ING Direct 2009 Annual Report Download - page 112

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains and
losses, and unrecognised past service costs. The defined benefit obligation is calculated annually by internal and external actuaries using
the projected unit credit method.
The expected value of the assets is calculated using the expected rate of return on plan assets. Differences between the expected return
and the actual return on these plan assets and actuarial changes in the deferred benefit obligation are not recognised in the profit and loss
account, unless the accumulated differences and changes exceed 10% of the greater of the defined benefit obligation and the fair value
of the plan assets. The excess is charged or credited to the profit and loss account over employees’ remaining working lives. The corridor
was reset to nil at the date of transition to IFRS-EU.
For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory,
contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are
recognised as staff expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Other post-employment obligations
Some group companies provide post-employment healthcare and other benefits to certain employees and former employees. The
entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a
minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting
methodology similar to that for defined benefit pension plans.
Other provisions
A provision involves a present obligation arising from past events, the settlement of which is expected to result in an outflow from the
company of resources embodying economic benefits, however the timing or the amount is uncertain. Provisions are discounted when the
effect of the time value of money is material using a pre-tax discount rate. The determination of provisions is an inherently uncertain
process involving estimates regarding amounts and timing of cash flows.
Reorganisation provisions include employee termination benefits when the Group is demonstrably committed to either terminating the
employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits
as a result of an offer made to encourage voluntary redundancy.
INCOME RECOGNITION
Gross premium income
Premiums from life insurance policies are recognised as income when due from the policyholder. For non-life insurance policies, gross
premium income is recognised on a pro-rata basis over the term of the related policy coverage. Receipts under investment contracts are
not recognised as gross premium income.
Interest
Interest income and expense are recognised in the profit and loss account using the effective interest method. The effective interest
method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual
terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all
fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs
and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
All interest income and expenses from trading positions and non-trading derivatives are classified as interest income and interest
expenses in the profit and loss account. Changes in the ‘clean fair value’ are included in Net trading income and Valuation results on
non-trading derivatives.
2.1 Consolidated annual accounts
ING Group Annual Report 2009
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Accounting policies for the consolidated balance sheet and profit and loss account of ING Group (continued)