24. Net Defined Benefit Liabilities (Assets)
Defined benefit plan
The Group operates defined benefit plans which have the following characteristics:
| • | The Group has the obligation to pay the agreed benefits to all its current and former employees. |
| • | Actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the Group. |
The defined benefit liability recognized in the statements of financial position is calculated by independent actuaries in accordance with actuarial valuation methods.
The net defined benefit obligation is calculated using the Projected Unit Credit method (the ‘PUC’). Data used in the PUC such as interest rates, future salary increase rate, mortality rate and consumer price index are based on observable market data and historical data which are updated annually.
Actuarial assumptions may differ from actual results, due to changes in the market, economic trends and mortality trends which may impact defined benefit liabilities and future payments. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in the period incurred through other comprehensive income.
Changes in the net defined benefit liabilities for the years ended December 31, 2016 and 2017, are as follows:
| 2016 | ||||||||||||
| Present value of defined benefit obligation |
Fair value of plan assets |
Net defined benefit liabilities |
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| (In millions of Korean won) | ||||||||||||
|
Beginning |
￦ | 1,413,600 | ￦ | (1,340,403 | ) | ￦ | 73,197 | |||||
|
Current service cost |
192,010 | — | 192,010 | |||||||||
|
Interest cost (income) |
34,885 | (33,211 | ) | 1,674 | ||||||||
|
Past service cost |
4,408 | — | 4,408 | |||||||||
|
Gain or loss on settlement |
(396 | ) | — | (396 | ) | |||||||
|
Remeasurements: |
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|
Actuarial gains and losses by changes in demographic assumptions |
2,281 | — | 2,281 | |||||||||
|
Actuarial gains and losses by changes in financial assumptions |
(37,085 | ) | — | (37,085 | ) | |||||||
|
Actuarial gains and losses by experience adjustments |
7,017 | — | 7,017 | |||||||||
|
Return on plan assets (excluding amounts included in interest income) |
— | 11,071 | 11,071 | |||||||||
|
Contributions: |
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|
The Group |
— | (162,547 | ) | (162,547 | ) | |||||||
|
Employees |
— | (3,106 | ) | (3,106 | ) | |||||||
|
Payments from plans (benefit payments) |
(52,508 | ) | 52,508 | — | ||||||||
|
Payments from the Group |
(9,837 | ) | — | (9,837 | ) | |||||||
|
Transfer in |
4,408 | (4,325 | ) | 83 | ||||||||
|
Transfer out |
(4,897 | ) | 4,880 | (17 | ) | |||||||
|
Effect of exchange rate changes |
18 | — | 18 | |||||||||
|
Effect of business combination and disposal of business |
22,099 | (4,571 | ) | 17,528 | ||||||||
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Ending |
￦ | 1,576,003 | ￦ | (1,479,704 | ) | ￦ | 96,299 | |||||
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| 2017 | ||||||||||||
| Present value of defined benefit obligation |
Fair value of plan assets |
Net defined benefit liabilities |
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| (In millions of Korean won) | ||||||||||||
|
Beginning |
￦ | 1,576,003 | ￦ | (1,479,704 | ) | ￦ | 96,299 | |||||
|
Current service cost |
208,037 | — | 208,037 | |||||||||
|
Past service cost |
21,356 | — | 21,356 | |||||||||
|
Interest cost (income) |
40,351 | (36,243 | ) | 4,108 | ||||||||
|
Remeasurements: |
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|
Actuarial gains and losses by changes in demographic assumptions |
22,878 | — | 22,878 | |||||||||
|
Actuarial gains and losses by changes in financial assumptions |
(86,459 | ) | — | (86,459 | ) | |||||||
|
Actuarial gains and losses by experience adjustments |
17,541 | — | 17,541 | |||||||||
|
Return on plan assets (excluding amounts included in interest income) |
— | 16,220 | 16,220 | |||||||||
|
Contributions: |
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|
The Group |
— | (230,785 | ) | (230,785 | ) | |||||||
|
Payments from plans (benefit payments) |
(216,817 | ) | 216,698 | (119 | ) | |||||||
|
Payments from the Group |
(23,779 | ) | — | (23,779 | ) | |||||||
|
Transfer in |
8,604 | (8,383 | ) | 221 | ||||||||
|
Transfer out |
(8,712 | ) | 8,672 | (40 | ) | |||||||
|
Effect of exchange rate changes |
(25 | ) | — | (25 | ) | |||||||
|
Effect of business combination and disposal of business |
282,988 | (177,832 | ) | 105,156 | ||||||||
|
Others |
25 | 3,174 | 3,199 | |||||||||
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Ending1 |
￦ | 1,841,991 | ￦ | (1,688,183 | ) | ￦ | 153,808 | |||||
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| 1 | The net defined benefit liabilities of ￦153,808 million is calculated by subtracting ￦894 million net defined benefit assets from ￦154,702 million net defined benefit liabilities |
Details of the net defined benefit liabilities as of December 31, 2016 and 2017, are as follows:
| 2016 | 2017 | |||||||
| (In millions of Korean won) | ||||||||
|
Present value of defined benefit obligation |
