• Agenda decision discussed at May 2006 Board Meeting
• Agenda decision agreed at July 2006 Board Meeting
• Discussed at October 2006 Board Meeting
• Discussed at November 2006 Board Meeting
• Discussed at December 2006 Board Meeting
• Discussed at February 2007 Board Meeting
• Working Group Formed March 2007
• Discussed at March 2007 Board Meeting
• Discussed at April 2007 IASB Meeting
• Discussed at May 2007 Board Meeting
• Discussed at June 2007 IASB Meeting
• Discussed at July 2007 IASB Meeting
• Discussed at September 2007 IASB Meeting
• Discussed at October 2007 IASB Meeting
• Discussed at December 2007 IASB Meeting
• Discussed at February 2008 IASB meeting
• Discussed at March 2008 IASB Meeting
• Discussion Paper published 27 March 2008. Comment deadline 26 September 2008.
• Discussed at November 2008 IASB Meeting

Timetable

• Click for IASB Project Timetable

Discussion at May 2006 IASB Meeting

The Board considered a proposal from the staff to consult the SAC and the IASC Foundation Trustees on adding a project to its agenda on pensions. The draft proposal was not available to observers.

The Board was asked for their preliminary views on which of the following possible project plans should be prepared and presented to SAC and the IASC Foundation:

• Option A. A long-term project, with targeted set of amendments to pensions, which in the first phase would be constrained by what the Board could finalise within a four-year period. It was explained that this would be the timeframe because of the due process, but also because this would open up for a finalisation of this part of the project within the timeframe of most of today's Board members.

• Option B. A limited-scope project, very similar to phase 1 of the project the FASB has addressed. Phase 1 of the FASB project is however limited, as it only addresses accounting in the balance sheet, while the income statement would remain untouched. The FASB currently expects to have its project finished by the end of 2006.

The discussion highlighted that Board members had more appetite for option A as an approach. However, the Board pointed out that if they were to take on a project, constituents must be informed that the project will address all issues on pensions, and that would end up in a new standard. The project would then be split into different phases where the Board would pick some issues that would be dealt specifically in during the first phase.

The Board decided that the staff should write a proposal for a long-term project. This proposal, which would be addressed for SAC and the IASC Foundation for an approval to be taken on the Boards agenda, should also include what the Board think should be dealt with within the different phases of the project.

Discussion at July 2006 IASB Meeting

The Board considered a formal proposal to add two projects to the Board's technical agenda. The staff noted that the proposal had already been discussed with the SAC and the Trustees, as required by the Board's Due Process Handbook. The two projects would represent:

• (a) a targeted series of improvements to IAS 19, to be completed within a four-year period; and
• (b) a comprehensive review and revision of the existing pension accounting model, to e undertaken in conjunction with the FASB.

The Four-year Project

The basic pension accounting model would remain unchanged.

The Board would focus on removing the 'add-ons' to the basic model, in particular the smoothing and deferral mechanisms, such as the corridor, the assumed rate of return on plan assets, and the recognition of gains and losses. The Board would reconsider the definitions of defined benefit and defined contribution plans, with special attention being given to cash-balance plans. In addition, the Board would consider providing additional guidance on settlements and curtailments and consider presentation of amounts related to post-employment benefits in the financial statements. The staff expressed reservations as to whether the Board could reasonably address settlements and curtailments in the time allotted and noted that this would be the first candidate for removal if the project timetable came under strain.

Comprehensive project

The comprehensive project was already underway at the FASB. The project plan would ensure that the IASB was (during the four-year project) kept up-to-date with developments, such that any differences of opinion could be identified quickly. The Board agreed unanimously to add the post-employment benefits project to its technical agenda. They also agreed with the approach, although it was evident that several Board members were sanguine about the four-year plan.

Working group

The Board agreed that it would be advisable to appoint a working group to assist it with the four-year project. Presentation matters would be referred to the existing Financial Statement Presentation Working Group. Thus, the new working group would need pension experts, actuaries, etc.

Discussion at the October 2006 IASB Meeting

No decisions were taken during this session.

Among the key issues that the Board will address in its project on employee benefits are:

• accounting for 'intermediate risk plans' (an 'intermediary risk plan' is a pension plan where the risks are shared between the employer and the employee); and
• the definition of defined contribution and defined benefit plans.

At the October meeting the Board held an educational session that covered how different pension schemes attribute risk between the employer and employee, and the measurement issues that are created. The session was split in two parts. Tim Reay from Hewitt (UK) briefed the Board on types of risks in intermediate plans and also presented findings from a research study on intermediate plans. Geert De Ridder from Deloitte (Belgium) held the second session, which focused on measurement problems in accounting for defined benefit plans when the risks are shared as in intermediary risk plans.

The Board debated the discontinuity in measurement that may arise between 'pure' defined contribution plans and defined contribution plans with a minimum guarantee. (Belgian law requires defined contribution plans to have minimum guaranteed rates of return). This plan would be classified as a defined benefit plan under IAS 19, which would create measurement differences if service costs deviate from contributions during the plan.

Discussion at the November 2006 IASB Meeting

In July 2006 the Board decided to form a working group on Employee Benefits which would help the IASB by providing practical input on ideas, concepts and proposals developed by the IASB.

At its November meeting the Board discussed two papers that consider revisions to IAS 19 that are intended to provide short term improvements to the standards. These papers and the recommendations would be discussed with the working group in due course.

The intention of this session was for the Board to give preliminary views on what the staff should explore in a future Discussion Paper.

Recognition of changes in defined benefit pension plans

Actuarial gains and losses

The Board discussed whether actuarial gains and losses from changes in actuarial assumptions should be recognised in full in the period in which they occur. This deals only with the issue of recognition, not where to recognise the gains and losses.

The Board agreed that all actuarial gains and losses should be recognised immediately when they occur, and that no gains and losses should be deferred.

Past service cost

Next the Board discussed whether unvested past service costs should be recognised immediately (vested past service costs are already expensed immediately according to IAS 19).

All Board members supported the proposal to require all past service costs, including unvested service costs, to be recognised immediately.

Presentation of changes in defined benefit pension plans

The previous paper presented to the Board considered whether changes in defined benefit plans should be recognised immediately or not, while the second paper considered how these gains and losses should be presented when recognised. The Board discussed whether gains and losses on the following items should be recognised directly in profit and loss when they rise.

• Service costs (past and present)
• Interest cost
• Return on plan assets
• Actuarial gains and losses

Three different alternatives were presented to the Board:

• The staff recommendation that all components should be recognised directly in profit and loss.
• A second alternative which would recognise all components, other than changes in fair value of plan assets, in profit and loss. Changes in fair value of plan assets would be recognised in other recognised income and expense.
• A third alternative that would only require past and present service cost to be recognised in profit and loss.

