20. Retirement Benefit Obligations

Audited information

Apart from the legally required social security schemes, the Group has numerous independent pension plans. The assets are principally held externally. For certain Group companies however, no independent assets exist for the pension and other non-current employee benefit obligations. In these cases the related liability is included in the balance sheet as part of the non-current liabilities.

Defined benefit post-employment plans. Defined benefit pensions and termination plans cover the majority of the Group’s employees. Future obligations and the corresponding assets of those plans considered as defined benefit plans under IAS 19 are reappraised annually and reassessed at least every three years by independent actuaries. Assets are valued at fair value.

Pension assets for funded defined benefit pension plans are managed according to local rules and legislation in each country.

The actual asset allocation is determined by current and expected economic and market conditions and in consideration of specific asset class risks in the risk profile. For this purpose Asset Liability Matching studies are conducted by third party experts on a regular basis to ensure that investment strategies for pension assets are in line with the structure of the plan members of the pension plan concerned.

In all countries with funded defined benefit plans the body governing the investment policy is constituted in accordance with local legal requirements. To the extent legally permitted Clariant Corporate exercises influence to ensure that the investment policy is set in a way to serve best the needs of the pension plan and its members.

The largest defined benefit plans are operated in Switzerland, the United Kingdom, the United States and Germany. These plans make up 93.7% of the total defined benefit obligation.

The most important German plan is unfunded and covers the supplementary pension liabilities for plan members whose salaries exceed the level of the German mandatory social security coverage. Contributions are made primarily by the employer and vary depending on the salary level of the plan members. Benefits are paid out as annual pensions amounting to 20% of total contributions. Lump sum payments to employees are possible to the extent of the voluntary contributions. For employees having joined or joining in 2011 and later there exists a funded pension plan. Contributions are primarily paid into the plan by the employer and vary depending on the income of the individual plan member. Employees contribute to the plan up to 2% of pensionable earnings on a voluntary basis, to which the employer contributes an equal amount on top of the regular contributions. Pensions paid by this plan are principally based on the return on plan assets (contributions paid in plus interest), apart from a minimal interest. In addition there exists a smaller, similarly structured funded defined benefit plan for former employees of the Süd-Chemie group, acquired in 2011. All other pension liabilities regarding German staff members are covered by a funded multi-employer plan which is accounted for as a defined contribution plan.

The defined benefit obligation in the United Kingdom is a funded plan covering the pension liabilities of UK employees who joined the company before 31 December 2001 and was closed to further accruals in April 2016. All staff members are now covered by a defined contribution plan. The defined benefit pension plan is fully funded according to legal requirements. Yet, in view of the high number of non-active plan members, additional contributions may be necessary in future years.

In the United States Clariant operates a funded defined benefit pension plan covering the pension liabilities of employees who joined the company before 31 December 2000. Contributions are paid by the employer exclusively. Benefits are paid out as lifetime pensions determined on the basis of a final/career average calculation. Staff members who joined on 1 January 2001 or later are covered by a defined contribution plan. For members of Management whose annual salaries exceed the amount of CHF 275 000 an additional pension scheme is in place in the form of an unfunded defined benefit obligation, which covers the part exceeding this amount. The US pension plan is currently underfunded according to local legal requirements. Additional funding measures in the amount of up to CHF 24 million are scheduled over the next four years.

US-employees transferred to Clariant with the Hoechst Specialty Chemicals business remain insured with Hoechst for their pension claims incurred prior to 30 June 1997.

In Switzerland, Clariant operates a funded defined benefit pension plan that covers the pension liabilities of all employees of the Swiss Clariant companies up to a salary level of CHF 200 000. Both the employer and the employees contribute to the plan, the employer paying two thirds of the total contributions. The pension plan provides lifetime pensions determined based on cumulative savings of the individual plan member and converted into an annual pension at a fixed conversion rate. Lump sum payments are possible to up to 100 percent of the total individual cumulative savings. The Swiss pension plan is marked by a shrinking operating basis, and as a result, an increasing share of retired members. Additional funding measures in the amount of CHF 21 million are therefore scheduled over the next six years.

