(Continued)
Plans Maintained by PMI
Prior to the spin-off of PMI, we maintained the following pension plans for our Swiss-based employees. Following the spin-off, we will no longer have employees outside the U.S. and will no longer maintain these plans. - Retirement Plans for Swiss-Based Employees - Pension Fund of Philip Morris in Switzerland - Philip Morris in Switzerland IC Plan - Supplemental Pension Plan of Philip Morris in Switzerland
Retirement Plans for Swiss-Based Employees
Pensions for Swiss-based employees, including Mr. Calantzopoulos, were payable from a funded defined benefit pension plan and defined contribution incentive compensation (IC) plan qualifying for favorable treatment under Swiss law. To the extent that Swiss tax or other limitations do not allow paying the full pension under the qualified plans, the balance was payable under a supplemental pension plan. 
Pension Fund of Philip Morris in Switzerland
Almost all Swiss-based employees over 25 years of age, including Mr. Calantzopoulos, were covered by the Pension Fund of Philip Morris in Switzerland, a broad-based contributory funded plan providing defined benefit retirement, disability and death benefits up to limits prescribed under Swiss law. Retirement benefits are expressed as an annuity at normal retirement age equal to 1.8% of the participant’s five-year average pensionable salary (base salary minus 2/9 of such compensation up to the social security limits (17,640 CHF in 2007)) multiplied by years of credited service (to a maximum of 41). Employees contribute 6% of their pensionable salary to the Fund. Subject to certain conditions, participants could elect to receive pension benefits entirely or partially in a lump sum. For determining lump sum values, a discount rate of 4% and the LPP 2000 mortality table is used. The LPP mortality table is a commonly used mortality table in Switzerland. For an employee who completed 30 years of service and retired at age 62, this would have translated into payments equivalent to a pension of 54% of five years annual average pensionable salary. For an employee with the maximum credited service of 40 years at age 65, this “replacement ratio” would have been approximately 72% of average salary. Participants could retire and commence benefits as early as age 58; however, for each year of retirement before age 62, the 1.8% multiplier used to calculate the amount of the retirement pension is reduced (at age 58 the multiplier is 1.56%). Swiss law permits participants in a pension plan to make additional voluntary contributions to the pension plan to compensate for missing years of credited service, provided that no service can be credited prior to the plan’s minimum age (age 25, in this case). Participants could also make additional voluntary contributions to the pension plan to increase the early retirement multiplier in the case of early retirement up to the maximum multiplier of 1.8% applied to years of service or to purchase future years of service not to exceed service until age 65. These employee contributions were not matched by us and were credited with interest at 70% of the rate earned by the plan. Upon retirement, the account balance is converted using the plan’s lump sum factors as described above to determine the additional benefits that would have been provided. Such contributions would be fully tax deductible in Switzerland by the employee at the time of contribution. If an employee terminated employment with us before age 58, the lump sum value of the pension calculated using the lump sum factors would have been transferred to either a new pension fund or to a blocked bank account until early retirement age would be reached. An employee who was age 50 or older upon termination of employment would have been able to elect, under certain conditions, to remain in the plan as an external member. In this case, neither the employee nor the employer could have contributed any further funds. At any time between the age of 58 and 65 the former employee would have been able to elect to take retirement in the form of a pension, a lump sum or a mix of both.
Philip Morris in Switzerland IC Plan
Swiss-based employees eligible to participate in the Annual Incentive program described above were also eligible to participate in the Philip Morris in Switzerland IC Plan, a funded plan which, for the Swiss-based executive officers, provided for participant contributions of up to 1.5% of pensionable salary (as defined above), subject to maximum tax law limits, and an equal matching contribution from the employer. As with the pension plan, participants could make additional voluntary contributions subject to certain terms and conditions. Benefits ultimately received depended on interest rates set by the Pension Board of the plan (which consists of members appointed by the employer and an equal number selected by participants in the plan) and were payable in a lump sum or as an annuity. The plan guaranteed that there was no loss of principal on either the employee contributions or the company match. In 2007, the plan earned 3.9% and credited 2.7% on plan balances. If an employee had terminated employment with us before age 58, the employee’s account value (employer and employee) would have been transferred to either a new pension fund or to a blocked bank account until early retirement age is reached. An employee who was age 50 or older upon termination of employment would have been able to elect under certain conditions to remain in the plan as an external member. In this case, neither the employee nor the employer would have been able to contribute any further funds to the plan although interest would accrue on the account balance. At any time between the age of 58 and 65, the former employee would then be able to elect to take retirement in the form of a lump sum payment or as an annuity.
Supplemental Pension Plan of Philip Morris in Switzerland
For some Swiss-based employees, including Mr. Calantzopoulos, the laws and regulations applicable to the Pension Fund of Philip Morris in Switzerland and the Philip Morris in Switzerland IC Plan limited the benefits that could have been provided under those plans. These employees participated in a Supplemental Pension Plan under which an amount was calculated and deposited annually in a group trust to make up for the difference between the full pension an employee would have received if these plans were not subject to such limitations. However, these elements did not serve to increase the amount that an individual would have received absent such limits. In the event of termination of employment with us, the provisions of the Pension Fund of Philip Morris in Switzerland and the Philip Morris in Switzerland IC Plan applied. As the Supplemental Plan was not a tax-qualified plan, the benefits from this plan, when paid, would be grossed-up for taxes. In determining the amount of the annual deposit, the assumptions used were the same as those listed above for the Pension Fund of Philip Morris in Switzerland. |