As a preliminary view the majority of Board members indicated that all components should be recognised directly in profit and loss when they rise.

However, from the perspective of a the Discussion Paper, Board members said that if it was going to present alternatives (such as the alternatives above) they would have to be worked through in such a way that they are alternatives that the Board would consider if respondents were negative to the Board's initial proposal (ie that they not just are alternatives to give alternatives).

The Board decided that the staff should explore further the alternatives set out by the staff, and that the Board at a later meeting would decide whether to include these as alternatives in a Discussion Paper.

Discussion at the December 2006 IASB Meeting

Cash balance and similar plans

The staff introduced three possible approaches the Board might take in determining the most appropriate accounting treatment for cash balance and similar plans:

• The approach in Draft IFRIC Interpretation D9 Employee Benefits with a Promised Return on Contributions or Notional Contributions
• An embedded derivative approach
• A deconstruction approach

Several Board members noted that the reason that the IFRIC could not conclude on D9 was because they were constrained by the Standard as written. These Board members saw the issue as one with a very clear cut: if the sponsor guarantees the asset side of the transaction, it has written a derivative. If the sponsor guarantees anything to do with salary, benefits, or service, the plan is a defined benefit plan.

The staff was concerned about plans with a guaranteed return on assets. For example, if a plan contains a benefit promise of ten per cent of salary plus a guaranteed return of four per cent, the staff suggested this was a mix of defined contribution (ten percent of salary) and defined benefit (the guaranteed four per cent return).

Board members disagreed. In their view, the plan is still a defined contribution plan. If the plan earns more than four per cent and this is not available to the plan participants, the plan has current income in profit or loss; if the plan earns less than four percent, it has a current loss.

The Board agreed that the staff should explore splitting asset risk from salary-service-benefit risk, and that anything not captured by asset risk should be accounted for in accordance with IAS 19.

Discussion at the February 2007 IASB Meeting

Cash Balance and similar plans: Definition of benefit promises

The Board had an inconclusive discussion about how to account for cash balance plans in the context of the current requirements of IAS 19. The staff recommended that IAS 19 be amended to identify three categories of benefit promise:

• defined contribution,
• defined benefit and
• asset-based promises. An asset-based promise would be one whose amount changes in response to the change in an asset or index, other than assets or indices that yield fixed increases.

Several Board members were unhappy with the staff proposal, which some thought added more complexity to IAS 19, making it 'almost Byzantine'. Board members proposed an alternative approach that would bifurcate an asset-based pension promise into the contribution and the guarantee/derivative promise. Put another way, everything that is related to salaries and service would be accounted for under IAS 19; any guarantee with respect to returns during the accumulation phase would be accounted for under IAS 39.

The Board discussed the alternatives, noting that there are strong similarities between asset-based promises and both some types of insurance contracts and deposits. The staff agreed that they were not in a position to comment on the model proposed during the meeting and would bring this issue back at a subsequent meeting.

Recognition of changes in defined benefit pension obligations

The Board agreed that the forthcoming Discussion Paper on employee benefits should present the presentation proposals in the context of IAS 1 – that is, possible presentation changes that might result form the financial statement presentation project would be ignored for the purposes of the employee benefits DP.

Presentation issues

The Board's preliminary view is that all changes in post-employment benefit obligations and in the value of plan assets should be presented in profit or loss in the period in which they are incurred.

The Board discussed a staff proposal that the forthcoming Discussion Paper should present at least one alternative. One alternative proposed by the staff (Alternative 2 in the Observer Notes) was withdrawn at the meeting. The Board discussed two other proposals:

• Only service costs would be presented in profit or loss; all other changes in the benefit obligation and plan assets would be presented as components of income outside profit or loss.
• Report price variances (including changes in the discount rate applied to the closing balance of the pension obligation and changes in the fair value of plan assets) in income but outside profit or loss; all other recognised changes in the pension obligation would be recognised in profit or loss.

Some Board members were opposed to presenting any alternative to the Board's preliminary view. Others disagreed, noting that eliminating all smoothing mechanisms would be controversial. In addition, other Board members noted that a consistent message received in their work on financial statement presentation was that users want a presentation that distinguishes how the business is financed (or funded) from all other activity.

The Board developed an alternative that is a hybrid of the two proposals above. Under this approach, all changes in the post-employment benefit obligations and in the value of plan assets would be reported in comprehensive income. All actuarial gains and losses, other than those arising from changes in the discount rate, would be reported in profit or loss. Actuarial gains and losses arising from the change in the discount rate and returns on plan assets would be reported in comprehensive income outside profit or loss. This alternative will be included in the forthcoming discussion paper.

March 2007: Working Group Formed

In March 2007, the IASB formed an Employee Benefits Working Group to provide expert advice in its project on post-employment benefits. Working group members include people with extensive practical experience in the operation, management, valuation, financial reporting, auditing or regulation of a variety of post-employment benefit arrangements. The members and official observers are listed below. Click for Press Release (PDF 88k).

Discussion at the March 2007 IASB Meeting

The Board discussed how to address the financial statement presentation of gains and losses arising on defined benefit plans in the Discussion Paper (DP).

The Board unanimously decided without much discussion that the preliminary view for the DP is that all gains and losses on defined benefit post-employment plans should be recognised in comprehensive income. It appears unlikely that this view is going to be revised.

The Board then discussed three approaches regarding the presentation of these gains and losses in the statement of recognised income and expense including alternatives that would display some components outside net income but in other recognised income/expense.

Approach 1: All in profit or loss

This approach reflects the Board's preliminary view at the February 2007 meeting that all changes in post-employment benefit obligations and in the value of plan assets should be presented in profit or loss in the period in which they incur.

Approach 2: Financing approach

This approach presents the costs of service in profit or loss. All other costs are reported as consequences of deferring payment of employee remunerations and financing that deferred payment. Accordingly:

• Service costs, and the gains and losses associated with them are recognised in profit or loss. Thus, service costs, and actuarial gains and losses on the defined benefit obligation except those arising from changes in the discount rate would be recognised in profit or loss.
• All other changes are recognised outside profit or loss. This includes interest cost, changes in the discount rate and all changes in plan assets.

Approach 3: Remeasurement approach

This approach presents only those changes arising from changes in financial assumptions outside profit or loss. Accordingly, profit or loss would include service cost, interest cost, actuarial gains and losses on the defined benefit obligation except those arising from changes in the discount rate, dividends received on plan assets, and interest earned on plan assets (using the current rate inherent in the fair value).

