Israel Ports: What the Pension Plan Surplus Really Means Against the Actuarial Liability

The Pension Surplus Looks Large. It Needs To Be Read Correctly

The main article focused on Israel Ports' operating economics. This continuation moves to one balance-sheet line, because it can create a false sense of comfort: a surplus of plan assets over budget-pension obligations of NIS 679.1 million at year-end 2025. At first glance, that looks like a capital cushion that neutralizes much of the debate around employee obligations. In practice, the number is real, but it is much less free than the headline suggests.

First finding: the same pension book produces two different answers depending on the measurement language. Under IAS 19, the budget-pension obligation stands at NIS 2.551 billion against plan assets of NIS 3.230 billion, which produces a surplus of NIS 679.1 million. But under the measurement used by the central pension fund, the same obligation stands at NIS 2.753 billion. That switch removes NIS 202.2 million, almost 30% of the accounting surplus.

Second finding: the company states explicitly that without the accounting presentation, equity would be lower by NIS 202 million. This is not a cosmetic dispute about discount curves. It changes the way the balance sheet should be read.

Third finding: even when the surplus is real, it is not free cash. The plan assets are held inside a designated pension structure, are not available to the company's creditors, and cannot be paid directly to the company other than at the end of the plan's life. In other words, this is a pension cushion first and an accounting asset second.

That chart is the core of the issue. The plan assets are the same assets, NIS 3.230 billion. What changes is the discount basis for the obligation. Under the accounting standard the company uses a deep-market curve, meaning high-grade corporate bond yields. Under the Capital Market Authority rules and the central fund framework, the contractual measurement uses a risk-free government bond curve. Once Israel Ports moves from the accounting view to the contractual view, the surplus does not disappear, but it does shrink materially.

NIS 202 Million Is Not Noise. It Is The Gap Between An Accounting Asset And A Contractual Cushion

To understand why that gap matters, it helps to separate three layers.

The first layer is the financial-statement layer. There the company records a net asset, a plan-asset surplus, of NIS 679.1 million. That is the number that enters the balance sheet and supports equity.

The second layer is the contractual layer with the central pension fund. There the same obligation is measured at NIS 2.753 billion, so the cushion against the assets falls to NIS 476.8 million. That is still a positive surplus, but it already tells a more conservative story about the real margin of safety.

The third layer is actual balance-sheet flexibility. Here the company itself draws the line. It explains that the plan assets are not available to the company's creditors, cannot be paid directly to the company other than at the end of the plan's life, and are held in designated accounts for the benefit of pension beneficiaries. At the same time, the company also says that if assets exceed the actuarial liability and the safety cushion, and subject to legal conditions, it may in some cases reduce future contributions or even withdraw excess funds. So there is real economic value here, but not an open cash pool that can simply be matched today against projects, debt, or general corporate cash uses.

That is the distinction that matters: the pension surplus is not a liquid deposit. It is a combination of designated assets, funding rules, and accounting recognition of an asset only up to the economic benefit the company believes it can ultimately realize through refunds or lower future contributions.

That is also why the 2025 reading needs discipline. There is no actuarial deficit here, which is clearly positive. But there also is not NIS 679 million sitting outside the pension architecture waiting to be redeployed. A reader who translates the surplus directly into free capital is reading the line too aggressively.

What Actually Drove The Increase In 2025

Another easy mistake is to assume the surplus rose simply because more cash was added to the fund. That is not what happened. Plan assets increased only marginally, from NIS 3.2296 billion to NIS 3.2301 billion. The increase in the surplus from NIS 600.8 million to NIS 679.1 million was mainly an actuarial and financial-composition story, not a story of a large new cash injection.

That bridge matters because it shows that the increase did not come from the company simply parking much more money inside the fund. During the year the fund recorded NIS 176.5 million of interest income, but it also paid out NIS 249.0 million of benefits. In addition, it recorded NIS 59.4 million of actual return above interest income. On the liability side, the company recorded NIS 142.2 million of interest cost, NIS 46.2 million of adverse financial-assumption changes, and a NIS 28.7 million favorable experience effect. The result was a higher surplus, but mainly because asset performance and the spread versus liability cost absorbed the drag from the discount assumptions.

This changes the 2025 interpretation. The larger surplus does not mean the risk disappeared. It means that in this specific year the asset side managed to absorb the change in the valuation curve and still finish with a larger cushion. In a different year, with weaker returns or a less helpful move in the real-rate curve, the same line could move quickly even with no change at all in the company's operating business.

This Is A Mature Liability Book, So Discount-Rate Sensitivity Still Matters

Israel Ports' pension book is highly mature. The company presents 1,675 retirees entitled to budget pensions, with an average age of 81 and an average monthly pension of NIS 12,207. Alongside them, only 3 active employees remain inside the company under the budget-pension framework, with an average age of 64.6. The actuary presents a total of 1,678 beneficiaries in Israel Ports' budget-pension book and marine-traffic budget-pension exposure, with a weighted average duration of 8.02 years.

That has two implications. On the one hand, this is not a liability that is still expanding because of a broad population of younger employees. It is largely a retiree book. On the other hand, it remains highly sensitive to the discount curve, because an 8-year duration on a NIS 2.551 billion liability is still large enough to create a meaningful valuation swing for small changes in rates.

The company itself presents the sensitivity clearly: a 0.1% move in the discount rate changes the liability by roughly NIS 19.8 million to NIS 20.1 million. At the same time, the real discount rate fell to 2.74% at the end of 2025 from 2.97% at the end of 2024. That means a large part of the pension-surplus story is really a story about the real-rate curve.

Inflation does not disappear from the picture. In the board report the company explicitly says that changes in inflation and interest rates may materially affect the employee-benefit liability. The actuarial report adds that pension benefits for retirees are CPI-linked with 0% real growth. In other words, even if the quantified sensitivity shown to readers is expressed through a real discount rate, inflation remains embedded in the liability through indexed benefit payments and through the market conditions that determine the real curve itself.

What The Surplus Actually Means For The Balance Sheet

The right reading of Israel Ports' pension surplus in 2025 has to hold two ideas at once.

The first is clearly positive. Under both the accounting measurement and the central-fund measurement, assets still exceed the liability. This is a genuine balance-sheet strength, especially for a company built around long-duration obligations and bond funding.

The second idea is the limiter. The surplus is smaller under the contractual measurement, it is sensitive to discount rates and inflation, and it is not equivalent to free cash. So it improves balance-sheet resilience, but it does not remove the need to read liquidity, debt, and actual cash flexibility with care.

If the whole point has to be reduced to one line, it is this: Israel Ports' pension surplus is a real cushion, but not a hidden cash reservoir. Anyone who looks only at the NIS 679 million sees a real number, but not the full set of conditions around it. Anyone who also looks at the NIS 2.753 billion central-fund liability, the NIS 476.8 million contractual cushion, and the roughly NIS 20 million sensitivity to every tenth of a percentage point in the discount rate is reading that balance-sheet line much more accurately.