Note 23 – Employee Benefit Liabilities Audited

The tables below reconcile the Group’s employee benefit liabilities in the balance sheet as well as the related re-measurement in the statement of other comprehensive income:

million CHF

2016 2015
Defined benefit pension plans (see note 23.1) 673 694
Post-employment medical benefits (see note 23.2) 40 38
Non-current vacation accrual (Swiss entities) 3 3
Other employee benefit liabilities 1 3
Total 717 738


million CHF

2016 2015

Remeasurement for:

Defined-benefit pension plans (see note 23.1) 36 60
Post-employment medical benefits (see note 23.2) 1 (2)
Total 37 58


23.1 Defined-Benefit Pension Plans

The group operates defined-benefit pension plans in various countries, with the major plans being in Switzerland, Great Britain and the United States (as described below). For pension accounting purposes, these plans are considered as defined-benefit plans.

Pension Plan in Switzerland

The Group’s Swiss pension plan is governed by the Swiss Federal Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG), and is funded through a legally separate trustee-administered pension fund (Pensionskasse der Lonza). The Board of Trustees is responsible for the investment of the assets, which cannot revert to the Company. The cash funding of these plans, which may from time to time involve special payments, is designed to ensure that present and future contributions should be sufficient to meet future liabilities.

The plan contains a cash balance benefit formula, accounted for as a defined-benefit plan. Employer and employee contributions are defined in the pension fund rules in terms of an age-related sliding scale of percentages of pay. Under Swiss law, the company guarantees the vested benefit amount as confirmed annually to members. Interest may be added to member balances at the discretion of the Board of Trustees. The risks linked to retirement benefits (disability and death) have been reinsured until 31 December 2017. The investment risk is not reinsured.

Retirement benefits are based on the accumulated retirement capital (made up of yearly contributions and the interest thereon), which can either be drawn as a life-long annuity or as a lump sum payment or a combination of both. The annuity is calculated by multiplying the retirement capital with the applicable conversion rate defined in the fund rules. The Board of Trustees may adjust the annuity at its discretion subject to the plan’s funded status including sufficient free funds as determined according to Swiss statutory valuation rules.

Retirement benefits and related plan assets of plan participants with a retirement date on or before 31 December 2007 were transferred to an insurance company. The insurance company guarantees these retirement benefits and bears the investment, death and disability risks.

Pension Plan in the UK

The Group operates two major plans in the UK, the Hickson UK Group Pension Scheme and the Lonza Biologics Pension Scheme. Both plans are closed to new entrants. In addition, both schemes are registered schemes under UK legislation, are contracted out of the State Second Pension and are subject to the scheme funding requirements outlined in UK legislation.

The Hickson UK Group Pension Scheme is the defined-benefit pension plan of the UK Arch Chemicals business. Pensions are linked to final salaries and service, and statutory inflation increases apply, except where contractually different. Ongoing contributions are sufficient to fund current accrual rates, and a deficit recovery plan has been in place for a number of years to recover any shortfall in funding. The fund is managed by a corporate trustee body, which oversees investment strategy and general regulatory compliance. It also maintains a set of assumptions around mortality and returns on investments as well as cost inflation.

The Lonza Biologics Pension Scheme provides pensions in retirement and death benefits to members. Pension benefits are linked to a member’s final salary at retirement and their length of service. The Trustees are responsible for the operation and the governance of the Scheme, including making decisions regarding the Scheme’s funding and investment strategy in conjunction with the Employer.

Pension Plans in the United States  

Lonza currently sponsors three qualified defined-benefit pension plans in the United States. In recent years, two existing pension plans were merged into the Employees’ Retirement Plan of Lonza Inc., thereby reducing the number of stand-alone defined-benefit pension plans from five to three.  All of the defined-benefit pension plans are fully frozen with respect to future benefit accruals (with the exception of a small group of participants in the collectively bargained pension plan for Williamsport union employees who had attained age 50 as of June 30, 2010 who continue to accrue benefits under the plan). All eligible U.S. employees currently participate in a defined-contribution retirement plan.

As of December 31, 2016, the Pension Plan of Arch Chemicals and the Employees’ Retirement Plan of Lonza Inc. purchased a Group Annuity Contract and transferred the related liability and plan assets for a selected group of retirees (approximately 1,500) from two of the pension plans to Voya Retirement Insurance and Annuity Company, resulting in a settlement gain of CHF 1 million.

Pension benefits for the majority of U.S. pension plan participants are generally based on final average pay and credited service as of the date of termination or as of the date benefit accruals were frozen (if earlier), and are payable as a lifetime pension. The collectively bargained pension plan for the Williamsport Union employees is a multiplier plan which uses a flat dollar amount multiplied by a years-of-service formula. Participants in the Cash Balance formula under the Pension Plan of Arch Chemicals are covered under an account-based formula that is credited each year with interest based on the yield on ten-year U.S. Treasury securities.  Participants in these plans may commence benefit payments upon attainment of normal retirement age or, if applicable, as of an early retirement age (usually age 55) provided the criteria for early retirement have been met as of the participant’s termination of employment with the Company.  Participants in the Cash Balance plan may elect to commence benefits upon termination of employment either in a single lump sum or as a lifetime annuity, or they may defer payment to a later date.

Pension benefit payments from the qualified pension plans are paid from a trustee-administered fund; however, there are also some small, non-qualified, unfunded plans where Lonza meets the benefit payment obligation as such benefits become due. The qualified defined-benefit plans, whose assets are held in a master trust, are subject to minimum funding requirements and are subject to further regulation under the Internal Revenue Code and the Employees Retirement Income Security Act of 1974 (ERISA). Responsibility for governance of these qualified plans lies with a committee of pension plan fiduciaries appointed by Lonza. Actuarial valuations are completed each year for each plan to determine the contribution requirement. The minimum annual contribution for each plan is equal to the present value of benefits accrued each year (if any), plus expected administrative expenses of the plan to be paid from the trust, plus a rolling amortization of any prior underfunding. The plan sponsor may elect to contribute more than the minimum, in which case the excess amounts may under certain circumstances be used to offset future funding requirements.

