26 Provisions for employee benefits

Provisions for employee benefits of €124 million (€129 million at 31 December 2012) can be broken down as follows:

The provision for employee severance pay (TFR) of €94 million is governed by Article 2120 of the Italian Civil Code and represents the estimated liability determined on the basis of actuarial procedures for the amount to be paid to employees at the time that the employment is terminated. The principal amount of the benefit is equal to the sum of portions of the allocation calculated on compensation items paid during the employment and revalued until the time that such relationship is terminated. In accordance with changes to the law introduced from 1 January 2007, severance pay to be accrued is earmarked for pension funds or the fund set up at the Istituto Nazionale Previdenza Sociale (INPS) [National Social Security Institute] or, for businesses with less than 50 employees, may be kept within the business. This means that a significant part of severance pay to be accrued is classified as a defined-contribution plan since the company’s only obligation is to pay the contributions to the pension fund or to INPS. Liabilities related to severance pay pre-dating 1 January 2007 remains a defined-benefit plan to be valued using actuarial methods.

The supplementary healthcare provision for Company executives of Eni (FISDE) of €8 million includes the estimate of costs (determined on an actuarial basis) related to contributions to be paid to the supplementary healthcare provision benefiting current and retired executives.

FISDE provides financial supplementary healthcare benefits to Eni Group executives and retired executives whose most recent contract of employment was as an executive with the Eni Group. Executives of the Snam Group appointed up to October 2012 are registered under FISDE. Snam executives appointed after that date are registered with a supplementary healthcare fund classified as a defined-contribution plan. The Snam Group is also looking into the possibility of identifying a Group-wide supplementary healthcare fund. FISDE is funded through the payment of: (i) contributions from member companies; (ii) contributions from individual members for themselves and their immediate family; and (iii) ad hoc contributions for specific benefits.

The amount of the liability is determined by taking the contribution paid by the Company as a reference, as an approximate estimate of the healthcare costs incurred by the fund.

Other employee benefit provisions of €22 million concern long-term benefits connected with deferred cash incentive plans, long-term cash incentive plans (€14 million in total) and seniority plans (€8 million).

The corresponding obligations are determined using an actuarial valuation method and are discounted using a rate defined on the basis of the yields from bonds issued by leading companies. Revaluations of the liability (net asset) are recognised in full in the income statement.

Deferred cash incentive plans are allocated to executives who have met the goals set out in the year preceding the allocation year, and allocate a basic incentive that is disbursed after three years and varies according to the performance achieved by the Company during the course of the three-year period following the time of the allocation.

The long-term incentive plans replacing the preceding stock option allocations involve the payment, three years after being assigned, of a variable cash bonus tied to a measure of Company performance. Obtainment of the benefit is linked to the achievement of certain future performance levels and is conditional on the beneficiary remaining with the Company for the three-year period following the allocation (the “vesting period”).

Seniority bonuses are benefits paid upon reaching a minimum service period at the Company, and are paid in kind.

Deferred cash incentive plans, long-term cash incentive plans and seniority bonuses are all classified as other long-term benefits pursuant to IAS 19.

Employee benefit provisions, which are determined by applying actuarial methods, can be broken down as follows²⁵:

The employee benefit plans recognised by Snam are subject, in particular, to interest rate risk, in the sense that a change in the discount rate could result in a significant change in the liability.

Costs related to employee benefit liabilities, which are recognised using actuarial assumptions and recorded in the income statement (€10 million), are broken down as follows:

Costs for defined-benefit plans recognised under other components of comprehensive income break down as follows:

The main actuarial assumptions used to determine liabilities at the end of the year and to calculate the cost for the following year are indicated below:

The discount rate adopted was determined by considering the yields from bonds issued by leading companies in the eurozone with an AA rating.

The table below illustrates the effects of a reasonably possible change²⁶ in the discount rate at the end of the year:

The forecast disbursement for employee benefit plans for the next 10 years is as follows:

The weighted average duration of obligations for employee benefit plans at the end of the year is nine years. The weighted average duration of obligations for defined-benefit plans (TFR and FISDE) is 10 years.