| 12. | Employee Benefits |
The Controlling Company and certain subsidiaries’ defined benefit plans provide a lump-sum payment to an employee based on final salary rates and length of service at the time the employee leaves the Controlling Company or certain subsidiaries.
The defined benefit plans expose the Group to actuarial risks, such as the risk associated with expected periods of service, interest rate risk, market (investment) risk, and others.
| (a) | Net defined benefit liabilities recognized at the reporting date are as follows: |
| (In millions of won) | ||||||||
| December 31, 2016 | December 31, 2017 | |||||||
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Present value of partially funded defined benefit obligations |
1,401,396 | 1,562,424 | ||||||
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Fair value of plan assets |
(1,258,409 | ) | (1,466,977 | ) | ||||
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| 142,987 | 95,447 | |||||||
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| (b) | Changes in the present value of the defined benefit obligations for the years ended December 31, 2016 and 2017 are as follows: |
| (In millions of won) | ||||||||
| 2016 | 2017 | |||||||
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Opening defined benefit obligations |
1,381,648 | 1,401,396 | ||||||
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Current service cost |
210,682 | 195,850 | ||||||
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Interest cost |
39,420 | 40,844 | ||||||
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Remeasurements (before tax) |
(161,082 | ) | (114 | ) | ||||
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Benefit payments |
(65,099 | ) | (76,011 | ) | ||||
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Transfers from (to) related parties |
(4,205 | ) | 534 | |||||
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Others |
32 | (75 | ) | |||||
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Closing defined benefit obligations |
1,401,396 | 1,562,424 | ||||||
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Weighted average remaining maturity of defined benefit obligations as of December 31, 2016 and 2017 are 14.3 years and 14.0 years, respectively.
| (c) | Changes in fair value of plan assets for the years ended December 31, 2016 and 2017 are as follows: |
| (In millions of won) | ||||||||
| 2016 | 2017 | |||||||
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Opening fair value of plan assets |
1,027,850 | 1,258,409 | ||||||
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Expected return on plan assets |
29,140 | 38,453 | ||||||
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Remeasurements (before tax) |
(5,736 | ) | (16,374 | ) | ||||
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Contributions by employer directly to plan assets |
265,000 | 250,998 | ||||||
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Benefit payments |
(57,845 | ) | (64,509 | ) | ||||
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Closing fair value of plan assets |
1,258,409 | 1,466,977 | ||||||
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| (d) | Plan assets at the reporting date are as follows: |
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(In millions of won)
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December 31, 2016 | December 31, 2017 | ||||||
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Guaranteed deposits in banks |
1,258,409 | 1,466,977 | ||||||
As of December 31, 2017, the Controlling Company maintains the plan assets with Mirae Asset Securities Co., Ltd., Shinhan Bank and others.
The Group’s estimated additional contribution to the plan
assets for the year ending December 31, 2018 is
W
| (e) | Expenses recognized in profit or loss for the years ended December 31, 2015, 2016 and 2017 are as follows: |
| (In millions of won) | 2015 | 2016 | 2017 | |||||||||
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Current service cost |
187,768 | 210,682 | 195,850 | |||||||||
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Net interest cost |
11,265 | 10,280 | 2,391 | |||||||||
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| 199,033 | 220,962 | 198,241 | ||||||||||
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Expenses are recognized in the following line items in the consolidated statements of comprehensive income:
| (In millions of won) | 2015 | 2016 | 2017 | |||||||||
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Cost of sales |
159,348 | 177,652 | 158,418 | |||||||||
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Selling expenses |
11,567 | 12,513 | 11,114 | |||||||||
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Administrative expenses |
14,809 | 16,486 | 16,287 | |||||||||
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Research and development expenses |
13,309 | 14,311 | 12,422 | |||||||||
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| 199,033 | 220,962 | 198,241 | ||||||||||
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| (f) | Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended December 31, 2015, 2016 and 2017 are as follows: |
| (In millions of won) | 2015 | 2016 | 2017 | |||||||||
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Balance at January 1 |
(197,720 | ) | (281,902 | ) | (163,950 | ) | ||||||
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Remeasurements |
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Actuarial profit or loss arising from: |
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Experience adjustment |
15,567 | 70,258 | (48,890 | ) | ||||||||
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Demographic assumptions |
(22,267 | ) | (4,605 | ) | (7,702 | ) | ||||||
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Financial assumptions |
(98,117 | ) | 95,429 | 56,706 | ||||||||
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Return on plan assets |
(5,440 | ) | (5,736 | ) | (16,374 | ) | ||||||
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Share of associates regarding remeasurements |
(607 | ) | 200 | 441 | ||||||||
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| (110,864 | ) | 155,546 | (15,819 | ) | ||||||||
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Income tax |
26,682 | (37,594 | ) | 9,259 | ||||||||
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Balance at December 31 |
(281,902 | ) | (163,950 | ) | (170,510 | ) | ||||||
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| (g) | Principal actuarial assumptions at the reporting date (expressed as weighted averages) are as follows: |
| 2016 | 2017 | |||||||
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Expected rate of salary increase |
4.7 | % | 4.7 | % | ||||
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Discount rate for defined benefit obligations |
3.0 | % | 3.2 | % | ||||
Assumptions regarding future mortality are based on published statistics and mortality tables. The current mortality underlying the values of the liabilities in the defined benefit plans are as follows:
| December 31, 2016 | December 31, 2017 | |||||||||||
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Teens |
Males | 0.01 | % | 0.01 | % | |||||||
| Females | 0.00 | % | 0.00 | % | ||||||||
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Twenties |
Males | 0.01 | % | 0.01 | % | |||||||
| Females | 0.00 | % | 0.00 | % | ||||||||
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Thirties |
Males | 0.01 | % | 0.01 | % | |||||||
| Females | 0.01 | % | 0.01 | % | ||||||||
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Forties |
Males | 0.03 | % | 0.03 | % | |||||||
| Females | 0.02 | % | 0.02 | % | ||||||||
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Fifties |
Males | 0.05 | % | 0.05 | % | |||||||
| Females | 0.02 | % | 0.02 | % | ||||||||
| (h) | Reasonably possible changes to respective relevant actuarial assumptions would have affected the defined benefit obligations by the amounts as of December 31, 2017 are as follows: |
| Defined benefit obligation | ||||||||
| 1% increase | 1% decrease | |||||||
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Discount rate for defined benefit obligations |
(190,224 | ) | 229,954 | |||||
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Expected rate of salary increase |
224,578 | (189,818 | ) | |||||