DSM Integrated Annual Report 2022

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 are employee benefits (other than termination benefits and short-term employee benefits) that are payable after the completion of employment. The defined benefit obligation is valued using the projected unit credit method as prescribed under IAS 19 ‘Employee Benefits’. 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 Net sales and costs (continuing operations)) relate to the following.

Pension costs

 

 

2022

 

2021

 

 

 

 

 

Defined benefit plans:

 

 

 

 

- Current service costs pension plans

 

38

 

34

- Other post-employment benefits

 

3

 

3

Defined contribution plans

 

61

 

60

Total pension costs included in employee benefit costs

 

102

 

97

 

 

 

 

 

- Pension costs included in Other operating (income)/expense

 

(2)

 

(9)

Total in operating profit, continuing operations

 

100

 

88

 

 

 

 

 

Pension costs included in Financial income and expense

 

3

 

2

Total continuing operations

 

103

 

90

 

 

 

 

 

Discontinued operations

 

19

 

22

Total

 

122

 

112

 

 

 

 

 

Of which:

 

 

 

 

- Defined contribution plans

 

79

 

81

- Defined benefit plans

 

43

 

31

For 2023, costs for the defined benefit plans relating to pensions are expected to be €40 million (2022: €40 million).

Changes in Employee benefit net liabilities recognized in the balance sheet are shown in the following overview.

Employee benefit net liabilities

 

 

2022

 

2021

 

 

 

 

 

Balance at 1 January

 

269

 

454

Changes:

 

 

 

 

- Balance of actuarial (gains)/losses

 

(5)

 

(153)

- Employee benefit costs

 

43

 

30

- Contributions by employer

 

(56)

 

(66)

- Exchange differences

 

(2)

 

(1)

- Other

 

-

 

5

- Reclassification from/to held for sale

 

(5)

 

-

Total changes

 

(25)

 

(185)

 

 

 

 

 

Balance at 31 December

 

244

 

269

The Employee benefit net liabilities of €244 million (2021: €269 million) consist of €228 million related to pensions (2021: €251 million), €4 million related to healthcare and other costs (2021: €5 million) and €12 million related to other post-employment benefits (2021: €13 million). See also the table below.

Net assets/liabilities

 

 

2022

 

2021

 

 

 

 

 

Major plans:

 

 

 

 

Present value of funded obligations

 

(1,452)

 

(1,810)

Fair value of plan assets

 

1,593

 

1,887

Net

 

141

 

77

 

 

 

 

 

Present value of unfunded obligations

 

(245)

 

(325)

Effect of asset ceiling

 

(129)

 

-

Net (liabilities)/net assets major plans

 

(233)

 

(248)

Net (liabilities)/net assets other plans

 

(11)

 

(21)

Total (net liabilities)/net assets

 

(244)

 

(269)

 

 

 

 

 

Of which:

 

 

 

 

Liabilities (Employee benefit liabilities)

 

(263)

 

(344)

Assets (Prepaid pension costs)

 

19

 

75

Pensions

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 that needs to be applied on the cash balance accounts according to the Swiss BVG legislation was 1.0% for 2022 (2021: 1.0%). The actual return that was granted to the cash balance accounts in 2022 was 1.0% (4.5% in 2021). There is also a minimal conversion rate applicable. The weighted average duration of the defined benefit obligation is 10.0 years (2021: 14.9 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 plan assets are collectively invested (no individual investment choice). The current (estimated) funding level, based on local standards, is 107% (2021: 124%), which is above the legally required minimum funding level and also above 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 14.3 years (2021: 18.9 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. 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 91% (2021: 101%).

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 and as a result of the DRF divestment in 2021, it was fully frozen for all unionized employees as well.

There is no indexation applicable for the vested pension rights. The weighted average duration of the defined obligations is 9.7 years (2021: 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.

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 108% (2021: 107%) and the funding on local standards (Pension Protection Act) will be substantially higher. The minimum required funding level on local standards is 80% on the basis of this Act, so this plan is well funded.

