Volvo’s 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 proprietary pension foundations. The Volvo Group’s 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 to salaried employees in Sweden (mainly through the Swedish ITP pension plan) and employees in France and Great Britain.

Accounting policy

Sources of uncertainy in estimates

The following tables disclose information about defined-benefit plans in the Volvo Group. Volvo recognizes 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 2011 2010
Obligations 40,358 36,121
Fair value of plan assets 23,873 22,954
Funded status (16,485) (13,167)
     
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
Sweden    
Discount rate(1 3.50 4.75
Expected return on plan assets(2 6.00 6.00
Expected salary increase 3.00 3.00
Inflation 1.50 1.50
     
United States    
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
Inflation 2.00 2.00
     
France    
Discount rate(1 4.50 4.50
Expected salary increase 3.00 1.00-3.00
Inflation 1.50 1.50
     
Great Britain    
Discount rate(1 4.75-5.00 5.40-5.50
Expected return on plan assets(2 3.60-4.50 5.00
Expected salary increases 3.30-3.40 3.70-3.85
Inflation 3.20 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 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).

Pension costs 2011 2010
Current year service costs 867 896
Interest costs 1,448 1,510
Expected return on plan assets (1,405) (1,402)
Actuarial gains and losses(1 326 420
Past service costs    
– Unvested 9 19
– Vested 60 28
Curtailments and settlements 50 (38)
Termination benefits 84 34
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
Interest costs 148 170
Expected return on plan assets -
Actuarial gains and losses (1 9 (1)
Past service costs    
– Unvested 5
– Vested - 26
Curtailments and settlements (35) 2
Termination benefits 25 7
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.

An increase of one percentage point per year in healthcare costs would increase the accumulated post-employment benefit obligation as of December 31, 2011 by approximately 164, and the post-employment benefit expense for the period by approximately 8. A decrease of one percentage point would decrease the accumulated value of obligations by about 136 and reduce costs for the period by approximately 7. Calculations made as of December 31, 2011 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% until 2029 and subsequently 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, 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
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
               
Acquisitions, divestments and other changes (1) (2) 1 (2) (59) (3) (66)
Current year service costs 246 295 52 31 74 255 953
Interest costs 435 582 70 226 144 145 1,602
Past service costs              
– Unvested 4 9 1 14
– Vested 40 18 58
Termination benefits 77 (1) 26 102
Curtailments and settlements (8) (1) (69) (44) (7) (129)
Employee contributions 12 4 16
Actuarial (gains) and losses 2,434 925 136 52 115 39 3,701
Exchange rate translation 301 (12) 54 66 58 467
Benefits paid (315) (782) (86) (161) (169) (968) (2,481)
Obligations at December 31, 2011 12,012 14,360 1,765 4,369 3,577 4,275 40,358
               
of which              
Funded defined-benefit plans 11,624  13,925  - 4,369  - 1,817  31,735 
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, 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
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
               
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)
Employer contributions 756 829 - 91 - 410 2,086
Employee contributions - - - 12 - 7 19
Exchange rate translation - 178 - 60 - (18) 220
Benefits paid (2) (763) - (161) - (578) (1,504)
Plan assets at December 31, 2011 7,580 9,842 - 4,680 24 1,747 23,873
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, 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 900 555 110 83 1,648
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              
Prepaid pensions 60 1,381 - 652 102 82 2,277
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.

Plan assets by category 2010
Plan assets by category 2011

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.