Chapters
Annual Report 2018

25. Post-Employment Benefits

Accounting Policy
The Group operates various post-employment schemes, including both defined benefit and defined contribution plans as well as post-employment medical plans.

A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a post-employment benefit plan that is not a defined contribution plan. Typically defined benefit plans define 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 in respect of defined benefit pension plans is the present value of the defined benefit of obligations at the balance sheet date minus the fair value of plan assets, together with adjustments for actuarial gains/losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by the estimated future cash outflows using the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and which have terms of maturity approximating the terms of the related pension obligation. Remeasurement of gains or losses related to both defined benefit obligations and fair value of plan assets arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in Other Comprehensive Income in the period in which they arise. Past service costs are recognized immediately in the consolidated Income Statement.

In a number of countries the Group runs defined contribution plans, including a multi-employer plan in the Netherlands. The contributions are recognized as employee benefit expense when they are due. The Group has no further payment obligations once the contributions have been paid.

Other post-employment obligations

Some entities within the Group provide post-employment healthcare benefits to their retirees. The entitlement to these benefits is conditional on the employee remaining in service up to retirement age and includes the estimation that (former) employees will make use of this arrangement. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as the defined benefit pension plans.

Significant Accounting Estimates and Judgments

The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions are most sensitive for the discount rate. Any changes in these assumptions will impact the carrying amount of defined benefit pension obligations.

The Group determines the appropriate discount rate at year-end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds with a duration and currency consistent with the term and currency of the related defined benefit pension obligation.

The amounts recognized in the consolidated Balance Sheet are determined as follows:

in thousands of EUR

31 December 2018

31 December 2017

Present value of benefit obligation

74,540

69,692

Fair value of plan assets

- 48,829

- 42,602

Net position

25,711

27,090

Present value of unfunded obligation

70,488

72,211

Provision in the Balance Sheet

96,199

99,301

The most recent actuarial valuations were performed in December 2018.

The defined benefit obligation of the unfunded plans mainly relate to:

  • A pension arrangement, in addition to the state pension provided in Germany, for employees already employed with Apollo prior to 1994 (2018: €53.2 million; 2017: €54.6 million). Every service year of the employees in the plan adds an amount of 1% of their pensionable salaries to the plan. This occurs for a maximum of 25 years and is maximized in terms of pay-out.
  • The Italian Trattamento di Fine Rapporto program (2018: €4.5 million; 2017: €5.0 million) for service years until 2012. For service years since 2013 the Trattamento di Fine Rapporto is paid to a pension fund or a state agency as a defined contribution.
  • An end-of-employment plan for French employees (2018: €12.6 million; 2017: €12.3 million). This is based on service years and calculated according to the estimated remuneration in the last year of employment.

These plans are unfunded and thus both the pay-out and the actuarial risks are the responsibility of the Group.

The net defined benefit obligation of the funded plans mainly relates to the pension arrangement of Visilab of €22.5 million (2017: €23.9 million). The assets of the plan at 31 December 2018 are €46.0 million (2017:€39.9 million) and the obligations of the plan at 31 December 2018 are €68.5 million (2017: €63.9 million). The pension arrangements (occupational pension plans) of Visilab are funded plans, providing benefits upon retirement, death, disability and termination. Those arrangements are the base of the second pillar of the Swiss social security system. Both employer and employees pay contributions to the pension plan. To comply with legal requirements, employers have to set up a pension arrangement for their employees. For this purpose, Visilab is affiliated to the Fondation BCV deuxième pilier (“the Foundation”) which is a collective pension fund (group administration plan) under the supervision of the Supervisory Authority in the canton of Vaud. The pension plan is governed by a committee which consists of an equal number of employer and employee representatives and is managed by the Foundation. Visilab has no control over investments performed by the Foundation. Pension arrangements are subject to the mandatory insurance requirements according to the Swiss Federal Law on Occupational Retirement, Survivors' and Disability Pension Funds (LPP/BVG). Should the Foundation become underfunded according to Swiss Law, the Foundation Board must decide on recovery measures that will allow the coverage ratio to return to 100% within an appropriate time horizon. The latest known coverage ratio of the Foundation was 110.8% as at 31 December 2017.