For members of Management whose annual salaries exceed the amount of CHF 200 000, an additional pension scheme is in place in the form of a funded defined benefit obligation. Any shortfalls in funded provisions for pension commitments to members of the are accounted for as an unfunded defined benefit obligation.

Mortality tables

The following mortality tables were used to determine the defined pension obligation of the most important pension plans:

BVG 2015 generation table

Richttafeln 2018G by Prof. Dr. Klaus Heubeck

SAPS S2 series amount tables (base table)
CMI Model (2018) (future improvements)

Pri 2012 mortality table with projection scale
MP-2018

Post-employment medical benefits. The Group operates a number of post-employment medical benefit schemes in the United States, Canada and France. The method of accounting for the liabilities associated with these plans is largely equal to the one used for defined benefit pension schemes. These plans are not externally funded, but are recognized as provisions in the balance sheets of the Group companies concerned.

Expenses for net benefits are recorded in the same line and function in which the personnel costs are recorded.

Changes in the present value of defined benefit obligations are as follows:

in CHF m

 

Pension plans
(funded and unfunded)

 

Post-employment medical benefits (unfunded)

 

 

2019

 

2018

 

2019

 

2018

As per 1 January

 

2 439

 

2 767

 

80

 

87

Current service cost

 

32

 

40

 

1

 

1

Past service cost/gain including curtailments

 

5

 

–16

 

–2

 

Gain/loss on settlements

 

1

 

 

 

Interest costs on obligation

 

50

 

47

 

3

 

3

Contributions to plan by employees

 

9

 

11

 

 

Benefits paid out to personnel in reporting period

 

–117

 

–126

 

–4

 

–5

Remeasurements:

 

 

 

 

 

 

 

 

Actuarial gain/loss arising from changes in demographic assumptions

 

–14

 

7

 

 

Actuarial gain/loss arising from changes in financial assumptions

 

297

 

–108

 

9

 

–5

Actuarial gain/loss due to experience adjustments

 

32

 

–19

 

–8

 

–1

Effect of disposals

 

–4

 

–138

 

–2

 

Effect of liabilities extinguished on settlements

 

–14

 

1

 

 

Exchange rate differences

 

–30

 

–27

 

–2

 

At 31 December

 

2 686

 

2 439

 

75

 

80

Changes in the fair value of plan assets are as follows:

in CHF m

 

2019

 

2018

As per 1 January

 

1 771

 

2 073

Interest income on plan assets

 

35

 

35

Contributions to plan by employees

 

9

 

11

Contributions to plan by employer

 

48

 

44

Benefits paid out to personnel in reporting period

 

–91

 

–100

Remeasurements:

 

 

 

 

Return on plan assets (excluding amount included in interest expense)

 

219

 

–149

Effect of assets distributed in settlements

 

–5

 

Effect of disposals

 

–1

 

–128

Exchange rate differences

 

–4

 

–15

At 31 December

 

1 981

 

1 771

As at 31 December 2019 and 2018, the pension plan assets did not include any directly held registered shares or bonds issued by Clariant Ltd.

The amounts recognized in the balance sheets are as follows:

in CHF m

 

Defined benefit
pension plans

 

Post-employment
medical benefits

 

Total

 

 

31.12.2019

 

31.12.2018

 

31.12.2019

 

31.12.2018

 

31.12.2019

 

31.12.2018

Present value of funded obligations

 

–2 021

 

–1 848

 

 

 

–2 021

 

–1 848

Fair value of plan assets

 

1 981

 

1 771

 

 

 

1 981

 

1 771

Overfunding/Deficit

 

–40

 

–77

 

 

 

–40

 

–77

Present value of unfunded obligations

 

–665

 

–591

 

–75

 

–80

 

–740

 

–671

Net liabilities, total

 

–705

 

–668

 

–75

 

–80

 

–780

 

–748

Reclassified to held for sale (see )

 

148

 

 

 

 

148

 

Net liabilities in the balance sheet

 

–557

 

–668

 

–75

 

–80

 

–632

 

–748

Thereof recognized in:

in CHF m

 

31.12.2019

 

31.12.2018

 

31.12.2019

 

31.12.2018

 

31.12.2019

 

31.12.2018

Retirement benefit obligations

 

–746

 

–698

 

–75

 

–80

 

–821

 

–778

Reclassified to held for sale (see )

 

148

 

 

 

 

 

148

 

Retirement benefit obligations in the balance sheet

 

–598

 

–698

 

–75

 

–80

 

–673

 

–778

Prepaid pension assets

 

41

 

30

 

 

 

41

 

30

Net liabilities in the balance sheet for defined benefit plans

 

–557

 

–668

 

–75

 

–80

 

–632

 

–748

The amounts recognized in the income statement and in other comprehensive income are as follows:

in CHF m

 

Defined benefit
pension plans

 

Post-employment
medical benefits

 

Total

 

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

Current service cost

 

–32

 

–40

 

–1

 

–1

 

–33

 

–41

Net interest cost

 

–15

 

–12

 

–3

 

–3

 

–18

 

–15

Past service cost/gain including curtailments

 

–5

 

16

 

2

 

 

–3

 

16

Gain/loss on settlements

 

–1

 

 

 

 

–1

 

Components of defined benefit expense reported in the income statement

 

–53

 

–36

 

–2

 

–4

 

–55

 

–40

 

 

 

 

 

 

 

 

 

 

 

 

 

in CHF m

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gain/loss arising from changes in demographic assumptions

 

14

 

–7

 

 

 

14

 

–7

Actuarial gain/loss arising from changes in financial assumptions

 

–297

 

108

 

–9

 

5

 

–306

 

113

Actuarial gain/loss due to experience adjustments

 

–32

 

19

 

8

 

1

 

–24

 

20

Return on plan assets (excluding amount included in net interest expense)

 

219

 

–149

 

 

 

219

 

–149

Components of defined benefit expense reported in other comprehensive income

 

–96

 

–29

 

–1

 

6

 

–97

 

–23

 

 

 

 

 

 

 

 

 

 

 

 

 

Total defined benefit expense

 

–149

 

–65

 

–3

 

2

 

–152

 

–63

The fair value of the plan assets is split into the major assets categories as follows:

in CHF m

 

31.12.2019

 

31.12.2018

Equities

 

373

 

310

thereof based on quoted market prices

 

369

 

291

Bonds

 

583

 

586

thereof based on quoted market prices

 

338

 

406

Cash

 

138

 

102

thereof based on quoted market prices

 

138

 

102

Property

 

336

 

242

thereof based on quoted market prices

 

268

 

176

Alternative investments

 

551

 

531

thereof based on quoted market prices

 

179

 

160

Total fair value of plan assets

 

1 981

 

1 771

The principal actuarial assumptions at the balance sheet dates in percent are as follows:

 

 

 

 

2019
in %

 

2018
in %

 

 

 

 

Group

 

Most important countries

 

Group

 

Most important countries

 

 

 

 

Weigh­ted average

 

Switzer­land

 

United King­dom

 

United States

 

Ger­many

 

Weigh­ted average

 

Switzer­land

 

United King­dom

 

United States

 

Ger­many

Discount rate

 

 

 

1.2

 

0.1

 

2.1

 

3.1

 

1.1

 

2.0

 

0.8

 

2.9

 

4.4

 

2.1

Future salary increases

 

 

 

1.8

 

1.5

 

 

3.5

 

2.5

 

1.9

 

1.5

 

 

3.5

 

2.5

Long-term increase in health care costs

 

 

 

5.6

 

 

 

6.4

 

 

6.9

 

 

 

8.0

 

Current average life expectancy for a 65 year old male

 

in years

 

19

 

22

 

22

 

21

 

20

 

18

 

22

 

22

 

21

 

19

Current average life expectancy for a 65 year old female

 

in years

 

21

 

23

 

24

 

23

 

24

 

21

 

23

 

24

 

23

 

24

A one percentage-point change in health care cost trend rates would have the following effects on the obligation for post-employment medical benefits:

2019
in CHF m

 

One percentage point increase

 

One percentage point decrease

Effect on the aggregate of the service cost and interest cost

 

1

 

–1

Effect on defined benefit obligation

 

6

 

–5

 

 

 

 

 

2018
in CHF m

 

One percentage point increase

 

One percentage point decrease

Effect on the aggregate of the service cost and interest cost

 

1

 

–1

Effect on defined benefit obligation

 

6

 

–5

A 25 basis-point change in discount rate would have the following effects on the obligation for pension plans:

in CHF m

 

25 basis
point increase

 

 

 

25 basis
point decrease

 

 

 

 

2019

 

2018

 

2019

 

2018

Effect on defined benefit obligation

 

–92

 

–80

 

97

 

83

If life expectancy increased by one year, the defined benefit obligation would increase by CHF 92 million (2018: CHF 98 million).

Defined contribution post-employment plans. In 2019, CHF 28 million were charged to the income statement as contributions to defined contribution plans (2018: CHF 26 million).

In Germany, approximately 4 900 Clariant employees are insured in a defined benefit plan which is a multi-employer plan and as such is accounted for as a defined contribution plan. The reason for this accounting practice is that the plan exposes the participating Clariant companies to actuarial risks associated with the current and former employees of other companies which are members of the same pension plan. There is no consistent or reliable basis for allocating the obligation, plan assets and cost to individual companies participating in the plan.

Based on the statutory actuarial calculation of 2019, the pension fund’s obligations are fully funded. Also for 2020, it is anticipated that the pension plan liabilities are covered by the respective assets.

In the case where the multi-employer plan faces a situation in which the pension plan liabilities exceed the assets, this can be remedied either by increasing the employer’s contributions to the pension plan or by reducing the benefits paid out to the entitled parties. In the case of a reduction of the benefits this must be compensated by the employer according to German legislation. If the pension plan were unwound the remaining funds would be distributed among the plan members. In case there are no plan members left, the remaining funds would be transferred to social institutions.

If Clariant withdrew from the pension fund, all rights and obligations of the employer against the pension plan would remain in force as long as the pension plan continues to render pension services to the group’s plan members. Based on the number of plan members (active and passive) Clariant’s share in the pension plan amounts to approximately 8 percent.

Clariant’s contribution to this pension plan amounted to CHF 20 million in 2019 (CHF 16 million in 2018) and is expected to be CHF 20 million in 2020.

The multi-employer plan originates in the pension plan scheme of the German companies of the former Hoechst group, to which a part of the activities of Clariant pertained until 1997. Several of the companies which were formerly part of the Hoechst Group continue to participate in this multi-employer plan.

in CHF m

 

Pension plans

 

Post-employment
medical benefits

 

 

2019

 

2018

 

2019

 

2018

Clariant Group regular and supplemental contributions (employer’s contributions):

 

 

 

 

 

 

 

 

Actual contributions in 2018

 

 

 

44

 

 

Actual contributions in 2019 (2018: estimated)

 

48

 

36

 

 

Estimated contributions in 2020

 

36

 

36

 

 

Estimated contributions in 2021

 

36

 

37

 

 

Estimated contributions in 2022

 

36

 

37

 

 

Estimated contributions in 2023

 

36

 

32

 

 

Estimated contributions in 2024

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments to beneficiaries:

 

 

 

 

 

 

 

 

Actual payments in 2018

 

 

 

–126

 

 

 

–4

Actual payments in 2019 (2018: estimated)

 

–117

 

–121

 

–4

 

–6

Estimated payments in 2020

 

–156

 

–114

 

–5

 

–6

Estimated payments in 2021

 

–140

 

–117

 

–5

 

–6

Estimated payments in 2022

 

–141

 

–118

 

–5

 

–6

Estimated payments in 2023

 

–151

 

–119

 

–5

 

–6

Estimated payments in 2024

 

–161

 

 

–6

 

 

 

 

 

 

 

 

 

 

 

Allocation of defined benefit obligation to plan members (in CHF m):

 

 

 

 

 

 

 

 

Active members

 

766

 

670

 

29

 

32

Deferred members

 

316

 

287

 

5

 

8

Retired members

 

1 604

 

1 482

 

41

 

40

Total funded and unfunded obligations at 31 December

 

2 686

 

2 439

 

75

 

80

 

 

 

 

 

 

 

 

 

Weighted average duration of the defined benefit obligation at the end of reporting period (in years):

 

 

 

 

 

 

 

 

At 31 December

 

13.2

 

13.6

 

10.8

 

10.5

Executive Committee

Management body of joint stock companies; at Clariant the Executive Committee currently comprises four members. View entire glossary

FURTHER READING