The three approaches can be illustrated as follows:

Approach 1 was reaffirmed as the preferred view by a majority of Board members. However, some Board members acknowledged that many constituents would not like the approach and 'that the world is not yet ready for it'.

No final decision was made but it was decided to include all three approaches in the DP. The approaches should then be discussed at a future meeting considering the responses received

Discussion at the April 2007 IASB Meeting

Cash Balance and similar plans: Treatment of benefits with fixed and inflationary increases

The Board had a lengthy and wide-ranging discussion about the classification of benefit promises into the three categories: defined contribution, defined benefit and asset-based promises.

As a result the Board reaffirmed that a defined contribution promise is one for which the entity has no further obligation in respect of current and prior periods once the defined contributions have been paid into a separate fund. Alternatively, if the entity is still subject to risks regarding past services the promise is a defined benefit promise.

There seemed to be a consensus that any guarantee promise with respect to returns included in the defined benefit or defined contribution promise should be carved out and accounted for under IAS 39.

The question whether the kind of guarantee can influence the categorisation into defined benefit or defined contribution promise was raised but postponed for discussion at a future meeting.

Settlements and curtailments

Presentation of gains or losses

The Board discussed the presentation of gains and losses on settlements and curtailments under the three approaches presented in the March 2007 meeting. These are:

• Approach 1: All gains and losses recognised in profit or loss
• Approach 2: Financing costs recognised outside profit or loss
• Approach 3: Changes arising from changes in financial assumptions recognised outside profit or loss

The Board reaffirmed that approach 1 is the preferred view. According to the nature of this approach also gains and losses on settlements and curtailments would be shown in profit or loss.

By a majority of 10 votes the following decisions were made with regard to approaches 2 and 3:

• Gains and losses on curtailments represent service costs and are therefore to be shown in profit or loss under both approaches.
• Gains and losses on settlements (after having remeasured the obligation in accordance with paragraph 110 of IAS 19) should be shown outside profit or loss as they represent finance costs (approach 2) and changes in financial assumptions (approach 3) respectively.

Curtailments and negative past service costs

The Board discussed an issue referred by the IFRIC, namely, whether plan amendments that reduce benefits are curtailments or negative past service costs.

The staff recommended amending IAS 19 Employee Benefits such that the notion of negative past service costs is eliminated. Those amendments would treat plan amendments that improve benefits as giving rise to service costs (past or current). All plan amendments that reduce benefits would be curtailments. The proposed amendments were omitted from the observer notes.

Some Board members disagreed with the staff proposal and pointed out that the amendments of IAS 19 should focus on the distinction of future and past service cost – that is, that curtailments are reductions in future service cost and that the concept of past service cost relates to positive and negative amendments of past service cost. One Board member mentioned that in practice there are amendments to plans that result in negative past service costs but are not curtailments.

This issue was pushed back to the staff.

However, the Board unanimously agreed to address this issue as part of the Annual Improvement Process 2006-2007.

Discussion at the May 2007 IASB Meeting

Definitions of defined benefit promises

Based on the comments made at the meeting in April the staff presented the following revised proposed definitions and measurement features of the three benefit promises:

• A defined contribution benefit promise obliges the employer to pay specified contributions to a separate entity (a fund). Payment by the employer of those specified contributions extinguishes the obligation. These benefit promises are accounted for in accordance with current IAS 19 requirements for defined contribution plans.
• A defined return promise (formerly described as 'asset-based') is comprised of a contribution requirement and a promised return on those contributions.

The contribution requirement obliges the employer to pay specified actual or notional contributions to an actual or notional fund. Payment by the employer of those specified contributions extinguishes that obligation.

The promised return component obliges the employer to provide a defined return on the specified contributions. That defined return is linked to the change in an asset or index.

The employer's liability for the contribution requirement is measured as the sum of the accumulated unpaid contributions. The employer's liability for the promised return component is measured as the fair value of the promised return less any plan assets available to satisfy that liability.

All other benefit promises are defined benefit. Typically, defined benefit promises change in line with service or salary or include demographic risks to the employer while the benefit is in payment. These benefit promises are measured in accordance with the current IAS 19 requirements for defined benefit plans.

The Board generally agreed to the proposal. Suggestions to improve the wording will be provided to the staff offline. The following issues were discussed in detail:

• Definition of defined return promises: 'notional fund'

  The Board agreed to clarify that 'notional' means that contributions to the fund are deferred; the fund itself is not notional.

• Measurement of the components of defined return promises

  Some Board members raised the question whether the contribution component should also be measured at fair value, that is, taking into consideration the credit risk of the entity for notional contributions. The majority of Board members expressed the view that this component is a 'defined contribution piece' and should be measured in accordance with current IAS 19 requirements for defined contribution plans.

Finally, the Board unanimously agreed to the staff proposal that plan assets and the promised return component should be measured at fair value while the contribution component should not.

Promises with guaranteed fixed returns compared to salary-related promises

The Board decided that salary-related promises that can be expressed wholly in terms of contributions based on current salary should be treated as defined return. Salary-related promises that cannot be so expressed should be classified as defined benefit.

Accordingly:

• benefit promises with guaranteed fixed returns are classified as defined return,
• current salary and full career average benefit promises are classified as defined return,
• other salary-related promises, when the benefit earned in previous years is affected by future salary increases, are classified as defined benefit.

Curtailments and negative past service cost

The Board continued its deliberations on an issue referred by the IFRIC, namely, whether plan amendments that reduce benefits are curtailments or negative past service costs.

The Board decided with a majority of 10 votes that paragraph 98(e) of IAS 19 Employee Benefits should be interpreted in a way that if a plan amendment results in reduction in benefits for past and future service, the reduction relating to future service is a curtailment (not past service cost) while the reduction relating to past service is negative past service cost.

One Board member noted that it would be desirable to eliminate the need to allocate the reduction in defined benefit obligations between past and future service but that this would go beyond a clarification of IAS 19.

Additionally, the Board unanimously decided to replace the term 'material" by 'significant' in paragraph 111(a) and 111(b) of IAS 19 and to delete the third sentence in paragraph 111 of IAS 19 ('An event is material enough...') as it was considered to be redundant.

The staff was asked to draft an amendment to be included in the annual improvement process.

Discussion at the June 2007 IASB Meeting

Benefit allocation for defined return promises

At its May 2007 meeting, the Board decided that benefit promises should be categorised as defined benefit, defined return, or defined contribution. The Board tentatively decided that a defined return promise had two components:

• (a) A contribution component that obliges the employer to make specified contributions. Those contributions may be funded or unfunded.
• (b) A promised return component that obliges the employer to provide a specified return based on the contribution component. The specified return may be an actual return on contributions or a hypothetical return on notional contributions.

