24. NET DEFINED BENEFIT LIABILITY (ASSET)
The characteristics of the Group’s defined benefit retirement pension plans characteristics are as follows:
Employees and directors with one or more years of service are entitled to receive a payment upon retirement of their employment, based on their length of service and rate of pay at the time of retirement. The assets of the plans are measured at their fair value at the end of reporting date. The plan liabilities are measured using the projected unit method, which takes account of projected earnings increases, using actuarial assumptions that give the best estimate of the future cash flows that will arise under the plan liabilities.
The Group is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:
Volatility of Asset
The defined benefit obligation was estimated with a discount rate which is calculated based on the yield of blue chip corporate bonds in Korea. A deficit may occur if the rate of return on plan assets falls short of the discount rate. The plan assets include equity instruments and are exposed to the related volatility and risks.
Decrease in Yield of Blue Chip Bonds
A decrease in yield of blue chip bonds may result in increase in defined benefit liability although the increase in the value of some debt securities in the defined benefit plan would set it off partially.
Risk of Inflation
Defined benefit obligations are correlated to the inflation rate; the higher the inflation rate is, the more the liabilities are recognized mainly due to the fact that inflation rate would result in increase of employee salary growth rate. As a result, a deficit may occur in the plan. However, the plan assets are less impacted since the plan assets consist of mainly debt securities with fixed rates and of equity instruments.
| (1) | The net defined benefit liability(asset) is as follows (Unit: Korean Won in millions): |
| December 31, 2016 | December 31, 2017 | |||||||
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Defined benefit obligation |
984,381 | 1,071,170 | ||||||
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Fair value of plan assets |
(990,653 | ) | (1,027,906 | ) | ||||
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Net defined benefit liability(asset) |
(6,272 | ) | 43,264 | |||||
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The details of the net defined benefit liability (asset) per major subsidiaries as of December 31, 2017 is as follows:
| Woori Bank Co, Ltd. |
Woori Card |
Woori FIS |
Others | Total | ||||||||||||||||
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Net Defined Benefit Asset |
1,487 | 1,487 | ||||||||||||||||||
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Net Defined Benefit Liability(*) |
14,284 | 28,883 | 1,584 | 44,751 | ||||||||||||||||
| (*) | This number is before adjusting for internal transaction. As most entities other than Woori Bank Co, Ltd, deposit their plan asset to Woori Bank, adjusting internal transaction, the Group’s plan asset should be decreased by 43,113 million Won. |
| (2) | Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions): |
| For the year ended December 31, 2015 |
For the year ended December 31, 2016 |
For the year ended December 31, 2017 |
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Beginning balance |
683,961 | 901,219 | 984,381 | |||||||||
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Current service cost |
132,710 | 153,660 | 146,750 | |||||||||
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Interest expense |
21,377 | 24,326 | 26,629 | |||||||||
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Remeasurements |
97,730 | (52,402 | ) | (20,389 | ) | |||||||
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Foreign currencies translation adjustments |
(8 | ) | 80 | (279 | ) | |||||||
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Retirement benefit paid |
(26,516 | ) | (34,346 | ) | (55,552 | ) | ||||||
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Curtailment or settlement |
(8,231 | ) | (9,536 | ) | (10,928 | ) | ||||||
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Others |
196 | 1,380 | 558 | |||||||||
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Ending balance |
901,219 | 984,381 | 1,071,170 | |||||||||
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| (3) | Changes in the plan assets are as follows (Unit: Korean Won in millions): |
| For the year ended December 31, 2015 |
For the year ended December 31, 2016 |
For the year ended December 31, 2017 |
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Beginning balance |
608,370 | 801,528 | 990,653 | |||||||||
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Interest income |
21,965 | 25,038 | 30,601 | |||||||||
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Remeasurements |
(5,444 | ) | (7,304 | ) | (14,125 | ) | ||||||
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Employer’s contributions |
229,069 | 226,752 | 43,114 | |||||||||
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Retirement benefit paid |
(22,860 | ) | (33,341 | ) | (51,877 | ) | ||||||
