24 Post-employment benefits
The group operates a number of defined benefit plans and defined contribution plans throughout the world, the assets of which are generally held in separately administered funds. The pension plans are generally funded by payments from employees and from the relevant group companies. The group also provides certain additional healthcare benefits to retired employees in the US.
Post-employment benefits relate to obligations that will be settled in the future and require assumptions to project benefit obligations. Post-employment benefit accounting is intended to reflect the recognition of post-employment benefits over the employee's approximate service period, based on the terms of the plans and the investment and funding. The accounting requires management to make assumptions regarding variables such as discount rate, future salary increases, life expectancy, and future healthcare costs. Management consults with external actuaries regarding these assumptions at least annually for significant plans.
Changes in these key assumptions can have a significant impact on the projected defined benefit obligations, funding requirements and periodic costs incurred.
The charges for pension costs recognized in the income statement (Note 5) relate to the following:
Defined benefit plans:
Defined contribution plans
Total pension costs included in employee benefit costs
Total in operating profit
Pension costs included in financial income and expense
For 2020, costs for the defined benefit plans relating to pensions are expected to be €43 million (2019: €38 million).
Changes in Employee benefit net liabilities recognized in the balance sheet are shown in the following overview:
Employee benefit net liabilities
Balance at 1 January
Balance at 31 December
The Employee benefit net liabilities of €454 million (2018: €458 million) consist of €434 million related to pensions (2018: €438 million), €6 million related to healthcare and other costs (2018: €6 million) and €14 million related to other post-employment benefits (2018: €14 million).
The DSM group companies have various pension plans, which are geared to the local regulations and practices in the countries in which they operate. As these plans are designed to comply with the statutory framework, tax legislation, local customs and economic situation of the countries concerned, it follows that the nature of the plans varies from country to country. The plans are based on local legal and contractual obligations.
DSM's current policy is to offer defined contribution retirement benefit plans to new employees wherever possible. However, DSM still has a (small) number of defined benefit pension and healthcare schemes from the past or in countries where legislation does not allow us to offer a defined contribution scheme. Generally, these schemes have been funded through external trusts or foundations, where DSM faces the potential risk of funding shortfalls. The most significant defined benefit schemes are:
Pension Plan at DSM Nutritional Products AG in Switzerland (DNP AG)
DSM UK Pension Scheme in the UK
Consolidated Pension Plan of DSM North America, Inc. in the US
Pension Plan at DSM Nutritional Products GmbH in Germany (DNP GmbH)
For each plan, the following characteristics are relevant:
DNP AG Pension Plan in Switzerland
The DNP AG Pension Plan is a typical Swiss Cash Balance plan. For accounting purposes, this plan is qualified as a defined benefit plan. It is a contribution-based plan. There is no promise of indexation for on-going pensions. The Swiss state minimal requirements for occupational benefit plans have however to be respected; the Minimum Guaranteed Interest Return on the cash balance accounts for 2019 was 1.00% (2018: 1.00%) for the mandatory portion (BVG/LPP). There is also a minimal conversion rate applicable. The weighted average duration of the defined benefit obligation is 16.4 years (2018: 12.4 years) which could be seen as an indication of the maturity profile of the scheme.
The pension plan is managed and controlled by a DSM company pension fund. The Board of Trustees consists of representatives of the employer and the employees who have an independent role. In 2019, the Trustees agreed a package of plan changes. The financial result of these changes is recognized in 2019. The plan assets are collectively invested (no individual investment choice). The current (estimated) funding level, based on local standards, is 119% (2018: 108%), which is above the legally required minimum funding level but below the long-term buffer target.
DSM UK Pension Scheme
The DSM UK Pension Scheme was closed as of 30 September 2016 for all pension accruals. An unconditional indexation policy is applicable for the vested pension rights. The weighted average duration of the defined benefit obligation is 19.4 years (2018: 19.4 years), which could be seen as an indication of the maturity profile of the scheme.
The pension plan is managed and controlled by a DSM company pension fund. The Board of Trustees consists of representatives of the employer and the employees who have an independent role. The 2018 valuation was finalized in 2019 and as a result DSM will continue to pay an annual recovery contribution of GBP 0.9 million into the plan. There are two company guarantees in place: (1) a guarantee from DNP AG (capped at GBP 14 million) related to the 2012 valuation, and (2) a guarantee from Royal DSM (capped at GBP 11 million) related to arrangements with respect to former UK divestments. There is a long-term de-risking strategy for the DSM UK Pension Scheme in place with the objective to align the company's intentions and the Trustees responsibility with respect to this plan. The current funding level, based on local standards, is estimated at 99% (2018: 98%).
