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Post-employment benefits

Date recorded:

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.