Annual Report 2011

Adecco Group –
Notes to consolidated financial statements
in millions, except share and per share information

Note 10 – Employee benefit plans

In accordance with local regulations and practices, the Company has various employee benefit plans, including defined contribution and both contributory and non-contributory defined benefit plans.

Defined contribution plans and other arrangements

The Company recorded an expense of EUR 60 in both 2011 and 2010 [1], and EUR 46 [1] in 2009, in connection with defined contribution plans, and an expense of EUR 36, EUR 30, and EUR 25, in connection with the Italian employee termination indemnity arrangement in 2011, 2010, and 2009, respectively.

The Company sponsors several non-qualified defined contribution plans in the USA for certain of its employees. These plans are partly funded through Rabbi trusts, which are consolidated in the Company’s financial statements. As of December 31, 2011 and December 31, 2010, the assets held in the Rabbi trusts amounted to EUR 53 and EUR 51, respectively. The related pension liability totalled EUR 70 and EUR 66 as of December 31, 2011 and December 31, 2010, respectively.

Certain employees in Sweden are covered under the ITP multi-employer pension plan (employer identification number 55927) administered by a union. The data available from the administrator of the plan (Alecta) is not sufficient to determine the projected benefit obligation or the net assets attributable to the Company. Consequently, this plan is reported as a defined contribution plan. As of December 31, 2011, Alecta managed approximately EUR 54,600 of plan assets on behalf of 1.9 million private individuals and 32,000 client companies.

As of December 31, 2010, total assets managed by Alecta amounted to EUR 55,700. Total contributions made by all plan members to this plan in 2010 amounted to EUR 2,700. The information on total contributions made by all plan members in 2011 has not yet been published by Alecta. Contributions made to this plan by the Company amounted to EUR 2 in 2011 and EUR 3 [1] in both 2010 and 2009.

[1]Restated.

Defined benefit plans

The Company sponsors defined benefit plans principally in Switzerland, the Netherlands, and the UK. These plans provide benefits primarily based on years of service and level of compensation, and are in accordance with local regulations and practices. The defined benefit obligations and related assets of all major plans are reappraised annually by independent actuaries. The measurement date in 2011 and 2010 for all defined benefit plans is December 31. Plan assets are recorded at fair value, and consist primarily of equity securities, debt securities, and alternative investments. The projected benefit obligation (“PBO”) is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (“ABO”) is the actuarial present value of benefits attributable to employee service rendered to date, but excluding the effects of estimated future pay increases.

Actuarial gains and losses are recognised as a component of other comprehensive income/(loss), net, in the period when they arise. Those amounts are subsequently recognised as a component of net period pension cost using the corridor method.

The components of pension expense, net, for the defined benefit plans are as follows:

 

Swiss plan

Non-Swiss plans

in EUR

2011

2010

2009

2011

2010

2009

 

 

 

 

 

 

 

Components of pension expense

 

 

 

 

 

 

Service cost

11

9

8

2

2

2

Interest cost

3

3

3

5

5

4

Expected return on plan assets

(6)

(5)

(4)

(4)

(5)

(4)

Amortisation of prior years service costs

 

 

 

 

(1)

(1)

Amortisation of net (gain)/loss

 

 

3

1

2

 

Pension expense, net

8

7

10

4

3

1

The following table provides a reconciliation of the changes in the benefit obligations, the change in the fair value of assets, and the funded status of the Company’s defined benefit plans as of December 31, 2011 and December 31, 2010:

 

Swiss plan

Non-Swiss plans

in EUR

31.12.2011

31.12.2010

31.12.2011

31.12.2010

 

 

 

 

 

Pension liabilities and assets

 

 

 

 

Projected benefit obligation, beginning of year

129

102

103

89

Service cost

11

8

2

2

Interest cost

3

3

5

5

Participants contributions

31

35

1

1

Actuarial (gain)/loss

8

3

17

7

Benefits paid

(34)

