24 Employee Benefits

Employee Benefit Liabilities
In CHF million  
  31.12.2011 31.12.2010
Employee benefit liabilities consist of
 
gross defined benefit liabilities
  1 173 1 965
other long-term employee benefit liabilities
  0 0
other employee benefit liabilities
  88 84
Total employee benefit liabilities
  1 261 2 049


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. 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. 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.

In September 2010, the Swiss Life Group announced an amendment of the terms of two major defined benefit plans in Switzerland. The amendments mainly relate to old-age pension benefits that changed from benefit-oriented to contribution-oriented, changes in the level of certain long-term death and disability benefits, and to a reduction in benefits for early retirements. The curtailment gain in 2010 amounted to CHF 39 million. In January 2011, CHF 684 million in cash was transferred from the Swiss Life Group to these defined benefit plans. This amount is included in the contribution by the employer. The investment risks are now borne by the plan participants themselves whereas mortality and disability risks are still reinsured with the Swiss Life Group.

The contributions expected to be paid for the year ending 31 December 2012 are CHF 56 million. These contributions include amounts payable under insurance contracts issued to defined benefit plans covering own employees.

Amounts recognised in the consolidated balance sheet
In CHF million  
  31.12.2011 31.12.2010
Present value of defined benefit obligation
  –2 646 –2 370
Fair value of plan assets
  1 059 289
Unrecognised actuarial gains (–)/losses (+)
  547 284
Net defined benefit asset (+)/liability (–)
  –1 040 –1 797
 
The net defined benefit asset/liability consists of
 
gross defined benefit liabilities
  –1 173 –1 965
gross defined benefit assets
  133 168
 
Amount of insurance contracts not included in plan assets
  1 393 2 137


Amounts recognised in the consolidated statement of income
In CHF million  
  2011 2010
Current service cost
  71 69
Interest cost
  63 73
Expected return on plan assets
  –35 –11
Net actuarial gains (–)/losses (+)
  9 4
Employee contributions
  –24 –24
Effect of curtailments or settlements
  –39
Total defined benefit expense
  84 72
 
Actual return on plan assets (gains (–)/losses (+))
  –31 –3


Defined benefit plans
In CHF million  
  2011 2010
 
Changes in the present value of the defined benefit obligation
 
Balance as at 1 January
  –2 370 –2 385
Current service cost
  –71 –69
Interest cost
  –63 –73
Contributions by plan participants
  –45 –95
Actuarial gains (+)/losses (–)
  –268 –57
Benefits paid
  167 230
Curtailments and settlements
  45
Effect of reclassifications and other disposals
  0
Foreign currency translation differences
  4 34
Balance as at end of period
  –2 646 –2 370
 
Changes in the fair value of plan assets
 
Balance as at 1 January
  289 296
Expected return on plan assets
  35 11
Actuarial gains (+)/losses (–)
  –4 –8
Contributions by the employer
  749 37
Contributions by plan participants
  44 –20
Benefits paid
  –51 –10
Foreign currency translation differences
  –3 –17
Balance as at end of period
  1 059 289
 
Categories of plan assets
 
Equity instruments
  237 103
Debt instruments
  474 97
Property
  188
Other assets
  160 89
Total plan assets
  1 059 289
 
Plan assets include
 
own equity instruments
  6 56


Defined benefit plans
In CHF million  
  2011 2010 2009 2008 2007
 
Historical information
 
Present value of defined benefit obligation
  –2 646 –2 370 –2 385 –2 292 –2 320
Fair value of plan assets
  1 059 289 296 268 371
Difference
  –1 587 –2 081 –2 089 –2 024 –1 949
 
Experience adjustments on plan liabilities
  –30 33 –23 5 18
Experience adjustments on plan assets
  –1 –8 26 –108 –47


Principal actuarial assumptions (weighted averages)
 
  2011 2010
Discount rate
  2.7% 3.2%
Expected rate of return on plan assets
  3.6% 3.9%
Future salary increases
  1.6% 1.6%
Future pension increases
  0.8% 0.8%


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 amounted to CHF 1 million in 2011 (2010: CHF 1 million).

Other long-term employee benefits

The liability for long-term employee benefits amounted to CHF 0.3 million as at 31 December 2011 (2010: CHF 0.1 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 0.05 million for the year ended 31 December 2011 (2010: CHF 0.05 million) arose as a result of early retirements.

Equity compensation plans

For 2008, 2009 and 2010, a share-based payment programme was established which gives the members of the Corporate Executive Board and other senior management members of the Swiss Life Group 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 2010, a maximum possible factor of 2.0 applies. For the PSUs issued in 2008 and 2009, the maximum possible factor is 1.5. No minimum possible factor is applied in 2008, 2009 and 2010 so that the number of PSUs could drop to zero after three years.

From 2011, participants in the share-based payment programme are allocated restricted share units (RSUs) instead of PSUs. As with PSUs, RSUs grant the holder future subscription rights, entitling him to receive Swiss Life Holding shares free of charge after a three-year period has elapsed and if certain conditions are fulfilled, but without additional performance leverage. The attribution of shares after the expiry of the three-year deferral period will be effected on a 1:1 basis (1 RSU = 1 share). The value of the RSUs during the three-year term develops linearly with the Swiss Life Holding share price and systematically corresponds with shareholder interests. The plan also provides for adjustment and reclaiming mechanisms (clawback).

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 2010, the number of PSUs granted under this programme amounted to 68 510. The fair value at the measurement date amounted to CHF 149.98. The date of grant was 1 April 2010.

In 2011, the number of RSUs granted under this programme amounted to 68 730. The fair value at the measurement date amounted to CHF 140.05. The date of grant was 1 April 2011.

The fair value of the PSUs and RSUs granted for each programme is determined at the grant date. The fair value was determined by an independent consulting company 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 7 million in 2011 (2010: CHF 5 million).

Share-based payment programmes (restricted share units)
Number of restricted share units  
  Balance as at
1 January

Issued
Employee
departures

Vested
Balance as at
end of period
 
2011
 
Granted in 2011
  68 730 –660 68 070


Share-based payment programmes (performance share units)
Number of performance share units  
  Balance as at
1 January

Issued
Employee
departures

Vested
Balance as at
end of period
 
2011
 
Granted in 2008
  34 918 –2 229 –32 689
Granted in 2009
  48 339 –4 811 43 528
Granted in 2010
  68 510 –7 480 61 030


2010
 
Granted in 2008
  41 365 –6 447 34 918
Granted in 2009
  51 301 –2 962 48 339
Granted in 2010
  68 510 68 510
 
2009
 
Granted in 2008
  51 237 –9 872 41 365
Granted in 2009
  53 216 –1 915 51 301
 
2008
 
Granted in 2008
  52 618 –1 381 51 237


Other benefits

Related expenses in 2011 were CHF 9 million (2010: CHF 10 million).

 

The future starts here.