NOTE 20
The Group operates several retirement plans. In Finland, employees’ pension insurance is partly arranged with insurance companies and partly by the Kesko Pension Fund, whose department A granting additional benefits was closed on 9 May 1998. Pension plans arranged with the Kesko Pension Fund are classified as defined benefit plans.
During the 2010 financial year, the management of the statutory pension provision and related insurance portfolio of some 3,100 Kesko Group employees were transferred from the Kesko Pension Fund to Ilmarinen Mutual Pension Insurance Company. The transfer was part of the plan announced on 30 December 2009 to transfer the management of Kesko’s statutory pension insurance and related insurance portfolio in two phases from the Kesko Pension Fund to Ilmarinen. The second phase is expected to be implemented at the beginning of 2012 at the earliest.
A total revenue of €8 million was recognised on the transfer of the pension insurance portfolio. The fair value of the Kesko Pension Fund’s investment assets has exceeded the amount of pension liabilities and their difference is included in the receivables of the consolidated statement of financial position. Relating to the transfer of the pension insurance portfolio, the Pension Fund returned pension assets to employer companies. The returned assets and interest produced a €151.6 million cash inflow to the Kesko Group.
As regards foreign subsidiaries, the plan operated by the Norwegian subsidiary is the only pension plan classified as a defined benefit plan. At 31 December 2010, the net liability relating to the defined benefit plan in Norway was €0.3 million (€0.4 million).
Pension plans in other foreign subsidiaires are arranged in accordance with local regulations and practices. They do not contain significant defined benefit plans.
The defined benefit asset recognised in the balance sheet in respect of the Kesko Pension Fund is determined as follows: |
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| € million | 2010 | 2009 |
| Present value of funded obligations | -285.8 | -525.1 |
| Fair value of plan assets | 528.7 | 871.6 |
| Deficit/surplus | 242.9 | 346.5 |
| Unrecognised actuarial gains (-)/losses (+) | -57.1 | -31.4 |
| Net assets (+)/liabilities (-) recognised in the balance sheet | 185.8 | 315.2 |
| The movement in the present value of the obligation is as follows: | ||
| Plan obligation at 1 Jan. | 525.1 | 530.4 |
| Current service cost | 10.5 | 12.7 |
| Interest cost | 23.1 | 28.6 |
| Benefits paid | -23.9 | -27.7 |
| Actuarial gains(-) / losses (+) | 3.8 | -24.3 |
| Transfer of insurance portfolio | -252.8 | |
| Others | 5.5 | |
| Plan obligation at 31 Dec. | 285.8 | 525.1 |
| The movement in the fair value of plan assets ia as follows: | ||
| Plan assets at 1 Jan. | 871.6 | 819.5 |
| Expected return on plan assets | 53.4 | 54.9 |
| Contributions to plan | -38.0 | 6.8 |
| Benefits paid | -23.9 | -27.7 |
| Actuarial gains(+) / losses (-) | 58.6 | 18.2 |
| Transfer of insurance portfolio | -269.5 | |
| Returned pension assets | -123.5 | |
| Plan assets at 31 Dec. | 528.7 | 871.6 |
| The amounts recognised in the income statement were as follows: | ||
| Current service cost | -10.5 | -12.7 |
| Interest cost | -23.1 | -28.6 |
| Expected return on plan assets | 53.4 | 54.9 |
| Others | 4.0 | -5.5 |
| Impact of insurance portfolio transfer | 8.3 | |
| Total recognised in the income statement | 32.0 | 8.2 |
| The change in net receivables recognised in the balance sheet: | ||
| At 1 January | 315.2 | 300.3 |
| Income/cost recognised in the income statement | 32.0 | 8.2 |
| Contributions to plan | -38.0 | 6.8 |
| Returned pension assets | -123.5 | |
| At 31 December | 185.8 | 315.2 |
| Pensions arranged with the Kesko Pension Fund | 2010 | 2009 | 2008 | 2007 | 2006 |
| Present value of plan obligation | -285.8 | -525.1 | -530.4 | -560.6 | -440.9 |
| Fair value of plan assets | 528.7 | 871.6 | 819.5 | 897.0 | 794.8 |
| Surplus/deficit | 242.9 | 346.5 | 289.1 | 336.4 | 353.9 |
| Experience adjustments on plan assets | 58.5 | 18.2 | -130.9 | 11.5 | 113.1 |
| Experience adjustments on plan liabilities | -2.7 | 4.3 | -15.6 | 23.2 | 4.8 |
The return on plan assets was €112.0 million (€73.0 million).
In 2011, the Group expects to pay €27.4 million in contributions to defined benefit plans.
| Classes of plan assets, % of fair values of plan assets | 2010 | 2009 |
| Real estate | 45.2% | 47.5% |
| Shares | 31.8% | 23.2% |
| Long-term interest investments | 5.6% | 19.3% |
| Short-term interest investments | 14.8% | 7.9% |
| Other investments | 2.6% | 2.1% |
| Total | 100.0% | 100.0% |
| Plan assets, € million | ||
| Kesko Corporation shares included in fair value | 45.3 | 104.3 |
| Real estate leased by the Kesko Group | 209.2 | 456.4 |
| Principal actuarial assumptions: | 2010 | 2009 |
| Discount rate | 5.00–5.25% | 5.25% |
| Expected return on plan assets | 6.30% | 6.60% |
| Expected salary increases | 3.50% | 3.50% |
| Inflation | 2.00% | 2.00% |
| Expected average remaining service life | 14–26 | 14–23 |
When calculating the pension obligation of the Kesko Pension Fund’s department B, the supplementary coefficient has been 1.5% for years 2011–2012, 2.1% for years 2013–2016, and 2.7% for subsequent years.
When calculating the Pension Fund’s expected return, investment assets have been divided into five classes. The 6.3% total expected returns on the investment portfolio is composed of the compound returns on these asset classes. The returns expected on different asset classes is based on the parameters of an investment portfolio analysis model widely used in employee pension schemes, and calculated based on long-term historical data. The most significant class of assets affecting the total returns is shares, further divided into nine geographical subgroups, with expected returns ranging between 8.5%–12.3%.