￦ | 1,576,003 | ￦ | 1,841,991 | ||||
|
Fair value of plan assets |
(1,479,704 | ) | (1,688,183 | ) | ||||
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|
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|
Net defined benefit liabilities |
￦ | 96,299 | ￦ | 153,808 | ||||
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Details of post-employment benefits recognized in profit or loss as employee compensation and benefits for the years ended December 31, 2015, 2016 and 2017, are as follows:
| 2015 | 2016 | 2017 | ||||||||||
| (In millions of Korean won) | ||||||||||||
|
Current service cost |
￦ | 185,710 | ￦ | 192,010 | ￦ | 208,037 | ||||||
|
Past service cost |
(47 | ) | 4,408 | 21,356 | ||||||||
|
Net interest expenses of net defined benefit liabilities |
2,219 | 1,674 | 4,108 | |||||||||
|
Gain or loss on settlement |
— | (396 | ) | — | ||||||||
|
|
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|
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|
Post-employment benefits1 |
￦ | 187,882 | ￦ | 197,696 | ￦ | 233,501 | ||||||
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| 1 |
Post-employment benefits amounting to ￦1,143 million and ￦1,577 million for the years ended December 31, 2015 and 2016, respectively, are recognized as other operating expense in the statements of comprehensive income, and post-employment benefits amounting to ￦1,755 million and ￦42 million for the years ended December 31, 2017 are recognized as other operating expense and advance payments in the statements of comprehensive income. |
Remeasurements of the net defined benefit liabilities recognized as other comprehensive income for the years ended December 31, 2015, 2016 and 2017, are as follows:
| 2015 | 2016 | 2017 | ||||||||||
| (In millions of Korean won) | ||||||||||||
|
Remeasurements: |
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|
Return on plan assets (excluding amounts included in interest income) |
￦ | (12,051 | ) | ￦ | (11,071 | ) | ￦ | (16,220 | ) | |||
|
Actuarial gains and losses |
(18,167 | ) | 27,787 | 46,040 | ||||||||
|
Income tax effects |
7,312 | (4,045 | ) | (7,215 | ) | |||||||
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Remeasurements after income tax |
￦ | (22,906 | ) | ￦ | 12,671 | ￦ | 22,605 | |||||
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The details of fair value of plan assets as of December 31, 2016 and 2017, are as follows:
| 2016 | ||||||||||||
| Assets quoted in an active market |
Assets not quoted in an active market |
Total | ||||||||||
| (In millions of Korean won) | ||||||||||||
|
Cash and due from financial institutions |
￦ | — | ￦ | 1,479,419 | ￦ | 1,479,419 | ||||||
|
Investment fund |
— | 285 | 285 | |||||||||
|
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|
|
|
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|
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|
Total |
￦ | — | ￦ | 1,479,704 | ￦ | 1,479,704 | ||||||
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| 2017 | ||||||||||||
| Assets quoted in an active market |
Assets not quoted in an active market |
Total | ||||||||||
| (In millions of Korean won) | ||||||||||||
|
Cash and due from financial institutions |
￦ | — | ￦ | 1,686,012 | ￦ | 1,686,012 | ||||||
|
Investment fund |
— | 2,171 | 2,171 | |||||||||
|
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|
Total |
￦ | — | ￦ | 1,688,183 | ￦ | 1,688,183 | ||||||
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Key actuarial assumptions used as of December 31, 2016 and 2017, are as follows:
| 2016 | 2017 | |||
|
Discount rate (%) |
1.80 ~ 3.46 | 2.10 ~ 2.90 | ||
|
Salary increase rate (%) |
0.00 ~ 7.50 | 0.00 ~ 7.50 | ||
|
Turnover (%) |
0.00 ~ 29.00 | 0.00 ~ 50.00 |
Mortality assumptions are based on the experience-based mortality table of Korea Insurance Development Institute of 2015.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions as of December 31, 2017, are as follows:
| Changes in principal assumption |
Effect on net defined benefit obligation | |||||||
| Increase in principal assumption |
Decrease in principal assumption | |||||||
|
Discount rate (%) |
0.5 p. | 3.96 decrease | 4.19 increase | |||||
|
Salary increase rate (%) |
0.5 p. | 3.00 increase | 4.58 decrease | |||||
|
Turnover (%) |
0.5 p. | 0.46 decrease | 0.43 increase | |||||
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.
Expected maturity analysis of undiscounted pension benefits (including expected future benefit) as of December 31, 2017, is as follows:
| Up to 1 year | 1~2 years | 2~5 years | 5~10 years | Over 10 years | Total | |||||||||||||||||||
| (In millions of Korean won) | ||||||||||||||||||||||||
|
Pension benefits1 |
￦ | 74,145 | ￦ | 143,846 | ￦ | 545,808 | ￦ | 1,158,892 | ￦ | 3,316,815 | ￦ | 5,239,506 | ||||||||||||
| 1 | Excluded payments settled according to pension equity plan. |
The weighted average duration of the defined benefit obligation is 1.0 ~ 11.1 years.
Expected contribution to plan assets for periods after December 31, 2017, is estimated to be ￦202,738 million.