ING Direct 2009 Annual Report Download - page 148

2.1 Consolidated annual accounts
ING Group Annual Report 2009
146
Notes to the consolidated balance sheet of ING Group (continued)
Pension investment strategy
The primary financial objective of ING Employee Benefit Plans (the Plans) is to secure participant retirement benefits. As such, the key
objective in the Plans’ financial management is to promote stability and, where appropriate, growth in funded status (i.e. the ratio of
market value of assets to liabilities). The investment strategy for the Plans’ portfolios of assets (the Funds) balances the requirement to
generate returns with the need to control risk. The asset mix is recognised as the primary mechanism to influence the reward and risk
structure of the Funds in an effort to accomplish the Plans’ funding objectives. Desirable target allocations amongst identified asset classes
are set and within each asset class, careful consideration is given to balancing the portfolios among industry sectors, geographical areas,
interest rate sensitivity, dependence on economic growth, currency and other factors affecting investment returns. The assets are
managed by professional investment firms. They are bound by precise mandates and are measured against specific benchmarks. Factors
considered by the fund managers include balancing security concentration, investment style, and reliance on particular active investment
strategies. The asset mixes of the Funds are reviewed on a regular basis. Generally, the Funds’ asset mixes will be rebalanced to the target
mixes as individual portfolios approach their minimum or maximum levels.
Categories of plan assets in percentages
Target allocation Percentage of plan assets
Weighted average expected
long term rate of return
2010 2009 2008 2009 2008
Equity securities 44 40 33 7.8 8.1
Debt securities 45 48 53 4.8 4.7
Other 11 12 14 6.3 6.5
100 100 100 6.0 6.2
Equity securities include ING Group ordinary shares of EUR 3 million (0.02% of total plan assets) as at 31 December 2009 (2008: EUR 4
million, 0.03% of total plan assets). Other includes mainly real estate. Real estate occupied by ING Group as at 31 December 2009 which is
included in Other includes nil (0.0% of total plan assets) (2008: nil, 0.0% of total plan assets).
Determination of expected return on assets
An important aspect of financial reporting is the assumption used for return on assets (ROA). The ROA is updated at least annually, taking into
consideration the Plans’ asset allocations, historical returns on the types of assets held in the Funds, and the current economic environment.
Based on these factors, it is expected that the Funds’ assets will earn an average annual percentage in the long term. This estimate takes into
account a reduction for administrative expenses and non-ING investment manager fees paid from the Funds. For estimation purposes, it is
assumed that the long term asset mixes will be consistent with the current mixes. Changes in the asset mixes could have an impact on the
amount of recognised pension income or expense, the funded status of the Plans, and the need for future cash contributions.
Weighted averages of basic actuarial assumptions in annual % as at 31 December
Pension benefits
Post-employment benefits
other than pensions
2009 2008 2009 2008
Discount rates 5.70 5.70 5.30 5.50
Mortality rates 1.30 1.60 1.30 1.60
Expected rates of salary increases
(excluding promotion increases) 2.80 2.70 3.10 3.20
Medical cost trend rates 6.10 6.60
Consumer price inflation 2.00 2.10 2.10 2.10
The assumptions above are weighted by defined benefit obligations. The rates used for salary developments, interest discount factors and
other adjustments reflect specific country conditions.
The presented discount rate is the weighted average of the discount rates that are applied in different countries. These rates are based on
AA corporate bond yields of the specific countries with durations matching the pension liabilities.
An increase of 1% in the assumed medical cost trend rate for each future year would have resulted in an additional accumulated defined
benefit obligation of EUR 4 million as at 31 December 2009 (2008: EUR 4 million) and EUR 2 million increase in the charge for the year
(2008: nil). A decrease of 1% in the medical cost trend rate for each future year would have resulted in lower defined benefit obligation of
EUR 3 million as at 31 December 2009 (2008: EUR 4 million) and EUR 1 million decrease in the charge for the year (2008: nil).