Volvo applies IAS 19, Employee Benefits, for post-employment benefits. In accordance with IAS 19, actuarial calculations should be made for all defined-benefit plans in order to determine the present value of obligations for benefits vested by its current and former employees. The actuarial calculations are prepared annually and are based upon actuarial assumptions that are determined close to the balance-sheet date each year. Changes in the present value of obligations due to revised actuarial assumptions and experience adjustments constitute actuarial gains or losses. These are expensed according to function over the employees’ average remaining service period to the extent they exceed the corridor value for each plan.
Deviations between the expected return on plan assets and the actual return are also treated as actuarial gains or losses. Provisions for post-employment benefits in Volvo’s balance sheet correspond to the present value of obligations at year-end, less fair value of plan assets, unrecognized actuarial gains or losses and unrecognized unvested past service costs.
As a supplement to IAS 19, Volvo applies UFR 4*, in accordance with the recommendation from the Swedish Financial Reporting Board, in calculating the Swedish pension liabilities.
For defined contribution plans, premiums are recognized as incurred in profit and loss according to function.
IAS 19 will be amended as of January 1, 2013. For additional information, refer to Note 1 under New Accounting Policies 2011 and later.
* UFR 4 states how Swedish special payroll tax and Swedish yield tax should be accounted for regarding the part of the net pension liability that is attributable to Swedish entities. Swedish special payroll tax is shown as a receivable/liability on the difference compared to the legal pension liability. Swedish yield tax is considered when estimating expected return on plan asset.
Provisions and costs for post-employment benefits, mainly pensions and health-care benefits, are dependent on assumptions used by actuaries in calculating such amounts. The appropriate assumptions and actuarial calculations are made separately for the respective countries of Volvo’s operations which result in obligations for postemployment benefits. The assumptions include discount rates, health care cost trends rates, inflation, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. Health care cost trend assumptions are based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. Inflation assumptions are based on an evaluation of external market indicators. The salary growth assumptions reflect the historical trend, the near-term outlook and assumed inflation. Retirement and mortality rates are based primarily on officially available mortality statistics. The actuarial assumptions are annually reviewed by Volvo and modified when deemed appropriate to do so. Actual results that differ from management’s assumptions are accumulated and amortized over future periods.
|Summary of provision for|
|Fair value of plan assets||23,873||22,954|
|Unrecognized actuarial (gains) and losses||11,939||6,995|
|Unrecognized past service costs||222||310|
|Net provisions for post-employment benefits||(4,324)||(5,862)|
|Whereof related to Assets held for sale||64||-|
|Net provision for post-employment benefits excluding Assets held for sale||(4,388)||(5,862)|
|Assumptions applied for||December 31||December 31|
|actuarial calculations, %||2011||2010|
|Expected return on plan assets(2||6.00||6.00|
|Expected salary increase||3.00||3.00|
|Discount rate(1, (3||3.00-4.75||3.25-5.50|
|Expected return on plan assets(2||7.65||7.65|
|Expected salary increase||3.00||3.00|
|Expected salary increase||3.00||1.00-3.00|
|Expected return on plan assets(2||3.60-4.50||5.00|
|Expected salary increases||3.30-3.40||3.70-3.85|
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 functioning market in such bonds, the market yields on government bonds are used. The discount rate for the Swedish pension obligation 2011 is determined by reference to mortgage bonds.
2) Applicable in the subsequent 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 discount rate used is within the range 4.25-4.75% (4.75-5.50).
|Current year service costs||867||896|
|Expected return on plan assets||(1,405)||(1,402)|
|Actuarial gains and losses(1||326||420|
|Past service costs|
|Curtailments and settlements||50||(38)|
|Pension costs for the period, defined-benefit plans||1,439||1,467|
|Pension costs for defined-contribution plans(2||2,032||2,107|
|Total pension costs for the period||3,471||3,574|
1) For each plan, actuarial gains and losses are recognized as income or expense 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.
2) In certain countries, part of social cost relate to pensions. In previous years, Volvo has reclassified such portion of social cost to pension cost for Swedish group companies. In the 2011 Annual Report, these pension related components of social cost has not been reclassified to pension cost, which makes for a better comparison with other Swedish companies. Pension cost for 2010 has been adjusted downwards with an amount of 1,166 compared to the 2010 Annual Report.
|Costs for the period, post-employment benefits other than pensions||2011||2010|
|Current year service costs||85||49|
|Expected return on plan assets||-||–|
|Actuarial gains and losses (1||9||(1)|
|Past service costs|
|Curtailments and settlements||(35)||2|
|Total costs for the period, post-employment benefits other than pensions||237||253|
1) For each plan, actuarial gains and losses are reported as income or expense 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.
