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This chapter is covered by the Auditors' Report.

C17 Post-Employment Benefits

Ericsson sponsors a number of post-employment benefit plans throughout the Group, which are in line with market practice in each country. The year 2008 was characterized by the economic turmoil affecting the return on plan assets and the fluctuation of discount rates.

This note is divided into the following sections:

1. Amount Recognized in the Consolidated Balance Sheet
2. Total Pension Expenses Recognized in the Income Statement
3. Change in the Defined Benefit Obligation, DBO
4. Change in the Plan Assets
5. Actuarial Gains and Losses Reported Directly in Equity (SORIE)
6. Actuarial Assumptions
7. Summary Information on Pension Plans per Geographical Zone

Section One: Amount Recognized in the Consolidated Balance Sheet

Sweden UK Euro zone US Other Total
2008
Defined benefit obligation (DBO) 1) 14,866 4,867 3,557 2,789 1,931 28,010
Fair value of plan assets 2) 8,181 4,407 2,330 2,289 1,830 19,037
Deficit/Surplus (+/–) 6,685 460 1,227 500 101 8,973
Unrecognized past service costs – – 1 – –75 –74
Closing balance 6,685 460 1,228 500 26 8,899
Plans with net surplus 3) – 35 304 171 464 974
Provision for post-employment benefits 4) 6,685 495 1,532 671 490 9,873
2007
Defined benefit obligation (DBO) 1) 12,512 5,606 3,079 2,238 1,791 25,226
Fair value of plan assets 2) 9,463 4,854 2,104 1,779 2,036 20,236
Deficit/Surplus (+/–) 3,049 752 975 459 –245 4,990
Unrecognized past service costs – – – – –83 –83
Closing balance 3,049 752 975 459 –328 4,907
Plans with net surplus 3) – 39 426 99 717 1,281
Provision for post-employment benefits 4) 3,049 791 1,401 558 389 6,188
1) For details on DBO, please refer to section three of this note.
2) For details on plan assets, please refer to section four of this note.
3) Plans with a net surplus, i.e. where plan assets exceed DBO, are reported as Other financial assets, non-current (please see Note C12 “Financial Assets”). None of the Company’s plans with net surplus are affected by restrictions on asset recognition.
4) Plans with net liabilities are reported in the Balance Sheet as Post-employment benefits, non-current.

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Section Two: Total Pension Expenses Recognized in the Income Statement

The expenses for post-employment benefits within Ericsson are distributed between defined contribution plans and defined benefit plans, with a trend toward defined contribution plans.

Sweden UK Euro zone US Other Total
2008
Pension cost for defined contribution plans 1,607 40 345 114 72 2,178
Pension cost for defined benefit plans 1) 625 156 179 35 33 1,028
Total 2,232 196 524 149 105 3,206
Total pension cost expressed as a percentage of wages and salaries 8.3%
2007
Pension cost for defined contribution plans 1,166 265 370 105 148 2,054
Pension cost for defined benefit plans 1) 471 279 128 42 100 1,020
Total 1,637 544 498 147 248 3,074
Total pension cost expressed as a percentage of wages and salaries 9.0%
2006
Pension cost for defined contribution plans 1,350 – 195 93 82 1,720
Pension cost for defined benefit plans 1) 347 249 300 49 44 989
Total 1,697 249 495 142 126 2,709
Total pension cost expressed as a percentage of wages and salaries 8.4%
1) See cost details in table below.

Cost details for Defined Benefit Plans Recognized in The Income Statement
Sweden UK Euro zone US Other Total
2008
Current service cost 539 186 141 29 122 1,017
Interest cost 549 299 160 142 133 1,283
Expected return on plan assets –431 –310 –143 –137 –201 –1,222
Past service cost – – 11 – 8 19
Curtailments and settlements –32 –19 10 1 –29 –69
Total 625 156 179 35 33 1,028
2007
Current service cost 473 257 186 33 140 1,089
Interest cost 435 307 135 139 109 1,125
Expected return on plan assets –412 –285 –125 –135 –163 –1,120
Past service cost – – – 3 8 11
Curtailments and settlements –25 – –68 2 6 –85
Total 471 279 128 42 100 1,020
2006
Current service cost 431 228 279 47 92 1,077
Interest cost 406 177 133 146 104 966
Expected return on plan assets –352 –169 –103 –140 –145 –909
Past service cost – 31 – 5 13 49
Curtailments and settlements –138 –18 –9 –9 –20 –194
Total 347 249 300 49 44 989

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Sections three to six focus on the defined benefit plans

Section Three: Change in the Defined Benefit Obligation, DBO

The DBO is the gross pension liability.

Sweden UK Euro zone US Other Total
2008
Opening balance 12,512 5,606 3,079 2,238 1,791 25,226
Current service cost 539 186 141 29 122 1,017
Interest cost 549 299 160 142 133 1,283
Employee contributions – 43 4 – 12 59
Pension payments –74 –87 –133 –144 –86 –524
Actuarial gain/loss (–/+) 1,372 –436 –185 38 25 814
Settlements – – – – –16 –16
Curtailments –32 –19 10 1 –13 –53
Business combinations 1) – – –14 – – –14
Other – –7 7 19 –7 12
Translation difference – –718 488 466 –30 206
Closing balance 14,866 4,867 3,557 2,789 1,931 28,010
Of which medical benefit schemes – – – 639 – 639
2007
Opening balance 11,772 5,713 3,241 2,399 1,487 24,612
Current service cost 473 257 186 33 140 1,089
Interest cost 435 307 135 139 109 1,125
Employee contributions – 59 4 – 15 78
Pension payments –72 –119 –89 –195 –68 –543
Actuarial gain/loss (–/+) –71 –777 –482 –12 83 –1,259
Settlements – – – –2 –40 –42
Curtailments –25 – –68 2 6 –85
Business combinations 1) – 440 20 – –6 454
Other – –8 –9 22 –42 –37
Translation difference – –266 141 –148 107 –166
Closing balance 12,512 5,606 3,079 2,238 1,791 25,226
Of which medical benefit schemes – – – 533 – 533
1) Business combinations in 2008 are related to the divestiture of the Enterprise Business. Business combinations in 2007 are related to the acquisition of Tandberg Television ASA.

Funded Status

The funded ratio, defined as total plan assets in relation to the total defined benefit obligation (DBO), was 68.0 percent in 2008, compared to 80.2 percent in 2007.

The following table summarizes the value of the DBO per geographical area in relation to whether or not there are plan assets wholly or partially funding each pension plan.

Sweden UK Euro zone US Other Total
2008
DBO, closing balance 14,866 4,867 3,557 2,789 1,931 28,010
Of which partially or fully funded 14,375 4,867 2,355 2,118 1,522 25,237
Of which unfunded 491 – 1,202 671 409 2,773
2007
DBO, closing balance 12,512 5,606 3,079 2,238 1,791 25,226
Of which partially or fully funded 12,043 5,606 1,945 1,680 1,440 22,714
Of which unfunded 469 – 1,134 558 351 2,512

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Section Four: Change in the Plan Assets

A majority of pension plans have assets managed by local Pension Trust funds, whose sole purpose is to secure the future pension payments to the employees.

Sweden UK Euro zone US Other Total
2008
Opening balance 9,463 4,854 2,104 1,779 2,036 20,236
Expected return on plan assets 431 310 143 137 201 1,222
Actuarial gain/loss (+/–) –1,713 –595 –343 19 –320 –2,952
Employer contributions – 527 132 61 85 805
Employee contributions – 43 4 – 12 59
Pension payments – –95 –30 –88 –73 –286
Settlements – – – – –16 –16
Business combinations 1) – – –2 – – –2
Other – – – – –5 –5
Translation difference – –637 322 381 –90 –24
Closing balance 8,181 4,407 2,330 2,289 1,830 19,037
2007
Opening balance 9,141 3,897 1,959 1,818 1,580 18,395
Expected return on plan assets 412 285 125 135 163 1,120
Actuarial gain/loss (+/–) –89 – –173 73 130 –59
Employer contributions –1 622 128 13 83 845
Employee contributions – 59 4 – 15 78
Pension payments – –127 –19 –142 –55 –343
Settlements – – – –2 –41 –43
Business combinations 1) – 349 – – 3 352
Other – – –10 – –18 –28
Translation difference – –231 90 –116 176 –81
Closing balance 9,463 4,854 2,104 1,779 2,036 20,236
1) Business combinations in 2008 are related to the divestiture of the Enterprise Business. Business combinations in 2007 are related to the acquisition of Tandberg Television ASA.