It may be a fixed return, or it may refer to specified assets or an index.

The Board had also decided that the contribution component is measured as the sum of the accumulated unpaid contributions, while the promised return component is measured as the fair value of the promised return less any plan assets available to satisfy that liability. The staff paper recommended continuing to treat unvested benefits under a defined return promise as giving rise to a liability in phase I of the project. This question should only be addressed fundamentally in phase II.

The contribution component of the benefit promise would be allocated to periods of service in line with the benefit formula, even if the benefit formula specifies a materially higher level of contributions in later years. When asked by the Board, the staff clarified that this approach differs from the treatment in the present IAS 19 relating to 'backloaded' defined benefit promises, where the benefits are spread on a straight-line basis. Under the envisaged approach, where benefits are 'skewed' to later service periods, a liability would be recognised in line with the benefit formula. If, for example, the benefit formula stipulated that contribution would be made in twenty years time for 5 per cent of the employee's salary for each of the 20 years of service, a liability would only be recognised in year 20.

One Board member suggested that for defined return promises, the approach in IAS 37 would justify such an approach conceptually. The Board was in agreement that the 'straight-lining' approach relating to 'backloaded' defined benefit promises was an anti-abuse feature built into IAS 19 to prevent entities from not recognising (potentially material) defined benefit obligations in the early years. As such a feature was not part of the accounting for defined contribution plans, the existence or non-existence of a vesting period would lead to different results in the accounting for defined contribution and define benefit promises. The staff argued in favour of preserving the present accounting approach during phase I of the post-employment benefit project but perhaps change it in phase II. After a lengthy discussion, the chairman called for a hands-up vote. Only one Board member indicated disagreement.

Benefit allocation for defined benefit promises

IAS 19 requires that the benefit in defined benefit plans is attributed to periods of service in accordance with the benefit formula, unless the benefit formula would result in a materially higher level of benefit allocated to future years. In that case the benefit is allocated on a straight line basis. In the deliberations leading to IFRIC D9 Employee Benefits with a Promised Return on Contributions or Notional Contributions, the IFRIC considered whether expected increases in salary should be taken into account in determining whether a benefit formula expressed in terms of current salary allocates a materially higher level of benefit in later years. The staff paper recommended that the Board asked the IFRIC to develop a separate Interpretation on whether, for defined benefit promises, expected increases in salary should be taken into account in determining whether a benefit formula expressed in terms of current salary allocates a materially higher level of benefit in later years.

For defined return plans, as outlined above, the Board tentatively agreed not to straight-line backloaded plans but allocate benefits in accordance with the benefit formula. In the interest of sticking to the timeline of phase I, the Board asked whether or not this issue could be dealt with again by the IFRIC, but agreed not to proceed with this issue in phase I and to tentatively recommend to IFRIC not to deal with it either, despite noting the inconsistency between the approach taken for defined return promises and not proceeding to analyse a possible alternative accounting for backloaded for defined benefit promises. One Board member indicated he might be able to provide the staff with an example which could perhaps help solving the issue.

Measurement of the contribution liability

At the May meeting, the Board concluded that defined return promises are comprised of two components: a contribution requirement and a promised return on those contributions. The Board tentatively agreed that the measurement of the balance sheet liability in respect of each component would be as follows:

• (a) contribution requirement – the amount of any unpaid contributions
• (b) promised return – the fair value of the guaranteed return less any plan assets available to satisfy that liability

However, one Board member pointed out that measurement of the two components is inconsistent because it makes no allowance for the time value of money for the contribution requirement but makes an allowance for the time value of money for the promised return on those contributions.

The Board discussed and rejected the possibility of measuring the contribution requirement at fair value. But the staff thinks that discussion did not fully consider the effect of the time value of money on contributions that will not be paid for a long period of time, for example notional contributions to an unfunded plan. By contrast contributions in a defined contribution promise must generally be paid relatively soon after the period to which they relate. As a consequence, the staff had identified two options for taking the time value of money into account:

• (a) specify a discount rate to be used, or
• (b) require measurement of the contribution at fair value.

While the staff acknowledged that option (a) would avoid potentially lengthy debates on what the appropriate discount rate should be, it recommended to the Board measuring both the contribution requirement and the promised return at fair value.

While fair valuing the promised return component was generally accepted, as it constitutes a financial instrument, there was a lengthy discussion between the staff and the Board about the examples in the staff paper on the measurement of the contribution requirement. One Board member argued that requiring fair value measurement of the contribution requirement would lead to unnecessary complexity. Another Board Member remarked that he did not think taking the time value of money into account was really necessary. However, another Board member maintained that while fair valuing the contribution requirement was not required, as otherwise the Board would have to change paragraphs 52 and 53 of IAS 19, taking the time value of money into account could be achieved by discounting the contribution requirement by the discount rate required by IAS 19 for the measurement of defined benefit promises. No decisions were taken on this matter.

Inflation

Based on the proposed classification of employee benefit promises into defined contribution, defined return and defined benefit promises, the staff had been asked to clarify the classification of benefit promises linked to inflation. The staff recommended that:

• (a) Benefit promises with a promised return on contributions is are linked to wage inflation are classified as defined benefit.
• (b) Benefit promises with a promised return on contributions that is linked to assets or indices, eg. consumer price inflation, are classified as defined return.

The staff had drawn up the following illustrative example:

Plan A: For each year of service, the employee will receive a lump sum benefit equal to 5% of revalued salary. The revalued salary is the salary, in the year in which it is earned, increased in line with the increase in the national average earnings index over the period to retirement.

The staff argued that such a plan should be classified as defined benefit because:

• such a benefit promise is, in substance, a salary-related defined benefit promise, even if the salary to which it is related is national average earnings not the employee's actual salary.
• constituents have not raised problems in measuring benefit promises linked to wage inflation indices using the projected unit credit method in IAS 19.
• classifying these promises as defined return would result in a significant change in the accounting for many salary-related benefit promises. In particular, a defined return classification would require the employer to fair value a salary-related promise.

In the ensuing discussion, two Board members openly disagreed with the staff conclusions, arguing that such plans should be treated as defined return promises. The rest of the Board seemed to be of the same opinion. No decisions were taken on this matter.

Components of the defined return cost

The staff recommended that the change in the liability for the DR promise be disaggregated as follows:

• service cost being the initial recognition of the liability for the contributions payable for the year plus the initial fair value of the promised return on those contributions
• fair value gain/loss arising on the subsequent remeasurement of the liabilities.

