Dutch electronics giant Philips predicts a e1.2bn cut in benefit obligations – as well as ongoing savings – as a result of a shift to average-salary pensions agreed earlier this year.
Koninklijke Philips Electronics reached an agreement in principle with Dutch trade unions on 30 January. This was ratified by the union and the trustees of the Philips Pension Fund on 31 March, the company said.
“The agreed change from a final-pay to an average-pay pension system in the Netherlands, which incorporates a limitation of the indexation, results in a reduction of the company’s projected benefit obligation by e766m effective the end of March 2004,” the company said.
And the transfer of existing pension obligations into a pre-pensioning fund would lead to a further reduction of projected benefit obligations of e468m. There would be a corresponding reduction of pension plan assets of e480m.
“After these changes, total plan assets for the Netherlands amounted to e12.4bn and the total projected benefit obligation for the Netherlands was approximately e11.1bn per the end of the first quarter of 2004,” Philips said in an earnings release.
The new agreement would result in around e36m of pension cost savings a quarter.
The company said the agreement, which affects current and former employees, would mean “a more balanced distribution of pension burdens between the company and its employees”.
Philips reported first-quarter net income was e550m, compared with a loss of e69m a year earlier.
“As we proceed through 2004, we’ll need to begin gradually shifting the emphasis from repairing and regrouping, to building and expanding our company,” said president and chief executive Gerard Kleisterlee.