan, actuarial gains and losses are reported as income or expenses, when the accumulated amount exceeds the so called corridor. The income or expenses are then recognized over the expected average remaining service period of the employees.  

Costs for the period, post-employment benefits other than pensions 2009 2010
Current year service costs 270 49
Interest costs 334 170
Expected return on plan assets (1) -
Actuarial gains and losses (1 4 (1)
Past service costs    
– Unvested 7 -
– Vested 0 26
Curtailments and settlements 1,124 2
   of which effect of agreement with UAW in Mack Trucks 1,194 -
Termination benefits 20 7
Total costs for the period, post-employment benefits other than pensions 1,758 253

1) For each plan, actuarial gains and losses are reported as income or expenses, when the accumulated amount exceed the so called corridor. The income or expenses are then recognized over the expected average remaining service period of the employees.

An increase of one percentage point per year in healthcare costs would change the accumulated post-employment benefit obligation as of December 31, 2010 by approximately 155, and the post-employment benefit expense for the period by approximately 10. A decrease of one percentage point would decrease the accumulated value of obligations by about 132 and reduce costs for the period by approximately 8. Calculations made as of December 31, 2010 show an annual increase of 8% in the weighted average per capita costs of covered health care benefits. It is assumed that the percentage will decline gradually to 4.5% and then remain at that level.
    United   Great US    
Obligations in Sweden States France Britain Other Other  
defined-benefit plans Pensions Pensions Pensions Pensions benefits plans Total
Obligations at January 1, 2009 9,097 13,648 2,087 4,035 6,971 5,333 41,171
Acquisitions, divestments and other changes (53) (3) (56)
Current year service costs 323 264 65 52 252 283 1,239
Interest costs 414 774 104 242 328 168 2,030
Past service costs              
– Unvested 1 (90) (89)
– Vested (316) 3 5 (308)
   of which effect of agreement with UAW in Mack Trucks (317) (317)
Termination benefits 32 (1) 25 56
Curtailments and settlements (8) (18) (3,163) (140) (3,329)
   of which effect of agreement with UAW in Mack Trucks - 1,194 1,194
   of which reclassification to financial liability in Mack Trucks (4,282) (4,282)
Employee contributions 24 (1) 23
Actuarial (gains) and losses 321 1,096 18 187 231 (47) 1,806
Exchange rate translation (1,008) (110) 73 (320) (148) (1,513)
Benefits paid (299) (992) (216) (175) (607) (671) (2,960)
Obligations at December 31, 2009 9,881 13,358 1,897 4,438 3,697 4,799 38,070
               
of which              
Funded defined-benefit plans 9,465 12,923 4,438 2,277 29,103
               
Acquisitions, divestments and other changes - 10 - - 2 28 40
Current year service costs 302 258 54 45 39 247 945
Interest costs 401 665 77 233 167 157 1,700
Past service costs              
– Unvested - 3 - -(4) (5) (6)
– Vested 27 3 (44) - - - (14)
Termination benefits 33 - (2) - - 5 36
Curtailments and settlements (6) (7) (18) (1) - (11) (43)
Employee contributions - - - 21 - 9 30
Actuarial (gains) and losses (1,170) 571 (2) 28 (33) 78 (528)
Exchange rate translation - (789) (245) (370) (207) (171) (1,782)
Benefits paid (324) (1,074) (112) (168) (220) (429) (2,327)
Obligations at December 31, 2010 9,144 12,998 1,605 4,226 3,441 4,707 36,121
               
of which              
Funded defined-benefit plans 8,794 11,378 - 4,226 - 2,203 26,601
Fair value   United   Great US    
of plan assets in Sweden States France Britain Other Other  
funded plans Pensions Pensions Pensions Pensions benefits plans Total
Plan assets at January 1, 2009 5,467 10,672 3,992 104 1,870 22,105
Acquisitions, divestments and other changes (3) (141) (144)
Expected return on plan assets 328 717 223 1 89 1,358
Actuarial gains and (losses) 635 644 141 43 1,463
Employer contributions 113 167 280
Employee contributions 24 20 44
Exchange rate translation (1,203) 72 (3) 36 (1,098)
Benefits paid (961) (173) (74) (190) (1,398)
   of which reclassification to financial liability in Mack Trucks (73) (73)
Plan assets at December 31, 2009 6,430 9,866 4,392 28 1,894 22,610
               