1. market factors (such as risk-free interest rates),
2. cash receipts and payments,
3. changes in credit quality,
4. the passage of time,
5. demographic experience and
6. estimation methods or valuation models.

However, the staff argued that further disaggregation of the change in fair value of the liability into separate components would add unnecessary complexity without the benefit of providing additional decision-useful information, as had been shown by research during other projects. The Board by and large agreed with this conclusion although no formal vote was taken.

Discussion at the July 2007 IASB Meeting

Feedback from Employee Benefits Working Group Meeting

The first meeting of the Employee Benefits Working Group was on 5 June 2007. The staff informed the Board of the discussions by the Working Group, which had considered the following topics:

1. the Phase 2 project;
2. elimination of deferred recognition for defined benefit promises;
3. presentation alternatives, including three approaches previously discussed by the Board;
4. definitions of benefit promises; and
5. the classification of promises with fixed returns.

Topics 2 and 3 were discussed by the Board.

Unvested past service cost - elimination of deferred recognition for defined benefit promises

The staff asked the Board to confirm that in Phase 1, unvested past service cost would be recognised immediately in the period the amendment occurs. There were no objections by the Board.

Presentation of defined benefit costs

The Working Group had discussed the three approaches previously discussed by the Board, favouring approach 3. However, the Board was asked to modify approach three for inclusion in the planned discussion paper so that the following items would be recognised in profit or loss:

• a. service cost;
• b. interest cost;
• c. actuarial gains and losses on the defined benefit obligation except those arising from changes in the discount rate; and
• d. imputed interest income on plan assets determined using the discount rate determined by reference to market yields at the balance sheet date on high quality corporate bonds.

• e. Actuarial gains and losses arising from changes in the discount rate; and
• f. changes in the fair value of plan assets other than those in (d)

There was widespread reluctance by the Board to accept a modified approach three as favoured by some user representatives on the Working Group. The idea of recognising imputed interest based on high quality corporate bonds met with particularly stiff opposition, as many Board members seemed to want to eliminate the use of expected returns on plan assets altogether. One Board member, when asked if he preferred the original approach 3 over the proposed modification, said 'this is like asking me if I prefer to live or die.' There seemed to be general agreement with the chairman's analysis that the discussion paper should contain all three approaches in their original form and that the problems with using each approach should be outlined.

Cash balance and similar plans – Definitions of benefit promises

The staff asked the Board to finalise definitions of the three categories of post-employment benefits that had been discussed during this project and at previous Board meetings:

• defined benefit;
• defined contribution; and
• defined return benefit promises.

The staff had proposed the following revised definitions:

• defined contribution promise: a post-employment benefit promise that obliges the employer to pay specified contributions to a separate entity (a fund). Payment by the employer of those specified contributions extinguishes the obligation.
• defined return promise: a post-employment benefit promise, which may be funded or unfunded, that obliges the employer to pay a benefit comprised of:
  • a contribution requirement based on current salary; and
  • a promised return on the specified contributions that is linked to the change in an asset or index.
• defined benefit promise: a post-employment benefit promise that is neither defined contribution nor defined return.

Other Board members criticised the notion that for a plan to qualify as a defined contribution promise, it would have to be funded. Board members noted that in some jurisdictions many defined contribution schemes were unfunded. However, leaving the plan unfunded would introduce a guaranteed return element into the lump-sum (or fixed amount) payment promise, even though that return might be zero per cent, the staff argued. The Board asked the staff to clarify the wording on the importance of the timing of funding for the distinction between defined contribution and defined return promises. The staff agreed to do so. The staff also highlighted that any plan in which the contribution could be expressed in terms of current salary (such as genuine current salary and career average plans) would be classified as defined return promises.

Finally Board members asked if it was possible to collapse defined contribution and defined return promises into a single category. The staff argued that one would have to be very careful with the wording of such a broader category, so as to reassure entities currently making defined contribution promises that nothing would change for them. The chairman asked the staff to revise the definitions, collapsing defined return and defined contribution promises into a single category (which would not be called defined contribution so as to emphasise that there had been a change of definition) and defined benefit promises. In particular, the staff was asked to clarify the wording on funding to emphasise that promised returns related to actual and notional contributions.

Cash Balance and similar plans - Benefit promises with 'higher of' options

The Board discussed staff proposals on how to account for benefit promises that have maximum or minimum limits placed on them (also called 'higher of' options). Under current proposals, such promises would not be classified as either defined contribution or defined return and as such would be accounted for as a defined benefit plan using the projected unit credit method, thus ignoring the value of the 'higher of' option.

The staff had proposed to bifurcate such plans into a defined benefit element to be accounted for under IAS 19 and a 'higher of' option element to be accounted for at fair value. Changes in the liability in respect of the 'higher of' option would be disaggregated into a service cost element equal to the initial recognition of the 'higher of' liability and a fair value gain/loss element equal to the subsequent remeasurement of that liability. Both elements would be presented in profit or loss.

One Board member pointed out that in his home jurisdiction, such plans would be accounted for as two plans: A defined benefit plan accounted for as such and a separate 'higher of' plan measured at the incremental value of the 'higher of' promise. The staff agreed to investigate the accounting of such plans to see whether there was any merit to adopting a similar approach under IFRSs.

The Board discussed the valuation method for 'higher of' options. There was disagreement whether such options should be measured at fair value and what fair value meant in this context. It was suggested that entities should estimate the sum of the present value of future cash flows associated with the option, making assumptions about their potential volatility. No decisions were taken.

Vested benefits payable at the date when an employee leaves the entity

At the Board's June meeting, a Board member raised the question of whether, for defined return promises, an additional liability should be recognised if:

• vested benefits are payable at the date when an employee leaves the entity; and
• the amount payable is greater than the amount that would otherwise be recognised in the balance sheet for those benefits.

For defined return benefits, this is likely to occur when the rate of return promised to the employee is less than the discount rate used to determine the present value of the contribution requirement. The staff had recommended the IASB should not require an additional liability to reflect the amount that an employer would have to pay an employee leaving service before retirement, even though this might be considered inconsistent with the requirements of paragraph 49 of IAS 39, which states:

The fair value of a financial liability with a demand feature (eg a demand deposit) is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid.

However, the staff had argued that such an approach should not be applied in Phase 1 of this project as it would result in different accounting for benefits depending on whether such benefits are vested or unvested and as no additional liability is required for other post-employment benefits.

Some Board members asked the staff to clarify the language in the agenda paper. Moreover, it was suggested that staff should consider whether or not such 'walk away payments' would constitute a liability under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. One Board Member demanded that the staff should undertake further research as to how widespread the problem was in practice. The staff agreed. The chairman proposed going along with the staff's present approach and discuss the issue again at a later stage. Even though no formal vote was taken, there seemed to be agreement among the

Board members to move forward as proposed.

