Electrolux 2015 Annual Report Download - page 125

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Reconciliation of change in present value of funded
and unfunded obligations
 
Opening balance, January  , ,
Current service cost  
Special events – –
Interest expense  
Remeasurement arising from changes in financial
assumptions , –
Remeasurement from changes in demographic
assumptions  –
Remeasurement from experience –
Contributions by plan participants  
Benefits paid –, –,
Exchange differences , ,
Settlements and other  –
Closing balance, December  , ,
Reconciliation of change in the fair value of plan assets
 
Opening balance, January  , ,
Interest income)  
Return on plan assets, excluding amounts
included in interest) , –
Effect of asset ceiling  –
Net contribution by employer  
Contribution by plan participants  
Benefits paid –, –,
Exchange differences , ,
Settlements and other  –
Closing balance, December  , ,
) The actual return on plan assets amounts to a gain of SEK m (,).
Risks
There are mainly three categories of risks related to defined bene-
fit obligations and pension plans. The first category relates to risks
affecting the actual pension payments. Increased longevity and
inflation of salary and pensions are the principle risks that may
increase the future pension payments and, hence, increase the pen-
sion obligation. The second category relates to investment return.
Pension plan assets are invested in a variety of financial instruments
and are exposed to market fluctuations. Poor investment return
may reduce the value of investments and render them insufficient to
cover future pension payments. The final category relates to mea-
surement and affects the accounting for pensions. The discount rate
used for measuring the present value of the obligation may fluctu-
ate which impacts the valuation of the Defined Benefit Obligation
(DBO). The discount rate also impacts the size of the interest income
and expense that is reported in the Financial items and the service
cost. When determining the discount rate, the Group uses AA rated
corporate bond indexes which match the duration of the pension
obligations. In Sweden and Norway, mortgage-backed bonds are
used for determining the discount rate. Expected inflation and mor-
tality assumptions are based on local conditions in each country and
changes in those assumptions may also affect the measured obliga-
tion and, therefore, the accounting entries.
Investment strategy and risk management
The Group manages the allocation and investment of pension plan
assets with the aim of decreasing the total pension cost over time.
This means that certain risks are accepted in order to increase the
return. The investment horizon is long-term and the allocation
ensures that the investment portfolios are well diversified. In some
countries, a so called trigger-points scheme is in place, whereby
the investment in fixed income assets increases as the funding level
improves. The Board of Electrolux annually approves the limits for
asset allocation. The final investment decision often resides with the
local trustee that consults with Electrolux. The risks related to pension
obligations, e.g., mortality exposure and inflation, are monitored on
an ongoing basis. Buy-out premiums are also monitored and other
potential liability management actions are also considered to limit
the exposure to the Group.
Below is the sensitivity analysis for the main financial assumptions and the potential impact on the present value of the defined pension obliga-
tion. Note that the sensitivities are not meant to express any view by Electrolux on the probability of a change.
Sensitivity analysis on defined benefit obligation
USA
USA
Medical UK Sweden Germany
Switzer-
land Other Total
Longevity + year       — 
Inflation +.%)        
Discount rate +% – – – – – – – –,
Discount rate –% ,  ,     ,
) The inflation change feeds through to other inflation-dependant assumptions, i.e., pension increases and salary growth.
In , the Group expects to pay a total of SEK m in contributions to the pension funds and as payments of benefits directly to the employees.
ECTROLUX ANNUAL REPORT 
amounts in SEKm unless otherwise stated