30. Employee benefits

Personnel expenses and number of personnel

The Group’s total personnel expenses, including social charges, are recognized in the relevant expenditure line by function in the consolidated statement of income and amounted to CHF 4,421 million (2014: CHF 3,488 million). As of December 31, 2015, the Group employed 100,956 people (2014: 67,137 people).

Defined benefit pension plans

The Group’s main defined benefit pension plans are in Switzerland, the United Kingdom and in North America and are funded through legally separate trustee administered funds. The cash funding of these plans, which may from time to time involve special payments, is designed to ensure that present and future contributions should be sufficient to meet future liabilities.

Switzerland

The Swiss pension plans of Swiss companies contain a cash balance benefit formula, accounted for as a defined benefit plan. Employer and employee contributions are defined in the pension fund rules in terms of an age related sliding scale of percentages of salary. Under Swiss law, the pension fund guarantees the vested benefit amount as confirmed annually to members. Interest may be added to member balances at the discretion of the Board of Trustees. At retirement date, members have the right to take their retirement benefit as a lump sum, an annuity or part as a lump sum with the balance converted to a fixed annuity at the rates defined in the fund rules. The Board of Trustees may increase the annuity at their discretion subject to the plan’s funded status including sufficient free funds as determined according to Swiss statutory valuation rules. The Swiss pension plans fulfill the requirements of the regulatory framework which requires a minimum level of benefits.

The trustees invest in a diversified range of assets. The investment strategy takes into account the pension fund’s tolerance to risk as well as the funding needs (minimum investment return necessary to stabilize the coverage ratio in the long run).

No material plan amendment, curtailment or settlement has occurred during the year.

United Kingdom (UK)

The companies operate three defined benefit pension plans in the UK, under which pensions payable to employees depend on final salary and length of service. The most significant plan is a legacy Lafarge plan and there are two other plans which pertained to former Holcim. Active members of these plans pay a contribution as a percentage of pensionable salary, and the companies meet the balance of the cost of providing the benefits. All of these plans are closed to new entrants. In October 2011, rights vested based on salary and years of service within the Group were frozen for the legacy Lafarge plan; therefore active members of this scheme will no longer acquire further rights in the defined benefit plan. These active members will be eligible to defined contribution plans.

The companies’ UK defined benefit pension plans are registered schemes under UK tax law, and in each case the assets are held in a trust and managed by trustees separate from the company. In accordance with UK legislation, the trustees of each plan undertake an actuarial valuation at least once every three years. After each valuation, the company and the trustees agree on the contributions required to be made to the relevant plan. These contributions are determined based on certain assumptions including the returns which will be achieved on the plans’ investments and the longevity of plan members. To the extent that the assumptions are not borne out in practice, there is a risk that future contributions from the companies will be higher than anticipated.

If necessary, these plans are funded by employer contributions with an amount determined under the regulations every three years, based on plan valuations carried out by independent actuaries, so that the long-term financing services are ensured. The last funding valuation of the legacy Lafarge plan was carried out based on the June 30, 2012 fund situation. For the legacy Lafarge scheme being in deficit as at this date, a deficit contribution schedule was signed in March 2014. It was agreed to reduce the plan deficit by paying additional contributions over fifteen years starting from the valuation date. Based on the 2012 valuation, the employer contributed in 2015 CHF 45 million (2014: CHF 38 million). A funding valuation as of June 30, 2015 is conducted and the contributions should be agreed with the Trustees before the end of September 2016 according to the local pension regulation. Under the current plan, the contributions to be paid by the employer for 2016 amount to CHF 53 million.

For the legacy Lafarge plan, the Board of Trustees’ primary objective is to ensure that it can meet its obligations to the beneficiaries of the plan both in the short and long term. Subject to this primary objective, the Board of Trustees aims to maximize the long-term investment return whilst minimizing the risk of non-compliance with any statutory funding requirements. The Board of Trustees is responsible for the plan’s long-term investment strategy but has delegated strategy design and monitoring to an Investment Committee and employs a fiduciary manager to implement the strategy and manage the plan’s investments. The fiduciary manager is responsible for the selection and deselection of underlying investment managers and funds as well as managing the asset allocation of the plan within agreed guidelines. The fair value of investment funds is based on a mixture of market values and estimates. Cash and cash equivalents are invested with financial institutions that have at least an ”A/BBB” rating.