Components of a defined return promise and their measurement

The Board had defined a defined return promise as having two components, comprising:

• a contribution requirement based on current salary; and
• a promised return on the specified contributions that is linked to the change in an asset or index.

In terms of measurement, the staff had recommended that the contribution requirement should include both paid and unpaid contributions, with any payments being recognised as plan assets. The contribution element would be measured based on the specified contributions and using the IAS 19 discount rate, while the return element would be measured at fair value, assuming that benefits for past service would not change. The liability for benefits in payment should be measured using the projected unit credit method discounted at the IAS 19 discount rate.

Distinction between contribution and return element

Board members were not united in their assessment of the staff's analysis that to ensure the liability for the contribution requirement is always complete, whatever the funding level, was to consider the plan liabilities and plan assets separately. Some Board members disagreed over whether a difference between the contributions paid and the promised return constituted a contribution liability or a return liability, although the staff seemed to suggest that they regarded such differences as part a return liability.

Performance risk

The Board discussed the staff's proposals on how to account for performance risk, i.e. the risk that the entity defaults on its obligation reflected both the credit risk of the entity and the possibility that the entity will choose not to meet its obligation. It had been argued that it might sometimes be difficult to distinguish credit risk from other elements of performance risk. Moreover, whether fair value reflects performance risk is an unresolved question in IFRSs. As a consequence, the staff had abandoned its earlier proposal to measure all components of defined return promises at fair value, arguing instead that the contribution element should be measured as outlined above.

The Board discussed the two elements of performance risk outlined by the staff. There was a debate about whether the notion that fair value included the probability of default (credit risk), while excluding the propensity of entities to force employees into accepting lower benefit levels. It was suggested that the staff should undertake more research in respect of whether it was always possible to distinguish credit risk from the risk that entities choose not to meet their obligations.

Benefits in payment

The Board discussed the staff proposal to stop treating the components of defined return promises separately once the plan had reached its payout phase and use the projected unit credit method instead. Even though the staff acknowledged that having three different measurement attributes for defined return plans was not ideal, this was nevertheless necessary to emphasise that there was no essential difference between defined return and defined benefit plans in terms of cash flows during the payout phase.

Where a defined benefit promise and a defined return promise had identical payout streams, the staff had recommended 'resetting' the defined return promise to the same final amount as the defined benefit plan. A defined return promise measured at CU 2,000 on the date of retirement that offered identical payouts compared with a defined return promise valued at CU 2,500 would thus be remeasured CU 2,500. Both plans would then be measured using the projected unit credit method and the IAS 19 discount rate throughout the payout phase. Board members disagreed over whether this was conceptually superior to the opposite method. Due to the limited time available, the chairman decided to postpone a decision on the matter.

Discussion at the September 2007 IASB Meeting

Cash balance and similar plans - Definitions of defined promises

At the July meeting the Board discussed the definitions for three categories of benefit promises - defined benefit (DB), defined contribution (DC) and defined return (DR). The Board suggested some changes to the proposed definitions. In particular, the Board noted that DC promises are a subset of DR promises and asked whether these two categories could be combined. Furthermore, one Board member questioned the rationale for using the DB category as the residual category instead of the DR category.

At this meeting, the Board discussed the following three issues: the clarified definition of DR promises, the combination of DC and DR promises and the classification of the residual category.

Clarification of the definition of defined return promises

The objective of the amended definition for DR promises was to clarify the following matters:

• the classification of the post-employment benefit promises is made by reference to the way the benefit is accumulated. The way in which the liability for post-employment benefit promises is settled does not affect the definition.
• the contribution requirement must be independent of future salary increases.
• the benefit promise classification should focus on whether or not it can be expressed independently of future salaries. The same benefit promise may be described as current salary (independent of future salaries) or career average (dependent on future salaries).
• the benefit promises of fixed amounts to be paid at future date are DR.
• the employer's liability for any negative returns on contributions paid is included in the promised return component.
• some benefit promises may include a combination of any two or more types of promised returns.

The proposed amended definition of a DR promise is 'a post-employment benefit accumulated through a contribution amount which, for any given period, can be expressed independently of the salary that will be earned after the end of that period.

For some DR promises the entity may have an obligation for the promised return on the contribution amount. The promised return is a guaranteed fixed return, the change in the value of an asset, or group of assets, the change in value of an index, or any combination of these'.

The above definition for DR leads the Board into a lengthy debate about the characteristics and features of DC, DR and DB plans. The Board was reminded that the objective of DR category was to capture schemes where specified contributions (independent on future salaries) paid by the employer and there is a promised return on assets. The Board finally decided to proceed with the proposed definitions and to clarify in the discussion paper what the Board tried to capture in order to obtain the respondents view on the subject. The Board considered that they have given their 'best shot' on these definitions.

Combining defined contribution and defined return promises

At the July meeting, the Board asked the staff to consider whether DR and DC promises should be combined into one category. The only difference is that, for DC promise, the entity has no further obligation once the contributions are paid, whereas for DR promise, the entity has an obligation for a promised return. Therefore, the DC promises are simply a special case of DR promises.

The Board acknowledged that sometimes it is difficult to distinguish between the two. Some DC promises allow the employer to delay payment of contributions to the plan for a specified period. The employer will have an obligation for the delayed contributions and, possibly, the promised return on those contributions. This could lead to have some promises categorised as DC if the contributions have been paid or DR if they have not yet been paid.

The Board decided to combine DC and DR promises as DR promises. Otherwise, either benefit promises could have their categorisation changed depending on when the employer pays the contributions, or an arbitrary rule that sets the period of time within which the contributions must be paid. Furthermore, the Board acknowledged that in some situations it is difficult to distinguish between DC and DR plans, and therefore if both schemes are captured under the same category, DR, this simplify the issue as the underlying accounting principles would be the same.

The residual category

The Board decided that the residual category should remain DB. The Board noted that there is a residual collection of benefit premises which have not yet been considered (e.g. post-retirement medical plans). Furthermore the scope of this Phase I is limited to the work that can be done in a four year period and any changes should be limited to the troublesome plans that are clearly identified.

Measurement of the liability for defined return promise

Based on previous decisions made by the Board, the staff has identified different approaches for accounting for the contribution requirement and premised return in a DR promise. The staff proposed that the employer's liability should be measured at fair value.

There was some disagreement among the Board members regarding whether or not the proposed measurement should effectively be called fair value. The Board view was that the contribution requirement and the promised return that are being measured are based on the assumption that there is no change in the benefit promise. Therefore, the Board directed the staff to a 'building blocks' approach for the measurement of this DR promise and considered that this should be the basis for the discussion paper. These building blocks should explain the key principles in the measurement of the DR promise.

