Notes to the consolidated financial statements Annua l Report 2015 110
23 Pensions and other post-employment benefits
Defined benefit plans
Ahold at a glance I Business review I Governance I Financials
Ahold has a number of defined benefit pension plans covering a substantial number of employees, former employees and retirees in the Netherlands and the United States. Generally, the plans are career average or final pay
defined benefit plans. In addition, Ahold provides additional pension benefits for certain company executives and life insurance and medical care benefits for certain retired employees meeting age and service requirements at
its U.S. subsidiaries, all of which the Company funds as claims are incurred.
The pension plans expose the Company to actuarial risks such as: longevity risk, interest rate risk, currency risk, salary risk and investment risk. Longevity risk relates to the mortality assumptions used to value the defined
benefit obligation, where an increase in participants' life expectancies will increase a plan's liability. Interest rate risk relates to the discount rate used to value the defined benefit obligation, where a decrease in the discount
rate will increase a plan's liability; however this will be partially offset by an increase in the return on a plan's investments in debt instruments. The pension plans may mitigate interest rate risk by entering into interest rate swap
contracts. Currency risk relates to the fact that a plan holds investments that may not be denominated in the same currency as the plan's obligations. The pension plans may mitigate currency risk by purchasing forward currency
instruments. Salary risk relates to salary increase assumptions used to value the defined benefit obligation, where an increase will result in a higher plan liability. See below for more details on the Company's asset-liability
matching strategy employed to manage its investment risk.
Net assets relating to one plan are not offset against net liabilities of another plan, resulting in the following presentation of the pension and other post-employment benefits on the consolidated balance sheet:
January 3,
December 28,
million
2016
2014
Defined benefit liabilities
(389)
(290)
Defined benefit assets
-
5
Total defined benefit plans
(389)
(285)
The defined benefit assets are part of the other non-current financial assets; for more information, see Note 15.
Net defined benefit cost is comprised of the following components. The net interest (income) expense is presented within net financial expenses in the income statement and plan remeasurements are presented as other
comprehensive income. All other components of net defined benefit cost are presented in the income statement as cost of sales, selling expenses, and general and administrative expenses, depending on the functional areas of
the employees earning the benefits.
million
2015
2014
Service cost
Current service cost
132
104
Past service cost gain
-
(68)
Net interest expense
14
16
Administrative cost
11
9
Components of defined benefit cost recorded in the income statement
157
61
Remeasurements recognized:
Return on plan assets, excluding amounts included in net interest (income) cost
228
(698)
(Gain) loss from changes in demographic assumptions
(13)
53
(Gain) loss from changes in financial assumptions
(186)
650
Experience gains
24
20
Components of defined benefit cost recognized in other comprehensive income
53
25
Total net defined benefit cost
210
86