A strategy has been designed for the legacy Lafarge plan to target an asset value equal to 100 % of the liability value. This objective has been translated into two main asset categories:

  • a portfolio of return-seeking assets, which include shares, real estate and alternative assets classes;
  • a portfolio of instruments that provides a reasonable match to changes in liability values, which includes government bonds, corporate bonds and derivatives. Bonds generally have a credit rating that is no lower than “A/BBB” and have quoted market prices in an active market. Liability Driven Investment (LDI) portfolio is mainly composed of government bonds and swaps. The Fair value is estimated with models that rely on observable market data.

The LDI strategies are gaining significance in the UK and mainly involve hedging the fund’s exposure to changes in interest rates and inflation.

Share instruments represent investments in equity funds and direct investments which have quoted market prices in an active market. Alternative asset classes are used for both risk management and return generation purposes, and its fair value is based on market values. Real estate comprises investments in listed real estate funds or direct investments. Real estates that are held directly are valued annually by an independent expert.

No material plan amendment or curtailment has occurred during the year.

The companies operate defined contribution plans which include active members from frozen defined benefit plans and employees who are not members of a defined benefit plan.

North America (United States and Canada)

The companies operate defined contribution plans and a number of defined benefit pension plans from both legacy Holcim and legacy Lafarge. Some defined benefit pension plans have been closed to new entrants and were frozen to future accruals. For the main pension plan in the United States, the legacy Lafarge plan, it has been decided in 2013 that the active members will no longer acquire further rights from December 31, 2018. The other defined benefit pension plans are based on a combination of service and the average final salary.

The companies must contribute a minimum amount to the defined benefit pension plans annually which is determined actuarially and is comprised of service costs as well as payments toward any existing deficits. For plans that are currently closed, there will generally be no service component in the future. Employer contributions toward the defined contribution plan are made either monthly, quarterly or annually and are based on a percentage of covered payroll.

The companies in the United States intend to pay the minimum required contributions as prescribed under Internal Revenue Service (IRS) regulations in addition to voluntary amounts in order to achieve and maintain an IRS funded status of at least 80 percent. For the Canadian plans, the companies intend to pay at least the minimum required contributions under the applicable pension legislation for each plan.

The pension committees of the various companies are responsible for operating the defined benefit plans in compliance with existing regulations and for the management of plan assets.

The plans hold a large percentage of plan assets in equity investments. To the extent that equity performance is volatile in the future, the required employer contributions would also experience similar volatility in the future. The companies delegate various responsibilities to Pension Committees. These committees define and manage long-term investment strategies for reducing investment risk as and when appropriate. This includes an asset-liability matching policy which aims to reduce the volatility of the funding level of the pension plan by investing a portion of plan assets in long term bonds which perform similarly to the liabilities of the plan so as to protect against changes to bond yields. The companies are responsible for the management of the other risks associated with the defined benefit pension plans, including interest rate risks and longevity risks.

The plan assets are invested in a diversified range of assets. The assets in the United States and Canada include a certain proportion which hedge the liability swings against interest rate movements, with those assets primarily invested in fixed income investments, particularly intermediate and longer term instruments.

In 2015, a pension plan freeze occurred for the largest legacy Lafarge plan for salaried and supplemental plans and for legacy Holcim qualified and supplemental plans. From this date, vested rights will be frozen and active members will no longer acquire further rights in the defined benefit plan.

No other material plan amendment, curtailment or settlement has occurred during the year.

Holcim Canada was divested to CRH in July 2015 and the related defined benefit plans were transferred to the acquirer. The defined benefit plans transferred are included in the following tables in the line “change in structure”.

Other post-employment benefit plans

The Group operates a number of other post-employment benefit plans. A number of these plans are not externally funded, but are covered by provisions in the statement of financial position of the respective companies. The medical defined benefit plans have been amended for post-65 retiree.

Status of the Group’s defined benefit plans

The status of the Group’s defined benefit plans using actuarial assumptions determined in accordance with IAS 19 Employee Benefits is summarized below. The tables provide reconciliations of defined benefit obligations, plan assets and the funded status for the defined benefit pension plans to the amounts recognized in the statement of financial position.

Reconciliation of retirement benefit plans to the statement of financial position

Million CHF

2015

20141

1

Restated due to changes in accounting policies, see note 2.