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Curtailment or liquidation |
(8,240 | ) | (9,198 | ) | (11,052 | ) | ||||||
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Others |
(21,332 | ) | (12,822 | ) | 40,592 | |||||||
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Ending balance |
801,528 | 990,653 | 1,027,906 | |||||||||
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| (4) | Plan assets wholly consist of time deposits as of December 31, 2016 and 2017, respectively. Among plan assets, realized returns on plan assets amount to 16,521 million Won, 17,734 million Won, and 16,476 million Won for the years ended December 31, 2015, 2016 and 2017, respectively. Meanwhile, the contribution expected to be paid in the subsequent accounting year amounts to 125,818 million Won. |
| (5) | The various plans are funded, with the relevant employers being responsible for their management. The Bank is responsible for around 92.4% of the Group’s defined benefit obligation as of December 31, 2017, and expects to make contributions to the plans amounting to 125,818 million Won during the year ended December 31, 2018. The expected contribution is calculated by actuaries based on prudent assessments of the amounts needed to fund the plans in accordance with local regulations. |
| (6) | The analysis for the maturity, which is not discounted, of the defined benefit obligation of the Bank based on current wages is as following(Unit: Korean Won in millions): |
| December 31, 2016 | December 31, 2017 | |||||||
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Less than 1 year |
48,132 | 53,718 | ||||||
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1 year ~ less than 2 years |
60,316 | 70,962 | ||||||
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2 years ~ less than 5 years |
159,238 | 156,561 | ||||||
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5 years ~ less than 10 years |
214,650 | 258,642 | ||||||
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More than 10 years |
436,417 | 449,738 | ||||||
As of December 31, 2017, the estimated average period until the commencement of payment is around 12.7 years.
| (7) | Current service cost, net interest expense (income), past service cost, loss (gain) on the curtailment or settlement, and loss (gain) due to remeasurements recognized in the consolidated statements of net income and total comprehensive income are as follows (Unit: Korean Won in millions): |
| For the year ended December 31, 2015 |
For the year ended December 31, 2016 |
For the year ended December 31, 2017 |
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Current service cost |
132,710 | 153,660 | 146,750 | |||||||||
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Net interest income |
(588 | ) | (712 | ) | (3,972 | ) | ||||||
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Gain (loss) on the curtailment or settlement |
9 | (339 | ) | 124 | ||||||||
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Cost recognized in net income |
132,131 | 152,609 | 142,902 | |||||||||
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Remeasurements(*) |
103,174 | (45,098 | ) | (6,264 | ) | |||||||
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Cost recognized in total comprehensive income |
235,305 | 107,511 | 136,638 | |||||||||
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| (*) | This is an amount before considering the tax effects. |
Recognized retirement benefit service costs related to defined contribution plans are 3,623 million Won, 3,747 million Won and 3,946 million Won for the years ended December 31, 2015, 2016 and 2017, respectively.
| (8) | Key actuarial assumptions used in defined benefit liability assessment are as follows: |
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December 31, 2015 |
December 31, 2016 |
December 31, 2017 | ||||
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Discount rate |
2.83% | 2.85% | 3.18% | |||
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Future wage growth rate |
6.35% | 6.05% | 6.18% | |||
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Retirement rate |
Experience rate for each employment classification |
Experience rate for each employment classification |
Experience rate for each employment classification | |||
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Mortality rate |
Issued by Korea Insurance Development Institute | Issued by Korea Insurance Development Institute | Issued by Korea Insurance Development Institute |
| (9) | The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows (Unit: Korean Won in millions): |
| Change of defined benefit obligation as of | ||||||||||
| December 31, 2016 | December 31, 2017 | |||||||||
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Discount rate |
Increase by 1% point | (107,203 | ) | (116,405 | ) | |||||
| Decrease by 1% point | 125,395 | 137,151 | ||||||||
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Future wage growth rate |
Increase by 1% point | 124,766 | 136,707 | |||||||
| Decrease by 1% point | (108,344 | ) | (117,765 | ) | ||||||