Measurement of benefits in the payout and deferment phases

In most post-employment benefit arrangements, the promises made to employees could be viewed as having three distinct phases: accumulation phase, deferment phase and payout phase. During the accumulation phase, the measurement of benefits will differ between DR and DB schemes.

A question is whether the measurement should change once we entered into the deferment or payout phase, as this could lead to the recognition of a gain or loss on the plan liabilities on retirement because of the change in measurement attribute. The Board has a lengthy debate on the subject and their preliminary view was that no gain or loss should be recognised once we entered into the deferment or payout phase. This is consistent with the current IAS 19 accounting for DB where PUC method is used during the accumulation and deferment/payout phase. The Board could not really conclude on the subject and therefore decided to bring this back at the next meeting.

Discussion at the October 2007 Board Meeting

Discussion paper issues relating to defined benefit promises

At the September meeting the Board noted that post-employment benefit promises have three phases:

• An accumulation phase during which the employee renders service in exchange for the promise of remuneration in the future. This phase ends when the employee ceases employment.
• A deferment phase, which occurs after the employee has completed employment but before the benefit payment has started (eg during a pension deferment period or a sickness waiting period).
• A payout phase during which the employer's liability to the employee for previously deferred remuneration is settled.

The two questions raised at that meeting were:

• Which phase or phases should determine the classification of the benefit promise?
• How should the benefit promise in each phase be measured?

After discussion, the Board agreed on the following pragmatic cut-off for the definition of benefit promises in the project:

• the definition of benefit promises should refer to the accumulation phase only. In particular, longevity risk should not affect the classification, but would be factored into the measurement of the obligation; and
• the liability for a benefit promise should be measured according to its definition whether the employee is the accumulation, deferment, or payout phase.

Discussion at the December 2007 IASB Meeting

The Board discussed several issues raised by Board members on the first pre-ballot draft of Preliminary Views on Amendments to IAS 19 Employee Benefits (internal discussion document that was not publicly available).

Classification of promises that include a fixed return

The staff noted that in the current version of the discussion document current salary promises and career average promises including those with fixed returns are classified as contribution-based while other salary related promises (for example, final salary promises) are classified as defined benefit. The staff informed the Board that some Board members and other constituents had raised the concern that promises of a fixed return on contributions are defined benefit promises in nature. Accordingly, including them in the contribution-based category would change the measurement for these defined benefit promises and would extend the scope of Phase I unnecessarily.

Other Board members argued that promises with a fixed return and promises linked to an index (such as inflation) are similar in nature and treating them differently would result in a new discrepancy.

There seemed to be a consensus that this could be one of the most contentious issues in the discussion paper. The Board reaffirmed its tentative decision that the scope of contribution-based promises should include promises with a guaranteed fixed return. However, the staff was directed to make this issue 'crystal clear' in the discussion paper and to seek input from constituents by asking specific questions.

Classification of promises of a regular fixed amount after retirement

Following the decision for promises with a guaranteed fixed return the Board decided that promises of a regular fixed amount after retirement should also be classified as contribution-based promises.

Classification of promises that IAS 19 classifies as defined contribution

The staff informed the Board that one Board member raised the concern that such a classification would effectively change the accounting for traditional defined contribution promises and that such a change would be outside the scope of this project.

The majority of Board members was of the view that the accounting for typical (plain vanilla) former defined contribution promises would not be changed. Therefore, the Board re-affirmed its decision that defined contribution promises are a subset of contribution-based promises.

Disaggregation and presentation of changes in contribution-based promises

The current version of the discussion paper includes preliminary views that:

• Changes in the value of the liability for a contribution-based promise should be disaggregated into a service cost component and other value changes.
• All changes in the value of the liability for a contribution-based promise and all changes in any plan assets should be presented in profit or loss.

The Board acknowledged that decisions about disaggregation and presentation of contribution-based promises were not discussed in detail during the previous sessions.

The Board therefore decided to redraft the pre-ballot draft (i) to be less definite about the Board's preliminary view on disaggregation and presentation for contribution-based promises and (ii) to explain the differences in presentation between contribution-based and defined benefit promises that result from those preliminary views. In addition, the Board agreed to seek input from constituents regarding potential practical difficulties to disaggregate changes and what level of disaggregation would be useful.

Presentation of defined benefit costs

The chapter on presentation of the components of defined benefit costs includes the following approaches:

Approach 1

All changes in the defined benefit obligation and in the value of plan assets are presented in profit or loss in the period in which they are incurred.

Approach 2

The costs of service are presented in profit or loss. All other costs are reported as consequences of deferring payment of employee remuneration.

Approach 3

The changes that arise from remeasurements relating to financial assumptions are presented outside profit or loss. Remeasurements relating to financial assumptions arise from changes in the discount rate and in the value of the plan assets. Changes in the amount of post-employment benefit cost other than those arising from remeasurement of financial assumptions, for instance, the costs of service, interest cost and interest income, would be recognised in profit or loss.

Approach 3 requires the identification of interest income on plan assets and, accordingly, requires disaggregation of changes in the fair value of the plan assets.

The Board reaffirmed its decisions that all three approaches should be presented in the discussion paper and to explicitly state that the expected return on plan assets should not be used to identify the interest income amount.

The staff was asked to redraft the pre-ballot draft reflecting the decisions made at this meeting. No Board member indicated an intention to object to the discussion paper.

Discussion at the February 2008 IASB Meeting

As a consequence of discussions on the second pre-ballot draft of the IASB's intended Discussion Paper Preliminary Views on Amendments to IAS 19 Employee Benefits in January 2008, the staff had recommended clarifying what was meant by the Board's preliminary view that the measurement of contribution-based promises should not include the possibility that an entity might reduce the benefits provided; express no preliminary view on credit risk; and ask a question in the Invitation to Comment on whether and how credit risk should be taken into account, as well as to change term used to describe the measurement of contribution-based promises to 'fair value assuming the benefit promise does not change'.

Some Board members thought that the measurement of contribution-based promises should take into account the possibility that an entity might not be able to make the payments necessary to satisfy the liability, while the possibility that an entity might reduce benefits for past service in the future should be ignored: only when there was an actual agreement to reduce benefits should this be taken into account. There was also disagreement with the staff view that no preliminary view on credit risk should be expressed. Some Board members were of the view that a view should be expressed, but that the question what 'credit risk' comprises should be dealt with in the project on fair value measurement and that a reference to this should be included in the discussion paper. The Board discussed the meaning and elements of credit risk that would be included in the measurement, in particular whether the term referred to the credit risk of the entity or of the individual liability. After some discussion, there seemed to be a consensus that the risk of an entity not being able to make payments in the future should be included in the measurement and that contribution-based promises should be measured at 'fair value assuming the benefit promise does not change'.

