g) Employee benefit plans
Pensions and other postretirement benefits
The companies within Metso have various pension schemes pursuant to local conditions and practices of the countries in which they operate. Most of these programs are defined benefit pension schemes with retirement, disability, death and termination income benefits. The retirement income benefits are generally a function of years of employment and of salary with Metso, and are usually coordinated with local national pensions. The schemes are generally funded through payments to insurance companies or to trustee-administered funds as determined by periodic actuarial calculations. Metso provides certain health care and life insurance benefits for retired employees. Substantially all the U.S. and Canadian employees are provided these benefits. Under U.S. GAAP, SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other than Pensions” requires Metso to accrue the estimated cost of postretirement benefit payments during the years the employee provides services.
Metso uses December 31 as the measurement date for its pension plans.
At the transition to IFRS, the disability portion of the Finnish TEL (Employees’ pension plan) was considered as a defined benefit plan requiring an actuarial valuation of the liability. Under U.S. GAAP, the disability portion qualified equally as a defined benefit plan. Due to certain changes introduced in 2004, the disability portion of Finnish TEL was no longer regarded as a defined benefit plan under IFRS. This change in classification resulted in a reversal of TEL disability liability during the years ended December 31, 2004 and 2005, respectively. Under U.S. GAAP, the changes to Finnish TEL did not impact the classification.
Other differences in the accounting for pensions between U.S. GAAP and IFRS result from the asset ceiling recognized under IFRS, recognition of the additional minimum liability under U.S. GAAP prior to adoption of SFAS No. 158 and timing of recognition of prior service cost. After the adoption of SFAS No. 158 in the year ended December 31, 2006, the inclusion of unrecognized amounts of net periodic benefit costs in other comprehensive income generates a new difference between the two sets of standards.