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Pension Plans
 12 Months Ended
Dec. 31, 2012
Pension Plans [Abstract]  
Pension Plans

Note 9.     Pension Plans

 

United Kingdom plan

 

The Company maintains a defined benefit pension plan (the “Plan”) covering a number of its current and former employees in the United Kingdom, although it does also have other much smaller pension arrangements in the U.S. and overseas. The Plan is closed to future service accrual but has a large number of deferred and current pensioners. The Projected Benefit Obligation (“PBO”) is based on final salary and years of credited service reduced by social security benefits according to a plan formula. Normal retirement age is 65 but provisions are made for early retirement. The Plan’s assets are invested by two investment management companies in funds holding United Kingdom and overseas equities, United Kingdom and overseas fixed interest securities, index linked securities, property unit trusts and cash or cash equivalents. The trustees’ investment policy is to seek to achieve specified objectives through investing in a suitable mixture of real and monetary assets. The trustees recognize that the returns on real assets, while expected to be greater over the long-term than those on monetary assets, are likely to be more volatile. A mixture across asset classes should nevertheless provide the level of returns required by the Plan to meet its liabilities at an acceptable level of risk for the trustees and an acceptable level of cost to the Company.

 

The Company closed the Plan to future service accrual with effect from March 31, 2010 and accordingly we recorded a non-cash curtailment loss of $8.2 million in the first quarter of 2010. During the second quarter of 2010 the Company implemented a pension increase exchange (“PIE”) program for current pensioners, effective April 1, 2010, which reduced the PBO by $17.1 million. This reduction in PBO resulted in a prior service credit which is being amortized using the straight-line method over the remaining life expectancy of Plan pensioners of 15 years commencing April 1, 2010. The PIE program provided pensioners with the option of receiving a one-off immediate increase to their pension in lieu of future non-statutory increases. During the fourth quarter of 2010 the Company implemented an enhanced transfer value (“ETV”) program for deferred pensioners which reduced the PBO by $15.7 million and resulted in a settlement loss of $1.1 million. The ETV program provided deferred pensioners with the option of transferring their existing pension entitlement from the Plan to another vehicle in exchange for an enhancement to the standard terms available for such a transfer.

 

Since April 2010 the Company has been contributing £5.8 million (approximately $9 million) per calendar year to the Plan in accordance with a 10-year actuarial deficit recovery plan agreed with the trustees. The Company expects its annual cash contribution from January 1, 2013 to be approximately $11 million.

 

                         

(in millions)

   2012     2011     2010  

Plan net pension (credit)/charge:

                        

Service cost

   $ 1.6     $ 1.6     $ 1.6  

Interest cost on PBO

     32.2       36.6       40.8  

Expected return on plan assets

     (34.1 )      (36.7 )      (35.9 ) 

Amortization of prior service credit

     (1.3 )      (1.3 )      (0.9 ) 

Amortization of actuarial net losses

     1.3       0.3       5.2  
   

 

 

    

 

 

    

 

 

  
    $ (0.3 )    $ 0.5     $ 10.8  
   

 

 

    

 

 

    

 

 

  

Plan assumptions (%):

                        

Discount rate

     4.15       4.75       5.40  

Inflation rate

     2.20       2.15       2.80  

Rate of increase in compensation levels

     0.00       0.00       0.00  

Rate of return on plan assets – overall

     4.90       4.85       5.45  

Rate of return on plan assets – equity securities

     7.25       7.70       7.70  

Rate of return on plan assets – debt securities

     3.65       3.60       4.50  
       

Plan asset allocation by category (%):

                        

Equity securities

     33       29       27  

Debt securities

     61       66       73  

Cash

     6       5       0  
   

 

 

    

 

 

    

 

 

  
      100       100       100  
   

 

 

    

 

 

    

 

 

  

 