Scope of Phase I - EFRAG Discussion Paper The Financial Reporting of Pensions

In January 2008, EFRAG had published a Discussion Paper The Financial Reporting of Pensions to 'take a fresh look at – and stimulate discussion on – the principles that might be reflected in future accounting standards on pension benefits that are related to pensions'. The staff proposed the IASB acknowledge the EFRAG effort in the introductory chapter of its own forthcoming Discussion Paper and to ask whether there were additional issues which constituents think should be addressed by the Board in Phase I (of its post-employment benefits project). The Board briefly discussed the staff proposal. One Board member said that, while the EFRAG paper was narrower in scope (focusing on pensions only), its discussion of the underlying principles was much broader than Phase I of the IASB's project. As a consequence, asking for additional issues to be dealt with in Phase I entails the danger of prolonging the entire project. The chairman made it clear that the emphasis of the IASB paper should be on short-term issues and that any reference to additional issues should be to those which could be resolved in the short term. The Board agreed.

Discussion at the March 2008 IASB Meeting

The Board voted formally to add this project to its agenda.

The Board held a very brief discussion of a sweep issues arising on the forthcoming Discussion Paper of Preliminary Views on Amendments to IAS 19 Employee Benefits.

The Board agreed to amend the definition of contribution-based promises such that it is clear that the features of a contribution-based benefit promise is that it is independent of both longevity risk and demographic risk. The exact wording was to be agreed out of session.

The Discussion Paper is expected to be published on 27 March 2008.

March 2008: Discussion Paper on employee benefits

On 27 March 2008, the IASB published for comment a Discussion Paper (DP) Preliminary Views on Amendments to IAS 19 Employee Benefits. The DP represents the first step in a comprehensive project on the accounting for post-employment benefit promises. This step is limited in scope to the following issues:

• The deferred recognition of some gains and losses arising from defined benefit plans (currently IAS 19 allows multiple options for deferring recognition)
• Presentation of defined benefit liabilities
• Accounting for benefits that are based on contributions and a promised return
• Accounting for benefit promises with a 'higher of' option

Therefore, the DP focuses on improvements to IAS 19. In the longer term, the IASB intends to work with the US FASB towards a common standard on post-employment benefit promises. Because that project will take many years to complete, the Board concluded that short-term improvements are needed to provide users with better information about post-employment obligations. The Board intends to review the responses to this paper, modify or confirm its preliminary views, and then develop an exposure draft of amendments to IAS 19 for public comment.

The Board does not express a preliminary view on the presentation of the components of post-employment benefit cost in comprehensive income (within or outside of profit and loss). Instead, several alternatives are discussed and comments invited.

The DP is being published by the IASB. However, it will also be considered for publication by the US Financial Accounting Standards Board for comment by its constituents. The IASB requests responses to the DP by 26 September 2008. Click for Press Release (PDF 55k). The IASB's goal is to issue a revised IAS 19 by 2011.

September 2008: Our views on IASB's employee benefits discussion paper

On 26 September 2008, Deloitte submitted a Letter of Comment (PDF 174k) on the IASB Discussion Paper Preliminary Views on Amendments to IAS 19 Employee Benefits. In general, we express serious concerns that the proposals go beyond the changes that should be introduced via a short-term project. An excerpt from our letter is presented below. Past comment letters are Here.

Discussion at the November 2008 IASB Meeting

Initial discussion of responses to discussion paper

The IASB staff introduced a high-level summary of comments it had received on the IAS 19 discussion paper. The main issues identified in the comment letters were summarised in the Agenda Paper. The Board concentrated its discussion on two broad areas:

• the definition and scope issue related to contribution-based promises, and
• how pension items would be presented in the financial statements.

Contribution-based promises

The staff noted that most respondents were critical about the Board's proposals for contribution-based promises. Some stated that the proposals were more problematic than the current requirements. In particular:

• The scope of contribution-based promises, as defined in the discussion paper, was too wide and suggested that the Board should restrict the scope to promises that are 'problematic' to account for using IAS 19.
• The measurement proposed represented a fundamental change in measurement for many post-employment benefit plans. It would be preferable, and possible, to deal with the 'troublesome promises' within the existing framework of IAS 19.

A Board member queried whether those constituents who raised these issues were the same as those who favoured retaining the corridor and expected returns approaches. The staff subsequently stated that there was not a strong correlation between the two groups.

The staff noted that they were surprised by the level of concern about contribution-based promises and the estimates in some jurisdictions that many (or most) defined benefit plans would be reclassified as contribution-based promises. The staff was not convinced that this was the intention of the Board. The staff also admitted that there were more problems 'patrolling the boundary' between defined benefit and contribution-based promises and with their measurement than they had appreciated.

Financial statement presentation

The staff also noted that most respondents supported the Board's preliminary view that all changes in the defined benefit obligation and in plan assets should be recognised in the period in which they occur (that is, that smoothing mechanisms should be deleted from IAS 19). However, there were diverse views on financial statement presentation.

Board members, speaking of conversations and formal meetings with constituents, suggested that there was a high degree of acceptance among constituents that the deferral mechanisms in IAS 19 were no longer defensible and should be removed; however the price of removal was that financial statement presentation needed to be addressed as a matter of urgency.

The staff noted that, when the discussion paper was being drafted, the IAS 19 team had been directed by the Board not to address financial statement presentation matters. Subsequently, the Board (together with the FASB) had issued their Discussion Paper and Preliminary Views on Financial Statement Presentation in October 2008, and that there was now greater scope for cooperation between the two teams. In particular, at the December 2008 Board Meeting, staff from both projects will be present when the Board discusses presentation issues related to the IAS 19 discussion paper.

The Board discussed some of the tension points in the financial statement presentation project that comments received on the IAS 19 discussion paper had highlighted. In particular, the 'cohesiveness principle' in the financial statement presentation discussion paper might be seen by some as preventing disaggregating pension expense between the service element (operations) and the financing charge on the balance sheet obligation (financing). Other Board members disagreed and thought that disaggregation would be an accounting policy choice. Others saw an opportunity to discuss disaggregation in financial statements more generally.

The staff noted that the discussion would help them to determine what could be done within the time available to complete this phase of the IAS 19 project.

Next steps

In December 2008 the Board will discuss:

• the scope of an exposure draft to be developed from the discussion paper; and
• the comments on the recognition and presentation of defined benefit promises.