24 Employee Benefits

Defined benefit plans

Employees are covered under various funded and unfunded pension plans. When a third party will reimburse some or all of the expenditure for employee benefits and the rights to reimbursement do not qualify as plan assets, they are treated as a separate asset rather than as a deduction from the obligation. In all other respects the treatment is the same as for plan assets. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. Benefits are based on the employee’s credited years of service and average compensation in the years preceding retirement. Annual funding requirements are determined based on actuarial methods or local requirements.

Due to the requirements of IFRS 4 Insurance Contracts in combination with IAS 19 Employee Benefits, insurance contracts issued to defined benefit plans covering own employees are eliminated. Consequently, amounts totalling CHF 2019 million as at 31 December 2008 (2007: CHF 2019 million) relating to these insurance contracts are not included in the plan assets. Insurance contracts issued to defined benefit plans covering own employees have been issued in Switzerland and France. These defined benefit plans are typically partially funded as certain plan assets relating to these plans are not required to be eliminated. To the extent these plans are not funded by amounts included in the plan assets, the defined benefit liabilities are backed by the investments relating to the eliminated insurance contracts. These investments are part of the investments presented in the consolidated balance sheet of the Swiss Life Group.

The net asset/liability position does not incorporate any reimbursement rights.

The major part of the defined benefit liability arises from plans covering employees in Switzerland. The primary benefit of those plans is an old-age pension paid out after reaching retirement age. The amount of the pension is defined in relation to final salary and depends on completion of years of service (including years of service purchased by the employee with transferred funds from plans of former employers). There are options for early retirement (with reduction of the pension amount determined with actuarial methods) and for choosing to receive a lump-sum payment instead of a pension. Other benefits comprise widows’/orphans’ pensions in case of death as well as disability pensions (if disabled before retirement age). The plans are funded by the employer through ordinary contributions determined with actuarial methods where, under Swiss law, a part (generally less than 50% of the total contribution) is deducted from the employee’s gross salary. Further funding comprises mandatory transfers of funds made by new employees from plans of former employers, discretionary contributions by employees (within plan restrictions) and the earnings on the plan assets.

The contributions relating to the continuing operations expected to be paid for the year ending 31 December 2009 are CHF 63 million. These contributions include amounts paid to insurance contracts issued to defined benefit plans covering own employees.

Amounts recognised in the consolidated balance sheet

In CHF millionNotes  31.12.200831.12.2007
Present value of wholly and partly funded obligations  –2 218–2 242
Fair value of plan assets  268371
Present value of unfunded obligations  –74–78
Unrecognised actuarial gains (–)/losses (+)  165138
Unrecognised past service cost  21
Net defined benefit asset (+)/liability (–)  –1 838–1 811
 
The net defined benefit asset/liability consists of 
gross defined benefit liabilities  –2 003–1 969
gross defined benefit assets19  165158
 
Employee benefit liabilities consist of 
gross defined benefit liabilities  –2 003–1 969
other employee benefit liabilities  –7–11
Total employee benefit liabilities  –2 010–1 980
Amount of insurance contracts not included in plan assets  2 0192 019


Amounts recognised in the consolidated statement of income

In CHF millionNotes  20082007
Current service cost  7779
Interest cost  8276
Expected return on plan assets  –15–25
Net actuarial gains (–)/losses (+)  00
Past service cost  2
Employee contributions  –34–25
Effect of curtailments or settlements  0
Total defined benefit expense8  112105
Actual return on plan assets (gains (-)/losses (+))  9422


Defined benefit plans

In CHF million  20082007
 
Changes in the present value of the defined benefit obligation 
Balance as at 1 January  –2 320–3 065
Current service cost  –77–79
Interest cost  –82–76
Contributions by plan participants  –99–49
Actuarial gains (+)/losses (–)  8233
Benefits paid  205171
Past service cost  –24
Business combinations  –2
Curtailments and settlements  34
Effect of reclassifications and other disposals  793
Changes from discontinued operations  –45
Foreign currency translation differences  20–5
Balance as at 31 December  –2 292–2 320
 
Changes in the fair value of plan assets 
Balance as at 1 January  371496
Expected return on plan assets  1525
Actuarial gains (+)/losses (–)  –109–47
Contributions by the employer  172
Contributions by plan participants  –40
Benefits paid  –8–5
Business combinations  2
Curtailments and settlements  –3–4
Effect of reclassifications and other disposals  –98
Changes from discontinued operations  –2
Foreign currency translation differences  –112
Balance as at 31 December  268371
 
Categories of plan assets 
Equity instruments  56156
Debt instruments  118117
Other assets  9498
Total plan assets  268371
Plan assets include 
own equity instruments  31120


Defined benefit plans

In CHF million  2008200720062005
 
Historical information 
Present value of defined benefit obligation  –2 292–2 320–3 065–2 937
Fair value of plan assets  268371496302
Difference  –2 024–1 949–2 569–2 635
 
Experience adjustments on plan liabilities  518–57–67
Experience adjustments on plan assets  –108–474349


Principal actuarial assumptions (weighted averages)

  31.12.200831.12.2007
Discount rate  3.7%3.4%
Expected rate of return on plan assets  4.1%4.1%
Future salary increases  1.6%1.6%
Future pension increases  0.9%0.9%


Number of employees

The Group had 8184 full-time equivalents as at 31 December 2008 (2007: 8556).

