26. Retirement benefit obligations/pension liabilities

Retirement benefit obligations result mainly from two German pension plans and a Swiss post-employment benefit plan.

The German defined benefit pension plan for NORMA Group employees was closed for new entrants in 1990 and provides benefits in case of retirement, disability, and death as life-long pension payments. The benefit entitlements depend on years of service and salary. The portion of salary that is above the income threshold for social security contribution leads to higher benefit entitlements compared to the portion of the salary up to that threshold. Even if no further benefits can be earned from these old commitments, NORMA Group is still exposed to certain actuarial risks associated with defined benefit plans, such as longevity and remuneration increases. Due to the amount of the obligation and the composition of the plan participants, approximately 96% pensioners, a significant change in the actuarial assumptions would have no significant impacts on NORMA Group.

Employees hired after 1990 are eligible under a defined contribution scheme. The contributions are paid into an insurance contract providing lump sum payments in case of retirements and deaths.

Furthermore, a plan for members of the Management Board was established in fiscal year 2015. This second German defined benefit plan is based on a direct commitment to an annual retirement payment for members of the Management Board of NORMA Group when having joined before fiscal year 2020. The annual retirement payment is measured as a percentage of the pensionable income. The pension entitlement arises when the contract has expired, but not before reaching the age of 65 or if incapacity for work arises. The percentage depends on the number of years of service as a member of the Management Board. The percentage amounts to 4% of the last fixed annual salary prior to leaving for each completed year of service. The percentage can increase to a maximum of 55%. Furthermore, a survivor’s pension will be provided as well.

The obligations arising from the plan are subject to certain actuarial risks associated with defined benefit plans, such as longevity and remuneration increases. Please see the Remuneration Report for further details with regard to this plan REMUNERATION REPORT.

Besides the German plans, there is a further benefit plan in Switzerland resulting from the Swiss ‘Berufliches Vorsorgegesetz’ law (BVG). According to the BVG, each employer has to grant post-employment benefits for qualifying employees. The plan is a capital-based plan under which the Company has to make contributions equivalent to at least the limits specified in the plan conditions for employee contributions. These plans are administered by foundations that are legally separated from the entity and subject to the BVG. The Group has outsourced the investment process to a foundation, which sets the strategic asset allocation in its group life portfolio [KollektivLeben-Portfolio]. All regulatory granted obligations out of the plan are reinsured by an insurance company. This covers risks of disability, death and longevity. Furthermore, there is a 100% capital and interest guarantee for the retirement assets invested. In the case of a shortfall, the employer and plan participants’ contribution may be increased based on the decisions of the relevant foundation board. Strategies of the foundation boards to make up for potential shortfalls are subject to approval by the regulator.

Besides the plans described in Germany and Switzerland, NORMA Group also participates in a multi-employer pension plan in the US for the benefit of employees of one of its US-based plants. NORMA Group’s obligation to participate in the fund arises from the agreement with the employees’ labor organization. The Plan is governed by U.S. federal law, under which the Plan is administered in trust on behalf of contributing employers and employee beneficiaries. The multi-employer pension plan is a defined benefit plan and would normally be treated as such based on its associated actuarial estimates; however, the plan trustees do not provide the participating employers with sufficient information to individually account for the plan (or their portioned participation therein) as a defined benefit plan. For this reason, the plan is being treated in accordance with the rules for defined contribution pension plans (IAS 19.34). The share of contributions that NORMA Group paid to the pension schemes in the previous fiscal year amounted to EUR 1.4 million (2023: EUR 1.5 million). Contributions to the plan are recognized directly in employee benefits expenses for the period. Future changes to the contributions, if any, would be determined through negotiations with the workers’ organization or as they may be slightly modified from time to time by regulation. Apart from the agreed contributions, NORMA Group has no firm commitment to this plan. Conditionally, in the unlikely event that NORMA Group withdraws from the fund or a significant employer in the fund experiences a major solvency event, additional future contribution payment obligations could arise. The funded status of the multi-employer plan is reported annually by the US Department of Labor, and is influenced by various factors, including fund assets, investment performance, inflation, changes in demographics and changes in the participants’ levels of performance.

