BASF Report 2021 Consoli dated Financial Statements – Notes 255 Actuarial reports are used to calculate the amount of pension The strategy of the BASF Group with regard to financing pension by BASF Pensionstreuhand e.V.; at German Group companies, provisions. commitments takes into account country-specific supervisory and these benefits are financed primarily via pension provisions. The tax regulations. benefits are largely based on cash balance plans. Furthermore, Actuarial gains and losses from changes in estimates relating to the employees are given the option of participating in various deferred actuarial assumptions used to calculate defined benefit obligations, In some countries, pension benefits were granted for which the compensation schemes. the difference between standardized and actual returns on plan employer has a subsidiary liability. Pension benefits in a number of assets, as well as the effects of the asset ceiling are recognized countries include minimum interest guarantees to a limited extent. If United States directly in equity as other comprehensive income. the pension fund cannot generate the income needed to provide the Employees are granted benefits based on defined contribution minimum guarantee, this must be provided by the employer under plans. Economic and legal environment of the plans the subsidiary liability. To the extent that recourse to the employer is unlikely based on the structure and execution of the pension benefits Effective 2010, the existing defined benefit plans were closed to In some countries – especially in Germany, in the United States, in as well as the asset situation of the pension fund, these plans are further increases in benefits based on future years of service, and the United Kingdom and in Switzerland – there are pension treated as defined contribution plans. benefits earned in the past were frozen. There is no entitlement to obligations subject to government supervision or similar legal pension adjustments to compensate for cost-of-living increases. restrictions. For example, there are minimum funding requirements Description of the defined benefit plans to cover pension obligations, which are based on actuarial The legal and regulatory frameworks governing the plans are based assumptions that differ from those pursuant to IAS 19. Furthermore, The following section describes the typical plan structure in the on the U.S. Employee Retirement Income Security Act (ERISA), there are qualitative and quantitative restrictions on allocating plan individual countries. Different arrangements may exist, in particular which requires the plan sponsor to ensure a minimum funding level. assets to certain asset categories. This could result in annual due to the assumption of plans as part of acquisitions; however, Any employer contributions necessary to meet the minimum funding fluctuations in employer contributions, financing measures and the these do not have any material impact on the description of plans in level are based on the results of an actuarial valuation. Furthermore, assumption of obligations in favor of the pension funds to comply the individual countries. there are unfunded pension plans that are not subject to ERISA with regulatory requirements. requirements. Germany The obligations and the plan assets used to fund the obligations are For BASF SE and German Group companies, a basic level of Additional similar obligations arise from plans that assume the exposed to demographic, legal and economic risks. Economic risks benefits is provided by BASF Pensionskasse VVaG, a legally healthcare costs and life insurance premiums of retired employees are primarily due to unforeseen developments on commodity and independent plan, which is financed by employer and employee and their dependents. Such plans have been closed to new entrants capital markets. They affect, for example, pension adjustments contributions as well as the return on plan assets. BASF SE ensures since 2007. In addition, the amount of the benefits for such plans based on the level of inflation in Germany and in the United Kingdom, the necessary contributions to adequately finance the benefits has been frozen. as well as the impact of discount rates on the amount of the defined promised by BASF Pensionskasse VVaG. Some of the benefits benefit obligation. In previous years, measures taken to close plans financed via BASF Pensionskasse VVaG are subject to adjustments with defined benefits for future service, especially benefits based on that must be borne by its member companies to the extent that final pay promises and the assumption of healthcare costs for former these cannot be borne by BASF Pensionskasse VVaG due to the employees, led to a reduction in risk with regard to future benefit regulations imposed by the German supervisory authority. In 2004, levels. the basic benefit plan was closed for newly hired employees at German BASF companies and replaced by a defined contribution plan. A new defined contribution plan was introduced as of July 1, 2021, for new hires in the German BASF companies. At BASF SE, occupational pension promises that exceed the basic level of benefits are financed under a contractual trust arrangement