GERMANY – Industrial giant Bayer expects to gain a one-time bonus of €200m in the third quarter, mostly as a result of changes to its US pension plan.
Unveiling its first-half results, Bayer said the changes concerned moving more of its US employees to defined contribution from defined benefits.
Under a DC scheme, employees set aside part of their monthly earnings for retirement, while the employer can choose whether it wants to subsidise the employees. In a DB scheme, still more typical in Germany than in the US, the employer simply provides the employee with a corporate pension.
Bayer also said a small part of the €200m bonus arose from changes to its German pension plan but did not detail these adjustments.
According to its 2004 annual report, Bayer had €13.9bn in pension liabilities worldwide at the end of December. Of that total, €5.27bn are financed by on-balance sheet assets, while the remaining €8.71bn are financed by external funds.
In Germany, the company’s main pension fund vehicle is Bayer Pensionskasse, which, at the end of December, had €4.9bn in assets. Bayer said in March that to meet its long-term liabilities, the pension fund had altered its investment strategy “to better manage downside risks.” It was not more specific.
As with other Pensionskassen, the German regulator BaFin requires that Bayer’s vehicle not invest more than 35% in equities. Within that portion, there is an additional 5% cap on investment in hedge funds.
However, currently, virtually no Pensionskassen has exhausted its equity allotment for fear of failing to meet a guaranteed annual return of 2.75% for their members. As a result, the vehicles have between 70% to 90% invested in fixed income.