The movement in the net defined-benefit liability over 2015–2016 is as follows:

million CHF Defined-benefit obligation Fair value of plan assets Net defined-benefit liability
At 1 January 2015 3,033 (2,359) 674

Included in profit or loss

Current service cost 49 0 49
Past service credit (41) 0 (41)
Interest expense / (income) 66 (50) 16

Included in other comprehensive income

Actuarial loss / (gain) arising from:      
– Demographic assumptions (9) 0 (9)
– Financial assumptions (17) 0 (17)
– Experience adjustment 123 0 123
Return on plan assets excluding interest income 0 (37) (37)
Remeasurements loss / (gain) 97 (37) 60
Effect of movements in exchange rates (40) 30 (10)


Contributions paid:      
– Employers 0 (54) (54)
– Plan participants 17 (17) 0
Benefits paid (115) 115 0
At 31 December 2015 1 3,066 (2,372) 694

Included in profit or loss

Current service cost 46 0 46
Gains on settlements (58) 57 (1)
Interest expense / (income) 63 (48) 15

Included in other comprehensive income

Actuarial loss / (gain) arising from:      
– Demographic assumptions (19) 0 (19)
– Financial assumptions 202 0 202
– Experience adjustment 44 0 44
Return on plan assets excluding interest income 0 (191) (191)
Remeasurements loss / (gain) 227 (191) 36
Effect of movements in exchange rates (75) 71 (4)


Contributions paid:      
– Employers 0 (97) (97)
– Plan participants 18 (18) 0
Benefits paid (117) 117 0
Reclassification to liabilities held for sale (25) 9 (16)
At 31 December 2016 2 3,145 (2,472) 673


As a result of a plan amendment of the Swiss plan (reduction of the conversion rate), the Group recognized a past service credit of CHF 41 million for the 2015 financial year.

The Group expects to pay CHF 62 million in contributions to defined-benefit pension plans in 2017.

The defined-benefit obligation and plan assets are disaggregated by country as follows:

million CHF 2016 2015
  CH US UK Rest of
the world
Total CH US UK Rest of
the world
Present value of defined-benefit obligation 1,847 563 712 23 3,145 1,761 602 666 37 3,066
Fair value of plan assets (1,516) (375) (572) (9) (2,472) (1,409) (401) (550) (12) (2,372)
Total net defined-benefit liability 331 188 140 14 673 352 201 116 25 694


The significant actuarial assumptions at the reporting date (expressed as weighted averages) were as follows:


Assumptions regarding future mortality are based on actuarial advice in accordance with published statistics and experience in each territory1. These assumptions translate into an average life expectancy in years for a pensioner retiring at age 65:

The sensitivity of the defined-benefit obligation to changes in the relevant actuarial assumptions is:


The above sensitivity analyses are based on a change in an assumption while keeping all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. 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 at the end of the reporting period) has been applied as when calculating the pension liability recognized within the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analyses did not change compared with the previous period.

At 31 December the weighted average duration of the defined-benefit obligation for the major plans as well as the Group in total is:

in years 2016 2015
Group 15.8 14.8
CH 14.8 13.8
UK 20.8 19.2
US 12.1 12.2


Plan assets comprise:

million CHF 2016 2015
  Quoted Unquoted Total % Quoted Unquoted Total %
Equity instruments 708 0 708 28 703 0 703 30
Debt instruments                
Investment-grade (AAA to BBB) 1,007 0 1,007   946 102 1,048  
Non-investment-grade (below BBB-) 39 0 39   40 0 40  
  1,046 0 1,046 42 986 102 1,088 46
Real-estate 112 78 190 8 109 75 184 8
Cash and cash equivalents 90 0 90 4 81 0 81 3
Other 420 18 438 18 311 5 316 13
Total 2,376 96 2,472 100% 2,190 182 2,372 100%


23.2 Post-Employment Medical Benefits

Lonza’s post-employment medical benefit plans are not funded and are provided under defined-benefit plans. They consist of post-retirement healthcare benefits in the United States, such as drug coverage and other medical benefits, as well as limited death benefits.

The post-retirement healthcare plans are not open to new members and grandfathered participants must meet specific age / service requirements to participate.

The movements in the defined-benefit obligation are as follows:

million CHF 2016 2015
At 1 January 38 47

Included in profit or loss

Current service cost 1 1
Past service credit 0 (6)
Interest expense 1 1

Included in other comprehensive income

Remeasurements loss / (gain)    
Actuarial loss / (gain) arising from:    
– Demographic assumptions (1) (1)
– Financial assumptions 1 0
– Experience adjustment 1 (1)
Total remeasurements loss / (gain) 1 (2)

Effect of movements in exchange rates

1 0


Contributions paid by:    
– Plan participants 0 2
Benefits paid (2) (5)
At 31 December 40 38


In 2015 the plans were amended. As a result of changes of the cost-sharing structure, the Group recognized a past service credit of CHF 6 million.

The significant actuarial assumptions were as follows:

in % 2016 2015
Discount rate 3.99 4.27
Medical-cost trend rate 6.60 7.00


The sensitivity of the defined-benefit obligation to changes in the relevant actuarial assumptions is:


For the medical plan the same mortality assumptions are applied as for the pension plans in the United States (see 23.1). In addition, the sensitivity analyses are based on the same methodology as for the pension plans.