18) Employee benefits obligations
Liabilities for employee benefits obligations consist of the following:
Description of plans and risk management
The Group operates for the benefit of its current and former employees both defined benefit plans and defined contribution plans.
The Group recognized a charge of $157 million for defined contribution plans in 2014 ($129 million in 2013).
The Group’s main defined benefit pension plans are located in France, the United Kingdom, the United States, Belgium and Germany. Their main characteristics, depending on the country-specific regulatory environment, are the following:
- the benefits are usually based on the final salary and seniority;
- they are usually funded (pension fund or insurer);
- they are usually closed to new employees who benefit from defined contribution pension plans; and
- they are paid in annuity or in lump sum.
The pension benefits include also termination indemnities and early retirement benefits. The other benefits are employer contributions to post-employment medical care.
In order to manage the inherent risks, the Group has implemented a dedicated governance framework to ensure the supervision of the different plans. These governance rules provide for:
- the Group’s representation in key governance bodies or monitoring Committees;
- the principles of the funding policy;
- the general investment policy, including for most plans theestablishment of a monitoring Committee to define and follow the investment strategy and performance and to ensure the principles in respect of investment allocation are respected;
- a procedure to approve the establishment of new plans or the amendment of existing plans;
- principles of administration, communication and reporting.
Change in benefit obligations and plan assets
The fair value of the defined benefit obligation and plan assets in the Consolidated Financial Statements is detailed as follows:
The amounts recognized in the consolidated income statement and the consolidated statement of comprehensive income for defined benefit plans are detailed as follows:
The past service cost recognized in 2012 for $262 million is mainly due to the amendment of certain French plans.
Expected future cash out flow
The average duration of accrued benefits is approximately 15 years for defined pension benefits and 18 years for other benefits. The Group expects to pay contributions of $212 million in respect of funded pension plans in 2015.
Estimated future benefits either financed from plan assets or directly paid by the employer are detailed as follows:
Type of assets
Investments on equity and debt markets are quoted on active markets.
An annuity purchase transaction (buy-in) was completed during 2014 to cover the risks for part of the beneficiaries population in the United Kingdom. This investment resulted in an actuarial loss of $(471) million recognized in other comprehensive income.
Main actuarial assumptions and sensitivity analysis
The discount rate retained is determined by reference to the high quality rates for AA-rated Corporate bonds for a duration equivalent to that of the obligations. It derives from a benchmark per monetary area of different market data at the closing date.
A 0.5% increase or decrease in discount rates – all other things being equal – would have the following approximate impact on the benefit obligation:
A 0.5% increase or decrease in inflation rates – all other things being equal – would have the following approximate impact on the benefit obligation: