Note 31 Pension and Other Post-Retirement Benefit Plans

a) Defined benefit plans

The Group has established various pension plans inside and outside of Switzerland. The major plans are located in Switzerland, the UK, the US and Germany. Independent actuarial valuations are performed for the plans in these locations. The measurement date of these plans is 31 December for each year presented.

The pension funds of Atel Ltd. and some of its group companies in Switzerland and Germany are included in the disclosure up to 31 December 2005 but are not included in the 31 December 2006 disclosure since these companies were sold on 23 March 2006.

The overall investment policy and strategy for the Group's defined benefit pension plans is guided by the objective of achieving an investment return which, together with the contributions paid, is sufficient to maintain reasonable control over the various funding risks of the plans. The investment advisors appointed by plan trustees are responsible for determining the mix of asset types and target allocations which are reviewed by the plan trustees on an ongoing ­basis. Actual asset allocation is determined by a variety of current economic and market conditions and in consideration of specific asset class risk.

The expected long-term rates of return on plan assets are based on long-term expected inflation, interest rates, risk premiums and targeted asset class allocations. These estimates take into consideration historical asset class returns and are determined together with the plans' investment and actuarial advisors.

Swiss pension plans

The pension plan of UBS covers practically all UBS em- ployees in Switzerland and exceeds the minimum benefit requirements under Swiss law. The Swiss plan was amended on 1 January 2007 to change the definition of retirement benefits from a final covered salary to a retirement savings approach. The pension plan provides benefits which are based on annual contributions as a percentage of salary and accrue at an interest rate that is defined annually by the plan trustees.

Contributions to the pension plan of UBS are paid by employees and the employer. The employee contributions are calculated as a percentage of covered salary and are deducted monthly. The percentages deducted from salary for full benefit coverage (including risk benefits) depend on age and vary between 1% and 10% of covered base salary and 3% and 8% of covered bonus. The employer pays a contribution that ranges between 100% and 350%, or approximately 230%, on average, of the sum of employees' contributions. The benefits covered include retirement benefits, disability, death and survivor pensions, and employment termination benefits.

The employer contributions expected to be made in 2007 to the Swiss pension plan are CHF 520 million. The accumulated benefit obligation (which is the current value of accrued benefits without allowance for future salary increases) for the Swiss pension plan was CHF 19,094 million as of 31 December 2006 (2005: CHF 18,863 million, 2004: CHF 18,566 million).

Foreign pension plans

The foreign locations of UBS operate various pension plans in accordance with local regulations and practices. Among these plans are defined contribution plans as well as defined benefit plans. The locations with defined benefit plans of a material nature are in the UK, the US and Germany. The UK and the US defined benefit plans are closed to new entrants who are covered by defined contribution plans. The amounts shown for foreign plans reflect the net funded positions of the major foreign plans.

The retirement plans provide benefits in the event of retirement, death, disability or employment termination. The plans' retirement benefits depend on age, contributions and level of compensation. The principal plans are financed in full by the Group. The employer contributions expected to be made in 2007 to these pension plans are CHF 76 million. The funding policy for these plans is consistent with local government and tax requirements.

The assumptions used in foreign plans take into account local economic conditions. The accumulated benefit obli­gation for these pension plans was CHF 5,142 million as of 31 December 2006 (2005: CHF 4,992 million, 2004: CHF 4,118 million). For pension plans with an accumulated benefit obligation in excess of plan assets, the aggregate projected benefit obligation and accumulated benefit obligation was CHF 4,710 million and CHF 4,683 million as of 31 December 2006 (2005: CHF 4,521 million and CHF 4,497 million, 2004: CHF 3,755 million and CHF 3,735 million). The fair value of plan assets for these plans was CHF 4,092 million as of 31 December 2006 (2005: CHF 3,789 million, 2004: CHF 3,166 million).

b) Post-retirement medical and life plans

In the US and the UK, the Group offers retiree medical benefits that contribute to the health care coverage of employees and beneficiaries after retirement. In addition to retiree medical benefits, the Group in the US also provides retiree life insurance benefits. The UK plan is closed to new entrants.

The benefit obligation in excess of fair value of plan assets for those plans amounts to CHF 219 million as of 31 December 2006 (2005: CHF 216 million, 2004: CHF 166 million) and the total accrued post-retirement cost amounts to CHF 176 million as of 31 December 2006 (2005: CHF 168 million, 2004: CHF 136 million). The net periodic post-retirement costs for the years ended 31 December 2006, 31 December 2005 and 31 December 2004 were CHF 24 million, CHF 21 million and CHF 16 million, respectively.

The employer contributions expected to be made in 2007 to the post-retirement medical and life plans are CHF 9 million. The expected future benefit payments are CHF 9 mil- lion for the years 2007 and 2008, CHF 10 million for the years 2009 and 2010, CHF 11 million for the year 2011, CHF 64 million in total for the years 2012 to 2016.

The assumed average health care cost trend rate used in determining post-retirement benefit expense is assumed to be 11% for 2006 and to decrease to an ultimate trend rate of 5% in 2013. On a country-by-country basis, the same discount rate is used for the calculation of the post-retirement benefit obligation from medical and life plans as for the defined benefit obligations arising from pension plans. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage point change in the assumed health care cost trend rates would change the US post-retirement benefit ­obligation and the service and interest cost components of the net periodic post-retirement benefit costs as follows:

c) Defined contribution plans

The Group also sponsors a number of defined contribution plans primarily in the UK and the US. Certain plans permit employees to make contributions and earn matching or other contributions from the Group. The contributions to these plans recognized as expense for the years ended 31 December 2006, 31 December 2005 and 31 December 2004 were CHF 229 million, CHF 184 million and CHF 187 million, respectively.

d) Related party disclosure

UBS is the principal bank for the pension fund of UBS in Switzerland. In this function, UBS is engaged to execute most of the pension fund's banking activities. These activities also include, but are not limited to, trading and securities lending and borrowing. All transactions have been executed at arm's length conditions.

The foreign UBS pension funds do not have a similar banking relationship with UBS, but they may hold and trade UBS shares and / or securities.

The following fees and interest have been received or paid by UBS:

The transaction volumes in UBS shares and other UBS securities are as follows:

UBS has also leased buildings from its pension funds. The rent paid by UBS under these leases amounted to CHF 4 million in 2006, CHF 4 million in 2005 and CHF 5 million in 2004.

There were financial instruments in the amount of CHF 120 million due from UBS pension plans outstanding as of 31 December 2006 (2005: CHF 163 million, 2004: CHF 0 million). The amounts due to UBS defined benefit pension plans are contained in the additional details to the fair value of plan assets. Furthermore, UBS defined contribution plans hold 14,158,961 UBS shares with a market value of CHF 1,043 million as of 31 December 2006 (2005: 14,128,558 shares with a market value of CHF 885 million, 2004: 14,460,628 shares with a market value of CHF 691 million).