23 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. Insurance contracts issued to defined benefit plans covering own employees have been issued in Switzerland and France. Certain assets relating to these plans qualify as plan assets and are therefore not eliminated. These plans are accounted for as partially funded plans. 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 survivors’/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 2010 are CHF 60 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 million 
  31.12.200931.12.2008
Present value of wholly and partly funded obligations
  –2 313–2 218
Fair value of plan assets
  296268
Present value of unfunded obligations
  –72–74
Unrecognised actuarial gains (–)/losses (+)
  231165
Unrecognised past service cost
  21
Net defined benefit asset (+)/liability (–)
  –1 858–1 838
 
The net defined benefit asset/liability consists of
 
gross defined benefit liabilities
  –2 025–2 003
gross defined benefit assets
  167165
 
Employee benefit liabilities consist of
 
gross defined benefit liabilities
  –2 025–2 003
other employee benefit liabilities
  –96–82
Total employee benefit liabilities
  –2 121–2 085
 
Amount of insurance contracts not included in plan assets
  2 0472 019


CHF 75 million relating to holiday and bonus accruals has been reclassified from insurance and other payables to employee benefit liabilities as at 31 December 2008.

Amounts recognised in the consolidated statement of income
In CHF million 
  20092008
Current service cost
  7277
Interest cost
  7582
Expected return on plan assets
  –10–15
Net actuarial gains (–)/losses (+)
  50
Past service cost
  2
Employee contributions
  –24–34
Effect of curtailments or settlements
  0
Total defined benefit expense
  118112
 
Actual return on plan assets (gains (–)/losses (+))
  –3694


Defined benefit plans
In CHF million 
  20092008
 
Changes in the present value of the defined benefit obligation
 
Balance as at 1 January
  –2 292–2 320
Current service cost
  –72–77
Interest cost
  –75–82
Contributions by plan participants
  –79–99
Actuarial gains (+)/losses (–)
  –9882
Benefits paid
  205205
Past service cost
  21–24
Curtailments and settlements
  43
Foreign currency translation differences
  120
Balance as at end of period
  –2 385–2 292
 
Changes in the fair value of plan assets
 
Balance as at 1 January
  268371
Expected return on plan assets
  1015
Actuarial gains (+)/losses (–)
  26–109
Contributions by the employer
  3217
Contributions by plan participants
  –25–4
Benefits paid
  –11–8
Curtailments and settlements
  –4–3
Foreign currency translation differences
  0–11
Balance as at end of period
  296268
 
Categories of plan assets
 
Equity instruments
  8756
Debt instruments
  101118
Other assets
  10894
Total plan assets
  296268
 
Plan assets include 
own equity instruments  5531


Defined benefit plans
In CHF million 
  20092008200720062005
 
Historical information
 
Present value of defined benefit obligation
  –2 385–2 292–2 320–3 065–2 937
Fair value of plan assets
  296268371496302
Difference
  –2 089–2 024–1 949–2 569–2 635
 
Experience adjustments on plan liabilities
  –23518–57–67
Experience adjustments on plan assets
  26–108–474349


Principal actuarial assumptions (weighted averages)
 
  20092008
Discount rate
  3.4%3.7%
Expected rate of return on plan assets
  4.0%4.1%
Future salary increases
  1.6%1.6%
Future pension increases
  0.9%0.9%


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 2009 (2008: CHF 1 million).

Other long-term employee benefits

The liability for long-term employee benefits amounted to CHF 7 million as at 31 December 2009 (2008: CHF 6 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 0.1 million for the year ended 31 December 2009 (2008: CHF 0.8 million) arose as a result of early retirements.

Equity compensation plans

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 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, 2008 and 2009, 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 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 2009, the number of PSUs granted under this programme amounted to 53 216. The fair value at the measurement date amounted to CHF 51.22. The date of grant was 1 April 2009.

In 2007, 2008 and 2009, 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 2 million in 2009 (2008: CHF 11 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
end of period
 
2009
 
Granted in 2006
  39 81039 810–39 810
Granted in 2007
  45 08045 080–7 95637 124
Granted in 2008
  51 23751 237–9 87241 365
Granted in 2009
  53 21653 216–1 91551 301


2008
 
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 2006
  45 45845 458–99444 464
Granted in 2007
  56 22256 222–1 08155 141
 
2006
 
Granted in 2006
  46 47018146 651–1 19345 458


Other benefits

Related expenses in 2009 were CHF 11 million (2008: CHF 11 million).

 
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