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EMPLOYEE BENEFIT EXPENSES
 12 Months Ended
Dec. 31, 2019
Classes of employee benefits expense [abstract]  
EMPLOYEE BENEFIT EXPENSES
NOTE 8 - EMPLOYEE BENEFIT EXPENSES
(in millions of Euros)
 
Notes
 
Year ended December 31, 2019
 
Year ended December 31, 2018
 
Year ended December 31, 2017
Wages and salaries
 
 
 
(994
)
 
(889
)
 
(872
)
Pension costs - defined benefit plans
 
25
 
(19
)
 
(20
)
 
(21
)
Other post-employment benefits
 
25
 
(9
)
 
(6
)
 
(6
)
Share-based compensation
 
31
 
(16
)
 
(12
)
 
(8
)
Total employee benefit expenses
 
 
 
(1,038
)
 
(927
)
 
(907
)
NOTE 25 - PENSIONS AND OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS
The Group operates a number of pensions, other post-employment benefits and other long-term employee benefit plans. Some of these plans are defined contribution plans and some are defined benefit plans, with assets held in separate trustee-administered funds. Benefits paid through pension trusts are sufficiently funded to ensure the payment of benefits to retirees when they become due.
Actuarial valuations are reflected in the Consolidated Financial Statements as described in NOTE 2.6 - Principles governing the preparation of the Consolidated Financial Statements.
25.1 Description of the plans
Pension plans
Constellium’s pension obligations are in the U.S., Switzerland, Germany and France. Pension benefits are generally based on the employee’s service and highest average eligible compensation before retirement and are periodically adjusted for cost of living increases, either by company practice, collective agreement or statutory requirement. U.S., Swiss and France benefit plans are funded through long-term employee benefit funds.
Other post-employment benefits (OPEB)
The Group provides health care and life insurance benefits to retired employees and in some cases to their beneficiaries and covered dependents, mainly in the U.S. Eligibility for coverage depends on certain age and service criteria. These benefit plans are unfunded.
Other long-term employee benefits
Other long term employee benefits mainly include jubilees in France, Germany and Switzerland and other long-term disability benefits in the U.S. These benefit plans are unfunded.
25.2 Description of risks
Our estimates of liabilities and expenses for pensions and other post-employment benefits incorporate a number of assumptions, including discount rate, longevity estimate and inflation rate. The defined benefit obligations expose the Group to a number of risks, including longevity, inflation, interest rate, medical cost inflation, investment performance, and change in law governing the employee benefit obligations. These risks are mitigated when possible by applying an investment strategy for the funded schemes which aims to minimize the long-term costs. This is achieved by investing in a diversified selection of asset classes, which aims to reduce the volatility of returns and also achieves a level of matching with the underlying liabilities.
Investment performance risk
Our pension plan assets consist primarily of funds invested in listed stocks and bonds.
The present value of funded defined benefit obligations is calculated using a discount rate determined by reference to high quality corporate bond yields. If the return on plan asset is below this rate, it will increase the plan deficit.





Interest rate risk
A decrease in the discount rate will increase the defined benefit obligation. At December 31, 2019, impacts of the change on the defined benefit obligation of a 0.50% increase / decrease in the discount rates are calculated by using a proxy based on the duration of each scheme:
(in millions of Euros)
 
0.50% increase in
discount rates
 
0.50% decrease in
discount rates
France
 
(10
)
 
10

Germany
 
(9
)
 
11

Switzerland
 
(25
)
 
26

United States
 
(32
)
 
35

Total sensitivity on Defined Benefit Obligations
 
(76
)
 
82


Longevity risk
The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of plan participants. An increase in the life expectancy of the plan participants will increase the plan’s liability.
25.3 Actuarial assumptions
Pension and other post-employment benefit obligations were updated based on the discount rates applicable at December 31, 2019. The principal actuarial assumptions used at December 31, 2019 and 2018 were as follows:

 
 
At December 31, 2019
 
At December 31, 2018
 
 
Rate of increase in salaries
 
Rate of increase in pensions
 
Discount rate
 
Rate of increase in salaries
 
Rate of increase in pensions
 
Discount rate
Switzerland
 
1.50%
 
—
 
0.15%
 
1.50%
 
—
 
0.80%
US
 
—
 
—
 
—
 
—
 
—
 
—
Hourly pension
 
2.20%
 
—
 
3.15% - 3.25%
 
2.20%
 
—
 
4.40% - 4.45%
Salaried pension
 
3.80%
 
—
 
3.25%
 
3.80%
 
—
 
4.45%
OPEB (A)
 