|Obligations at January 1, 2010||9,881||13,358||1,897||4,438||3,697||4,799||38,070|
|Acquisitions, divestments and other changes||–||10||–||–||2||28||40|
|Current year service costs||302||258||54||45||39||247||945|
|Past service costs|
|Curtailments and settlements||(6)||(7)||(18)||(1)||–||(11)||(43)|
|Actuarial (gains) and losses||(1,170)||571||(2)||28||(33)||78||(528)|
|Exchange rate translation||–||(789)||(245)||(370)||(207)||(171)||(1,782)|
|Obligations at December 31, 2010||9,144||12,998||1,605||4,226||3,441||4,707||36,121|
|Funded defined-benefit plans||8,794||11,378||–||4,226||–||2,203||26,601|
|Acquisitions, divestments and other changes||(1)||(2)||1||(2)||(59)||(3)||(66)|
|Current year service costs||246||295||52||31||74||255||953|
|Past service costs|
|Curtailments and settlements||(8)||(1)||–||(69)||(44)||(7)||(129)|
|Actuarial (gains) and losses||2,434||925||136||52||115||39||3,701|
|Exchange rate translation||–||301||(12)||54||66||58||467|
|Obligations at December 31, 2011||12,012||14,360||1,765||4,369||3,577||4,275||40,358|
|Funded defined-benefit plans||11,624||13,925||-||4,369||-||1,817||31,735|
|of plan assets in||Sweden||States||France||Britain||Other||Other|
|Plan assets at January 1, 2010||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|
|Exchange rate translation||–||(574)||–||(378)||(2)||(166)||(1,120)|
|Plan assets at December 31, 2010||7,078||9,535||–||4,393||24||1,924||22,954|
|Acquisitions, divestments and other changes||3||8||-||-||-||6||17|
|Expected return on plan assets||426||683||-||204||-||92||1,405|
|Actuarial gains and (losses)||(681)||(628)||-||81||-||(96)||(1,324)|
|Exchange rate translation||-||178||-||60||-||(18)||220|
|Plan assets at December 31, 2011||7,580||9,842||-||4,680||24||1,747||23,873|
|Net provisions for||United||Great||US|
|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|
|Provisions for post-employment benefits||(591)||(374)||(1,112)||–||(3,210)||(2,223)||(7,510)|
|Funded status at December 31, 2011||(4,432)||(4,518)||(1,765)||311||(3,553)||(2,528)||(16,485)|
|Unrecognized actuarial (gains) and losses||4,569||5,509||333||341||434||753||11,939|
|Unrecognized past service costs||-||(54)||276||-||-||-||222|
|Net provisions for post-employment benefits at December 31, 2011||137||937||(1,156)||652||(3,119)||(1,775)||(4,324)|
|Whereof related to Assets held for sale||77||-||-||-||-||(13)||64 (1|
|Net provision for post-employment benefits excluding Assets held for sale||60||937||(1,156)||652||(3,119)||(1,762)||(4,388)|
|of which reported as|
|Provisions for post-employment benefits||-||(444)||(1,156)||-||(3,221)||(1,844)||(6,665)|
1) Per December 31, 2011 pension obligation amounted to 1,394, plan assets amounted to 926 and unrecognized actuarial losses amounted to 532 in regards to Assets held for sale.
Actual return on plan assets amounted to 81 (2,259).
|Actuarial gains and losses||2011||2010|
|Experience-based adjustments in obligations||(3,492)||293|
|Experience-based adjustments in plan assets||(1,324)||861|
|Effects of changes in actuarial assumptions||(209)||235|
|Actuarial gains and (losses), net||(5,025)||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 2,228, whereof 756 during 2011, 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, 2011, the fair value of the foundation's plan assets amounted to 7,554 (7,059), of which 31% (57) was invested in shares or mutual funds. At the same date, retirement pension obligations attributable to the ITP plan amounted to 11,624 (8,794).
Swedish companies can secure new pension obligations through balance-sheet provisions or pension-fund contributions. Furthermore, a credit insurance policy must be taken out 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 an insurance policy 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 2011, 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 recognized as a defined-contribution plan. Alecta's funding ratio is 113% (146).
Volvo’s subsidiaries in the United States mainly secure their pension obligations through transfer of funds to pension plans. At the end of 2011, the total value of pension obligations secured by pension plans of this type amounted to 13,925 (11,378). At the same point in time, the total value of the plan assets in these plans amounted to 9,842 (9,535), of which 54% (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. During 2011, Volvo contributed 829 (156) to the American pension plans.
During 2011, Volvo has made extra contributions to the pension plans in Great Britain in the amount of 91 (103).
In 2012, Volvo estimates to transfer an amount of about SEK 1 billion to pension plans.