The remainder of the assets and obligations of the funded plans mainly relate to defined benefit plans in Mexico.

The risks of these plans are mainly related to changes in the discount rate applied to determine the defined benefit obligation.

The amounts recognized in the consolidated Income Statement are as follows:

in thousands of EUR

Notes

2018

2017

Current service costs

5,819

3,005

Interest expense

1,612

1,429

Plan amendments/curtailments/settlements

15

-

Other

178

-

Total defined benefit costs

7

7,624

4,434

The movement in the defined benefit obligation over the year was as follows:

in thousands of EUR

Present value of obligation

Fair value of
plan assets

Total

At 1 January 2017

77,632

- 1,939

75,693

Acquisition of subsidiary

63,868

- 39,981

23,887

Current service costs

3,005

-

3,005

Interest expense/ (income)

2,535

- 1,106

1,429

Employee contributions

595

- 595

-

Employer contributions

-

- 1,917

- 1,917

Experience adjustments

- 1,135

-

- 1,135

Change in financial assumptions

- 1,360

-

- 1,360

Change in demographic assumptions

196

-

196

Plan amendments and curtailments

15

- 14

1

Return on plan assets, excluding amounts in interest

-

95

95

Benefits paid

- 2,233

2,233

-

Reclassification

3

-

3

Exchange effect

- 1,218

622

- 596

At 31 December 2017

141,903

- 42,602

99,301

At 1 January 2018

141,903

- 42,602

99,301

Current service costs

5,819

-

5,819

Interest expense/ (income)

2,020

- 408

1,612

Employee contributions

1,877

- 1,877

-

Employer contributions

-

- 2,061

- 2,061

Experience adjustments

- 1,090

-

- 1,090

Change in financial assumptions

- 6,809

-

- 6,809

Change in demographic assumptions

109

-

109

Plan amendments and curtailments

15

-

15

Return on plan assets, excluding amounts in interest

-

39

39

Benefits paid

- 2,130

252

- 1,878

Other

-

178

178

Exchange effect

3,314

- 2,350

964

At 31 December 2018

145,028

- 48,829

96,199

Assumptions

The principal actuarial assumptions used were as follows on a weighted average basis:

2018

2017

Discount rate

1.7%

1.4%

Expected return on plan assets

1.0%

1.0%

Future salary increases

2.1%

2.1%

Future inflation

1.4%

1.4%

In 2018, the expected return on plan assets relates mainly to the post employment benefit plan of Visilab (2017: Visilab). The difference between the discount rate and the expected return on plan assets was caused by the weighted impact of funded and unfunded plans.

The most recent available mortality tables have been used in determining the pension liability. Experience adjustments have been made. The assumptions are based on historical experiences. The expected return on plan assets is based on the expected return on high-quality corporate bonds.

The below sensitivity analyses are based on changing one assumption while all other assumptions remain constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.

Sensitivity analyses :

Assumptions

Increase (+)/ decrease (-) in
defined benefit obligation

Change in discount rate of +1.00%

-16%

Change in discount rate of -1.00%

21%

Change in salary of +0.25%

1%

Change in life expectancy of +1 year

2%

Change in inflation of +1%

7%

Plan assets are comprised as follows:

in thousands of EUR

2018

2017

Insurance contracts

47,447

40,947

Debt instruments

1,038

1,054

Equities

344

595

Other

-

6

Total

48,829

42,602

The plan assets of Visilab qualify for the level 2 fair value category. See note 3.3 for a description of the different levels of valuation categories.

The expected maturity of the undiscounted pension and post-employment benefits is:

in thousands of EUR

2018

2017

Less than 1 year

4,829

3,811

Between 1 and 2 years

5,590

5,424

Between 2 and 5 years

14,856

13,383

Over 5 years

191,014

179,736

Total

216,289

202,354

The expected contributions in 2019 to the defined benefit plans amount to €2,060.