At this session the staff sought input from the Board on the following topics:
- Presenting the remeasurement component
- Classification of the effects of settlements, curtailments, and the effect of the asset ceiling
- Additional guidance on the discount rate
- Multi-employer exemption
- Attribution to periods of service
- Plans with risk sharing
- Definition of short and long term
- Tax relating to pension costs
The Board has decided at previous meetings to recognise all changes in the defined benefit obligation in profit or loss; to split up the change into employment, financing, and remeasurement components; and to define the remeasurement component.
The staff proposed:
- To allow entities to present the remeasurement component as one line item or to disaggregate the remeasurement component and present its disaggregated components in separate line items in the income statement
- To prohibit entities from disaggregating the actual return on plan assets in the statement of comprehensive income
- To amend IAS 1 to allow entities presenting a subtotal that would be profit before income taxes and specified remeasurement components (that is, remeasurements could be presented net of tax)
The staff also provided the Board with possible examples how the proposals could be used in the statement of comprehensive income.
The proposals lead to a considerable amount of confusion and discussion amongst Board members - not only on the remeasurement component, but on all aspects of the disaggregation. Some Board members felt that previous decisions would have to be revisited.
Others were not clear what the remeasurement represents. Many were concerned over the proposal to allow a net of tax presentation for the remeasurement component. Board members also highlighted that the proposals would interact with the outcome of the financial statement presentation project.
The chairman proposed four further approaches to resolve the issue and address some of the concerns of Board members, which would have to be applied mandatorily:
- 1. One line item only
- 2. Pensions must be separated into two line items
- a. Service cost
- b. All other changes
- 3. Pensions must be separated into three line items
- a. Service cost
- b. Interest cost on the obligation
- c. All other changes
- 4. Pensions must be separated into three line items
- a. Service cost
- b. Interest cost on the obligation and expected return or imputed interest on plan assets
- c. All other changes
The Board also agreed by majority vote to allow a net of tax presentation of the 'all other changes' component, acknowledging that this requires rules for the tax allocation. Staff noted that the upcoming ED on Income Taxes would address some of the issues surrounding tax allocation.
The Board was asked to decide on where the effects of settlements, curtailments, and the asset ceiling should be classified (employment, financing, remeasurement).
The staff recommended that the effects of settlements should be classified into remeasurement component. The Board agreed.
The staff recommended that the effects of curtailments should be classified into the employment component. The Board agreed.
The staff recommended that the effects of the asset ceiling should be classified into the remeasurement component. The Board agreed.
Staff introduced the topic by noting that constituents requested more guidance on determining the discount rate, particularly when bonds can be considered high quality and when a market is considered deep.
Some Board members had specific questions on technicalities when determining the discount rate. There was a general feeling that addressing the discount rate could only be done if the Board was to address measurement of defined benefit obligations - which is not in the scope of this phase of the pensions project.
The staff proposed the following:
- Not to investigate changing the discount rate
- Not to amend IAS 19 to allow use of an unobservable rate.
- To amend IAS 19 to provide more guidance on how to determine whether a deep markets exists
- Not to include guidance on determining whether a corporate bond index is high quality
The chairman asked the staff to seek input from constituents (in particular, actuaries) on the appropriate discount rate that could be used when the Board in the future revisits measurement of defined benefit obligations.
The staff proposed to provide preparers with a blanket exemption for multi-employer plans. This would result in such plans classified as defined contribution. However, this exemption would be accompanied by additional disclosures. Staff noted they believed that defined benefit accounting cannot be applied in a useful manner to such plans.
Board members were concerned over the abuse potential of a blanket exemption.
The Board in the end disagreed with the staff recommendation.
The staff asked the Board whether expected future salary increases 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. Board members saw no difference in the benefit formula leading to materially higher levels of benefit in later years or the salary projection - both would impact the absolute amount.
The staff recommended that IAS 19 should be clarified to state that salary increases in the future should be included when assessing the requirements in IAS 19.67.
The staff asked the Board whether to clarify the accounting requirements for plans with risk sharing or conditional indexation features.
Staff recommended that the wording in IAS 19 is amended to make clear that such features should be reflected in the measurement of the obligation. The Board agreed.
The Board confirmed its view that the distinguishing feature between long- and short-term benefit is the entity's expectation when a benefit becomes due to be settled. The paragraphs in the Basis for Conclusions will be amended to remove the wording that caused confusion.
The staff explained that constituents asked for clarification on how to reflect taxes payable by a plan itself should be reflected as part of the actuarial assumptions or as part of the return on plan assets. Some constituents believed that the wording in IAS 19 requires an entity to include it in the return on plan assets. Staff proposed that both treatments were acceptable as long as the tax is not double counted or not reflected at all.
Some Board members were confused about the type of tax staff was talking about. Other Board members were concerned over the accounting for administrative costs the staff mentioned as an analogy. The staff was asked to bring the issue of administrative costs back at a future meeting.
On the tax issue the Board agreed with the staff recommendation.