ERIC » Topics » PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS

This excerpt taken from the ERIC 20-F filed May 18, 2006.

PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS

Pensions and other post-employment benefits are classified as either defined contribution plans or defined benefit plans. Under a defined contribution plan, the company’s only obligation is to pay a fixed amount to a separate entity (a fund), and will have no obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits. The related actuarial and investment risk falls on the employee. Under a defined benefit plan it is the Company’s obligation to provide agreed benefits to current and former employees. The related actuarial and investment risks fall on the Company.

The present value of the defined benefit obligations for current and former employees is calculated using the Projected Unit Credit Method. The calculations are based upon actuarial assumptions and are as a minimum prepared annually. Actuarial assumptions are the Company’s best estimate of the variables that determine the cost of providing the benefits. When using actuarial assumptions, it is possible that the actual result will differ from the estimated result. These differences are reported as actuarial gains and losses. They are for example caused by unexpectedly high or low rates of employee turnover, changed life expectancy, salary changes, the effect of changes in the discount rate and differences between actual return on plan assets and the expected return on plan assets. Actuarial gains and losses are amortized over the employees expected average remaining service period if the gains/ losses exceed the greater of 10 percent of the present value of the defined benefit obligation or 10 percent of the fair value of plan assets at the beginning of period (the corridor).

The net of return on plan assets and interest on pension liabilities is reported as financial income or expense.

This excerpt taken from the ERIC 20-F filed Mar 23, 2005.

Pensions and other post-employment benefits

 

Pensions are classified either as defined contribution plans or defined benefit plans. Under a defined benefit plan it is the company’s obligation to provide agreed benefits to current and former employees. The related actuarial and investment risks fall on the company, while under a defined contribution plan the company’s obligation is limited to agreed amounts that the company has to contribute to an insurance company.

 

Ericsson adopted RR 29 Employee Benefits in 2004. When applying RR 29, defined benefit plans in all subsidiary companies within Ericsson are accounted for using the same actuarial method. In the financial reporting for Ericsson before 2004, such plans have been accounted for in accordance with local rules and principles in each country.

 

The present value of the defined benefit obligation for current and former employees is calculated using the Projected Credit Unit Method. The calculations are based upon actuarial assumptions and are as a minimum prepared annually. Actuarial assumptions are the company’s best estimate of the variables that determine the cost of providing the benefits. When using actuarial assumptions it is possible that the actual result differ from the assumed result. These differences are actuarial gains and losses. They are for example caused by unexpectedly high or low rates of employee turnover, salary changes, the effect of changes in the discount rate and differences between actual return on plan assets and the expected return on plan assets. Actuarial gains and losses are amortized over the employees average remaining service period if the gains/losses exceed the greater of 10 percent of the present value of the defined benefit obligation or 10 percent of the fair value of plan assets at the beginning of period (the corridor). The accounting for defined contribution plans has not been affected by the adoption of RR 29 in 2004.

 

The adoption of RR 29 increased the provision for pensions by SEK 1.8 billion and decreased the equity by SEK – 1.3 billion, net of tax.

 

In the Parent Company the ITP pension plan is accounted for in accordance with FAR 4.

 

EXCERPTS ON THIS PAGE:

20-F
May 18, 2006
20-F
Mar 23, 2005
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