Acquisitions, divestments and other changes - 4 - (1) - 26 29
Expected return on plan assets 386 719 - 216 - 77 1,398
Actuarial gains and (losses) 262 373 - 208 - 18 861
Employer contributions - 156 - 103 - 187 446
Employee contributions - - - 21 - 12 33
Exchange rate translation - (574) - (378) (2) (166) (1,120)
Benefits paid - (1,009) - (168) (2) (124) (1,303)
Plan assets at December 31, 2010 7,078 9,535 - 4,393 24 1,924 22,954
Net provisions for   United   Great US    
post-employment Sweden States France Britain Other Other  
benefits Pensions Pensions Pensions Pensions benefits plans Total
Funded status at December 31, 2009 (3,451) (3,492) (1,897) (46) (3,669) (2,905) (15,460)
Unrecognized actuarial (gains) and losses 3,030 4,373 232 635 384 (1 501 9,155
Unrecognized past service costs - (81) 405 - (6) (15) 303
Net provisions for post-employment benefits at December 31, 2009 (421) 800 (1,260) 589 (3,291) (2,419) (6,002)
               
of which reported as              
Prepaid pensions and other assets - 1,254 - 588 120 87 2,049
Provisions for post-employment benefits (421) (454) (1,260) 1 (3,411) (2,506) (8,051)
               
Funded status at December 31, 2010 (2,066) (3,463) (1,605) 167 (3,417) (2,783) (13,167)
Unrecognized actuarial (gains) and losses 1,475 4,054 113 388 322 643 6,995
Unrecognized past service costs - (65) 380 - (5) - 310
Net provisions for post-employment benefits at December 31, 2010 (591) 526 (1,112) 555 (3,100) (2,140) (5,862)
               
of which reported as              
Prepaid pensions and other assets - 900 - 555 110 83 1,648
Provisions for post-employment benefits (591) (374) (1,112) - (3,210) (2,223) (7,510)
 1 A decrease by 194 from reclassification to financial liability in Mack Trucks.              
 
Plan assets by category 2009 % 2010
Shares and participation, Volvo 195 1 403 2
Shares and participations, other 10,893 48 11,494 50
Bonds and interest-bearing securities. 10,167 45 9,100 40
Property 319 1 440 2
Other 1,036 5 1,517 6
 Total 22,610 100 22,954 100
Actuarial gains and losses 2009 2010
Experience-based adjustments in obligations (110) 293
Experience-based adjustments in plan assets 1,463 861
Effects of changes in actuarial assumptions (1,696) 235
Actuarial gains and (losses), net (343) 1,389

Volvo’s pension foundation in Sweden was formed in 1996 to secure obligations relating to retirement pensions for salaried employees in Sweden in accordance with the ITP plan (a Swedish individual pension plan). Plan assets amounting to 2,456 were contributed to the foundation at its formation, corresponding to the value of the pension obligations at that time. Since its formation, net contributions of 1,472 have been made to the foundation. The plan assets in Volvo’s Swedish pension foundation are invested in Swedish and foreign stocks and mutual funds, and in interest-bearing securities, in accordance with a distribution that is determined by the foundation’s Board of Directors. At December 31, 2010, the fair value of the foundation's plan assets amounted to 7,059 (6,408), of which 57% (46) was invested in shares or mutual funds. At the same date, retirement pension obligations attributable to the ITP plan amounted to 8,794 (9,465).

Swedish companies can secure new pension obligations through balance sheet provisions or pension fund contributions. Furthermore, a credit insurance must be taken for the value of the obligations. In addition to benefits relating to retirement pensions, the ITP plan also includes, for example, a collective family pension, which Volvo finances through insurance with the Alecta insurance company. According to an interpretation from the Swedish Financial Reporting Board, this is a multi-employer defined-benefit plan. For fiscal year 2009, Volvo did not have access to information from Alecta that would have enabled this plan to be reported as a defined-benefit plan. Accordingly, the plan has been reported as a defined-contribution plan. Alecta's funding ratio is 143% (141). 

Volvo’s subsidiaries in the United States mainly secure their pension obligations through transfer of funds to pension plans. At the end of 2010, the total value of pension obligations secured by pension plans of this type amounted to 11,378 (12,923). At the same point in time, the total value of the plan assets in these plans amounted to 9,535 (9,866), of which 59% (59) was invested in shares or mutual funds. The regulations for securing pension obligations stipulate certain minimum levels concerning the ratio between the value of the plan assets and the value of the obligations. As a consequence of the Master Agreement 2009 between Mack Trucks and United Auto Workers (UAW) an independent trust has been established that will completely eliminate Mack's commitments for providing healthcare to retired employees. Instead Mack Trucks has an obligation to fund the newly established fund over five years. As a result of the agreement the 2009 operating income of Mack Trucks was charged by 877 (USD 110 M), of which 1,194 concerning settlement of post-employment benefits other than pensions and 317 in reduced pension costs from a change in past service costs. The obligation increased with the same amount. Interest on the obligation started accruing from October 1, 2009. By that, SEK 4,015 billion (USD 525 M), formerly reported as obligation was reclassified a financial liability. Accordingly, the obligation decreased by 4,282, the plan assets by 73 and unrecognized actuarial losses by 194. During 2010, Volvo contributed 156 (0) to the American pension plans.

During 2010 Volvo has made extra contributions to the pension plans in Great Britain in the amount of SEK 103 M (113).

In 2011, Volvo estimates to transfer an amount of about SEK 1 billion to pension plans.