(42)

(3)

(2)

Foreign currency translation

4

20

1

1

Projected benefit obligation, end of year

152

129

126

103

 

 

 

 

 

Plan assets, beginning of year

128

99

86

77

Actual return on assets

(1)

7

13

7

Employer contributions

12

11

2

2

Participants contributions

31

35

1

1

Benefits paid

(34)

(42)

(3)

(2)

Foreign currency translation

4

18

1

1

Plan assets, end of year

140

128

100

86

 

 

 

 

 

Funded status of the plan

(12)

(1)

(26)

(17)

 

 

 

 

 

Accumulated benefit obligation, end of year

148

126

116

96

The following amounts are recognised in the consolidated balance sheets as of December 31, 2011 and December 31, 2010:

 

Swiss plan

Non-Swiss plans

in EUR

31.12.2011

31.12.2010

31.12.2011

31.12.2010

 

 

 

 

 

Pension-related assets

 

 

7

4

Pension-related liabilities

(12)

(1)

(33)

(21)

Total

(12)

(1)

(26)

(17)

As of December 31, 2011, the Company recognised a net loss of EUR 22 and EUR 13 for Swiss defined benefit plans and for non-Swiss defined benefit plans, respectively, in accumulated other comprehensive income/(loss), net. The expense to be amortised from accumulated other comprehensive income/(loss), net, into earnings, over the next fiscal year amounts to EUR 3 for the Swiss defined benefit plan and to EUR 2 for the non-Swiss defined benefit plans. As of December 31, 2010, the Company recognised a net loss of EUR 10 and EUR 8 for Swiss defined benefit plans and for non-Swiss defined benefit plans, respectively, in accumulated other comprehensive income/(loss), net.

For plans with a PBO in excess of the fair value of plan assets as of December 31, 2011 and December 31, 2010, the total PBO was EUR 208 and EUR 154, respectively, and the fair value of the plan assets was EUR 162 and EUR 133, respectively.

Certain of the Company’s pension plans have an ABO that exceeds the fair value of plan assets. For plans with an ABO that exceeds the fair value of plan assets, the aggregated ABO was EUR 196 and EUR 147 as of December 31, 2011 and December 31, 2010, respectively, and the fair value of the plan assets of those plans was EUR 162 and EUR 133, respectively.

The overall expected long-term rate of return on plan assets for the Company’s defined benefit plans is based on inflation rates, inflation-adjusted interest rates, and the risk premium of equity investments above risk-free rates of return. Long-term historical rates of return are adjusted when appropriate to reflect recent developments.

The assumptions used for the defined benefit plans reflect the different economic conditions in the various countries. The weighted-average actuarial assumptions are as follows:

 

Swiss plan

Non-Swiss plans

in %

2011

2010

2009

2011

2010

2009

 

 

 

 

 

 

 

Weighted-average actuarial assumptions

 

 

 

 

 

 

Discount rate

2.3

2.5

3.0

4.1

4.5

4.9

Rate of increase in compensation levels

2.5

2.5

2.0

2.1

2.6

2.9

Expected long-term rate of return on plan assets

3.8

4.3

4.5

4.1

4.3

4.6

The Company has established an investment policy and strategy for the assets held by the Company’s pension plans which focuses on using various asset classes in order to achieve a long-term return on a risk adjusted basis. Factors included in the investment strategy are the achievement of consistent year-over-year results, effective and appropriate risk management, and effective cash flow management. The investment policy defines a strategic asset allocation and a tactical allocation through bands within which the actual asset allocation is allowed to fluctuate. The strategic asset allocation has been defined through asset-liability studies that are undertaken at regular intervals by independent pension fund advisors or by institutional asset managers. Actual invested positions change over time based on short- and longer-term investment opportunities. Equity securities include publicly-traded stock of companies located inside and outside Switzerland. Debt securities include corporate bonds from companies from various industries as well as government bonds. Alternative investments include interest rate risk management funds (liability driven investments) and foreign exchange forwards used to hedge the foreign exchange risk of alternative investments. Real estate funds primarily consist of investments made through a single real estate fund with daily pricing and liquidity.

