Employee Benefit Obligations
Defined Benefit Plans:
The defined benefit obligation comprise unfunded and funded plans. Of these plans approximately 96 % relate to obligations in Germany, the Netherlands, and the U.S. as follows:
Domestic plans: Certain executives located in Germany are entitled to post-employment benefits (“Ruhegeldendbetrag”). The benefit is agreed individually and is paid out as a life-time pension upon reaching the age of 65, upon early retirement in accordance with statutory retirement provisions or in case of disability. The plan also covers surviving dependants’ pension. All other German employees with an employment start date before January 1, 2010, participate in a post-employment benefit plan which also covers old age, disability and surviving dependants’ pensions. The plan is basically based on a benchmark model considering length of service and salary with life-time pension payments beginning at age 65. Benefits granted from January 1, 1999 include a fixed annual increase of 1 % of the benefit; plans before that date grant compensation for inflation in accordance with section16 of the German Company Pension Laws (BetrAVG). For ALTANA, the risk is mainly represented by the development of life expectancy and inflation since the obligations resulting from these plans represent life-time pension payments.
All employees with an employment start date after December 31, 2009 are in a plan which is based on a capital commitment (ALTANA Vorsorgekapital / AVK). ALTANA pays the employer’s contributions into external investment funds until the benefits are paid out. ALTANA also offers an employee-funded plan that grants the employees the right to have part of their earnings paid into a company pension scheme (AltersvorsorgeAktiv mit ALTANA / AAA) which are increased by employer’s contributions, as necessary. For this plan too, the contributions are invested in external investment funds until pay-out (cf. AVK). The two post-employment benefit plans at ALTANA, AVK and AAA basically have the same features. ALTANA offers two models: a fixed income based model, where the Company guarantees a minimum interest yield on the contributions paid-in, corresponding to the interest rate of life insurance contracts of 1.25 % as of the reporting date, and an equity-based model, where ALTANA guarantees the payment contributions made, but without any additional interest guarantee. Obligations under the AVK and AAA plans are linked to the development of the fund assets, which results in a reduction of the overall business risk exposure. The remaining risk ALTANA is exposed to is represented by the risk that the performance of the funds does not cover the guaranteed minimum interest yield or the capital commitment.
Foreign plans: In the Netherlands, two plans are offered. The amount of the benefits under these plans depends on the years of service and the salaries received during those years of service. Upon retirement, guaranteed pension payments are granted. Additionally, the plans also cover benefits in case of death or invalidity. The employer pays premiums to an insurance company to finance these plans. Pension increases to be made are covered, on the one hand by surpluses of the insurer and, on the other hand, by further employer contributions, insofar ALTANA bears the risk of additional funding obligations.
In the U.S., ALTANA basically offers two employee benefit plans which are financed by funds and one additional defined benefit plan for executive employees, which is unfunded. These plans provide for pension payments upon retirement. New employees cannot participate in these plans. Only one of the funded plans provides for additional benefits in future years of service. The two funded defined benefit plans are managed by trustees. These plans are subject to minimum funding requirements. The risks related to these plans are represented by the change in actuarial assumptions and life expectancy. For example, a lower interest rate will result in higher pension obligations due to lower discounting, which in turn could result in higher fund provisioning. For the two funded plans, shares account for a relatively large portion of plan assets, in which case a higher return may be expected in the long-term, but which also bears a volatility risk. If the interest yield is lower than planned, fund financing will decrease and higher contributions might be required.
The development of post-employment benefit obligations, similar obligations and pension liabilities are as follows:
The following table presents the significant actuarial assumptions of the pension plans:
As in the previous year, the discount rate for employee benefit and similar obligations was determined based on the “Mercer Yield Curve Approach”. In the current reporting period Mercer reviewed the discount rate and further improved the method of calculation. Had ALTANA applied the discount rate excluding these changes as of December 31, 2015, it would have been higher by 10 basis points and the obligation lower by approximately € 4 million.
The life expectancy in Germany is based on the “Richttafeln 2005 G”, which were developed by Prof. Dr. Klaus Heubeck. For the Netherlands the life expectancy is based on the latest mortality tables published by the Dutch Actuarial Association, which is subject to agerelated adjustments. The “RP-2000 Mortality Tables” are applied in the U.S. with appropriate updates and projections taken into account.
The following table shows the changes in the present value of the defined benefit obligation resulting from changes in the relevant actuarial assumptions with the other assumptions remaining unchanged. This means no possible correlation effects were considered. For the German plans an increase or decrease of life expectancy of one year is assumed for a person who is exactly 65 years old. For employees who are either younger or older than 65, a corresponding adjustment is made, i. e. the change in life expectancy of younger employees is more than one year and that of older employees is less than one year. For the plans in the Netherlands and the U.S. an age-independent shift in the employees’ life expectancy is assumed as of the reporting date:
The following table shows the fair values of the plan assets per category:
The domestic plan assets mainly comprise money market funds and mixed funds, while the foreign plan assets are mainly composed of shares, debt instruments and insurances.
ALTANA aims to hedge future payments under the pension obligation with long-term returns from the portfolio of the plan assets. Therefore, the composition of the plan assets is geared to the sustainability of the income generated by increases in market values of the assets as well as dividends and interest income.
The actual return on the plan assets was € 2.2 million and € 9.6 million for 2015 and 2014, respectively.
Plan assets do not include ALTANA shares or any property or other assets used by the Company.
In 2016, the Company expects to pay benefits of € 7.7 million to retirees compared to expected payments from plan assets of € 2.9 million. At December 31, 2014, the Company expected to pay benefits of € 6.8 million to retirees in 2015, compared to expected payments from plan assets of € 2.4 million. Contributions to plan assets by the employer are expected to be paid in an amount of € 6.9 million in 2016 compared to € 5.5 million in 2015. The expected expense for defined benefit plans for 2016 is estimated to amount to € 15.9 million compared to € 16.1 million in 2015 including net interest expenses.
As of December 31, 2015 and 2014 the weighted average duration of the German, Dutch and U.S. employee benefit obligation is 19 years and 20 years, respectively.
Defined contribution plans
Defined contribution plans mainly exist in non-German subsidiaries. Additionally, the Company pays contributions to domestic and foreign governmental and private pension insurance organizations in accordance with legal regulations. The contributions are recognized as expense based on their function in the respective year and amounted to € 23.2 million and € 21.0 million in 2015 and 2014, respectively. No further obligations exist besides the contributions paid.