20. Provisions for employee benefits

CNH Industrial N.V. provides post-employment benefits for their active employees and for retirees, either directly or by contributing to independently administered funds. These benefits are generally based on the employees’ remuneration and years of service.

The Company provides post-employment benefits under defined contribution and defined benefit plans.

In the case of defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the Company has no further payment obligations.

The Company recognizes the contribution cost when the employee has rendered his service and includes this cost by function in Cost of sales, Selling, general and administrative costs and Research and development costs. In 2014, these expenses totaled €3,291 thousand (€128 thousand in 2013).

Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions made by an entity, and sometimes by its employees, into an entity, or fund, that is legally separate from the employer from which the employee benefits are paid. Benefits are generally payable under these plans after the completion of employment. The plans are classified by the Company as Pension plans or Other postemployment benefits on the basis of the type of benefit provided.

Pension plans

The item Pension plans consists principally of the obligations towards certain employees and former employees of the CNH Industrial Group in the United Kingdom.

Under these plans, a contribution is generally made to a separate fund (trust) which independently administers the plan assets. The Company’s funding policy is to contribute amounts to the plan equal to the amounts required to satisfy the minimum funding requirements prescribed by the laws and regulations of each individual country. Prudently the Company makes discretionary contributions in addition to the funding requirements. If these funds are overfunded, that is if they present a surplus compared to the requirements of law, the Company could not be required to contribute to the plan in respect of a minimum performance requirement as long as the fund is in surplus.

The investment strategy varies depending on the circumstances of the underlying plan. Typically, less mature plan benefit obligations are funded by using more equity securities as they are expected to achieve long-term growth while exceeding inflation. More mature plan benefit obligations are funded using more fixed income securities as they are expected to produce current income with limited volatility. Risk management practices include the use of multiple asset classes and investment managers within each asset class for diversification purposes.

Specific guidelines for each asset class and investment manager are implemented and monitored.

Other post-employment benefits

The item Other post-employment benefits mainly includes loyalty bonuses, which are due to employees who reach a specified seniority and are generally settled when an employee leaves the Company as well as the Italian employee leaving entitlements (TFR) relating to the Italian employees of the Italian branch for those benefits accruing up to December 31, 2006 as, after the legislation changes occurred in 2007, this scheme is classified as a defined contribution plan. Schemes included in this item are unfunded.

Provisions for employee benefi ts at December 31, 2014 and 2013 are as follows:

(€ thousand)At December 31, 2014At December 31, 2013
Post-employment  benefits:    
Pension plans 253,592 -
Other 845 895
Total Post-employment benefits 254,437 895
Other long-term employee benefits 245 225
Total Provision for employee benefits 254,682 1,120
Defined benefit plan assets - -
Total Defined benefit plan assets - -

The item Other provisions for employees consists of the best estimate at the balance sheet date of short-term employee benefi ts payable by the Company within twelve months from the end of the period in which the employees render the related service.

The item Other long-term employee benefi ts consists of the Company’s obligation for those benefi ts generally payable during employment on reaching a certain level of seniority in the Company or when a specifi ed event occurs, and refl ects the probability of payment and the length of time over which this will be made.

In 2014 and in 2013 changes in Other long-term employee benefi ts are as follows:

(€ thousand)At December 31, 2013ProvisionUtilizationChange in
the scope of
consolidation and
other changes
At December 31, 2014
Other long-term employee benefits 225 44 (25) 1 245
Total 225 44 (25) 1 245

(€ thousand)At December 31, 2012ProvisionUtilizationChange in
the scope of
consolidation and
other changes
At December 31, 2013
Other long-term employee benefits 285 - (15) 45 225
Total 285 - (15) 45 225

Post-employment benefits and Other long-term employee benefits are calculated on the basis of the following main assumptions:

 Assumptions used to determine funded status at year-end
 At December 31, 2014At December 31,  2013
(in %)Pension plansOtherPension plansOther
Weighted-average discount rates 3.50 1.60 NA NA
Weighted-average rate of compensation increase 3.75 1.59 NA NA

 Assumptions used to determine expense at year-end
 At December 31, 2014At December 31,  2013
(in %)Pension plansOtherPension plansOther
Weighted-average discount rates 4.20 2.68 NA 2.68
Weighted-average rate of compensation increase 3.75 0.72 NA 2.72

The weighted-average discount rates are used in measurements of pension and postretirement benefi t obligations and net interest on the net defi ned benefi t liability/asset. The weighted-average discount rates are based on a benefi t cash fl ow-matching approach and represent the rates at which the benefi t obligations could effectively be settled as of the measurement date. The benefi t cash fl ow-matching approach involves analyzing CNH Industrial’s projected cash fl ows against a high quality bond yield curve, mainly calculated using a wide population of AA-graded corporate bonds subject to minimum amounts outstanding and meeting other defi ned selection criteria. The discount rates for the CNH Industrial’s remaining obligations are based on benchmark yield data of high-quality fi xed income investments for which the timing and amounts of payments approximate the timing and amounts of projected benefi t payments.