3.80%
 
—
 
3.20% - 3.40%
 
3.80%
 
—
 
4.40% - 4.55%
Other benefits
 
3.80%
 
—
 
3.00% - 3.20%
 
3.80%
 
—
 
4.25% - 4.40%
France
 
1.50% - 3.50%
 
2.00%
 
—
 
1.50% - 2.50%
 
2.00%
 
—
Retirements
 
—
 
—
 
0.95%
 
—
 
—
 
1.65%
Other benefits
 
—
 
—
 
0.80%
 
—
 
—
 
1.35%
Germany
 
2.75%
 
1.70%
 
1.00%
 
2.75%
 
1.70%
 
1.70%
(A)
The other main financial assumptions used for the OPEB (healthcare plans, which are predominantly in the U.S.) were:
•
Medical trend rate: pre 65: 6.40% starting in 2020 decreasing gradually to 4.50% until 2026 and stable onwards and post 65: 5.60% starting in 2020 decreasing gradually to 4.50% until 2026 and stable onwards, and
•
Claims costs are based on individual company experience.
For both pension and healthcare plans, the post-employment mortality assumptions allow for future improvements in life expectancy.


25.4 Amounts recognized in the Consolidated Statement of Financial Position
 
 
At December 31, 2019
 
At December 31, 2018
(in millions of Euros)
 
Pension Benefits
 
Other Benefits
 
Total
 
Pension Benefits
 
Other Benefits
 
Total
Present value of funded obligation
 
768

 
—

 
768

 
674

 
—

 
674

Fair value of plan assets
 
(445
)
 
—

 
(445
)
 
(380
)
 
—

 
(380
)
Deficit of funded plans
 
323

 
—

 
323

 
294

 
—

 
294

Present value of unfunded obligation
 
127

 
220

 
347

 
115

 
201

 
316

Net liability arising from defined benefit obligation
 
450

 
220

 
670

 
409

 
201

 
610


25.5 Movement in net defined benefit obligations
 
 
At December 31, 2019
 
 
Defined benefit obligations
 
Plan Assets
 
Net defined benefit liability
(in millions of Euros)
 
Pension benefits
 
Other benefits
 
Total
 
At January 1, 2019
 
789

 
201

 
990

 
(380
)
 
610

Included in the Consolidated Income Statement
 
 
 
 
 
 
 
 
 
 
Current service cost
 
17

 
7

 
24

 
—

 
24

Interest cost / (income)
 
18

 
8

 
26

 
(10
)
 
16

Past service cost
 
(2
)
 
1

 
(1
)
 
—

 
(1
)
Immediate recognition of gains / (losses) arising over the year
 
—

 
2

 
2

 
—

 
2

Administration expenses
 
—

 
—

 
—

 
2

 
2

Included in the Statement of Comprehensive Income / (Loss)
 
 
 
 
 
 
 
 
 
 
Remeasurements due to:
 
 
 
 
 
 
 
 
 
 
—actual return less interest on plan assets
 
—

 
—

 
—

 
(54
)
 
(54
)
—changes in financial assumptions
 
101

 
25

 
126

 
—

 
126

—changes in demographic assumptions
 
(2
)
 
(2
)
 
(4
)
 
—

 
(4
)
—experience losses
 
(3
)
 
(6
)
 
(9
)
 
—

 
(9
)
Effects of changes in foreign exchange rates
 
16

 
3

 
19

 
(11
)
 
8

Included in the Consolidated Statement of Cash Flows
 
 
 
 
 
 
 
 
 
 
Benefits paid
 
(43
)
 
(20
)
 
(63
)
 
38

 
(25
)
Contributions by the Group
 
—

 
—

 
—

 
(25
)
 
(25
)
Contributions by the plan participants
 
4

 
1

 
5

 
(5
)
 
—

At December 31, 2019
 
895

 
220

 
1,115

 
(445
)
 
670

 
 
At December 31, 2018
 
 
Defined benefit obligations
 
Plan Assets
 
Net defined benefit liability
(in millions of Euros)
 
Pension benefits
 
Other benefits
 
Total
 
At January 1, 2018
 
801

 
250

 
1,051

 
(387
)
 
664

Included the Consolidated Income Statement
 

 

 

 

 

Current service cost
 
18

 
6

 
24

 
—

 
24

Interest cost / (income)
 
16

 
8

 
24

 
(9
)
 
15

Past service cost
 
—

 
(36
)
 
(36
)
 
—

 
(36
)
Immediate recognition of gains / (losses) arising over the year
 
—

 
—

 
—

 
—

 
—

Administration expenses
 
—

 
—

 
—

 
2

 
2

Included in the Statement of Comprehensive Income / (Loss)
 

 

 

 

 

Remeasurements due to:
 

 

 

 

 

—actual return less interest on plan assets
 
—

 
—

 
—

 
26

 
26

—changes in financial assumptions
 
(30
)
 
(15
)
 
(45
)
 
—

 
(45
)
—changes in demographic assumptions
 
(5
)
 
(1
)
 
(6
)
 
