20 -- Provisions for pensions and similar obligations

In addition to state pension plans, most employees are entitled to Company pension benefits from either defined contribution or defined benefit plans. Benefits generally depend on years of service, contributions or compensation, and take into consideration the legal framework of labor, tax and social security laws of the countries where companies are located. To control the risks of changing market conditions, as well as increasing life-expectancies, over the last few years new employees have been increasingly offered defined contribution plans.

For BASF SE and other German subsidiaries, a basic level of benefits is provided by the legally independent funded plan, BASF Pensionskasse VVaG, which is financed by contributions of employees and the Company and the return on its assets. BASF SE will ensure the necessary contributions to adequately finance the benefits promised by BASF Pensionskasse VVaG. In mid-2004, the defined benefit plan of BASF Pensionskasse VVaG was closed for new hired employees and a new defined contribution plan was introduced. Additional occupational pension commitments at German Group companies are financed almost exclusively via pension provisions.

In the case of non-German subsidiaries, pension benefits are covered in some cases by pension provisions, but mainly by external insurance companies or pension funds.

The measurement date for the pension plans is set as December 31. The most recent actuarial mortality tables are used.

The valuations using the projected unit credit method per IAS 19 were carried out under the following assumptions:

The assumptions used to ascertain the defined benefit obligation as of December 31, are used in the following year to determine the expenses for pension plans.

Similar obligations refer to commitments by BASF North American Group companies to provide for the costs of medical and life insurance benefits for employees and eligible dependents after retirement. They are based upon an actuarial valuation, considering the future cost trend and a discount rate of 6.0% in 2008 (2007: 6.25%).

The assumptions regarding the overall expected long-term rate of return are based on forecasts of expected individual asset class returns and the desired portfolio structure. The forecasts are based on long-term historical average returns and take into consideration the current yield level and the inflation trend. In 2008, the discount rate used in this calculation was adjusted to account for developments in the capital markets.

The target asset allocation has been defined by using asset liability studies and is reviewed regularly. Accordingly, plan assets are aligned with long-term pension liabilities, taking into consideration investment risks and adherence to government regulations. The existing portfolio structure is oriented towards the target asset allo-cation. In addition, current market views are taken into consideration. In order to mitigate risks and maximize returns, a widely spread global portfolio of individual asset classes is held.

On December 31, 2008, plan assets contained securities issued by BASF Group companies with a market value of €10 million (December 31, 2007: €16 million). The market value of the properties of legally independent pension funds rented to BASF Group companies amounted to €51 million both on December 31, 2008 and 2007.

No material transactions took place between the legally independent pension funds and BASF Group companies in 2008.

The change in the asset ceiling is primarily attributable to the reduction in the funded status at BASF Pensionskasse VVaG. Actuarial gains and losses are recognized directly in retained earnings in the reporting period in which they occur. Past service costs are amortized over the average service period of the entitled employees until the benefits become vested. Actuarial losses of €1,285 million in 2008 and actuarial gains of €583 million in 2007 were recognized in retained earnings. Since the introduction of this accounting policy, a total actuarial loss of €1,983 million has been charged against retained earnings, not taking deferred taxes into account.

In 2008, contributions to public pension plans were €392 million (2007: €364 million).

The estimated contribution payments for defined benefit plans for 2009 are €126 million.