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IAS 19 Employee Benefits: Benefit Reductions – Distinction between Curtailments and Past Service Cost
Go To List of IFRIC Issues Issue Description: Whether plan amendments that reduce benefits are accounted for as curtailments or as negative past service costs. Discussion at the January 2007 The IFRIC discussed a request to provide guidance on whether plan amendments that reduce benefits are accounted for as curtailments or as negative past service costs. In particular, they deliberated which of the following views would be in compliance with the current version of IAS 19: View A: Any plan amendment should be considered in its entirety. If an impact of the amendment is to reduce the benefits for future service then the amendment meets the definition of a curtailment. IAS 19.98(e) excludes the impact of curtailments from the definition of past service cost. Therefore the full impact of any plan amendment which reduces benefits for future (and past) service should be accounted for as a curtailment. View B: Follow view A but apply this at the individual member level rather than for the plan as a whole. Therefore the impact for any retiree, terminated, or active member who has passed the date when further service leads to no material amount of further benefits (as specified in IAS 19.67(b)) should be accounted for as a negative past service cost whilst the impact for other active members should be accounted for as a curtailment. View C: The reference in IAS 19.98(e) should be read as excluding only future service impact when considering a curtailment. Therefore the impact of any plan amendment should be broken down into elements which relate to past service (for example, accrual rate) and elements which are dependent on future service (eg the impact of future salary increases included in the defined benefit obligation or the impact on the calculation of the defined benefit obligation of straight lining a benefit accrual which includes a back end load in accordance with IAS 19.67). Having bifurcated the plan amendment into mutually exclusive past and future service elements, negative past service cost or curtailment accounting treatment is applied for the respective elements. After a thorough debate the IFRIC was nearly equally divided between views A and C. The IFRIC came to the conclusion that amending IAS 19 would be the most efficient way to resolve the issue. It was noted that deleting the last sentence of the definition of past service in paragraph 7 of IAS 19 stating that past service costs "may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced)" would possibly resolve the problem. The IFRIC directed the staff to prepare a paper considering the implications of amending paragraph 7 of IAS 19 in such a way. Discussion at the May 2007 Removed from IFRIC agenda May 2007. Integrated into the Board's annual improvements process.

IAS 19 Employee Benefits:
Benefit Reductions – Distinction between Curtailments and Past Service Cost

Go To List of IFRIC Issues

Issue Description:

Whether plan amendments that reduce benefits are accounted for as curtailments or as negative past service costs.

Discussion at the January 2007

The IFRIC discussed a request to provide guidance on whether plan amendments that reduce benefits are accounted for as curtailments or as negative past service costs. In particular, they deliberated which of the following views would be in compliance with the current version of IAS 19:

View A:

Any plan amendment should be considered in its entirety. If an impact of the amendment is to reduce the benefits for future service then the amendment meets the definition of a curtailment. IAS 19.98(e) excludes the impact of curtailments from the definition of past service cost. Therefore the full impact of any plan amendment which reduces benefits for future (and past) service should be accounted for as a curtailment.

View B:

Follow view A but apply this at the individual member level rather than for the plan as a whole. Therefore the impact for any retiree, terminated, or active member who has passed the date when further service leads to no material amount of further benefits (as specified in IAS 19.67(b)) should be accounted for as a negative past service cost whilst the impact for other active members should be accounted for as a curtailment.

View C:

The reference in IAS 19.98(e) should be read as excluding only future service impact when considering a curtailment. Therefore the impact of any plan amendment should be broken down into elements which relate to past service (for example, accrual rate) and elements which are dependent on future service (eg the impact of future salary increases included in the defined benefit obligation or the impact on the calculation of the defined benefit obligation of straight lining a benefit accrual which includes a back end load in accordance with IAS 19.67). Having bifurcated the plan amendment into mutually exclusive past and future service elements, negative past service cost or curtailment accounting treatment is applied for the respective elements.

After a thorough debate the IFRIC was nearly equally divided between views A and C.

The IFRIC came to the conclusion that amending IAS 19 would be the most efficient way to resolve the issue. It was noted that deleting the last sentence of the definition of past service in paragraph 7 of IAS 19 stating that past service costs "may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced)" would possibly resolve the problem.

The IFRIC directed the staff to prepare a paper considering the implications of amending paragraph 7 of IAS 19 in such a way.

Discussion at the May 2007

Removed from IFRIC agenda May 2007. Integrated into the Board's annual improvements process.

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