The Volvo Group 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 the Volvo Group’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 Group 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.
Read more about new accounting principles 2012 and later in Note 1 and changes in Volvo Group financial reporting in Note 31.
* 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.
Assumptions when calculating pensions and other post-employment benefits
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 the Volvo Group’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||24,618||23,873|
|Unrecognized actuarial (gains) and losses||13,633||11,939|
|Unrecognized past service costs||248||222|
|Net provisions for post-employment benefits||(3,973)||(4,324)|
|Whereof related to Assets held for sale||-||64|
|Net provision for post-employment benefits excluding Assets held for sale||(3,973)||(4,388)|
|Assumptions applied for||Dec 31,||Dec 31,|
|actuarial calculations, %||2012||2011|
|Expected return on plan assets2)||6.00||6.00|
|Expected salary increase||3.00||3.00|
|Discount rate1), 3)||1.75-3.75||3.00-4.75|
|Expected return on plan assets2)||7.65||7.65|
|Expected salary increase||3.50||3.00|
|Expected salary increase||3.00||3.00|
|Expected return on plan assets2)||3.30-4.20||3.60-4.50|
|Expected salary increases||3.20-3.30||3.30-3.40|
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 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 3.00-3.75% (4.25-4.75).
|Current year service costs||1,071||867|
|Expected return on plan assets||(1,437)||(1,405)|
|Actuarial gains and losses1)||654||326|
|Past service costs|
|Curtailments and settlements||35||50|
|Pension costs for the period, defined-benefit plans||1,770||1,439|
|Pension costs for defined-contribution plans||2,356||2,032|
|Total pension costs for the period||4,126||3,471|
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.
|Costs for the period, post-employment benefits other than pensions||2012||2011|
|Current year service costs||141||85|
|Expected return on plan assets||(2)||-|
|Actuarial gains and losses1)||19||9|
|Past service costs|
|Curtailments and settlements||6||(35)|
|Total costs for the period, post-employment benefits other than pensions||317||237|
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, 2011||9,144||12,998||1,605||4,226||3,441||4,707||36,121|
|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 as of 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|
|Acquisitions, divestments and other changes||(1,362)||(9)||84||0||(3)||(45)||(1,335)|
|Current year service costs||442||299||59||22||131||259||1,212|
|Past service costs||-||-||-||-||-||-||-|
|Curtailments and settlements||(7)||(1)||-||-||2||(122)||(128)|
|Actuarial (gains) and losses||1,315||1,546||169||390||312||382||4,114|
|Exchange rate translation||-||(879)||(67)||(81)||(237)||(298)||(1,562)|
|Obligations as of December 31, 2012||12,510||15,129||2,002||4,740||3,737||4,354||42,472|
|Funded defined-benefit plans||10,934||14,645||6||4,740||-||2,675||33,000|
|of plan assets in||Sweden||US||France||Britain||Other||Other|
|Plan assets at January 1, 2011||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 as of December 31, 2011||7,580||9,842||-||4,680||24||1,747||23,873|
|Acquisitions, divestments and other changes||(938)||1||6||-||-||(25)||(956)|
|Expected return on plan assets||440||733||-||188||-||78||1,439|
|Actuarial gains and (losses)||133||391||-||147||-||27||698|
|Exchange rate translation||-||(624)||-||(86)||(1)||(39)||(750)|
|Plan assets as of December 31, 2012||7,239||10,592||6||4,837||23||1,921||24,618|
|Net provisions for||Great||US|
|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 as of December 31, 2011||137||937||(1,156)||652||(3,119)||(1,775)||(4,324)|
|Whereof related to Assets held for sale1)||77||-||-||-||-||(13)||64|
|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)|
|Funded status as of December 31, 2012||(5,271)||(4,537)||(1,996)||97||(3,714)||(2,433)||(17,854)|
|Unrecognized actuarial (gains) and losses||5,049||5,984||478||572||638||912||13,633|
|Unrecognized past service costs||-||(44)||257||(5)||(2)||42||248|
|Net provisions for post-employment benefits as of December 31, 2012||(222)||1,403||(1,261)||664||(3,078)||(1,479)||(3,973)|
|of which reported as|
|Provisions for post-employment benefits||(279)||(415)||(1,261)||(6)||(3,167)||(1,569)||(6,697)|
1) As of 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 2,124 (81).
|Actuarial gains and losses||2012||2011|
|Experience-based adjustments in obligations||(412)||(3,492)|
|Experience-based adjustments in plan assets||698||(1,324)|
|Effects of changes in actuarial assumptions||(3,702)||(209)|
|Actuarial gains and (losses), net||(3,416)||(5,025)|
The Volvo Group’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 2,253, whereof 25 during 2012, have been made to the foundation. The plan assets in the Volvo Group’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. As of December 31, 2012, the fair value of the foundation's plan assets amounted to 7,217 (7,554), of which 31% (31) was invested in shares or mutual funds. At the same date, retirement pension obligations attributable to the ITP plan amounted to 12,140 (11,624).
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 the Volvo Group 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 2012, the Volvo Group 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 129% (113).
Volvo Group’s subsidiaries in the United States mainly secure their pension obligations through transfer of funds to pension plans. At the end of 2012, the total value of pension obligations secured by pension plans of this type amounted to 14,645 (13,925). At the same point in time, the total value of the plan assets in these plans amounted to 10,592 (9,842), of which 54% (54) 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 2012, Volvo Group contributed 1,022 (829) to the American pension plans.
During 2012, the Volvo Group has made extra contributions to the pension plans in Great Britain in the amount of 87 (91).
In 2013, the Volvo Group estimates to transfer an amount of about SEK 1 billion to pension plans.