9 Employee benefit plans

The defined benefit obligations for the active members of pension plans is the present value of accrued pension obligations at balance sheet date considering future salary and pension increases as well as turnover rates (using the project unit credit method). The defined benefit assets/obligations for the retirees are the present value of the current and future pension benefits considering future pension increases.

Reconciliation of the amount recognized in the balance sheet as of December 31

The group operates major funded defined benefit pension plans in Switzerland, the UK and the USA. Unfunded defined benefit plans relate to German pension benefit plans. The plans are exposed to actuarial risks, e.g., longevity risk, currency risk and interest rate risk, and the funded plans additionally to market (investment) risk.

In Switzerland, the group contributes to two pension plans funded via two different pension funds, i.e., a base plan for all employees and a supplementary plan for employees with salaries exceeding a certain limit. Both plans provide benefits depending on the pension savings at retirement. They include certain legal minimum interest credits to the pension savings (i.e. investment return) and guaranteed rates of conversion of pension savings into an annuity at retirement. In addition, the plans offer death in service and disability benefits. The two pension funds are collective funds administrating pension plans of group companies and also unrelated companies. In case of a material underfunding of the pension plans, the regulations include predefined steps, such as higher contributions by employer and employees or lower interest on pension savings, to eliminate the underfunding. The pension funds are legally separated from the group. The vast majority of the active participants in the two pension funds are employed by companies not belonging to the group. The Board of Trustees for the base plan comprises 10 employee representatives and 10 employer representatives. The average discount rate increased in 2021 compared to 2020 (from 0.2% to 0.4% for active employees and from 0.1% to 0.3% for pensioners). The plan assets decreased compared to 2020 due to the spin-off of the Applicator Systems division. The total expenses recognized in the income statement in 2021 were CHF 16.6 million (2020: CHF 19.0 million).

In the UK, the plan is a final salary plan and provides benefits linked to salary at closure to future accrual adjusted for inflation to retirement or earlier date of leaving service. The scheme is fully closed to new entrants and future accruals. The scheme is managed by six trustees forming the Board. The plan is a multiemployer scheme with Sulzer (UK) Holding being the principal sponsor. The discount rate increased in 2021 by 0.5 percentage points to 2.0% (2020: 1.5%). The net pension liabilities decreased from CHF 139.9 million in 2020 to CHF 109.2 million due to the higher discount rate and changes in the demographic assumptions. The total expenses recognized in the income statement in 2021 were CHF 3.0 million, compared to CHF 3.3 million in 2020.

In the USA, the group operates non-contributory defined benefit retirement plans. The salaried plans provide benefits that are based on years of service and the employee’s compensation, averaged over the five highest consecutive years preceding retirement. The hourly plans’ benefits are based on years of service and a flat dollar benefit multiplier. All plans were closed for new entrants. In 2021, an expense of CHF 1.1 million was recognized in the income statement (2020: CHF 1.3 million). The discount rate increased in 2021 to 2.5% (2020: 2.2%). The amount recognized in other comprehensive income (OCI) in 2021 was CHF –1.0 million (2020: CHF –4.2 million).

In Germany, the group operates a range of different defined benefit pension plans. The majority of these plans are unfunded and benefits are paid directly by the employer to the beneficiaries as they become due. All defined benefit plans are closed for new entrants and a new defined contribution plan for all employees was introduced in 2007. Existing employees who participated in the defined benefit plans continued to be eligible for these defined benefit pensions but also became eligible for the new defined contribution pensions. However, benefits received under the defined contribution plan are offset against the benefits under the defined benefit plans. The different defined benefit plans offer retirement pension, disability pension and survivor’s pension benefits.

Employee benefit plans

Employee benefit plans

Employee benefit plans

Since the defined benefit obligations for the Swiss and UK pension plans represents 89% (2020: 89%) of the group, the following significant actuarial assumptions apply exclusively to these two countries:

Principal actuarial assumptions as of December 31

Sensitivity analysis of defined benefit obligations