BP 2015 Annual Report Download - page 86

Pension
Framework
Executive directors are eligible to participate in group pension schemes
that apply in their home countries which follow national norms in terms
of structure and levels.
US pension and retirement savings
Bob Dudley participates in US pension and retirement savings plans. These
involve a combination of tax-qualified and non-qualified plans, consistent
with applicable US tax regulations. Benefits payable under non-qualified
plans are unfunded and therefore paid from corporate assets.
Details of the pension plans in which Mr Dudley participates are as follows.
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 employees of
companies acquired by BP (including Amoco) who participated in these
predecessor company pension plans. The TNK-BP Supplemental Retirement
Plan is 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 (ECRP) provides a
supplemental benefit which is the difference between (1) the benefit
accrual under the US Pension Plan and the TNK-BP Supplemental
Retirement Plan without regard to the Internal Revenue Service (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 (2) 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
non-qualified supplemental plan which provides a benefit 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.
Mr Dudley also participates in US retirement savings plans on the same
terms as those available to all eligible US employees. These savings plans
provide benefits to employees on or after their retirement. These are
provided through a tax-qualified plan and a non-qualified plan. The BP
Employee Savings Plan (ESP) is a US tax-qualified section 401(k) plan to
which both Mr Dudley and BP contribute within limits set by US tax
regulations. The BP Excess Compensation (Savings) Plan (ECSP) is a
non-qualified, unfunded plan under which BP provides a notional match in
respect of eligible pay that exceeds the limit under the ESP. Mr Dudley
does not contribute to the ECSP. For the purposes of the plans, eligible pay
includes base salary, cash bonus and bonus deferred into a compulsory or
voluntary award under the deferred matching element of the EDIP. Under
both plans, participants are entitled to make investment elections, involving
an investment in the relevant fund in the case of the ESP and a notional
investment (the return on which would be delivered by BP under its
unfunded commitment) in the case of the ECSP.
These retirement savings arrangements pre-date Mr Dudley’s appointment as
a director and are grandfathered as a pre-27 June 2012 obligation for the
purposes of the remuneration policy approved by shareholders in April 2014.
The cost to the company has been fully provided for within the amounts
disclosed for pensions and other post-retirement benefits in the financial
statements. Previous remuneration reports have not disclosed details of Mr
Dudley’s participation in these arrangements but following a review, BP has
determined that disclosure of the company’s contribution to these plans
should now be included in this report.
UK pension
Dr Brian Gilvary participates in a UK final salary pension plan in respect of
service prior to 1 April 2011. This plan provides a pension relating to length
of pensionable service and final pensionable salary. The disclosure of total
pension includes any cash in lieu of additional accrual that is paid to
individuals in the UK plan who have exceeded the annual allowance or
lifetime allowance under UK regulations, and have chosen to cease future
accrual of pension. Dr Gilvary falls into this category and in 2015 received a
cash supplement of 35% of salary in lieu of future service accrual.
In the event of retirement before age 60, the following early retirement
terms would apply:
• On retirement between 55 and 60, in circumstances approved by the
committee, an immediate unreduced pension in respect of the
proportion of benefit for service up to 30 November 2006, and subject
to such reduction as the plan actuary certifies in respect of the period of
service after 1 December 2006. The plan actuary has, to date, applied a
reduction of 3% per annum for each year retirement precedes 60 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.
• On leaving before age 55, in circumstances approved by the committee,
a deferred pension payable from 55 or later, with early retirement terms
if it is paid before 60 as set out above.
Irrespective of this, on leaving in circumstances of total incapacity, an
immediate unreduced pension is payable from his leaving date.
2015 outcomes
Mr Dudley participates in the US pension and retirement savings plans
described above. The pension plans are aimed at an overall accrual rate
of 1.3% of final earnings (which include salary and bonus), for each year
of service. In 2015, Mr Dudley’s accrued pension increased, net of
inflation, by $309,000. This increase has been reflected in the single
figure table on page 77 by multiplying it by a factor of 20 in accordance
with the requirements of the UK regulations (giving $6,176,000). The
committee will continue to make the required disclosures in accordance
with the UK regulations; however, given the issues and differences set
out below, it would note that around 14 would be a typical annuity
factor in the US compared with the factor of 20 upon which the UK
regulations are based.
In relation to the retirement savings plans, Mr Dudley made pre-tax and
post-tax contributions in 2015 to the ESP totalling $26,500 (2014:
$26,000). For 2015 the total value of BP matching contributions in
respect of Mr Dudley to the ESP and notional matching contributions to
the ECSP was $341,000, 7% of eligible pay (2014: $374,000, 7% of
eligible pay). After adjusting for investment gains within his
accumulating unfunded ECSP account (aggregating the unfunded
arrangements relating to his overall service with BP and TNK-BP) the
amount included in the single figure table on page 77 is $343,000. The
equivalent figure for 2014 has been restated (an increase of $427,000)
to reflect the revised disclosure treatment.
Dr Gilvary participates in the UK pension arrangements described
above. In 2015 Dr Gilvary’s accrued pension did not increase and
therefore net of inflation it reduced. In accordance with the
requirements of the UK regulations, the value shown in the single figure
table on page 77 is zero. He has exceeded the lifetime allowance under
UK pension legislation and, in accordance with the policy, receives a
cash supplement of 35% of salary, which has been separately identified
in the single figure table on page 77.
The committee continues to keep under review the increase in the
value of pension benefits for individual directors. There are significant
differences in calculation of pensions between the UK and the US. US
pension benefits are not subject to cost of living adjustments after
retirement as they are in the UK.
BP Annual Report and Form 20-F 201582