Food Lion 2002 Annual Report Download - page 36

plans. In defined contribution plans, benefits are determined
by the value of funds arising from contributions paid in respect
of the employees and the subsequent performance of
investments made with these funds. For defined benefit plans,
retirement benefits are based on the employees’ final
pensionable salary and length of service, or on guaranteed
returns on contributions made. The contributions to defined
benefit schemes are determined in accordance with the advice
of independent, professionally qualified actuaries.
Food Lion, Delhaize Group’s largest operating company
representing approximately 54% of its employee base, has a
defined contribution pension plan, for which Food Lion does
not bear any funding risk.
Delhaize Group has defined benefit plans only at Delhaize
Belgium and Hannaford.
Delhaize Belgium has a defined benefit plan which is not
structured as a pension fund but as a group insurance.
Employees at management level are covered in the plan.
The insurance company guarantees a minimum return on
assets of 3.25% (4.75% for contributions prior to July 1, 2001).
Delhaize Group bears the risk above this minimum guarantee
and assures the participating employees a lump-sum payment
at retirement, based on a formula applied to the last annual
salary of the employee before his retirement.
The composition of the asset portfolio of Belgian group
insurances is determined by Belgian legislation. The plans and
their reserves are controlled by the Belgian “Office de Contrôle
des Assurances”. At the end of 2002, 18.8% of the assets of the
group insurance of Delhaize Belgium consisted of shares and
81.2% of bonds, real estate, and cash.
Under Belgian GAAP, the contributions to the Belgian plan are
expensed as incurred. EUR 5.1 million was expensed in 2002.
Additionally, the difference between the plan assets and the
required level of mathematical reserves under the Belgian law is
provisioned at year-end. An additional provision of
EUR 1.4 million was recorded in 2002. The estimated plan
assets were EUR 51.5 million at the end of 2002, resulting in
an underfunding of EUR 9.2 million vis-à-vis the accumulated
benefit obligation (ABO). The assumptions used in calculating
the value of the obligation and the plan assets were a discount
rate of 5.25% and an expected rate of return on investment of
5.66%.
In addition to a defined contribution plan provided to
substantially all employees, Hannaford has a defined benefit
pension plan (cash balance plan) covering approximately 50%
of the employees. The plan provides for payment of retirement
benefits on the basis of an employee’s length of service and
earnings. The plan is managed by three managers, respectively
for U.S. equities (approximately 55% of assets), international
equities (approximately 15% of assets) and fixed income
(approximately 30% of assets).
Under Belgian GAAP, the Hannaford pension plan is accounted
for using US GAAP rules as described hereunder, the amount
recorded in “Other comprehensive income” being reclassified to
the caption “Prepayments and accrued income”.
Under US GAAP, Hannaford evaluates annually the status
of the pension fund in September. On September 30, 2002,
the fund assets had a value of EUR 62.5 million (USD 65.6
million), resulting in an underfunding of EUR 32.9 million
(USD 34.5 million). The assumptions used in calculating the
value of the assets were a discount rate of 6.5% and an expected
rate of return on investments of 9.0%. In 2002, the cost of
Hannaford’s defined benefit program amounted to EUR 4.2
million (USD 4.0 million). The funding contribution was
EUR 4.3 million (USD 4.1 million) while a minimum pension
liability of EUR 32.9 million (USD 34.5 million) was
recognized on the balance sheet, resulting in an additional
charge of EUR 12.0 million (USD 12.6 million), net of taxes
to “Other comprehensive income”, a component of equity,
without affecting net earnings.
34 |Delhaize Group |Annual Report 2002