25. Provisions for pensions and other post-employment benefits

The provisions for pensions and other post-employment benefits in Germany and other countries as of the closing date are as shown in the following table:

Provisions for Pensions and Other Post-Employment Benefits					[Table 4.63]
	Pensions		Other post-employment benefits		Total
	Dec 31, 2008	Dec 31, 2009	Dec 31, 2008	Dec 31, 2009	Dec 31, 2008	Dec 31, 2009
	€ million	€ million	€ million	€ million	€ million	€ million
Germany	4,557	4,866	109	71	4,666	4,937
Other countries	1,197	1,130	484	450	1,681	1,580
Total	5,754	5,996	593	521	6,347	6,517

The expenses for defined benefit pension plans and other post-employment benefit obligations are comprised as follows:

Expenses for Defined Benefit Pension Plans					[Table 4.64]
	Germany		Other countries		Total
	2008	2009	2008	2009	2008	2009
	€ million	€ million	€ million	€ million	€ million	€ million
Current service cost	134	108	48	47	182	155
Past service cost	(9)	(14)	(2)	(2)	(11)	(16)
Interest cost	567	611	232	240	799	851
Expected return on plan assets	(307)	(300)	(267)	(200)	(574)	(500)
Plan curtailments	-	-	(3)	2	(3)	2
Plan settlements	-	-	1	(1)	1	(1)
Total	385	405	9	86	394	491

Expenses for Other Post-Employment Benefit Obligations					[Table 4.65]
	Germany		Other countries		Total
	2008	2009	2008	2009	2008	2009
	€ million	€ million	€ million	€ million	€ million	€ million
Current service cost	9	6	17	18	26	24
Past service cost	-	-	-	1	-	1
Interest cost	6	3	47	47	53	50
Expected return on plan assets	-	-	(28)	(21)	(28)	(21)
Plan curtailments	-	-	-	(1)	-	(1)
Plan settlements	-	-	-	-	-	-
Total	15	9	36	44	51	53

The status of unfunded and funded defined benefit obligations is as follows:

Click on the table to enlarge.

Of the defined benefit obligation for pensions, €5,006 million (2008: €4,799 million) relates to unfunded benefit obligations while €10,104 million (2008: €9,272 million) relates to funded benefit obligations. Of the defined benefit obligation for other post-employment benefits, €176 million (2008: €185 million) relates to unfunded benefit obligations while €645 million (2008: €654 million) relates to funded benefit obligations.

Of the funded pension plans, total overfunding of individual plans amounts to €111 million (2008: €366 million) while underfunding amounts to €986 million (2008: €955 million). Similarly, other funded post-employment benefit obligations of individual funds are underfunded by €341 million (2008: €404 million). Other unfunded post-employment benefit obligations relate mainly to early retirement benefits in Germany.

The Bayer Group has set up funded pension plans for its employees in many countries. Since the legal and tax requirements and economic conditions may vary considerably between countries, assets are managed according to country-specific principles.

Bayer-Pensionskasse VVaG (Bayer-Pensionskasse) in Germany is by far the most significant of the pension funds. This legally independent fund is a private insurance company and is therefore subject to the German Law on the Supervision of Private Insurance Companies. Under the German law on secondary liability, Bayer guarantees the pension entitlements of employees who are members of benefit plans in Germany. Bayer-Pensionskasse is classified as a defined benefit plan for IFRS purposes.

The investment policy of Bayer-Pensionskasse is geared to compliance with regulatory provisions and to the risk structure resulting from its obligations. In light of capital market movements, Bayer-Pensionskasse has therefore developed a strategic target investment portfolio aligned to its risk structure. Its investment strategy is focused primarily on stringently managing risks rather than on maximizing absolute returns. It is anticipated that with this investment policy, Bayer-Pensionskasse can generate a return that enables it to meet its long-term commitments.

A large proportion of the benefit obligations of Bayer Schering Pharma AG, Berlin, Germany, which was acquired in 2006, is covered by Schering Altersversorgung Treuhand Verein. Here too, the investment strategy is geared to the structure of the corresponding obligations. It permits the use of derivatives; nearly all currency risks are fully hedged. With the aid of a risk management system, stress scenarios are simulated and other risk analyses are undertaken (e.g. value at risk).

For plan assets in other countries as well, the key investment strategy criteria are the structure of the benefit obligations and the risk profile. Other determinants are risk diversification, portfolio efficiency and a country-specific and global balance of opportunity and risk designed primarily to ensure the payment of all future benefits.

The weighted parameters used to value the plan assets to cover pensions and other post-employment benefit obligations were allocated as follows at year end:

Plan Assets to Cover Pension Obligations as of December 31			[Table 4.67]
	Germany		Other countries
	2008	2009	2008	2009
	%	%	%	%
Equity securities	17.68	19.54	37.94	42.60
Debt securities	60.73	59.97	50.17	46.61
Real estate and special real estate funds	8.83	9.08	1.80	1.43
Other	12.76	11.41	10.09	9.36
Total	100.00	100.00	100.00	100.00

Plan Assets to Cover Other Post-Employment Benefit Obligations as of December 31			[Table 4.68]
	Germany		Other countries
	2008	2009	2008	2009
	%	%	%	%
Equity securities	-	-	39.38	45.20
Debt securities	-	-	44.53	35.18
Real estate and special real estate funds	-	-	-	-
Other	-	-	16.09	19.62
Total	-	-	100.00	100.00

The fair value of the plan assets includes real estate leased by Bayer, recognized at a fair value of €78 million (2008: €74 million), and Bayer shares held through investment funds, recognized at their market value of €30 million (2008: €14 million). The other plan assets principally comprise mortgage loans granted, other receivables, fixed-term deposits and cash and cash equivalents.