Consolidated Plan in the US
The Consolidated Plan in the US has been closed to new entrants since 2014. As of 31 December 2016, the plan was closed for pension accrual of the non-unionized employees. New accrual is only applicable for a small group of unionized employees. There is no indexation applicable for the vested pension rights. The weighted average duration of the defined obligations is 12.1 years (2018: 11.8 years), which could be seen as an indication of the maturity profile of the scheme.
The pension plan is managed and controlled by a DSM company pension fund. The Board of Trustees consists of representatives of the employer and the employees, who have an independent role.
In 2018, an ALM study was performed which will lead to an adjustment of the investment strategy that was implemented in the course of 2019. The internal funding policy of this plan is based on IFRS valuation. This implies a stricter funding policy than the minimum requirements on local funding. The current IFRS funding level is 99% (2018: 95%), whereas the funding level on local standards (Pension Protection Act) is estimated at 124% (2018: 109%). The minimum required funding level on local standards is 80% on the basis of this Act.
DNP GmbH Pension Plan in Germany
The DNP GmbH Pension Plan in Germany has been closed to new entrants as of 31 December 2008. The accrual is still applicable for employees who have been participating in the plan since 2008. The pension plan is a final-pay pension plan (averaged over the last 12 months prior to retirement) and service-related benefit. In 2019, DSM added a lump-sum pay-out option to the plan. The financial result of this change is recognized in 2019. The liability is on the balance sheet of DSM Nutritional Products GmbH. No assets are allocated to this liability. All reimbursements will be paid out by the local company. The weighted average duration of the defined benefit obligation is 15.2 years (2018: 15.5 years), which could be seen as an indication of the maturity profile of the scheme.
The most important unfunded plans are in Germany, for which the associated liability amounts to €344 million (2018: €308 million).
The changes in the present value of the defined benefit obligations and in the fair value of plan assets of the major plans are listed below:
Present value of defined benefit obligations
Balance at 1 January
Balance at 31 December
Fair value of plan assets
Balance at 1 January
Actual return on plan assets
Balance at 31 December
The fair value of the plan asset consists of 97% of quoted assets (2018: 98%).
The actuarial gains/losses as included in the previous tables can be specified as follows:
Remeasurement effects as included in Other comprehensive income
Defined benefit obligation major pension plans
Actuarial (gain)/loss due to experience
Actuarial (gain)/loss due to demographic assumption
Actuarial (gain)/loss due to financial assumption changes
Plan assets major pension plans
Return on plan assets (greater)/less than discount rate
Actuarial (gain)/loss major plans
Actuarial (gain)/loss other plans
Total actuarial (gain)/loss
The major categories of pension-plan assets as a percentage of total plan assets are as follows:
Pension-plan assets by category
The pension-plan assets include neither ordinary DSM shares nor property occupied by DSM.
The amounts recognized of these plans in the balance sheet are as follows:
Present value of funded obligations
Fair value of plan assets
Present value of unfunded obligations
Net (liabilities) / assets major plans
Net (liabilities) / assets other plans
Total net (liabilities) assets
In 2020, DSM is expected to contribute €36 million (actual 2019: €43 million) to its major defined benefit plans.
The main actuarial assumptions for the year (weighted averages) are:
Actuarial assumptions for major plans outside the Netherlands
Year-end amounts for the current and previous periods are as follows:
Major defined benefit plans per year
Defined benefit obligations
Funded status of asset/(liability)
Experience adjustments on plan assets, gain/(loss)
Experience adjustments on plan liabilities, gain/(loss)
Gain/(loss) on liabilities due to changes in assumptions
Sensitivities of significant actuarial assumptions
The discount rate, the future increase in wages and salaries and the pension increase rate were identified as significant actuarial assumptions. The following impacts on the defined benefit obligation are to be expected:
A 0.25% increase/decrease in the discount rate would lead to a decrease/increase of 3.8% (2018: 3.2%) in the defined benefit obligation
A 0.25% increase/decrease in the expected increase in salaries/wages would lead to an increase/decrease of 0.3% (2018: 0.3%) in the defined benefit obligation
A 0.25% increase/decrease in the expected rate of pension increase would lead to an increase/decrease of less than 1.0% (2018: 1.0%) in the defined benefit obligation
The sensitivity analysis is based on realistically possible changes as at the end of the reporting year. Each change in a significant actuarial assumption was analyzed separately as part of the test. Interdependencies were not taken into account.
Healthcare and other costs
In some countries, particularly the US, group companies provide retired employees and their surviving dependents with post-employment benefits other than pensions, mainly allowances for healthcare expenses and life-insurance premiums. Some of these are unfunded; in these cases, approved expense claims are reimbursed out of the financial resources of the group companies concerned. These plans are not sufficiently material to warrant the individual disclosures required by IAS 19.