Refunds from or reductions in future contributions to plan assets are recognized if they are available and firmly decided.

Actual Return On Plan Assets
Sweden UK Euro zone US Other Total
2008 –1,283 –284 –200 156 –119 –1,730
2007 323 285 –48 208 293 1,061

Asset Allocation
Sweden UK Euro zone US Other Total
2008
Equities 2,577 1,674 900 831 306 6,288
Interest-bearing securities 5,604 2,161 1,291 1,256 1,258 11,570
Other – 572 139 202 266 1,179
Total 8,181 4,407 2,330 2,289 1,830 19,037
Of which Ericsson securities – – – – – –
2007
Equities 2,943 1,874 1,159 1,442 479 7,897
Interest-bearing securities 6,520 2,387 847 316 1,381 11,451
Other – 593 98 21 176 888
Total 9,463 4,854 2,104 1,779 2,036 20,236
Of which Ericsson securities – – – – – –

Equity instruments amount to 33 percent of the total assets, interest bearing instruments amount to 60.8 percent of the total assets, and other instruments amount to 6.2 percent of the total assets.

The expected contributions to the defined benefit plans during 2009 will be slightly higher than in 2008.

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Section Five: Actuarial Gains and Losses Reported Directly in Equity

2008 2007
Cumulative gain/loss (–/+) at beginning of year 1,806 3,065
Recognized gain/loss (–/+) during the year 3,765 –1,200
Other 1) –7 –4
Translation difference –162 –55
Cumulative gain/loss (–/+) at end of year 5,402 1,806
1) The gain in 2008 is related to terminated pension plans. The gain in 2007 is related to the acquisition of Tandberg Television ASA.

Since January 1, 2006, Ericsson applies immediate recognition of actuarial gains and losses directly in equity, as disclosed in the statement of recognized income and expense (SORIE). Actuarial gains and losses may arise from either a change in actuarial assumptions or in deviations between estimated and actual outcome.

Multi-year Summary
2008 2007 2006 2005 2004
Plan assets 19,037 20,236 18,395 16,784 5,764
DBO 28,010 25,226 24,612 22,314 16,820
Deficit/Surplus (–/+) –8,973 –4,990 –6,217 –5,530 –11,056
Actuarial gains and losses (–/+)
Experience-based adjustments of pension obligations 57 –76 232 –415 –56
Experience-based adjustments of plan assets 2,952 59 –358 –706 –146

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Section Six: Actuarial Assumptions

