ING Direct 2011 Annual Report Download - page 156

Notes to the consolidated annual accounts of ING Group continued
Changes in fair value of plan assets
Pension benefits
2011 2010
Opening balance 17,364 15,310
Expected return on plan assets 877 886
Employer’s contribution 623 631
Participants contributions 15 2
Benefits paid –627 –625
Actuarial gains and losses 1,746 1,085
Changes in the composition of the group and other
changes 7–19
Exchange rate differences 72 94
Closing balance 20,077 17,36 4
The actual return on the plan assets amounted to EUR 2,623 million (2010: EUR 1,971 million) and exceeds the expected return on plan
assets. This resulted in a large movement with regard to Actuarial gains and losses. The difference is caused by the decreased market
interest rate that has an impact on the valuation of the debt securities in the plan assets.
No plan assets are expected to be returned to ING Group during 2012.
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
2012 2011 2010 2011 2010
Equity securities 34 27 34 6.9 7.5
Debt securities 51 60 51 3.8 4.3
Other 15 13 15 5.2 6.0
100 100 100 4.9 5.7
Equity securities include ING Group ordinary shares of nil (0.00% of total plan assets) as at 31 December 2011 (2010: EUR 2 million, 0.02%
of total plan assets). Debt securities include investments in ING Group of EUR 42 million (0.30% of total plan assets) as at 31 December 2011
(2010: EUR 57 million, 0.4% of total plan assets). Other includes mainly real estate. Real estate occupied by ING Group as at 31 December 2011
which is included in Other includes nil (0.00% of total plan assets) (2010: EUR 5 million, 0.04% 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.
154 ING Group Annual Report 2011