Assumed discount rates have a signifi cant effect on the amount recognized in the 2014 fi nancial statements. A one percentage point change in assumed discount rates would have the following effects:

(€ millions)One percentage point increaseOne percentage point decrease
Effect on pension plans defi ned benefit obligation at December 31, 2014 (137) 166

The amounts recognized in the statement of fi nancial position for post-employment benefi ts at December 31, 2014 and 2013 are as follows:

 Pension plans Other
 At December 31At December 31
(€ thousand)2014201320142013
Present value of funded obligations 1,006,126 - 845 895
Less: Fair value of plan assets (752,534) - - -
Deficit/(surplus) 253,592 - 845 895
Effect of the asset ceiling - - - -
Net liability/(Net asset) 253,592 - 845 895
Reimbursement rights - - - -
Amounts at year-end:        
Liabilities 253,592 - 845 895
Assets - - - -
Net liability 253,592   845 895

Changes in the present value of post-employment obligations in 2014 and 2013 are as follows:

 Pension plansOther
 At December 31At December 31
(€ thousand)2014201320142013
Present value of obligation at the beginning of the year   - 895 938
Acquisition of Basildon plant on May 1, 2014 840,609 - - -
Current service cost 2,110 - 4 4
Interest expense 23,542 - 8 14
Other costs 276 - - -
Contribution by plan participants   - - -
Remeasurements:        
Actuarial losses/(gains) from changes in demographic assumptions 9,501 - (1) 18
Actuarial losses/(gains) from changes in financial assumptions 98,925 - 53 -
Other remeasurements 7,536 - 12 -
Total remeasurements 115,962 - 64 18
Exchange rate differences 51,589 - -  
Benefits paid (27,962) - (126) (29)
Past service cost - - - -
Change in scope of consolidation - - - (50)
Curtailments - - - -
Settlements - - - -
Other changes - - - -
Present value of obligation at the end of the year 1,006,126 - 845 895

In 2014 and 2013 Other remeasurements mainly include the amount of experience adjustments.

In 2014 and 2013 changes in the fair value of plan assets are as follows:

 Pension plans
(€ thousand)20142013
Fair value of plan assets at the beginning of the year -
Acquisition of Basildon plant on May 1, 2014 672,064 -
Interest income 18,734 -
Remeasurements:    
Return on plan assets 42,572 -
Actuarial gains/(losses) from changes in financial assumptions - -
Total  remeasurements 42,572 -
Exchange rate differences 39,488 -
Contribution by employer 7,637 -
Contribution by plan participants - -
Benefits paid (27,961) -
Change in scope of consolidation - -
Settlements - -
Other changes - -
Fair value of plan assets at the end of the year 752,534 -

Net benefit cost/(income) recognized during 2014 and 2013 is as follows:

 (€ thousand)Pension plansOther
2014201320142013
Service cost:        
Current service cost 2,110 - 4 4
Past service cost and (gain)/loss from curtailments and settlements - - -  
Total Service cost 2,110 - 4 4
Net interest expense 4,809 - 8 13
Other costs 276 - - -
Net benefit cost/(income) recognized to profi t or loss 7,195 - 12 17
Remeasurements:        
Return on plan assets (42,572) - - -
Actuarial losses/(gains) from changes in demographic assumptions 9,501 - (1) -
Actuarial losses/(gains) from changes in fi nancial assumptions 98,925 - 53 -
Other remeasurements 7,536 - 13 18
Total remeasurements 73,390 - 65 18
Exchange rate differences (12,101) - - -
Net benefit cost/(income) recognized to other comprehensive income 61,289 - 65 18
Total net benefit cost/(income) recognized during the year 68,484 - 77 35

Plan assets do not include treasury shares of CNH Industrial N.V. or properties occupied by the company. The fair value of the plan assets at December 31, 2014 may be disaggregated by asset class and level as follows. Fair value levels presented below are described in the Significant accounting policies – Fair value measurement section of the Notes to the Consolidated Financial Statements.

 (€ millions)  At December 31, 2014
Pension plans
Level 1Level 2Level 3Total
Bonds:        
U.S. government bonds - - - -
Non-U.S. government bonds - 414 - 414
U.S. corporate bonds - - - -
Non-U.S. corporate bonds - - - -
Mortgage backed securities - - - -
Other - - - -
Total Bonds - 414 - 414
Other types of investments:        
Mutual funds (1) - 337 - 337
Investment funds - - - -
Insurance contracts - - - -
Derivatives - Credit contracts - - - -
Real estate - - - -
Other - - - -
Total other types of investments - 337 - 337
Cash and cash equivalents - 1 - 1
Total - 752 - 752

(1) This category includes mutual funds which primarily invest in non-U.S. equities and non-U.S. corporate bonds

Provided that the above plan assets are measured at fair value at December 31, 2014 there was no exposure to sovereign debt securities which might have suffered impairment losses.

The best estimate of expected contribution to pension and health care plans for 2015 is as follows:

(€ thousand)2015
Pension plans 11,739
Total expected contribution 11,739

The best estimate of expected benefit payments in 2015 and in the following ten years is as follows:

(€ thousand)201520162017201820192020 to
2025
Total
Post-employment  benefits:              
Pension plans 38,915 39,785 40,779 41,474 43,128 234,812 438,893
Other 125 90 58 42 75 241 631
Total Post-employment benefits 39,040 39,875 40,837 41,516 43,203 235,053 439,524
Other long-term employee benefits 13 54 11 12 16 109 215
Total 39,053 39,929 40,848 41,528 43,219 235,162 439,739

Potential outfl ows in the years after 2015 are subject to a number of uncertainties, including future asset performance and changes in assumptions.

The weighted average durations of post-employment benefi ts are as follows:

 N° of years
Pension plans 15.07
Other 6.03