The discount rate used represents the annualized yield based on a cash flow matched methodology with reference to an AA corporate bond spot curve and having regard to the duration of the Plan’s liabilities. The inflation rate is derived using a similar cash flow matched methodology as used for the discount rate but having regard to the difference between yields on fixed interest and index linked United Kingdom government gilts. The rate of increase in compensation levels is no longer relevant since the Company closed the Plan to future service accrual with effect from March 31, 2010. A 0.25% change in the discount rate assumption would change the PBO by approximately $26 million and the net pension charge for 2013 by approximately $0.8 million. A 0.25% change in the level of price inflation assumption would change the PBO by approximately $23 million and the net pension charge for 2013 by approximately $2.1 million. Following guidance issued by the United Kingdom government during 2010, and agreement from the Plan trustees, the Company changed the inflation rate measure from the Retail Prices Index to the Consumers Prices Index resulting in a reduction in actuarial net losses on an accounting basis of approximately $47 million.

 

The current investment strategy of the Plan is to obtain an asset allocation of 65% debt securities and 35% equity securities in order to achieve a more predictable return on assets. As at December 31, 2012 and 2011, approximately 55% of the Plan’s assets were held in index-tracking funds with one investment management company. Approximately 25% of the Plan’s assets were invested in United Kingdom government gilts. No more than 5% of the Plan’s assets were invested in any one individual company’s investment funds.

 

Movements in PBO and fair value of Plan assets are as follows:

 

                 

(in millions)

   2012     2011  

Change in PBO:

                

Opening balance

   $ 687.4     $ 684.0  

Interest cost

     32.2       36.6  

Service cost

     1.6       1.6  

Benefits paid

     (43.9 )      (45.7 ) 

Actuarial losses/(gains)

     94.4       16.3  

Exchange effect

     33.6       (5.4 ) 
   

 

 

    

 

 

  

Closing balance

   $ 805.3     $ 687.4  
   

 

 

    

 

 

  

Fair value of plan assets:

                

Opening balance

   $ 708.8     $ 672.3  

Actual benefits paid

     (43.9 )      (45.7 ) 

Actual contributions by employer

     9.2       9.8  

Actual return on assets

     61.2       78.9  

Exchange effect

     33.3       (6.5 ) 
   

 

 

    

 

 

  

Closing balance

   $ 768.6     $ 708.8  
   

 

 

    

 

 

  

Plan assets (deficit)/excess over PBO

   $ (36.7 )    $ 21.4  

Unrecognized net loss

     177.8       103.1  

Amortization of actuarial net losses

     (1.3 )      (0.3 ) 

Amortization of prior service credit

     1.3       1.3  

Amount recognized in other comprehensive loss

     (177.8 )      (104.1 ) 
   

 

 

    

 

 

  

Pension (liability)/asset

   $ (36.7 )    $ 21.4  
   

 

 

    

 

 

  

 

The accumulated benefit obligation for the Plan was $805.3 million and $687.4 million at December 31, 2012 and 2011, respectively.

 

For the vast majority of assets, a market approach is adopted to assess the fair value of the assets, with the inputs being the quoted market prices for the actual securities held in the relevant fund. For Level 3 assets where there is no ready market and for which no indicative dealer prices are available, fund assets are independently evaluated, with the use of agreed upon procedures conducted by an audit firm to provide independent confirmation that proper valuation procedures are being followed. The fair values of pension assets by level of input were as follows:

 

                                 

(in millions)

   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		     Total  

At December 31, 2012

                                

Fixed income securities:

                                

Debt securities issued by U.S. government and government agencies

   $ 1.6     $       $       $ 1.6  

Debt securities issued by non-U.S. governments and government agencies

     191.3                       191.3  

Corporate debt securities

     284.6                       284.6  

Residential mortgage-backed securities

     0.2                       0.2  

Other asset-backed securities

     3.1                       3.1  

Equity securities:

                                

Equity securities held for proprietary investment purposes

     134.8                       134.8  

Real estate

     33.2                       33.2  

Other assets

             39.0       31.0       70.0  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total assets at fair value

     648.8       39.0       31.0       718.8  

Cash

     49.8                       49.8  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total plan assets

