BP 2012 Annual Report Download - page 143

Corporate governance
Corporate governance
BP Annual Report and Form 20-F 2012
141
Pensions – 2013 policy
As of 31 December 2012, Dr Byron Grote will also receive a benefit from
the BP Supplemental Executive Retirement Benefit Plan (SERB). The
benefit payable under this supplemental plan is based on a target of 1.3%
of final average earnings (including for this purpose base salary plus cash
bonus and bonus deferred into a compulsory or voluntary award under the
deferred matching element of the EDIP) for each year of service (without
regard for tax limits) less benefits paid under all other BP (US) qualified
and non-qualified pension arrangements. The benefit payable under SERB
is unreduced at age 60 but reduced by 5% per year if separation occurs
before age 60. Benefits payable under this plan are unfunded and
therefore paid from corporate assets. As of 31 December 2012, Bob
Dudley will not receive a benefit from this plan due to the value of his
benefits under the other plans.
UK executive directors
Iain Conn and Dr Brian Gilvary are members of the regular BP pension
scheme in respect of service prior to 1 April 2011. The core benefits
under this scheme are non-contributory. They include a pension accrual
of 1/60th of basic salary for each year of service, up to a maximum of
two-thirds of final basic salary and a dependant’s benefit of two-thirds of
the member’s pension. The scheme pension is not integrated with state
pension benefits. Higher accrual rules are offered to employees on the
payment of personal contributions.
Since 1 April 2011 the UK directors, Iain Conn and Dr Brian Gilvary, have
received a cash supplement in lieu of future service pension accrual in
the BP pension scheme. This follows the reduction in the annual
allowance applicable to plans such as the BP pension scheme in 2011.
Some employees, including the UK directors, have had to cease pension
accrual for future service to remain within the new annual allowance. For
all these employees the cash supplement is equal to 35% of basic salary.
Until the end of March 2011, pension benefits in excess of the individual
lifetime allowance set by legislation were paid via an unapproved,
unfunded pension arrangement provided directly by the company. From
April 2011 only increases in accrued benefits due to increases in salary in
excess of the individual lifetime allowance are covered by their
arrangements. Both Iain Conn and Dr Brian Gilvary are covered under this
arrangement.
The rules of the BP pension scheme were amended in 2006 such that
the normal retirement age is 65. Prior to 1 December 2006, scheme
members could retire on or after age 60 without reduction.
Both Iain Conn and Dr Brian Gilvary were in service at 1 December 2006,
and therefore special early retirement terms apply to them. In the event
of retirement between 60 and 65, they are entitled to an immediate
unreduced pension. In the event of retirement between 55 and 60, they
are entitled to an immediate unreduced pension in respect of the
proportion of their benefit for service up to 30 November 2006, and are
subject to such reduction as the scheme actuary certifies in respect of
the period of service after 1 December 2006. For retirees leaving in
circumstances approved by the committee the scheme actuary has to
date applied a reduction of 3% per annum in respect of the period of
service from 1 December 2006 up to the leaving date; a greater reduction
can be applied in other circumstances. Those leaving before 55 are
entitled to a deferred pension that becomes payable from 55 or later, on
the basis set out above. Irrespective of the above, an individual leaving in
circumstances of total incapacity is entitled to an immediate unreduced
pension as from the leaving date.
Executive directors are eligible to participate in the appropriate pension
schemes that apply in their home country and that follow national norms
in terms of structure and levels. Details of pension accrual are set out in
the table on page 133 and take into account the total amount that could be
payable under relevant plans as described further below.
US executive directors
Pension benefits are provided to Bob Dudley and Dr Byron Grote through
a combination of tax-qualified and non-qualified benefit plans, consistent
with US tax regulations, as applicable.
The BP Retirement Accumulation Plan (US pension plan) is a US tax-
qualified plan that features a cash balance formula and includes
grandfathering provisions under final average pay formulas for certain
members of acquired companies, including Bob Dudley, who participated
in the predecessor Amoco pension plan, which was merged into the BP
US pension plan effective 1 July 2000.
Bob Dudley was an active member of the Employee Retirement Plan of
Amoco Corporation on 30 June 2000 and is classified as an Amoco
heritage participant under the US pension plan. As with all Amoco
heritage participants, he is entitled to receive the greater of (a) the cash
balance benefit under the US pension plan; and (b) the sum of (i) his
accrued benefit as of 31 December 2012 under the Amoco heritage plan
formula (described below) and (ii) a new cash balance account
(established 1 January 2013 with a zero balance). Bob Dudley’s benefit
under the Amoco heritage plan is based on his average annual eligible
earnings (being base salary plus cash bonus, subject to the IRS
compensation limit) over the better of (i) the last consecutive 36 months
of benefit service preceding his termination date, and (ii) the highest three
consecutive calendar years out of his last 10 years of benefit service. Bob
Dudley’s retirement benefit under the US pension plan is unreduced at
age 60 but reduced by 5% per year if taken before age 60.
Dr Byron Grote was an active member of the BP America Retirement
Accumulation Plan on 30 June 2000 and is classified as a BP heritage
participant. As a BP heritage participant, he is entitled to receive the cash
balance benefit under the US pension plan with additional payment
options.
BP also provides a number of non-qualified pension plans in which Bob
Dudley and Dr Byron Grote participate.
Bob Dudley will receive a benefit under the TNK-BP Supplemental
Retirement Plan which is a lump sum benefit based on the same
calculation as his benefit under the US pension plan but reflecting his
service and earnings at TNK-BP.
The BP Excess Compensation (Retirement) Plan (excess compensation
plan) provides a supplemental benefit which is the difference between (a)
the benefit accrual under the US pension plan and the TNK-BP
Supplement Retirement Plan without regard to the IRS compensation
limit (including for this purpose base salary, cash bonus and bonus
deferred into a compulsory or voluntary award under the deferred
matching element of the EDIP), and (b) the actual benefit payable under
the US pension plan and the TNK-BP Supplemental Retirement Plan,
applying the IRS compensation limit. The benefit calculation under the
heritage Amoco formula includes a reduction of 5% per year if taken
before age 60.
Dr Byron Grote will receive a benefit under the BP America Inc.
Supplemental Retirement Accumulation Plan (SRAP), which is a lump
sum cash balance that only grows with interest based on the greater of
the 30-year US Treasury bond interest rate or 5%.
Other benefits – 2013 policy
Executive directors are eligible to participate in regular employee benefit plans and in all-employee share saving schemes applying in their home
countries. Benefits in kind are not pensionable.