Volvo 2003 Annual Report Download - page 56

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The Volvo Group
Notes to consolidated financial statements
Volvo’s pension foundation in Sweden was formed in 1996 to secure
obligations relating to retirement pensions for salaried employees in
Sweden in accordance with the ITP plan (a Swedish individual pen-
sion plan). Plan assets amounting to 2,456 was contributed to the
foundation at its formation, corresponding to the value of the pension
obligations at that time. Since its formation, net contributions of 232
have been made to the foundation. The plan assets in Volvo’s
Swedish pension foundation are invested in Swedish and foreign
shares and mutual funds, and in interest-bearing securities, in accor-
dance with a distribution that is determined by the foundation’s Board
of Directors. During 2001 and 2002, the fair value of the founda-
tion’s plan assets decreased as a result of the downturn on the stock
market and provisions to cover pensions obligations in excess of the
fair value of plan assets was made with an amount of 292 in 2001
and 807 in 2002 among the Group’s pension costs. According to
RR 29, Employee Benefits, which has been applied as from 2003,
Group pension costs are affected by an expected return on the plan
assets, and discrepancies between the expected return and the
actual return are treated as actuarial gains or losses. At December 31,
2003, the fair value of the foundation’s plan assets amounted to
3,592, of which 47% was invested in shares or mutual funds. At the
same date, retirement pension obligations attributable to the ITP plan
amounted to 4,422. Swedish companies can secure new pension
obligations through balance sheet provisions or pension fund contri-
butions. Furthermore, a credit insurance must be taken out for the
value of the obligations. In addition to benefits relating to retirement
pensions, the ITP plan also includes, for example, a collective family
pension, which Volvo finances through insurance with the Alecta
insurance company. According to an interpretation from the Swedish
Financial Accounting Standards Council’s interpretations committee,
this is a multi-employer defined benefit plan. For fiscal year 2003,
Volvo did not have access to information from Alecta that would have
enabled this plan to be reported as a defined benefit plan. Accord-
ingly, the plan has been reported as a defined contribution plan.
Volvo’s subsidiaries in the United States mainly secure their pen-
sion obligations through transfer of funds to pension plans. At the
end of 2003, the total value of pension obligations secured by pen-
sion plans of this type amounted to 10,433. At the same point in
time, the total value of the plan assets in these plans amounted to
6,727, of which 63% was invested in shares or mutual funds. The
regulations for securing pension obligations stipulate certain mini-
mum levels concerning the ratio between the value of the plan assets
and the value of the obligations. During 2003, Volvo contributed 843
to the pension plans in order to comply with these regulations. Up to
and including 2002, Volvo’s subsidiaries in the United States reported
defined benefit pension plans in accordance with US GAAP. As
required by these reporting rules, Volvo’s year-end reports for 2001
and 2002 included minimum liability adjustments to cover deficits in
the Group’s US pension plans. The effect of these on the Volvo
Group’s balance sheet for the fiscal years in question are specified in
the table below.
2001 2002
Long-term receivable for prepaid pensions 274 71
Deferred tax assets – 122
Total assets 274 193
Shareholders’ equity (1,417) (2,542)
Provision for post-employment benefits 1,691 2,735
Total shareholders’ equity and liabilities 274 193
United Great US
Sweden States France Britain Other Other
Fair value of plan assets in funded plans Pensions Pensions Pensions Pensions benefits plans Total
Plan assets at January 1, 2003 3,255 6,752 – 2,221 71 1,004 13,303
Acquisitions and divestments, net – ––––––
Actual return on plan assets 337 1,201 – 227 1 66 1,832
Employer contributions – 843 – 72 81 106 1,102
Employee contributions – – – 25 – 1 26
Exchange rate translation – (1,314) – (199) (18) (21) (1,552)
Benefits paid – (755) – (92) (24) (94) (965)
Plan assets at December 31, 2003 3,592 6,727 – 2,254 111 1,062 13,746
Net provisions post-employment benefits
Funded status at December 31, 2003 (1,740) (3,980) (2,333) (732) (6,167) (533) (15,485)
Unrecognized actuarial (gains) and losses (307) 157 4 (76) 619 3 400
Unrecognized past service costs – 8 (3) 2 (14) (2) (9)
Net provisions for post-employment benefits
at December 31, 2003 (2,047) (3,815) (2,332) (806) (5,562) (532) (15,094)
whereof reported as
Prepaid pensions and other assets 3 132 3 – 1 55 194
Provisions for post-employment benefits (2,050) (3,947) (2,335) (806) (5,563) (587) (15,288)