Provisions for Pensions and Similar Obligations  

in € millions12/31/201512/31/2014
Defined benefit obligation1,6072,596
Obligations similar to pensions102102
1,7092,698

The Bertelsmann Group operates various pension plans for current and former employees and their surviving dependents. The model of such plans varies according to the legal, fiscal and economic environment of the country concerned. These company pension plans include both defined contribution and defined benefit plans.

In the case of defined contribution plans, the company makes payments into an external pension fund or another welfare fund through a statutory, contractual or voluntary model. The company has no obligation to provide further benefits once it has made these payments, so no provisions are recognized. Expenses for defined contribution plans in the amount of €50 million were recognized in the financial year (previous year: €40 million). The contributions paid by employer to state pension plans amount to €338 million (previous year: €311 million) in the financial year 2015.

All other pension plans are defined benefit plans. The US companies’ obligations for healthcare costs for employees after they retire (medical care plans) are also defined benefit obligations and are included in the provisions on the balance sheet. For all of the retirement benefit plans, a distinction must be made as to whether these are financed through an external investment fund or not.

Net Defined Benefit Liability Recognized in the Balance Sheet  

in € millions12/31/201512/31/2014
Present value of defined benefit obligation of unfunded plans8401,905
Present value of defined benefit obligation of funded plans3,1202,314
Total present value of defined benefit obligation3,9604,219
Fair value of plan assets(2,365)(1,624)
Net defined benefit liability recognized in the balance sheet1,5952,595
thereof provisions for pensions1,6072,596
thereof other assets121

During the financial year and in the previous year, the asset ceiling prescribed by IAS 19.64 did not impact other comprehensive income.

Provisions are recognized for these defined benefit plans. These are mostly flat salary plans and final salary plans.

Defined Benefit Plans  

in € millions12/31/201512/31/2014
Flat salary plans/plans with fixed amounts2,1842,404
Final salary plans1,1641,217
Career average plans374366
Other commitments given174166
Medical care plans6466
Present value of defined benefit obligation3,9604,219
thereof capital commitments216213

The defined benefit obligation and the plan assets can be broken down by geographical areas as follows:

Breakdown of Defined Benefit Obligation and Plan Assets by Geographical Areas  

in € millions12/31/201512/31/2014
Germany3,0523,326
United Kingdom493478
United States216207
Other European countries176184
Other countries2324
Present value of defined benefit obligation3,9604,219
in € millions12/31/201512/31/2014
Germany1,6851,011
United Kingdom501451
United States123109
Other European countries4541
Other countries1112
Fair value of plan assets2,3651,624

The obligations and plan assets available for the existing pension plans are, in some cases, exposed to demographic, economic and legal risks. The demographic risks are primarily the longevity risk for pensioners. Economic risks include, in this respect, mostly unforeseeable developments on the capital markets and the associated impacts on plan assets and pension obligations. Legal risks can result from restrictions to investments and minimum funding requirements. In order to substantially minimize these risks, a Group-wide pension guideline was introduced in 2004. This stipulates that all new pension plans are, as a rule, only to be designed as defined contribution plans so that the charges from benefit commitments are always acceptable, calculable and transparent, and so that no risks can arise that the company cannot influence. In addition, the Bertelsmann Group aims, in particular, to transfer existing final salary-related pension agreements to plans with fixed amounts and capital commitments that are independent from trends. As a result of these measures, the obligations are almost entirely due to the plans that have been closed.

The Bertelsmann Group has minimum funding obligations for the plans in the United States and United Kingdom. The pension plan in the United States is subject to the minimum funding agreements according to the “Employee Retirement Income Security Act of 1974” (ERISA). In general, the aim under this agreement is for a fully funded pension plan so that the annual contributions to the plan assets are limited to the pension entitlements that the insured employee has earned during the year, as is the case for a defined contribution plan. If the pension obligations are not fully covered by the plan assets, an additional amount sufficient to ensure full financing over a seven-year period must be applied in excess of this contribution. The plans in the United Kingdom are subject to the “Pensions Act 2004,” which includes reviewing the full financing of the pension plan from an actuarial perspective every three years with annual monitoring and, if necessary, eliminating any deficits that may have arisen by means of further additions to plan assets. There are no other material regulatory conditions over and above the minimum funding regulations in the United States and United Kingdom.

