Page 198 - TSMC 2019 Annual Report

The fair value of the plan assets by major categories at the end of reporting period was as follows:
Cash
Equity instruments Debt instruments
$
713,204 2,313,828 1,274,562
$
756,126 2,148,040 1,107,113
December 31, 2019
December 31, 2018
$ 4,301,594
$ 4,011,279
The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follows:
Measurement Date
December 31, 2019
Discount rate 0.90% Future salary increase rate 3.00%
December 31, 2018
1.30% 3.00%
Through the defined benefit plans under the R.O.C. Labor Standards Law, the Company is exposed to the following risks:
1) Investment risk: The pension funds are invested in equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the government’s designated authorities or under the mandated management. However, under the R.O.C. Labor Standards Law, the rate of return on assets shall not be less than the average interest rate on a two-year time deposit published by the local banks and the government is responsible for any shortfall in the event that the rate of return is less than the required rate of return.
2) Interest risk: A decrease in the government bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the debt investments of the plan assets.
Assuming a hypothetical decrease in interest rate at the end of the reporting period contributed to a decrease of 0.5% in the discount rate and all other assumptions were held constant, the present value of the defined benefit obligation would increase by NT$724,963 thousand and NT$921,750 thousand as of December 31, 2019 and 2018, respectively.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.
Assuming the expected salary rate increases by 0.5% at the end of the reporting period and all other assumptions were held constant, the present value of the defined benefit obligation would increase by NT$706,502 thousand and NT$901,629 thousand as of December 31, 2019 and 2018, respectively.
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
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