Chrysler 2011 Annual Report Download - page 203

Consolidated
Financial
Statements
at 31 December
2011
Notes
202
The investment strategies and objectives for pension assets consider liability hedging and investment return targets. The investment objectives are to
minimize the volatility of the value of the pension assets relative to pension liabilities and to ensure pension assets are sufficient to pay plan obligations. The
objective of minimizing the volatility of assets relative to liabilities is addressed primarily through asset diversification, partial asset−liability matching and
hedging. Assets are broadly diversified across many asset classes to achieve risk−adjusted returns that, in total, lower asset volatility relative to the liabilities.
In order to minimize pension asset volatility relative to the pension liabilities, a portion of the pension plan assets are allocated to fixed income investments.
All assets are actively managed by external investment managers. Investment managers are not permitted to invest outside of the asset class or strategy
for which they have been appointed. The Group uses investment guidelines to ensure investment managers invest solely within the mandated investment
strategy. Certain investment managers use derivative financial instruments to mitigate the risk of changes in interest rates and foreign currencies impacting
the fair values of certain investments. Derivative financial instruments may also be used in place of physical securities when it is more cost effective and/or
efficient to do so.
Sources of potential risk in the pension plan assets relate to market risk, interest rate risk and operating risk. Market risk is mitigated by diversification
strategies and as a result, there are no significant concentrations of risk in terms of sector, industry, geography, market capitalization, or counterparty.
Interest rate risk is mitigated by partial asset−liability matching. The fixed income target asset allocation partially matches the bond−like and long−dated
nature of the pension liabilities. Interest rate increases generally will result in a decline in fixed income assets while reducing the present value of the liabilities.
Conversely, interest rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities.
In the United Kingdom the Group participates amongst others in a pension plan financed by various entities belonging to the Group, called the “Fiat Group
Pension Scheme”. Under this plan, participating employers make contributions on behalf of their active employees, retirees, and employees who have left
the Group but have not yet retired.
Health care and life insurance plans
Liabilities arising from these plans comprise obligations for health care and life insurance plans granted to employees and to retirees of the Group working
in the United States and Canada and relating to the Chrysler sector. These plans are unfunded.
Reserve for Employee leaving entitlements in Italy (“TFR”)
Until 31 December 2006 the scheme underlying the Employee leaving entitlements in Italy (TFR) of the Italian Group companies was classified as a defined
benefit plan. The legislation regarding this scheme was amended by Law no. 296 of 27 December 2006 (the “2007 Finance Law”) and subsequent
decrees and regulations issued in the first part of 2007. In view of these changes, and with specific reference to those regarding companies with at least 50
employees, this scheme only continues to be classified as a defined benefit plan for those benefits accruing prior to 1 January 2007 (and not yet settled by
the balance sheet date), while after that date the scheme is classified as a defined contribution plan.
The provision for Employee leaving entitlements in Italy consists of the residual obligation for the benefit due to employees of Italian companies until 31
December 2006, having more than 50 employees and accrued over the employee’s working life for the others and settled when an employee leaves. Under
certain conditions the entitlement may be partially advanced to an employee during its working life. This is an unfunded defined benefit plan.
Other post-employment benefits
Other post-employment benefits includes loyalty bonuses, which are due to employees who reach a specified period of service and are generally settled
when an employee leaves the company; for French entities there is the Indemnité de depart à la retraite, a plan similar to the Italian TFR. These schemes
are unfunded.