5 2020 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements
Defined-benefit plans are paid for either directly by the Group, which funds the benefits to be granted, or via pension funds to which th e Group contributes. In both cases, the Group recognises a pension liability corresponding to the present value of future payments, which is estimated by taking into consideration relevant internal and external factors as well as the laws and regulations specific to each Group entity. Certain post-employment defined-benefit plans may comprise plan assets intended to settle the obligations. They are mainly administered by pension funds that are legally separate from the entities making up the Group. The assets held by these funds are mainly shares or bonds. Their fair value is generally calculated using their market value. Obligations in respect of post-employment defined-benefit plans are measured annually using the actuarial valuation method known as the projected unit credit method, which stipulates that each period of service gives rise to an additional unit of benefit entitlement, and measures each unit separately to obtain the final obligation. These calculations include assumptions regarding life expectancy, employee turnover and projected future salaries. The present value of retirement benefit obligations is determined by discounting future cash outflows using the rate for market yields on high-quality corporate bonds of the currency used to pay the benefit and a term consistent with the estimated average term of the concerned retirement benefit obligation.
The expense representing the current service cost for the period is recognised in profit or loss within Staff costs . The effects of plan amendments, recognised through past service cost (cost of service in prior periods modified by the introduction of changes or new benefit plans), are recognised immediately in profit or loss within Staff costs when they occur. Any gains or losses recognised in the event of defined-benefit pension plan curtailments or settlements are recognised in profit or loss when the event occurs within Other operating income or Other operating expenses , respectively. An interest expense is recognised in profit or loss within Other financial expenses and corresponds to the cost of unwinding the discount of the retirement benefit obligations net of plan assets. The assumptions used in the actuarial calculation of defined-benefit pension obligations involve uncertainties that may affect the value of financial assets and obligations to employees. Actuarial gains and losses arising from the effects of changes in demographic assumptions, changes in financial assumptions and the difference between the discount rate and the actual rate of return on plan assets, less their management and administrative costs, are recognised directly in equity under Other comprehensive income , and are not reclassifiable to profit or loss.
Other long-term employee benefits 5.3.2. Other long-term employee benefits may include the portion in Germany and Belgium; and end-of-contract bonuses in Italy, available in more than one year of employee profit-sharing liabilities Lebanon and India. Benefits for employees in India make up the allocated to a current account and locked in for five years in France; largest portion of these liabilities for 2020, for €4.3 million long-service awards in Germany and India; pre-pension obligations (€4.4 million at 31/12/2019).
The remaining long-term employee benefits primarily consist of: long-term paid leave such as long-service or sabbatical leave; long-service awards; p incentives and bonuses payable 12 months or more after the p end of the period in which the employees render the corresponding service; profit-sharing liabilities. These are recognised at the present p value of the obligation at the balance sheet date. For the year in which this profit-sharing is appropriated, the difference between the present value of the profit-sharing and the
nominal value that will be paid to employees at the close of the lock-up period is recognised as a financial liability and balanced by an additional staff expense. It is then reversed as a deduction against financial expenses over the following five years; deferred compensation paid 12 months or more after the end p of the period in which it is earned. All expenses relating to other long-term benefits, including p changes in actuarial assumptions, are recognised immediately in profit or loss within Staff costs in respect of the service cost and within Other financial income and expenses in respect of the cost of unwinding the discount.