The following weighted parameters were used to value the pension obligations as of December 31 and the expense for pensions and other post-employment benefits in the respective year:

Parameters for Benefit Obligations					[Table 4.69]
	Germany		Other countries		Total
	2008	2009	2008	2009	2008	2009
	%	%	%	%	%	%
Pension obligations
Discount rate	6.00	5.50	6.30	5.90	6.10	5.60
Projected future remuneration increases	3.00	2.50	4.00	4.15	3.25	2.95
Projected future benefit increases	2.00	1.75	2.95	3.50	2.25	2.25
Other post-employment benefit obligations
Discount rate	6.40	3.10	6.45	6.20	6.45	5.95

Parameters for Benefit Expense					[Table 4.70]
	Germany		Other countries		Total
	2008	2009	2008	2009	2008	2009
	%	%	%	%	%	%
Pension obligations
Discount rate	5.50	6.00	6.45	6.30	5.75	6.10
Projected future remuneration increases	2.85	3.00	4.65	4.00	3.10	3.25
Projected future benefit increases	1.75	2.00	3.25	2.95	1.95	2.25
Expected return on plan assets	4.75	5.00	7.45	7.50	5.55	5.85
Other post-employment benefit obligations
Discount rate	5.10	6.40	6.85	6.45	6.55	6.45
Expected return on plan assets	-	-	8.25	8.25	8.25	8.25

The discount rate for pension obligations in other countries is influenced mainly by the rates of 5.8% (2008: 6.2%) and 5.7% (2008: 6.4%) applicable for the United States and the United Kingdom, respectively.

Altering individual parameters by 0.5 percentage points while leaving the other parameters unchanged would impact pension and other post-employment benefit obligations as of year end 2009 as follows:

Sensitivity of Benefit Obligations					[Table 4.71]
	Germany		Other countries		Total
	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease
	€ million	€ million	€ million	€ million	€ million	€ million
Pension obligations
Change in discount rate	(683)	765	(255)	281	(938)	1,046
Change in projected future remuneration increases	69	(62)	30	(31)	99	(93)
Change in projected future benefit increases	498	(460)	41	(80)	539	(540)
Other post-employment benefit obligations
Change in discount rate	(1)	1	(40)	44	(41)	45

Altering individual parameters by 0.5 percentage points while leaving the other parameters unchanged would impact benefit expense in 2010 as follows:

Sensitivity of Benefit Expense					[Table 4.72]
	Germany		Other countries		Total
	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease
	€ million	€ million	€ million	€ million	€ million	€ million
Pension obligations
Change in discount rate	(4)	4	(9)	9	(13)	13
Change in projected future remuneration increases	8	(7)	3	(3)	11	(10)
Change in projected future benefit increases	34	(31)	2	(2)	36	(33)
Change in expected return on plan assets	(30)	30	(16)	16	(46)	46
Other post-employment benefit obligations
Change in discount rate	-	-	(1)	1	(1)	1
Change in expected return on plan assets	-	-	(2)	2	(2)	2

Provisions are also set up for the obligations, mainly of U.S. subsidiaries, to provide post-employment benefits in the form of health care cost payments to retirees. The valuation of health care costs is based on the assumption that they will increase at a rate of 10% (assumption in 2008: 11%), which should gradually decline to 5% by 2017 (assumption in 2008: 5% by 2016). The following table shows the impact on other post-employment benefit obligations and total benefit expense of a one-percentage-point change in the assumed cost increase rates:

Sensitivity to Health Care Cost Increases		[Table 4.73]
	Increase of one percentage point	Decrease of one percentage point
	€ million	€ million
Impact on other post-employment benefit obligations	83	(70)
Impact on benefit expense	8	(7)

The following payments were made in 2009 and 2008, and are expected to be made in 2010, for employer contributions to funded and unfunded pension plans that provide pensions and other post-employment benefits:

Employer Contributions Paid or Expected	[Table 4.74]
	Germany			Other countries
	2008	2009	2010 expected	2008	2009	2010 expected
	€ million	€ million	€ million	€ million	€ million	€ million
Pension obligations	311	303	451	100	141	292
Other post-employment benefit obligations	47	47	41	35	45	44
Total	358	350	492	135	186	336

Pensions and other post-employment benefits payable in the future are estimated as follows:

Future Benefit Obligations					[Table 4.75]
	Germany		Other countries		Total
	Pension obligations	Other post- employment benefit obligations	Pension obligations	Other post- employment benefit obligations	Pension obligations	Other post- employment benefit obligations
	€ million	€ million	€ million	€ million	€ million	€ million
2010	582	41	213	43	795	84
2011	597	14	211	44	808	58
2012	618	3	217	47	835	50
2013	639	2	200	49	839	51
2014	664	2	207	52	871	54
2015 – 2019	3,718	9	1,195	289	4,913	298

The actuarial gains and losses related to defined benefit obligations and plan assets, reflected in the statement of changes in equity and recognized in the statement of comprehensive income, are as follows:

Click on the table to enlarge.

In Germany, no unrealized gains/losses exist in relation to other post-employment benefit obligations.

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