Defined contribution plans

Certain subsidiaries sponsor various defined contribution plans. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. The plans stipulate contributions by both employers and employees. The expenses under these plans from continuing operations amounted to CHF 1 million in 2008 (2007: CHF 1 million).

Other long-term employee benefits

The liability for long-term employee benefits amounted to CHF 6 million as at 31 December 2008 (2007: CHF 11 million). It relates to part-time employment contracts prior to retirement and to profit-sharing arrangements for certain employees.

Termination benefits

The termination benefit liability totalling CHF 0.8 million for the year ended 31 December 2008 (2007: CHF 0.04 million) arose as a result of early retirements.

Equity compensation plans

In 2005, a share-based payment programme was established which gives the members of the Corporate Executive Board and senior employees the right to receive a certain number of Swiss Life Holding shares (performance share units, PSUs) after three years of service if certain conditions are fulfilled. The number of the shares allocated depends on two criteria. One criterion is the performance of the share price of the Swiss Life Holding share during the vesting period of three years. The other criterion is the performance of the share price of the Swiss Life Holding share during the vesting period of three years compared to the performance of the Dow Jones STOXX 600 Insurance Index. For the PSUs issued in 2005 and 2006, the number of PSUs can increase no more than by a factor of 1.5 or drop by 0.5, within three years, depending on how the criteria develop. For the PSUs issued in 2007 and 2008, the maximum possible factor of 1.5 was maintained whereas the factor of 0.5 was rescinded so that the number of PSUs could drop to zero after three years.

In 2005, the number of PSUs granted under this programme amounted to 67 412 (balance after reduction in par value). Due to the reduction in par value of the Swiss Life Holding share in 2005, the number of PSUs granted was adjusted using the Eurex R factor of 0.978284. The fair value at the measurement date amounted to CHF 159.66. The date of grant was 1 April 2005.

In 2006, the number of PSUs granted under this programme amounted to 46 651 (balance after reduction in par value). Due to the reduction in par value of the Swiss Life Holding share in 2006, the number of PSUs granted was adjusted using the Eurex R factor of 0.9965. The fair value at the measurement date amounted to CHF 252.56. The date of grant was 1 April 2006.

In 2007, the number of PSUs granted under this programme amounted to 56 222. The fair value at the measurement date amounted to CHF 189.22. The date of grant was 1 April 2007.

In 2008, the number of PSUs granted under this programme amounted to 52 618. The fair value at the measurement date amounted to CHF 179.30. The date of grant was 1 April 2008.

In 2007 and 2008, no adjustment to the number of PSUs was made due to the reduction in par value of the Swiss Life Holding share because of changed Eurex rules.

The Group determines the fair value of the PSUs granted for each programme at the grant date. The fair value was determined using the Black-Scholes formula and Monte Carlo simulations. The associated expense during the vesting period is recognised under employee benefits expense with a corresponding increase in share premium.

The expense recognised for share-based payment amounted to CHF 11 million in 2008 (2007: CHF 12 million).

Share-based payment programmes (performance share units)


Number of performance share units
 
Balance as at
1 January


Issued

Reduction
in par value
Balance after
reduction in
par value

Employee
departures


Vested

Balance as at
31 December
 
2008 
Granted in 2005  55 10055 100–1 947–53 153
Granted in 2006  44 46444 464–4 65439 810
Granted in 2007  55 14155 141–10 06145 080
Granted in 2008  52 61852 618–1 38151 237
 
2007 
Granted in 2005  56 38656 386–1 28655 100
Granted in 2006  45 45845 458–99444 464
Granted in 2007  56 22256 222–1 08155 141
 
2006 
Granted in 2005  66 13122066 351–9 96556 386
Granted in 2006  46 47018146 651–1 19345 458
 
2005 
Granted in 2005  65 9381 47467 412–1 28166 131


Share options

Since 2003, no new share options have been allocated to directors and managers in Switzerland and abroad and no share options were outstanding as at 31 December 2008.

Number of shares under option

Amounts in CHF  20082007200820072008200720082007
 

Number
of shares


Number
of shares


Exercise
date


Exercise
date


Expiry
date


Expiry
date
Weighted
average
exercise
price
Weighted
average
exercise
price
As at 1 January  88 055224
Granted/issued 
Exercised  –88 055224
Lapsed  30.06.07
As at 31 December 


Other benefits

Related expenses in 2008 were CHF 11 million (2007: CHF 14 million).

 
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