—

 
(6
)
—experience losses
 
(1
)
 
(2
)
 
(3
)
 
—

 
(3
)
Effects of changes in foreign exchange rates
 
22

 
9

 
31

 
(16
)
 
15

Included in the Consolidated Statement of Cash Flows
 

 

 

 

 

Benefits paid
 
(35
)
 
(19
)
 
(54
)
 
31

 
(23
)
Contributions by the Group
 
—

 
—

 
—

 
(23
)
 
(23
)
Contributions by the plan participants
 
3

 
1

 
4

 
(4
)
 
—

At December 31, 2018
 
789

 
201

 
990

 
(380
)
 
610


25.6 Benefit plan amendments     
In the third quarter of 2018, the Group announced a plan to transfer certain participants in the Constellium Rolled Products Ravenswood Retiree Medical and Life Insurance Plan (“the Plan”) from a company sponsored program to a third-party health network that provides similar benefits at a lower cost. This change in benefits was accounted for as a plan amendment and resulted in a reduction of the defined benefit obligation and the recognition of a €36 million gain from negative past service cost. In 2019, the defined benefit obligation was adjusted and corresponding past service costs of €3 million were recorded, to reflect delays in the estimated implementation timetable (see 25.7 Ravenswood OPEB dispute).
During the year ended December 31, 2019, the Group decided to terminate the medical care plan for the active participants of one of its French entities effective October 1, 2019. This resulted in both a decrease of the defined benefit obligation and the recognition of a €2 million gain from negative past service cost. In addition, the Group offered lump sum option to Constellium Rolled Products Ravenswood former employees with deferred benefits. This resulted in both a decrease of the defined benefit obligation and the recognition of a €3 million gain from negative past service cost.
25.7 Ravenswood OPEB disputes
The United Steelworkers Local Union 5668 (the “Union”) is contesting the OPEB Amendments and filed a lawsuit against Constellium Rolled Products Ravenswood, LLC ("Ravenswood") in a federal district court in West Virginia (the “Court”) seeking to enjoin the Plan changes and to compel arbitration. The Court issued an order in December 2018, enjoining Ravenswood from implementing the OPEB Amendments pending resolution in arbitration. In September 2019, the arbitrator issued a decision ruling against Ravenswood and sustaining the Union’s grievance. Ravenswood filed a motion to vacate this decision, which is still pending, and will continue to vigorously defend this case. The Group believes it has a strong legal position and that it is probable that Ravenswood will ultimately prevail and be able to implement the OPEB amendments.
Additionally, during 2019, the Union filed a grievance disputing the existing limitation of Ravenswood’s liability for the healthcare costs of pre-Medicare retirees. This matter is scheduled to be arbitrated in the coming months and the Group believes it is without merit and intends to defend it vigorously.
25.8 Net defined benefit obligations by country
 
 
At December 31, 2019
 
At December 31, 2018
(in millions of Euros)
 
Defined benefit obligations
 
Plan assets
 
Net defined benefit liability
 
Defined benefit obligations
 
Plan assets
 
Net defined benefit liability
France
 
161

 
(3
)
 
158

 
151

 
(3
)
 
148

Germany
 
144

 
(1
)
 
143

 
136

 
(1
)
 
135

Switzerland
 
299

 
(214
)
 
85

 
251

 
(178
)
 
73

United States
 
510

 
(227
)
 
283

 
451

 
(198
)
 
253

Other countries
 
1

 
—

 
1

 
1

 
—

 
1

Total
 
1,115

 
(445
)
 
670

 
990

 
(380
)
 
610


25.9 Plan asset categories
 
 
At December 31, 2019
 
At December 31, 2018
(in millions of Euros)
 
Quoted in an active market
 
Unquoted in an active market
 
Total
 
Quoted in an active market
 
Unquoted in an active market
 
Total
Cash & cash equivalents
 
5

 
—

 
5

 
6

 
—

 
6

Equities
 
119

 
51

 
170

 
95

 
40

 
135

Bonds
 
92

 
115

 
207

 
71

 
110

 
181

Property
 
14

 
37

 
51

 
10

 
33

 
43

Other
 
—

 
12

 
12

 
5

 
10

 
15

Total fair value of plan assets
 
230

 
215

 
445

 
187

 
193

 
380


25.10 Cash flows
Expected contributions to pension and other benefits amount to €32 million and €18 million, respectively, for the year ending December 31, 2020.
Future benefit payments expected to be paid either by pension funds or directly by the Company to beneficiaries are as follows:
(in millions of Euros)
 
Estimated benefits payments
Year ended December 31,
 
 
2020
 
54

2021
 
51

2022
 
52

2023
 
53

2024
 
58

2025 to 2029
 
289


At December 31, 2019, the weighted-average maturity of the defined benefit obligations was 14.1 years (2018: 13.3 years).