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. 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 12.9 years (2021: 14.5 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 €236 million (2021: €316 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

 

 

2022

 

2021

 

 

 

 

 

Balance at 1 January

 

2,135

 

2,110

 

 

 

 

 

Changes:

 

 

 

 

- Service costs

 

40

 

35

- Interest costs

 

18

 

13

- Contributions

 

19

 

16

- Actuarial (gains)/losses

 

(498)

 

(52)

- Past service costs

 

-

 

(11)

- Exchange differences

 

64

 

94

- Disbursements

 

(82)

 

(72)

- Other

 

1

 

2

Total changes

 

(438)

 

25

 

 

 

 

 

Balance at 31 December

 

1,697

 

2,135

Fair value of plan assets

 

 

2022

 

2021

 

 

 

 

 

Balance at 1 January

 

1,887

 

1,676

 

 

 

 

 

Changes:

 

 

 

 

- Interest income on plan assets

 

16

 

11

- Actuarial gains/(losses)

 

(369)

 

101

Actual return on plan assets

 

(353)

 

112

 

 

 

 

 

- Contributions by employer

 

42

 

47

- Contributions by employees

 

19

 

16

- Disbursement

 

(70)

 

(60)

- Acquisition/Divestment

 

-

 

(1)

- Exchange differences

 

69

 

97

- Other

 

(1)

 

-

Total changes

 

(294)

 

211

 

 

 

 

 

Balance at 31 December

 

1,593

 

1,887

The fair value of the plan assets consists of 94% of quoted assets (2021: 96%).

The actuarial gains/losses as included in the previous tables can be specified as follows.

Remeasurement effects as included in Other comprehensive income

 

 

2022

 

2021

 

 

 

 

 

Defined benefit obligation major pension plans

 

 

 

 

Actuarial (gain)/loss due to experience

 

2

 

68

Actuarial (gain)/loss due to demographic assumption changes

 

-

 

(62)

Actuarial (gain)/loss due to financial assumption changes

 

(500)

 

(58)

Total

 

(498)

 

(52)

 

 

 

 

 

Plan assets major pension plans

 

 

 

 

Change in irrecoverable surplus other than interest

 

124

 

-

Return on plan assets (greater)/less than discount rate

 

369

 

(101)

Total

 

493

 

(101)

 

 

 

 

 

Actuarial (gain)/loss major plans

 

(5)

 

(153)

Actuarial (gain)/loss other plans

 

-

 

-

Total actuarial (gain)/loss

 

(5)

 

(153)

The major categories of pension-plan assets as a percentage of total plan assets are as follows.

Pension-plan assets by category

 

 

2022

 

2021

 

 

 

 

 

Bonds1

 

46%

 

46%

Equities1

 

24%

 

26%

Property funds

 

20%

 

20%

Other

 

10%

 

8%

1

With quoted market price in active market.

The pension-plan assets include neither ordinary DSM shares nor property occupied by DSM.

In 2023, DSM is expected to contribute €40 million (actual 2022: €42 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

 

 

2022

 

2021

 

 

 

 

 

Discount rate

 

3.01%

 

0.85%

Price inflation

 

1.52%

 

1.49%

Salary increase

 

2.34%

 

2.06%

Pension increase

 

0.80–2.90%

 

0.84–3.15%

Year-end amounts for the current and previous periods are as follows.

Major defined benefit plans per year

 

 

2022

 

2021

 

2020

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

Defined benefit obligations

 

(1,697)

 

(2,135)

 

(2,110)

 

(2,079)

 

(1,808)

Plan assets

 

1,593

 

1,887

 

1,676

 

1,644

 

1,370

Funded status of asset/(liability)

 

(104)

 

(248)

 

(434)

 

(435)

 

(438)

 

 

 

 

 

 

 

 

 

 

 

Experience adjustments on plan assets, gain/(loss)

 

(369)

 

101

 

89

 

192

 

(94)

Experience adjustments on plan liabilities, gain/(loss)

 

(2)

 

(68)

 

(9)

 

(36)

 

(35)

Gain/(loss) on liabilities due to changes in assumptions

 

500

 

120

 

(105)

 

(180)

 

52

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 2.5% (2021: 3.5%) 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% (2021: 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 0.6% (2021: 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.

DNP
DSM Nutritional Products
DRF
DSM Resins & Functional Materials
IAS
International Accounting Standards
IFRS
International Financial Reporting Standards