Furthermore, one Group entity in the United States participated in a multiemployer plan with other non-affiliated companies until December 31, 2014. As the relevant information required to account for this as a defined benefit plan was neither available on time nor available to a sufficient extent, this benefit plan was carried in the Consolidated Financial Statements in line with the requirements for defined contribution benefit plans. In the financial year 2015, Bertelsmann declared the withdrawal from the plan with retrospective effect from January 1, 2015. The resulting withdrawal liability shall be settled by a lump sum for which a provision in the amount of €16 million was recognized in 2014. Further negotiations concerning the agreement of the withdrawal modalities have not yet begun.

The provisions are determined using actuarial formulas in accordance with IAS 19. The amount of provisions depends on employees’ length of service with the company and their pensionable salary. Provisions are computed using the projected unit credit method, in which the benefit entitlement earned is allocated to each year of service, thus assuming an increasing cost of service in comparison to the entry age normal method. When identifying the present value of the pension obligation, the underlying interest rate is of material importance. In the Bertelsmann Group, this is based on the “Mercer Yield Curve Approach.” With this approach, separate spot rate yield curves are created for the eurozone, the United Kingdom and the United States on the basis of high-quality corporate bonds. In order to appropriately present the time value of money in accordance with IAS 19.84, the basis does not consider either spikes for which the risk estimate may be substantially higher or lower or bonds with embedded options that distort interest rates. As in the previous year, the biometric calculations in Germany are based on the 2005 G mortality tables issued by Prof. Klaus Heubeck.

Further significant actuarial assumptions are assumed as follows:

Actuarial Assumptions  

12/31/201512/31/2014
GermanyForeignGermanyForeign
Discount rate2.58%3.63%1.98%3.34%
Rate of salary increase2.25%3.26%2.25%3.73%
Rate of pension increase1.74%1.70%1.73%1.70%

An increase or decrease of one percentage point in the assumptions set out above compared with the assumptions actually applied would have had the following effects on the defined benefit obligation as of December 31, 2015:

Effect of Actuarial Assumptions  

in € millionsIncreaseDecrease
Effect of 0.5 percentage point change in discount rate(303)341
Effect of 0.5 percentage point change in rate of salary increase44(39)
Effect of 0.5 percentage point change in rate of pension increase152(136)
Effect of change in average life expectancy by one year127(127)

In order to determine the sensitivity of the longevity, the mortality rates for all beneficiaries were reduced or increased evenly, so that the life expectancy of a person of a countryspecific retirement age increases or decreases by one year.

Changes in the present value of defined benefit obligations and plan assets in the reporting period were as follows:

Changes in Defined Benefit Obligations and Plan Assets  

in € millions20152014
Present value of defined benefit obligation on 1/14,2193,272
Current service cost7861
Past service cost1(7)
Interest expenses97123
Actuarial gains (-) and losses (+)
– changes in financial assumptions(316)833
– changes in demographic assumptions(12)18
– experience adjustments(29)(13)
Gains (-) or losses (+) from settlements1
Cash effects from settlements(7)
Pension payments paid by employer(112)(109)
Contributions to plan assets by employees54
Pension payments from the plan assets(25)(19)
Changes of consolidation scope(2)(31)
Currency translation differences5853
Other changes(2)40
Present value of defined benefit obligation on 12/313,9604,219
 
Fair value of plan assets on 1/11,6241,449
Interest income4459
Remeasurement component(7)45
Settlements(5)(7)
Contributions by employer68935
Contributions by employees54
Pension payments from the plan assets(25)(19)
Changes of consolidation scope(2)
Currency translation differences4541
Other changes(3)17
Fair value of plan assets on 12/312,3651,624
 
Funded status1,5952,595

Of the contributions to plan assets, €653 million (previous year: €11 million) pertains to Germany. Employer contributions to plan assets are expected to amount to €28 million in the next financial year.

In Germany, reimbursement rights for defined benefit obligations in the amount of €21 million (previous year: €22 million) mostly relate to reinsurance, which is not pledged to the pension beneficiary. Reimbursement rights are carried under the balance sheet item “Trade receivables and other receivables.”

Of the expenses for defined benefit plans in the amount of €132 million (previous year: €119 million), €79 million (previous year: €55 million) was recognized under the item “Personnel expenses” and €53 million (previous year: €64 million) under “Other financial expenses” and “Other financial income.” The past service cost and losses from settlements recognized under “Personnel expenses” totaled €1 million. The €-6 million recognized in the previous year was mostly due to curtailments of plans for medical care at Be Printers USA. The expenses are broken down as follows:

Expenses for Defined Benefit Plans  

in € millions20152014
Current service cost7861
Past service cost and impact from settlement1(6)
Net interest expenses5364
Net pension expenses132119

The portfolio structure of plan assets is composed as follows:

Portfolio Structure of Plan Assets  

in € millions12/31/201512/31/2014
Equity instruments1)653492
Debt instruments1)1,310903
Other funds6791
Qualifying insurance policies125117
Cash and cash equivalents19814
Property66
Derivatives4(2)
Other23
Fair value of plan assets2,3651,624

All plan assets in the Bertelsmann Group are used exclusively for the fulfillment of benefit obligations. In order to avoid a concentration of risk, plan assets are invested in various classes of investments. The majority of plan assets are managed by Bertelsmann Pension Trust e. V. under a contractual trust arrangement (CTA) for pension commitments of Bertelsmann SE & Co. KGaA and some of the German subsidiaries. There is no funding requirement for the CTA. A voluntary contribution in the amount of €650 million was made to plan assets during the reporting period. The trust assets were invested in accordance with the investment guideline of the beneficiary, using a long-term total return approach. This approach is based on the aim of using strategic asset allocation to generate a suitable return in the long term regardless of short-term market fluctuations and/or crises. The management board of the pension trust is responsible for the investment and regularly informs the beneficiary of the status and performance of the pension assets.

Net defined benefit liability recognized in the balance sheet changed as follows:

Change in Net Defined Benefit Liability Recognized in the Balance Sheet  

in € millions20152014
Net defined benefit liability recognized in the balance sheet at 1/12,5951,823
Net pension expenses132119
Remeasurement component of defined benefit plans(350)793
Pension payments(112)(109)
Contributions to plan assets(689)(35)
Changes of consolidation scope(31)
Currency translation differences1312
Other effects623
Net defined benefit liability recognized in the balance sheet at 12/311,5952,595

The weighted average duration of the pension obligations on December 31, 2015, was 17 years (previous year: 17 years).

The maturity profile of the anticipated non-discounted pension payments can be seen in the following table:

Maturity Profile of Pension Payments  

in € millions2015
Expected maturities
Less than 1 year144
1 to less than 2 years144
2 to less than 3 years153
3 to less than 4 years158
4 to less than 5 years165
5 to less than 10 years872

Obligations similar to pensions relate to provisions for bonuses for employee service anniversaries, amounts due but not yet paid to defined contribution plans, and severance payments at retirement. Severance payments at retirement are made when employees leave the company and are based on statutory obligations, primarily in Italy and Austria. Provisions for employee service anniversary bonuses and severance payments at retirement are recognized in the same way as defined benefit plans, but with actuarial gains and losses recognized in profit or loss. Employees in Germany who are at least 55 years old and have a permanent employment contract with the company qualify for the old-age part-time schemes. The partial retirement phase lasts two to five years.

The following table shows the breakdown in obligations similar to pensions:

Breakdown of Obligations Similar to Pensions  

in € millions12/31/201512/31/2014
Provisions for old-age part-time schemes3538
Provisions for severance payments3532
Provisions for employee service anniversaries2828
Other44
Obligations similar to pensions102102