Sweden UK Euro zone 1) US Other 1)
2008
Discount rate 4.00% 5.50% 5.86% 6.25% 8.53%
Expected return on plan assets for the year 4.55% 6.40% 6.51% 7.50% 10.05%
Future salary increases 3.25% 4.30% 3.00% 4.50% 6.81%
Inflation 2.00% 3.00% 2.25% 2.50% 4.23%
Health care cost inflation, current year n/a n/a n/a 9.00% n/a
Life expectancy after age 65 in years, males 21 21 22 18 18
Life expectancy after age 65 in years, females 24 24 25 20 22
2007
Discount rate 4.40% 5.60% 5.42% 6.25% 8.84%
Expected return on plan assets for the year 4.55% 6.75% 6.14% 7.50% 9.75%
Future salary increases 3.25% 4.60% 3.08% 4.50% 6.76%
Inflation 2.00% 3.30% 2.17% 2.50% 4.10%
Health care cost inflation, current year n/a n/a n/a 9.50% n/a
Life expectancy after age 65 in years, males 21 21 22 18 18
Life expectancy after age 65 in years, females 24 24 25 20 22
1) Weighted average
  • Actuarial assumptions are assessed on a quarterly basis.
  • The discount rate for each country is determined by reference to market yields on high-quality corporate bonds. In countries where there is no deep market in such bonds, the market yields on government bonds are used.
  • The overall expected long-term return on plan assets is a weighted average of each asset category’s expected rate of return. The expected return on interest-bearing investments is set in line with each country’s market yield. Expected return on equities is derived from each country’s risk free rate with the addition of a risk premium.
  • Salary increases are partially affected by fluctuations in inflation rate.
  • The net periodic pension cost and the present value of the DBO for current and former employees are calculated using the Projected Unit Credit (PUC) actuarial cost method, where the objective is to spread the cost of each employee’s benefits over the period that the employee works for the company.

Sensitivity Analysis for Medical Benefit Schemes

The effect (in SEK million) of a one percentage point change in the assumed trend rate of medical cost would have the following effect:

1 percent increase 1 percent decrease
Net periodic post-employment medical cost 3 –3
Accumulated post-employment benefit obligation for medical costs 57 –50

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Section Seven: Summary Information on Pension Plans per Geographical Zone

Applicable to all countries: In 2008, the global economic turmoil has led to an overall lower than expected performance of plan assets, resulting in a significant actuarial loss and a decrease in the total value of the plan assets. The actuarial loss on plan assets is the difference between the expected return on plan assets and the actual return on plan assets. The expected return for 2008 was a positive SEK 1,222 million, and the actual return was a negative SEK 1,730 million. Consequently the actuarial loss was a SEK 2,952 million. Changes in discount rate have also resulted in an overall actuarial loss, and an increase in the defined benefit obligation. All geographical regions were affected by the actuarial loss on plan assets. Mostly affected by the actuarial loss on both plan assets and defined benefit obligation was Sweden.

Sweden:

In 2008, the Swedish discount rate decreased, resulting in an increase in the defined benefit obligation and an actuarial loss. Sweden was also negatively affected by the performance of the plan assets, which has resulted in a decrease in the value of the assets and an actuarial loss. The voluntary redundancy plans reduced the defined benefit obligation by SEK 32 million.

As before, Ericsson has secured the disability- and survivors’ pension part of the ITP Plan through an insurance solution with the insurance company Alecta. Although this part of the plan is classified as a multi-employer defined benefit plan, it has not been possible for Ericsson to get sufficient information to apply defined benefit accounting, and therefore, it has been accounted for as a defined contribution plan. At the end of 2008, Alecta reported a surplus of 12 procent (52 percent in 2007). Such surplus reflects the fair value of Alecta’s plan assets as a percentage of plan commitments, then measured in accordance with Alecta’s actuarial assumptions, which are different from those in IAS 19. Alecta’s surplus may be distributed to the members of the plan and/or plan participants.

UK:

The decrease in the future salary increases’ percentage resulted in an actuarial gain, while the decrease in discount rate resulted in an actuarial loss. These two changes together resulted in an overall decrease in the defined benefit obligation, and consequently an actuarial gain.

Euro zone:

Germany, Italy and Ireland are the countries with the most significant defined benefit pension plans within the Euro zone.

The discount rate for the Euro zone increased, resulting in a decrease in the defined benefit obligation and an actuarial gain. The divestment of the Enterprise business decreased the defined benefit obligation by SEK 14 million.

US:

The discount rate is unchanged compared to 2007. The actuarial loss was purely due to experience-based adjustments of pension obligations and plan assets.

Other:

Brazil is the country included in Other with the most significant defined benefit pension plan.

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US:

The discount rate is unchanged compared to 2007. The actuarial loss was purely due to experience-based adjustments of pension obligations and plan assets.

Other:

Brazil is the country included in Other with the most significant defined benefit pension plan.

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