20 Provisions for employee benefits

Provisions for employee benefits of €141 million (€124 million at 31 December 2013) can be broken down as follows:

The provision for employee severance pay (TFR) of €108 million (€94 million at 31 December 2013) 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. Due to the legislative changes introduced from 1 January 2007 for companies with more than 50 employees, 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 funds or to INPS. Liabilities related to severance pay pre-dating 1 January 2007 remain a defined-benefit plan to be valued using actuarial methods.

The supplementary healthcare provision for Company executives of eni (FISDE) of €10 million (€8 million at 31 December 2013) 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 executives⁴¹ and retired executives whose most recent contract of employment was as an executive with the eni Group. 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 €23 million (€22 million at 31 December 2013) concern long-term benefits connected with deferred cash incentive plans, long-term cash incentive plans (€15 million in total) and seniority rewards (€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, which replaced the preceding stock option allocations, involve the payment, three years after allocation, of a variable cash bonus tied to a measure of company performance. Obtaining the benefit depends on 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.

The composition of and changes in employee benefit provisions, determined by applying actuarial methods, are as follows⁴²:

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 (€15 million) are broken down in the following table:

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 in the table 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 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.

The table below illustrates the effects of a reasonably possible change⁴³ in the discount rate at the end of the year.

The sensitivity of the discount rate represents the value of the actuarial liability obtained using the end-of-year valuation data, changing the discount rate by a certain number of basis points, without any change in the other assumptions.

The maturity profile of the obligations for employee benefit plans is shown in the following table: