| Pension and severance plans | 15.
Pension and severance plans
(1)
Defined benefit and severance plans
Upon terminating employment, employees of Sony Corporation and its
subsidiaries in Japan are entitled, under most circumstances, to
lump-sum
Under the plans, in general, the defined benefits cover 65% of the
indemnities under existing regulations to employees. The remaining
indemnities are covered by severance payments by the companies. The
pension benefits are payable at the option of the retiring employee
either in a lump-sum
From April 1, 2012, Sony Corporation and substantially all of
its subsidiaries in Japan have modified existing defined benefit
pension plans such that life annuities will no longer accrue
additional service benefits, with those participants instead
accruing fixed-term annuities. The defined benefit pension plans
were closed to new participants and a defined contribution plan was
also introduced.
In addition, several of Sony’s foreign subsidiaries have
defined benefit pension plans or severance indemnity plans, which
cover substantially all of their employees. Under such plans, the
related cost of benefits is currently funded or accrued. Benefits
awarded under these plans are based primarily on the current rate
of pay and length of service.
The components of net periodic benefit costs for the fiscal years
ended March 31, 2017, 2018 and 2019 were as follows:
Japanese plans:
Yen in millions
Fiscal year ended
March 31
2017 2018 2019
Service cost 26,811 25,185 23,128
Interest cost 5,912 8,024 7,020
Expected return on plan assets (17,829 ) (16,440 ) (16,695 )
Recognized actuarial loss 20,436 16,099 15,365
Amortization of prior service costs (9,490 ) (8,693 ) (7,864 )
Net periodic benefit costs 25,840 24,175 20,954
Foreign plans:
Yen in millions
Fiscal year ended
March 31
2017 2018 2019
Service cost 2,958 3,181 2,780
Interest cost 10,426 10,393 10,083
Expected return on plan assets (11,000 ) (11,687 ) (11,797 )
Amortization of net transition asset 9 5 —
Recognized actuarial loss 2,552 3,014 2,656
Amortization of prior service costs (463 ) (574 ) (269 )
Losses on curtailments and settlements 43 1,058 1,804
Net periodic benefit costs 4,525 5,390 5,257
The components of net periodic benefit costs other than service
cost for the fiscal year ended March 31, 2019 are included
within other income in the consolidated statements of income.
The estimated net actuarial loss and prior service cost for the
defined benefit pension plans that will be amortized from
accumulated other comprehensive income into net periodic benefit
costs over the next fiscal year are 17,759 million yen and
7,153 million yen, respectively.
The changes in the benefit obligation and plan assets as well as
the funded status and composition of amounts recognized in the
consolidated balance sheets were as follows:
Japanese plans Foreign plans
Yen in millions Yen in millions
March 31 March 31
2018 2019 2018 2019
Change in benefit obligation:
Benefit obligation at beginning of the fiscal year 1,004,676 1,010,574 352,442 356,397
Service cost 25,185 23,128 3,181 2,780
Interest cost 8,024 7,020 10,393 10,083
Plan participants’ contributions — — 573 462
Actuarial loss 21,920 29,295 663 1,700
Foreign currency exchange rate changes — — 8,858 (1,554 )
Curtailments and settlements — — (5,422 ) (6,120 )
Effect of changes in consolidated subsidiaries — — — 1,947
Other (8 ) 6 — —
Benefits paid (49,223 ) (35,069 ) (14,291 ) (13,777 )
Benefit obligation at end of the fiscal year 1,010,574 1,034,954 356,397 351,918
Change in plan assets:
Fair value of plan assets at beginning of the fiscal year 699,008 711,077 259,177 269,745
Actual return on plan assets 38,896 18,701 13,426 15,243
Foreign currency exchange rate changes — — 6,181 (838 )
Employer contribution 6,090 36,875 9,040 8,542
Plan participants’ contributions — — 573 462
Curtailments and settlements — — (5,285 ) (5,960 )
Benefits paid (32,917 ) (24,449 ) (13,367 ) (12,445 )
Fair value of plan assets at end of the fiscal year 711,077 742,204 269,745 274,749
Funded status at end of the fiscal year (299,497 ) (292,750 ) (86,652 ) (77,169 )
Amounts recognized in the consolidated balance sheets consist
of:
Japanese plans Foreign plans
Yen in millions Yen in millions
March 31 March 31
2018 2019 2018 2019
Noncurrent assets 3,426 3,476 8,396 14,745
Current liabilities — — (4,121 ) (4,412 )
Noncurrent liabilities (302,923 ) (296,226 ) (90,927 ) (87,502 )
Ending balance (299,497 ) (292,750 ) (86,652 ) (77,169 )
Amounts recognized in accumulated other comprehensive income,
excluding tax effects, consist of:
Japanese plans Foreign plans
Yen in millions Yen in millions
March 31 March 31
2018 2019 2018 2019
Prior service cost (credit) (16,723 ) (8,859 ) (488 ) (45 )
Net actuarial loss 299,852 311,128 73,404 71,906
Ending balance 283,129 302,269 72,916 71,861
The accumulated benefit obligations for all defined benefit pension
plans were as follows:
Japanese plans Foreign plans
Yen in millions Yen in millions
March 31 March 31
2018 2019 2018 2019
Accumulated benefit obligations 1,005,557 1,029,910 340,353 336,185
The projected benefit obligations, the accumulated benefit
obligations and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets were as
follows:
Japanese plans Foreign plans
Yen in millions Yen in millions
March 31 March 31
2018 2019 2018 2019
Projected benefit obligations 998,629 1,022,235 301,046 200,596
Accumulated benefit obligations 993,612 1,017,191 293,834 196,928
Fair value of plan assets 695,706 726,009 215,510 123,937
Weighted-average assumptions used to determine benefit obligations
as of March 31, 2018 and 2019 were as follows:
Japanese plans Foreign plans
March 31 March 31
2018 2019 2018 2019
Discount rate
0.8 %
0.6 %
2.9 %
2.8 %
Rate of compensation increase * * 2.6 2.3
*
Substantially all of Sony’s Japanese pension
plans were point-based. Point-based plans do not incorporate a
measure of compensation rate increases.
Weighted-average assumptions used to determine the net periodic
benefit costs for the fiscal years ended March 31, 2017, 2018
and 2019 were as follows:
Japanese plans Foreign plans
Fiscal year ended March 31
Fiscal year ended March 31
2017 2018 2019 2017 2018 2019
Discount rate 0.6 % 0.9 % 0.8 % 3.2 % 3.1 % 2.9 %
Expected return on plan assets 2.7 2.4 2.6 4.8 4.6 4.4
Rate of compensation increase * * * 2.8 2.4 2.6
*
Substantially all of Sony’s Japanese pension
plans were point-based. Point-based plans do not incorporate a
measure of compensation rate increases.
Sony reviews these assumptions for changes in circumstances.
The weighted-average rate of compensation increase is calculated
based only on the pay-related
The mortality rate assumptions are based on life expectancy and
death rates for different types of participants.
To determine the expected long-term rate of return on pension plan
assets, Sony considers the current and expected asset allocations,
as well as the historical and expected long-term rates of returns
on various categories of plan assets. Sony’s pension
investment policy recognizes the expected growth and the
variability risk associated with the long-term nature of pension
liabilities, the returns and risks of diversification across asset
classes, and the correlation among assets. The asset allocations
are designed to maximize returns consistent with levels of
liquidity and investment risk that are considered prudent and
reasonable. While the pension investment policy gives appropriate
consideration to recent market performance and historical returns,
the investment assumptions utilized by Sony are designed to achieve
a long-term return consistent with the long-term nature of the
corresponding pension liabilities.
The investment objectives of Sony’s plan assets are designed
to generate returns that will enable the plans to meet their future
obligations. The precise amount for which these obligations will be
settled depends on future events, including the retirement dates
and life expectancy of the plans’ participants. The
obligations are estimated using actuarial assumptions, based on the
current economic environment and other pertinent factors.
Sony’s investment strategy balances the requirement to
generate returns, using potentially higher yielding assets such as
equity securities, with the need to control risk in the portfolio
with less volatile assets, such as fixed-income securities. Risks
include, among others, inflation, volatility in equity values and
changes in interest rates that could negatively impact the funding
level of the plans, thereby increasing its dependence on
contributions from Sony. To mitigate any potential concentration
risk, thorough consideration is given to balancing the portfolio
among industry sectors and geographies, taking into account
interest rate sensitivity, dependence on economic growth, currency
and other factors that affect investment returns. The target
allocations as of March 31, 2019, are, as a result of
Sony’s asset liability management, 30% of equity securities,
51% of fixed income securities and 19% of other investments for the
pension plans of Sony Corporation and most of its subsidiaries in
Japan, and, on a weighted average basis, 22% of equity securities,
53% of fixed income securities and 25% of other investments for the
pension plans of foreign subsidiaries.
The fair values of the assets held by Japanese and foreign plans,
which are classified in accordance with the fair value hierarchy
described in Note 2, are as follows:
Japanese plans
Yen in millions
Fair
value at March 31, 2018 Fair value measurements using inputs considered as
Asset class Level 1 Level 2 Level 3
Cash and cash equivalents 9,446 9,446 — —
Equity:
Equity securities *1 138,443 134,091 4,352 —
Fixed income:
Government bonds *2 225,879 — 225,879 —
Corporate bonds *3 79,323 — 79,323 —
Asset-backed securities *4 121 — 121 —
Commingled funds *5 122,950 — 122,950 —
Commodity funds *6 21,136 — 21,136 —
Private equity *7 24,144 — — 24,144
Hedge funds *8 70,204 — — 70,204
Real estate and other *9 19,431 — — 19,431
Total 711,077 143,537 453,761 113,779
Japanese plans
Yen in millions
Fair
value at March 31, 2019 Fair value measurements using inputs considered as
Asset class Level 1 Level 2 Level 3
Cash and cash equivalents 10,689 10,689 — —
Equity: —
Equity securities *1 140,559 135,713 4,846 —
Fixed income: —
Government bonds *2 210,817 — 210,817 —
Corporate bonds *3 97,519 — 97,519 —
Asset-backed securities *4 1,537 — 1,537 —
Commingled funds *5 138,455 — 138,455 —
Commodity funds *6 21,674 — 21,674 —
Private equity *7 27,956 — — 27,956
Hedge funds *8 71,606 — — 71,606
Real estate and other *9 21,392 — — 21,392
Total 742,204 146,402 474,848 120,954
*1
Includes approximately 52 percent and
51 percent of Japanese equity securities, and 48 percent
and 49 percent of foreign equity securities for the fiscal
years ended March 31, 2018 and 2019, respectively.
*2
Includes approximately 49 percent and
48 percent of debt securities issued by Japanese national and
local governments, and 51 percent and 52 percent of debt
securities issued by foreign national and local governments for the
fiscal years ended March 31, 2018 and 2019, respectively.
*3
Includes debt securities issued by Japanese and
foreign corporation and government related agencies.
*4
Includes primarily mortgage-backed securities.
*5
Commingled funds represent pooled institutional
investments, including primarily investment trusts. They include
approximately 51 percent and 50 percent of investments in
equity, 48 percent and 49 percent of investments in fixed
income, and 1 percent and 1 percent of investments in
other for the fiscal years ended March 31, 2018 and 2019,
respectively.
*6
Represents commodity futures funds.
*7
Includes multiple private equity funds of funds that
primarily invest in venture, buyout, and distressed markets in the
United States and Europe.
*8
Includes primarily funds that invest in a portfolio of
a broad range of hedge funds to diversify the risks and reduce the
volatilities associated with a single hedge fund.
*9
Includes primarily private real estate investment
trusts.
Foreign plans
Yen in millions
Fair
value at March 31, 2018 Fair value measurements using inputs considered as
Asset class Level 1 Level 2 Level 3
Cash and cash equivalents 2,377 2,377 — —
Equity:
Equity securities *1 30,916 29,814 1,102 —
Fixed income:
Government bonds *2 78,129 — 78,129 —
Corporate bonds *3 26,424 — 21,121 5,303
Asset-backed securities 960 — 960 —
Insurance contracts *4 18,670 — 5,941 12,729
Commingled funds *5 75,785 — 75,785 —
Real estate and other *6 36,484 — 10,508 25,976
Total 269,745 32,191 193,546 44,008
Foreign plans
Yen in millions
Fair
value at March 31, 2019 Fair value measurements using inputs considered as
Asset class Level 1 Level 2 Level 3
Cash and cash equivalents 4,340 4,340 — —
Equity:
Equity securities *1 23,766 23,113 653 —
Fixed income:
Government bonds *2 84,761 — 84,761 —
Corporate bonds *3 32,749 — 32,749 —
Asset-backed securities 1,115 — 1,115 —
Insurance contracts *4 18,308 — 5,814 12,494
Commingled funds *5 76,503 — 76,503 —
Real estate and other *6 33,207 — 11,118 22,089
Total 274,749 27,453 212,713 34,583
*1
Includes primarily foreign equity securities.
*2
Includes primarily foreign government debt
securities.
*3
Includes primarily foreign corporate debt
securities.
*4
Represents annuity contracts with or without profit
sharing.
*5
Commingled funds represent pooled institutional
investments including mutual funds, common trust funds, and
collective investment funds. They are primarily comprised of
foreign equities and fixed income investments.
*6
Includes primarily private real estate investment
trusts.
Each level in the fair value hierarchy in which each plan asset is
classified is determined based on inputs used to measure the fair
values of the asset, and does not necessarily indicate the risks or
rating of the asset.
The following is a description of the valuation techniques used to
measure Japanese and foreign plan assets at fair value. The
valuation techniques are applied consistently from period to
period.
Equity securities are valued at the closing price reported in the
active market in which the individual securities are traded. These
assets are generally classified as level 1.
The fair value of fixed income securities is typically estimated
using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows and are generally
classified as level 2.
Commingled funds are typically valued using the net asset value
provided by the administrator of the fund and reviewed by Sony. The
net asset value is based on the value of the underlying assets
owned by the fund, minus liabilities and divided by the number of
shares or units outstanding. These assets are classified as level
1, level 2 or level 3 depending on availability of quoted market
prices.
Commodity funds are valued using inputs that are derived
principally from or corroborated by observable market data. These
assets are generally classified as level 2.
Private equity and private real estate investment trust valuations
require significant judgment due to the absence of quoted market
prices, the inherent lack of liquidity and the long-term nature of
such assets. These assets are initially valued at cost and are
reviewed periodically utilizing available and relevant market data
to determine if the carrying value of these assets should be
adjusted. These investments are classified as level 3.
Hedge funds are valued using the net asset value as determined by
the administrator or custodian of the fund. These investments are
classified as level 3.
The following table sets forth a summary of changes in the fair
values of Japanese and foreign plans’ level 3 assets for the
fiscal years ended March 31, 2018 and 2019:
Japanese plans
Yen in millions
Fair value measurement using
significant unobservable inputs
Private equity Hedge funds Real estate and other Total
Beginning balance at April 1, 2017 21,790 67,235 17,925 106,950
Return on assets held at end of year 1,483 636 425 2,544
Purchases, sales, and settlements, net 871 2,333 1,081 4,285
Ending balance at March 31, 2018 24,144 70,204 19,431 113,779
Return on assets held at end of year 4,428 659 1,622 6,709
Purchases, sales, and settlements, net (616 ) 743 339 466
Ending balance at March 31, 2019 27,956 71,606 21,392 120,954
Foreign plans
Yen in millions
Fair value measurement using
significant unobservable inputs
Insurance Corporate bonds Real estate and other Total
Beginning balance at April 1, 2017 — 6,926 22,929 29,855
Return on assets held at end of year — — 1,101 1,101
Purchases, sales, and settlements, net 12,651 (1,256 ) 12 11,407
Transfers, net — — 1,181 1,181
Other * 78 (367 ) 753 464
Ending balance at March 31, 2018 12,729 5,303 25,976 44,008
Return on assets held at end of year 736 — 559 1,295
Purchases, sales, and settlements, net (389 ) — (3,809 ) (4,198 )
Transfers, net — (5,540 ) 123 (5,417 )
Other * (582 ) 237 (760 ) (1,105 )
Ending balance at March 31, 2019 12,494 — 22,089 34,583
*
Primarily consists of translation adjustments.
Sony makes contributions to its defined benefit pension plans as
deemed appropriate by management after considering the fair value
of plan assets, expected return on plan assets and the present
value of benefit obligations. Sony expects to contribute
approximately 10 billion yen to the Japanese plans and
approximately 8 billion yen to the foreign plans during the
fiscal year ending March 31, 2020.
The expected future benefit payments are as follows:
Japanese plans Foreign plans
Fiscal year ending March 31 Yen in millions Yen in millions
2020 41,345 17,972
2021 40,700 17,892
2022 42,487 18,138
2023 43,740 18,896
2024 46,345 19,441
2025 — 2029 238,416 107,668
(2)
Defined contribution plans
Total defined contribution expenses for the fiscal years ended
March 31, 2017, 2018 and 2019 were as follows:
Yen in millions
Fiscal year ended
March 31
2017 2018 2019
Japanese plans 3,412 3,237 3,353
Foreign plans 10,458 11,379 11,602 |
