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The actuarial gains recognised at 31 December 2013 (Euro
1 million) mainly relate to the change in the associated
economic parameters (the discount and inflation rates).
Under Italian law, the amount due to each employee accrues
with service and is paid when the employee leaves the
company. The amount due upon termination of employment
is calculated on the basis of the length of service and
the taxable remuneration of each employee. The liability
is adjusted annually for the official cost of living index
and statutory interest, and is not subject to any vesting
conditions or periods, or any funding obligation; there are
therefore no assets that fund this liability.
The rules governing this liability were revised by Legislative
Decree 252/2005 and Law 296/2006 (Finance Act 2007):
amounts accruing since 2007 by companies with at least
50 employees now have to be paid into the INPS Treasury
Fund or to supplementary pension schemes, as decided by
employees, which now take the form of “defined contribution
The following table presents a sensitivity analysis of the effects of an increase/decrease in the most significant actuarial
assumptions used to determine the present value of benefit obligations, namely the interest rate and inflation rate.
plans”. All the Group Italian companies nonetheless still
account for revaluations of amounts accrued before 2007,
while those companies with fewer than 50 employees
continue to accrue amounts in respect of this liability that are
not intended for supplementary pension schemes.
The benefits relating to this plan are paid to participants in
the form of capital, in accordance with the related rules. The
plan also allows partial advances to be paid against the full
amount of the accrued benefit in specific circumstances.
The main risk is the volatility of the inflation rate and the
interest rate, as determined by the market yield on AA
corporate bonds denominated in Euro. Another risk factor
is the possibility that members leave the plan or that higher
advance payments than expected are requested, resulting
in an actuarial loss for the plan, due to an acceleration
of cash flows.
The actuarial assumptions used to value employee indemnity
liability are as follows:
31 December 2013
31 December 2012
Interest rate
3.00%
2.75%
Expected future salary increase
2.00%
2.00%
Inflation rate
2.00%
2.00%
31 December 2013
decrease - 0.50%
increase + 0.50%
Interest rate
+5.23%
-4.80%
decrease - 0.25%
increase + 0.25%
Inflation rate
-2.58%
+2.64%
MEDICAL BENEFIT PLANS
Some Group companies provide medical benefit plans for
retired employees. In particular, the Group finances medical
benefit plans in Brazil, Canada and the United States. The
plans in the United States account for approximately 80% of
the total obligation for medical benefit plans.
Apart from interest rate and life expectancy risks, medical
benefit plans are particularly susceptible to increases in the
cost of meeting claims. None of the medical benefit plans has
any assets to fund the associated obligations, with benefits
paid directly by the employer.
As noted earlier, the US medical benefit plans account for the
majority of the benefit obligation. These plans are not subject
to the same level of legal protection as pension funds. The
enactment of important health care legislation in the United
States (the Affordable Care Act, also known as “ObamaCare”)
could result in a reduction of costs and risks associated with
these plans, as plan members move to individual forms of
insurance. Currently the new reform has had no impact on
liabilities and costs.
