Investor Presentaiton
CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CAPITAL STRUCTURE
5.7. EMPLOYEE BENEFITS
KONE operates various employee benefit plans throughout its
locations. These plans include both defined contribution and
defined benefit schemes. The pension benefits provided by
KONE to its employees are primarily organized through
defined contribution plans.
KONE's most significant funded defined benefit plans are
in the United Kingdom and in the United States. Defined
benefit pension plans are funded by KONE to satisfy local
statutory funding requirements. The assets are managed by
external fund managers. The funds are allocated between
equities and fixed income instruments in order to provide
return at target level and limited risk profile. The valuations of
the obligations are carried out by independent qualified
actuaries. The discount rates used in actuarial calculations of
the employee benefit liabilities are adjusted to market rates.
In the United Kingdom, the pension scheme is designed
according to the Definitive Trust Deed and Rules and
complies with the guidelines of the UK Pension Regulator.
The pension scheme has been closed for new members as of
March 2002 and is managed through KONE Pension Trustees
Ltd.
In the United States, a part of KONE's employees are
members in the Employees' Retirement Plan, which is a
funded defined benefit plan. The plan is managed by KONE
Inc.'s Pension Committee. In addition to this pension plan,
KONE also provides post-employment medical and life
insurance benefits. These predominantly unfunded other post-
employment benefit plans qualify as defined benefit plans
under IFRS. KONE is also a participant in a multi-employer
employee benefit plan in the United States. In this defined
contribution plan KONE pays a contribution based on the
hours worked by participating employees, KONE's obligation
is limited to this payment.
KONE's main unfunded defined benefit plans are in
Germany, Italy (TFR Trattamento di Fine Rapporto,
termination indemnity plan) and in Sweden. The pension
schemes in Germany and the TFR plan in Italy are closed for
new entrants. In Sweden, the pension cover is organized
through defined contribution as well as unfunded defined
benefit plans (ITP system, Industrins och handelns
tilläggspension).
KONE has defined contribution plans for pensions and
other post-employment benefits in most countries. Under
defined contribution plans KONE's contributions are recorded
as an expense in the accounting period to which they relate.
Recognition of a liability is not required because KONE's
obligation is limited to the payment of the contributions into
these plans or funds.
The defined contribution pension plan in Finland is the
statutory Finnish employee pension scheme (Finnish
Statutory Employment Pension Scheme "TyEL"), according to
which the benefits are directly linked to the beneficiary's
earnings. TyEL is arranged through pension insurance
companies.
Defined benefit obligations expose KONE to various risks.
Corporate bond yields are used as a reference in determining
the discount rates used for calculation of defined benefit plan
related obligations. A decrease in corporate bond yields
hence will increase the present value of the defined benefit
obligation. A plan deficit can occur if the performance of the
plan assets is below the above-mentioned yield. These
potential deficits may require further contributions to the plan
assets by the Group.
Some of the Group's defined benefit obligations are linked
to general inflation and salary level development. Higher level
of inflation and salary level will result in a higher present value
of the benefit obligation.
Some of the defined benefit plans obligate KONE to
provide benefits to plan members for their lifetime. Therefore,
any increase in life expectancy will increase defined benefit
liability of these plans.
Accounting principles
Employee benefits
The Group operates various employee benefit plans in
accordance with local conditions and practices. The
plans are classified as either defined contribution
plans or defined benefit plans. The pension plans are
generally funded by payments from employees and by
the relevant KONE companies. The assets of these
plans are generally held in separate insurance
companies or trustee-administered funds. Pension
costs and liabilities are based on calculations by the
local authorities or independent qualified actuaries.
Contributions to the defined contribution plans are
charged directly to the statement of income in the year
to which these contributions relate. For defined benefit
plans, pension cost is determined based on the advice
of qualified actuaries who carry out a full valuation of
the plan on a regular basis using the projected unit
credit method. Under this method, the costs of
providing pensions are charged to the statement of
income so as to spread the regular costs over the
working lives of employees. KONE presents the
service cost relating to defined benefit obligations in
employment expenses while the net interest is
presented in financing expenses.
The liability arising from the defined benefit post-
employment plans is the present value of the defined
benefit obligation less the fair value of plan assets.
The discount rates used in the actuarial calculations of
employee benefits liabilities are adjusted to market
rates. Obligations to pay long-term disability benefit,
the level of which is dependent on the length of
service of the employee, are measured to reflect the
probability that payments will be required and the
length of service for which it is expected to be made.
74
KONE ANNUAL REVIEW 2021View entire presentation