21. Pensions and similar obligations

Provisions for pension benefit plans and similar obligations are comprised of the following components:

Defined pension benefit plans

The Group provides pension benefits with defined entitlements to almost all of its employees, which have to be accounted for as defined benefit plans and are funded in large part with assets. Starting in 2008, the majority of the active employees are entitled to pay-related defined pension benefits. Under these plans, employees earn benefits for each year of service. The benefits earned per year of service are dependent on the salary level and age of the respective employees. 

Funded status. The following information with respect to the Group’s pension plans is presented separately for German plans and non-German plans. In 2006 and 2005, the non-German plans were principally comprised of plans in the United States still including the Chrysler plans. In 2007, as a result of the deconsolidation of Chrysler, the Group’s provisions for pension benefits and the corresponding plan assets decreased significantly.

The funded status has developed since 2005 as follows:

Show table: Funded status

The reconciliation of the funded status to the net amounts recognized in the consolidated statement of financial position is as follows:

Show table: Reconciliation of the funded status to the net amounts recognized in the consolidated statement of financial position

The development of the present value of the defined pension benefit obligations and the fair value of plan assets is as follows:

Show table: Development of the present value of the defined pension benefit obligations and the fair value of plan assets

The experience related adjustments, which are the differences between the earlier actuarial assumptions applied and actual developments, are as shown in the following table (based on the pension benefit plans and plan assets at December 31):

Plan assets. At December 31, 2009, plan assets were invested in diversified portfolios that consisted primarily of debt and equity securities. Plan assets and income from plan assets are used solely to pay pension benefits and to administer the plans. The Group’s plan asset allocations are presented in the following table:

Alternative investments consist of private equity and debt investments as well as investments in commodities and hedge funds.

Assumptions. The measurement date for the Group’s pension benefit obligations and plan assets is generally December 31. The measurement date for the Group’s net periodic pension cost is generally January 1. The assumptions used to calculate the projected benefit obligations together with long-term rates of return on plan assets vary according to the economic conditions of the country in which the pension plans are situated.

The Group used the following weighted average assumptions to determine pension benefit obligations:

The Group used the following weighted average assumptions to determine net periodic pension cost:

Discount rates. The discount rates for German and non-German pension plans are determined annually as of December 31 on the basis of high-quality corporate bonds with maturities and values matching those of the pension payments.

Expected return on plan assets. The expected long-term rates of return for German and non-German plan assets are primarily derived from the asset allocations of plan assets and expected future returns for the various asset classes in the portfolios. Temporary variability in the asset allocations of plan assets does not result in adjustments of the expected long-term rates of return. Our investment committees survey banks and large asset portfolio managers about their expectations for future returns for the relevant market indices. The allocation-weighted average return expectations serve as an initial indicator for the expected rate of return on plan assets for each pension fund.

In addition, Daimler considers long-term actual plan assets’ results and historical market returns in its evaluation in order to reflect the long-term character of the plan assets.

Multi-employer plans. Daimler participates in some collectively bargained defined benefit pension plans maintained by more than one employer. The Group accounts for these plans as defined contribution plans because the information required to use defined benefit accounting is not available in a timely manner and in sufficient detail. The Group can not exercise direct control over such plans and the plan-trustees have no legal obligation to share information directly with participating employers. Based on available information, Daimler’s share in the underfunded status of the plans (difference between liabilities and assets), as of the beginning of 2009 amounted to €0.1 billion. Higher contributions by the Group to such a pension plan could result in particular when the underfunded status exceeds a specific level.

Net pension cost (income). The components of net pension cost (income) for the continued and discontinued operations were as follows:

Show table: Net pension cost (income)

Net pension cost is included in the following line items within the consolidated statements of income (loss):

Expected payments. In 2010, Daimler expects to make cash contributions of €0.3 billion to its pension plans. In addition, the Group expects to make pension benefit payments of €0.1 billion under pension benefit schemes without plan assets.

Defined pension contribution plans

At Daimler, the payments made under defined pension contribution plans are primarily related to government-run pension plans. In 2009, the total cost from payments made under defined contribution plans amounted to €1.0 billion (2008: €1.0 billion; 2007: €1.2 billion).

Other post-employment benefits

Certain foreign subsidiaries of Daimler provide their employees with post-employment health and life-insurance benefits with defined entitlements, which have to be accounted for as defined benefit plans. As a result of the deconsolidation of the Chrysler activities in 2007, the Group’s benefit obligations and net benefit costs under other post-employment benefit plans are no longer material to the Group’s continuing operations.

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