Notes to the consolidated financial statements Annua l Report 2014 107
23 Pensions and other post-employment benefits (continued)
Ahold at a glance I Business review I Governance I Financials
During 2014, Ahold amended its defined benefit pension plan in the Netherlands. The plan amendments included, among other changes, raising the retirement age to 67 introducing a maximum pensionable salary limit
of €96,542, lowering the pensionable salary threshold by €1,000 and declaring that future pension increases for active participants will now be based on the price inflation instead of salary increases. The effect of all
amendments was a net past service cost gain in the income statement of €59 million.
During 2014, Ahold amended a defined benefit plan in the United States that provides medical and prescription drug benefits to retirees. The plan amendment was to convert the plan from a self-insured plan to a fully insured
employer group waiver program and to change employer subsidies. The effect of the amendment was a past service cost gain in the income statement of $12 million (€9 million).
During 2013, Ahold changed the way it accounts for the contributions it makes to prepay disbursement costs that will be incurred when future benefits are paid to beneficiaries. These costs were previously included in the
defined benefit obligation of the pension plan for the Netherlands, but are now expensed as contributions are made. This change resulted in a reduction of the 2013 year-end defined benefit obligation of €102 million,
which was treated as a remeasurement and recognized within other comprehensive income.
In 2008, the Company decided to transition its defined benefit pension plan for active salaried, non-union and certain union employees ("eligible employees") in the United States to a defined contribution pension plan.
Eligible employees who were at least 50 years of age or had 25 or more years of service as of December 31, 2009, could choose to either stay in the defined benefit plan or transfer to a 401(k) plan. All other eligible
employees were transferred to a 401 (k) plan. Accrued benefits under the defined benefit plan for employees transferred to a 401 (k) plan were frozen for pay and service as of December 312009 (frozen plan). The resulting
curtailment gain in 2008 was largely offset by accrued additional (transition) contributions to be made by the Company to a 401 (k) plan for a period of five years (2010-2014) for employees meeting certain age or
service requirements who were transferred to a 401 (k) plan. During 2012, the Company settled the frozen accrued benefits of participants who elected to receive a lump sum payout. At that time, the Company recognized
a settlement gain of €6 million. In 2013, the Company settled the remaining frozen accrued benefits by purchasing annuity contracts, which resulted in a further settlement gain of €9 million.
Cash contributions
From 2014 to 2015, Company contributions are expected to increase from €116 million to €117 million in the Netherlands and decrease from $71 million (€53 million) to $24 million (€19 million) in the United States.
As of year-end 2014, the funding ratio, calculated in accordance with regulatory requirements, of the largest Dutch plan was 117% and the U.S. pension plan was 127%. Under the financing agreement with the Dutch pension
fund, contributions are made as a percentage of employees' salaries and shared between Ahold and the employees. The agreement also allows for a reduction in premiums if certain funding conditions are met. In addition,
Ahold can be required to contribute a maximum amount of €150 million over a five-year period if the funding ratio is below 105%. Contributions to the U.S. pension plan are required under the current funding policy if the
prior year-end funding ratio falls below 100% as measured under the Pension Protection Act in order to avoid variable Pension Benefit Guaranty Corporation (PBGC) premiums.
Actuarial assumptions
The calculations of the defined benefit obligation and net defined benefit cost are sensitive to the assumptions set out below. These assumptions require a large degree of judgment. Actual experience may differ from
the assumptions made. The assumptions required to calculate the actuarial present value of benefit obligations and the net defined benefit costs are determined per plan are as follows (expressed as weighted averages):
The Netherlands
United States
Percent
2014
2013
2014
2013
Discount rate
2.3
3.6
4.3
5.0
Future salary increases
3.7
3.7
4.5
4.5
Future pension increases
0.8
1.5
0.0
0.0
The decrease in the future pension increase assumption of the plan in the Netherlands is the result of the effect of the application of a liability ceiling to the measurement of the defined benefit obligation.