Net liability arising from defined benefit pension plans

1,424

774

Net liability arising from other post-employment benefit plans

304

81

Net liability

1,729

854

 

 

 

Reflected in the statement of financial position as follows:

 

 

Other long-term assets

(211)

(8)

Defined benefit obligations

1,939

863

Net liability

1,729

854

Retirement benefit plans

 

Defined benefit pension plans

Other post-employment benefit plans

Million CHF

2015

20141

2015

20141

1

Restated due to changes in accounting policies, see note 2.

2

Past service costs (including curtailments) include among others, CHF –55 million curtailment in France recorded in connection with the merger and a curtailment in the United States of CHF –22 million related to a plan freeze and the elimination of post 65 retiree medical insurance.

3

Equity instruments include CHF 2 million (2014: 2) quoted equity instruments of LafargeHolcim Ltd or subsidiaries.

4

Debt instruments include CHF 5 million (2014: 5) quoted and CHF 4 million (2014: 4) non-quoted debt instruments of LafargeHolcim Ltd or subsidiaries.

5

Liability-driven investment (LDI) is an investment strategy that is defined considering the risk profiles of the liability of the plan. The LDI investment strategy mainly consists of index-linked government bonds and swaps and involves hedging the plan against liquidity risk and change in interest rates or inflation yields.

6

Alternative investments include among others hedge-funds, multi-asset values and reinsurance investments.

Present value of funded obligations

8,835

3,445

0

0

Fair value of plan assets

(8,122)

(2,932)

0

0

Plan deficit of funded obligations

713

513

0

0

Present value of unfunded obligations

710

262

304

81

Effect of asset ceiling

1

0

0

0

Net liability from funded and unfunded plans

1,424

774

304

81

Of which:

 

 

 

 

Switzerland

241

201

0

0

United Kingdom

(84)

162

0

0

North America (United States and Canada)

587

72

243

59

Rest of world

679

339

61

22

 

 

 

 

 

Costs recognized in the statement of income are as follows:

 

 

 

 

Current service costs

121

84

3

2

Past service costs (including curtailments)2

(74)

0

(16)

3

(Gains) losses on settlements

(15)

(1)

0

2

Net interest expense

40

23

8

3

Special termination benefits

17

0

0

0

Others

0

1

0

0

Total

90

106

(5)

10

Of which:

 

 

 

 

Switzerland

27

41

0

0

United Kingdom

19

16

0

0

North America (United States and Canada)

47

17

(7)

3

Rest of world

(3)

33

2

7

 

 

 

 

 

Amounts recognized in other comprehensive earnings:

 

 

 

 

Actuarial gains (losses) arising from changes in demographic assumptions

43

26

0

(3)

Actuarial gains (losses) arising from changes in financial assumptions

149

(418)

(2)

(5)

Actuarial gains (losses) arising from experience adjustments

28

32

2

3

Return on plan assets excluding interest income

(92)

164

0

0

Change in effect of asset ceiling excluding interest (income) expense

1

0

0

0

Total recorded in other comprehensive earnings

129

(196)

1

(5)

Of which:

 

 

 

 

Switzerland

(53)

(80)

0

0

United Kingdom

191

(44)

0

0

North America (United States and Canada)

(24)

(30)

4

(3)

Rest of world

15

(41)

(4)

(2)

 

 

 

 

 

Present value of funded and unfunded obligations

 

 

 

 

Opening balance as per January 1

3,705

3,205

81

64

Merger with Lafarge

6,597

0

253

0

Change in structure

(249)

0

(7)

0

Current service costs

121

84

3

2

Interest expense

218

116

8

3

Contribution by the employees

20

20

0

0

Actuarial (gains) losses

(220)

360

(1)

5

Benefits paid

(398)

(164)

(15)

(5)

Past service costs (including curtailments)

(74)

0

(16)

3

Settlements

(88)

(5)

0

2

Special termination benefits

17

0

0

0

Currency translation effects

(103)

89

(2)

6

Closing balance as per December 31

9,546

3,705

304

81

Of which:

 

 

 

 

Switzerland

1,617

1,627

0

0

United Kingdom

4,953

957

0

0

North America (United States and Canada)

2,097

609

243

59

Rest of world

878

513

61

22

 

 

 

 

 

Fair value of plan assets

 