   $ 698.6     $ 39.0     $ 31.0     $ 768.6  
   

 

 

    

 

 

    

 

 

    

 

 

  

At December 31, 2011

                                

Fixed income securities:

                                

Debt securities issued by U.S. government and government agencies

   $ 0.9     $       $       $ 0.9  

Debt securities issued by non-U.S. governments and government agencies

     221.0                       221.0  

Corporate debt securities

     254.2                       254.2  

Residential mortgage-backed securities

     0.2                       0.2  

Other asset-backed securities

     2.2                       2.2  

Equity securities:

                                

Equity securities held for proprietary investment purposes

     114.1                       114.1  

Real estate

     26.1                       26.1  

Other assets

     15.5       13.7       28.1       57.3  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total assets at fair value

     634.2       13.7       28.1       676.0  

Cash

     32.8                       32.8  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total plan assets

   $ 667.0     $ 13.7     $ 28.1     $ 708.8  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

The reconciliation of the fair value of the Plan assets using significant unobservable inputs (Level 3) was as follows:

 

         

(in millions)

   Other
Assets		  

Balance at December 31, 2010

   $ 23.3  

Realized/unrealized gains/(losses):

        

Relating to assets still held at the reporting date

     1.0  

Relating to assets sold during the period

     (0.5 ) 

Purchases, issuances and settlements

     4.5  

Exchange effect

     (0.2 ) 
   

 

 

  

Balance at December 31, 2011

     28.1  

Realized/unrealized gains/(losses):

        

Relating to assets still held at the reporting date

     1.3  

Relating to assets sold during the period

     0.0  

Purchases, issuances and settlements

     0.5  

Exchange effect

     1.1  
   

 

 

  

Balance at December 31, 2012

   $ 31.0  
   

 

 

  

 

The projected net pension charge for the year ending December 31, 2013 is as follows:

 

         

(in millions)

      

Service cost

   $ 1.6  

Interest cost on PBO

     32.5  

Expected return on plan assets

     (36.9 ) 

Amortization of prior service credit

     (1.3 ) 

Amortization of actuarial net losses

     7.0  
   

 

 

  
    $ 2.9  
   

 

 

  

 

The following benefit payments are expected to be made:

 

         

(in millions)

      

2013

   $ 45.5  

2014

   $ 46.2  

2015

   $ 46.8  

2016

   $ 47.3  

2017

   $ 48.0  

2018 – 2022

   $ 249.5  

 

German plan

 

The Company also maintains an unfunded defined benefit pension plan covering a number of its current and former employees in Germany (the “German plan”). The German plan is closed to new entrants and has no assets.

 

                         

(in millions)

   2012     2011     2010  

German plan net pension charge:

                        

Service cost

   $ 0.1     $ 0.2     $ 0.1  

Interest cost on PBO

     0.3       0.3       0.3  
   

 

 

    

 

 

    

 

 

  
    $ 0.4     $ 0.5     $ 0.4  
   

 

 

    

 

 

    

 

 

  

German plan assumptions (%):

                        

Discount rate

     3.25       5.00       5.00  

Inflation rate

     2.00       2.00       2.00  

Rate of increase in compensation levels

     2.75       2.75       2.75  

 

Movements in PBO of the German plan are as follows:

 

                 

(in millions)

   2012     2011  

Change in PBO:

                

Opening balance

   $ 6.3     $ 6.3  

Service cost

     0.1       0.2  

Interest cost

     0.3       0.3  

Benefits paid

     (0.2 )      (0.2 ) 

Actuarial losses

     2.6       0.0  

Exchange effect

     0.2       (0.3 ) 
   

 

 

    

 

 

  

Closing balance

   $ 9.3     $ 6.3  
   

 

 

    

 

 

  

 

The amount of unrecognized actuarial net losses in other comprehensive loss in respect of the German plan is $1.8 million, net of tax of $0.8 million.

 

Other plans

 

Company contributions to defined contribution schemes during 2012 were $7.4 million (2011 – $6.6 million).