In the immediately preceding years, the plan was significantly underfunded and was in a “critical and declining” state. NORMA Group (and the other contributing employers) bore a combined potential future payment obligation corresponding to this underfunding. In 2023, the plan received a “special grant” of USD 994 million from the US government under the American Rescue Plan Act of 2021 (“ARPA”). It is currently assumed that the plan will be fully financed by 2051. Under the terms of the ARPA, the potential future payment obligation of NORMA and the other contributing employers will not be reduced immediately by USD 994 million accordingly, but the USD 994 million will be used pro rata temporis over a period of ten years to reduce the unfunded vested rights of the plan. ARPA also requires the plan to use a lower interest rate to value its unfunded vested benefits for the period in which the $994 million is phased in, which may offset the direct benefit of the $994 million grant in calculating a particular employer's potential future payment obligation.

The expected employer contributions to the pension schemes for the following year 2025 amount to EUR 1.4 million.

 

Reconciliation of defined benefit obligations (DBO) and plan assets

The amounts included in the Group’s Consolidated Financial Statements arising from its post-employment defined benefit plans are as follows:

The reconciliation of the net defined benefit liability (liability in the Statement of Financial Position) is as follows:

A detailed reconciliation of the changes in the DBO is provided in the following table:

The total defined benefit obligation at the end of the past fiscal year includes EUR 4,193 thousand for active employees, EUR 5,538 thousand for former employees with vested benefits and EUR 6,754 thousand for retirees and surviving dependents.

The slight increase in pension obligations mainly resulted from the Group-wide adjustment of the discount factor of the liabilities due to the slightly lower interest rate level in Germany, Poland and Switzerland. This change is reflected in the actuarial gains and losses from financial assumptions.

A detailed reconciliation of the changes in the fair value of plan assets is provided in the following table:

From fiscal year 2022 on, the partial reinsurance of pension obligations under the plan for members of the Management Board was effected by taking out corresponding reinsurance policies. The payments for these are included under the item “Employer contributions.”

 

Breakdown of plan assets

The breakdown of the plan assets of the benefit plans is as follows:

Cash deposits and equity securities have quoted prices in active markets. The values for insurance contracts represent their fair value. No quoted prices in an active market are available for these.

 

Actuarial assumptions

The principal actuarial assumptions are as follows:

The biometric assumptions are based on the 2018 G Heubeck life-expectancy tables for the German plan and on the life-expectancy tables of the BVG 2020 G for the Swiss plan. The tables are generation tables and hence differ according to gender, status and year of birth.

 

Sensitivity analysis

If the discount rate were to differ by 0.25% upwards or 0.25% downwards from the interest rate recognized on the reporting date, the carrying amount of the pension obligation would be an estimated EUR 384 thousand lower or EUR 411 thousand higher. If the pension trend were to differ by 0.25% upwards or downwards from management’s estimates, the carrying amount of the pension obligation would be an estimated EUR 262 thousand higher or EUR 253 thousand lower. The reduction / increase in the mortality rates by 10% results in an increase / deduction in life expectancy depending on the individual age of each beneficiary. That means, for example, that the life expectancy of a male NORMA Group employee age 55 years as of December 31, 2024, increases / decreases by approximately one year. In order to determine the longevity sensitivity, the mortality rates were reduced / increased by 10% for all beneficiaries. The effect on DBO as of December 31, 2024, due to a 10% reduction / increase in mortality rates would result in an increase of EUR 302 thousand or a decrease of EUR 342 thousand.

When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method) has been applied as when calculating the post-employment benefit obligation recognized in the Consolidated Statement of Financial Position. Increases and decreases in the discount rate or rate of pension progression which are used in determining the DBO do not have a symmetrical effect on the DBO due to the compound interest effect created when determining the net present value of the future benefit. If more than one of the assumptions are changed simultaneously, the combined impact due to the changes would not necessarily be the same as the sum of the individual effects due to the changes. If the assumptions change at a different level, the impact on the DBO is not necessarily in a linear relation.

 

Future cash flows

Employer contributions expected to be paid to the post-employment defined benefit plans in fiscal year 2025 amount to EUR 245 thousand (2023: EUR 263 thousand).

The expected payments from the plans for post-employment benefits are distributed as follows for the next 10 fiscal years, whereby the last 5 years are shown as a total:

The weighted average duration of the defined benefit obligation is 12.30 years (2023: 12.78 years).