 

 

 

Opening balance as per January 1

2,932

2,620

0

0

Merger with Lafarge

5,676

0

0

0

Change in structure

(246)

0

0

0

Interest income

177

93

0

0

Return on plan assets excluding interest income

(92)

164

0

0

Contribution by the employer

205

106

14

4

Contribution by the employees

20

20

0

0

Benefits paid

(383)

(142)

(14)

(4)

Settlements

(72)

(3)

0

0

Currency translation effects

(94)

74

0

0

Closing balance as per December 31

8,122

2,932

0

0

Of which:

 

 

 

 

Switzerland

1,376

1,427

0

0

United Kingdom

5,038

795

0

0

North America (United States and Canada)

1,509

537

0

0

Rest of world

199

173

0

0

 

 

 

 

 

Plan assets based on quoted market prices:

 

 

 

 

Cash and cash equivalents

125

113

 

 

Equity instruments3

1,750

981

 

 

Debt instruments4

1,704

721

 

 

Liability-driven investments5

1,311

0

 

 

Alternative investments6

1,035

2

 

 

Land and buildings occupied or used by third parties

375

373

 

 

Investment funds

202

102

 

 

Derivatives

32

33

 

 

Structured debt

21

42

 

 

Plan assets based on non-quoted prices:

 

 

 

 

Equity instruments

231

47

 

 

Structured debt

410

3

 

 

Investment funds

278

44

 

 

Land and buildings occupied or used

203

26

 

 

Debt instruments4

12

63

 

 

Others

433

382

 

 

Total plan assets at fair value

8,122

2,932

 

 

 

 

 

 

 

Effect of asset ceiling

 

 

 

 

Opening balance as per January 1

0

0

 

 

Interest expense or (income)

0

0

 

 

Change in effect of asset ceiling excluding interest (income) expense

(1)

0

 

 

Change in structure

1

0

 

 

Currency translation effects

0

0

 

 

Closing balance as per December 31

1

0

 

 

Principal actuarial assumptions (weighted average) used at the end of the reporting period for defined benefit pension plans

 

Total Group

Switzerland

United Kingdom

North America

 

2015

2014

2015

2014

2015

2014

2015

2014

Discount rate in %

3.4%

2.7%

0.9%

1.2%

3.8%

3.5%

4.2%

4.0%

Expected salary increases in %

2.5%

2.5%

1.2%

1.2%

3.0%

2.9%

2.9%

3.6%

Life expectancy in years after the age of 65

21.8

21.4

21.9

21.9

22.1

22.0

21.4

20.4

Weighted average duration of defined benefit pension plans

Duration of the defined benefit obligation

Total Group

Switzerland

United Kingdom

North America

 

2015

2014

2015

2014

2015

2014

2015

2014

Weighted average duration in years

14.9

13.8

13.5

13.5

16.4

17.0

13.8

11.8

Sensitivity analysis as per December 31, 2015 on defined benefit pension plans

Impact on the defined benefit obligation

Total Group

Switzerland

United Kingdom

North America

Million CHF

Increase

Decrease

Increase

Decrease

Increase

Decrease

Increase

Decrease

Discount rate (±1% change in assumption)

(1,241)

1,478

(199)

245

(705)

844

(253)

291

Expected salary increases (±1% change in assumption)

137

(120)

19

(19)

23

(20)

13

(13)

Life expectancy in years after the age of 65 (±1 year change in assumption)

328

(336)

52

(60)

210

(209)

47

(46)

Sensitivity analysis as per December 31, 2014 on defined benefit pension plans

Impact on the defined benefit obligation

Total Group

Switzerland

United Kingdom

North America

Million CHF

Increase

Decrease

Increase

Decrease

Increase

Decrease

Increase

Decrease

Discount rate (±1% change in assumption)

(444)

552

(196)

242

(135)

174

(62)

77

Expected salary increases (±1% change in assumption)

104

(90)

22

(20)

26

(23)

16

(12)

Life expectancy in years after the age of 65 (±1 year change in assumption)

109

(116)

48

(58)

35

(33)

12

(12)

Expected contributions by the employer to be paid to the post-employment benefit plans during the annual period beginning after the end of the reporting period are CHF 174 million, of which CHF 32 million related to Switzerland, CHF 72 million related to the United Kingdom and CHF 51 million related to North America.