BP 2013 Annual Report Download - page 107

Corporate governance
BP Annual Report and Form 20-F 2013 103
Pension
Executive directors are eligible to participate in the pension schemes that
apply in their home country and which follow the national norms for
structure and levels.
US executive directors
Highlights
Defined benefit core schemes.
Annual accrual of 1.3% of average annual earnings generally provides
overall benefit.
Average earnings include salary and bonus.
Pension benefits in the US are provided through a combination of
tax-qualified and non-qualified benefit plans, consistent with applicable
US tax regulations.
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 formulae for certain
employees of companies acquired by BP (including Amoco and Arco) who
participated in these predecessor company pension plans.
The TNK-BP supplemental retirement plan is a lump sum benefit based
on the same calculation as the benefit under the US pension plan but
reflecting 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 supplemental
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 Amoco formula includes a reduction
of 5% per year if taken before age 60.
The BP supplemental executive retirement benefit plan (SERB) is a
supplemental plan 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.
UK executive directors
Highlights
Defined benefit core schemes.
One sixtieth annual accrual to a maximum
of two-thirds final salary.
35% cash supplement in lieu of future service
accrual for those in excess of UK government limits.
UK executive directors are members of the BP pension scheme in respect
of service prior to 1 April 2011. The core benefits under this scheme are
non-contributory. The benefits include a pension accrual of one sixtieth 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, participants may receive 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 participants ceased pension accrual for
future service to remain within the new annual allowance. For 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 the
arrangements.
The rules of the BP pension scheme were amended in 2006 to reflect the
normal retirement age of 65. Prior to 1 December 2006, scheme members
could retire on or after age 60 without reduction.
Special early retirement terms apply to executives in service on
1 December 2006. If they retire between 60 and 65, they are entitled to an
immediate unreduced pension. If they retire 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; however 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 this, an individual leaving in circumstances of
total incapacity is entitled to an immediate unreduced pension as from their
leaving date.