Holiday Inn 2015 Annual Report Download - page 132

Notes to the Group Financial Statements continued
25. Retirement benefits
UK
Since 6 August 2014, UK retirement and death in service benefits are provided for eligible employees by the IHG UK Defined Contribution Pension
Plan. Members, including those who have been auto-enrolled since 1 September 2013, are provided with defined contribution arrangements
under this plan; benefits are based on each individual member’s personal account. The plan is HM Revenue & Customs registered and governed
by an independent trustee, assisted by professional advisers as and when required. The overall operation of the plan is subject to the oversight
of The Pensions Regulator.
The former defined benefit plan, the InterContinental Hotels UK Pension Plan, was wound up on 21 July 2015 following the completion of the
buy-out and transfer of the defined benefit obligations to Rothesay Life on 31 October 2014.
Residual defined benefit obligations remain in respect of additional benefits provided to members of an unfunded pension arrangement who were
affected by lifetime or annual allowances under the former defined benefit arrangements. Accrual under this arrangement ceased with effect
from 1 July 2013 and a cash-out offer in 2014 resulted in the extinguishment of approximately 70% of the unfunded pension obligations. The
Company meets the benefit payment obligations of the remaining members as they fall due. A charge over certain ring-fenced bank accounts
totalling £31m at 31 December 2015 (see note 15) is currently held as security on behalf of the remaining members.
US and other
The Group also maintains the following US-based defined benefit plans: the funded Inter-Continental Hotels Pension Plan, unfunded Inter-
Continental Hotels Non-qualified Pension Plans and unfunded Inter-Continental Hotels Corporation Postretirement Medical, Dental, Vision
and Death Benefit Plan. All plans are closed to new members. In respect of the funded plan, an Investment Committee has responsibility for the
oversight and management of the plan’s assets, which are held in a separate trust. The Committee comprises senior company employees and is
assisted by professional advisers as and when required. The company currently makes contributions that equal or exceed the minimum funding
amounts required by the Employee Retirement Income and Security Act of 1974 (ERISA). The investment objective is to achieve full funding over
time by following a specified ‘glide path approach’ which results in a progressive switching from return seeking assets to liability-matching
assets as the funded status of the plan increases. At 31 December 2015, over 80% of the plan assets were held in liability-matching assets.
During the year, the Group made a lump sum cash-out offer to the terminated vested members of the Inter-Continental Hotels Pension Plan.
Members accepting the offer received lump sum cash payments totalling $11m on 1 November 2015.
The Group also operates a number of smaller pension schemes outside the UK, themost significant of which is a defined contribution scheme
in the US; there is no material difference between the pension costs of, and contributions to, these schemes.
In respect of the defined benefit plans, the amounts recognised in the Group income statement, in ‘administrative expenses’, are:
Pension plans
UK US and other
Post-employment
benefits Total
2015
$m
2014
$m
2013
$m
2015
$m
2014
$m
2013
$m
2015
$m
2014
$m
2013
$m
2015
$m
2014
$m
2013
$m
Current service cost ––2 –11 ––– –13
Past service cost ––– ––1 ––– ––1
Net interest expense 12– 333 111 564
Administration costs 131 1–1 ––– 232
Settlement gain ––– (2) –– ––– (2) ––
Operating profit before exceptional items 253 246 111 510 10
Exceptional items:
Settlement cost –6147 ––– ––– –6147
211 150 246 111 516 157
The settlement gain in 2015 results from the partial cash-out of the US Inter-Continental Hotels Pension Plan and comprises the difference
between the accounting value of the liabilities extinguished and the amount of the lump sum payments.
The settlement cost in 2014 resulted from the partial cash-out of the UK unfunded pension arrangements and comprised transaction and related
social security costs of $9m, offset by the $3m difference between the accounting value of the liabilities extinguished and the amount of the
committed cash-out payments. In 2014, related cash payments of $53m are included in cash flows relating to exceptional operating items in
the Group statement of cash flows.
The settlement cost in 2013 resulted from the buy-in transaction that preceded the full buy-out of the defined benefit arrangements and
comprised a past service cost of $5m relating to additional benefits secured by the transaction, the $137m difference between the cost of the
insurance policy and the accounting value of the liabilities secured and transaction costs of $5m. As the policy was structured to enable the
planto move to a buy-out and the intention was to proceed on that basis, the buy-in transaction was accounted for as a settlement with the
loss arising recorded in the income statement.
130 IHG Annual Report and Form 20-F 2015