The Swiss and non-Swiss pension plans’ target weighted-average asset allocations as of December 31, 2011, and the actual weighted-average asset allocations as of December 31, 2011 and December 31, 2010, by asset category, are as follows:

 

Swiss plan

Non-Swiss plans

 

 

Actual allocation

 

Actual allocation

in %

Target allocation range

31.12.2011

31.12.2010

Target allocation range

31.12.2011

31.12.2010

 

 

 

 

 

 

 

Weighted-average asset allocations

 

 

 

 

 

 

Equity securities

15–40

27

30

5–25

17

20

Debt securities

20–60

39

34

25–55

46

42

Real estate

5 –25

15

12

0 –10

0

0

Other

5–60

19

24

25–40

37

38

Total

 

100

100

 

100

100

The fair values of the Company’s pension plan assets as of December 31, 2011 and as of December 31, 2010 by asset category are as follows:

December 31, 2011

 

Swiss plan

Non-Swiss plans

in EUR

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

 

 

 

 

 

 

 

 

 

Asset category

 

 

 

 

 

 

 

 

Cash and cash equivalents

1

 

 

1

1

 

 

1

Equity securities:

 

 

 

 

 

 

 

 

• Switzerland

17

 

 

17

 

 

 

 

• Rest of the world

20

 

 

20

17

 

 

17

Debt securities:

 

 

 

 

 

 

 

 

• Government bonds

12

 

 

12

29

 

 

29

• Corporate bonds

42

 

 

42

17

 

 

17

Alternative investments:

 

 

 

 

 

 

 

 

• Commodity funds/private equity

5

 

1

6

 

 

 

 

• Liability driven investments (“LDI”)

 

 

 

 

25

 

 

25

• Alternative investment funds

 

20

 

20

9

 

 

9

Real estate funds

22

 

 

22

 

 

 

 

Other

 

 

 

 

 

2

 

2

Total

119

20

1

140

98

2

 

100

December 31, 2010

 

Swiss plan

Non-Swiss plans

in EUR

Level 1 [1]

Level 2 [1]

Level 3 [1]

Total

Level 1

Level 2

Level 3

Total

 

 

 

 

 

 

 

 

 

Asset category

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

1

 

 

1

Equity securities:

 

 

 

 

 

 

 

 

• Switzerland

18

 

 

18

 

 

 

 

• Rest of the world

20

 

 

20

17

 

 

17

Debt securities:

 

 

 

 

 

 

 

 

• Government bonds

11

 

 

11

21

 

 

21

• Corporate bonds

32

 

 

32

15

 

 

15

Alternative investments:

 

 

 

 

 

 

 

 

• Commodity funds/private equity

6

 

1

7

1

 

 

1

• Liability driven investments (“LDI”)

 

 

 

 

22

 

 

22

• Alternative investment funds

5

20

 

25

6

 

 

6

Real estate funds

15

 

 

15

 

 

 

 

Other

 

 

 

 

1

2

 

3

Total

107

20

1

128

84

2

 

86

[1]Restated.

A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant unobservable inputs (Level 3) during the year ended December 31, 2011 is as follows:

in EUR

 

Swiss plan

 

 

 

Private equity funds

 

 

Balance as of January 1, 2011

 

1

Actual return on plan assets

 

 

Balance as of December 31, 2011

 

1

The Company expects to contribute EUR 13 to its pension plan in Switzerland and EUR 5 to its non-Swiss plans in 2012.

Future benefits payments, which include expected future service, are estimated as follows:

in EUR

Swiss plan

Non-Swiss
plans

 

 

 

Future benefits payments

 

 

2012

44

2

2013

12

3

2014

11

2

2015

10

3

2016

10

3

Years 2017–2021

37

26