IAS 19 Employee Benefits: Multiemployer Plan Exemption

Go To List of IFRIC Issues If a multi-employer plan is a defined benefit plan but the employer does not have sufficient information to account for it as such, IAS 19.30 allows accounting as if the plan were a defined contribution plan, with disclosures. IFRIC is considering whether further guidance should be provided in applying the exemption criteria. Discussion at IFRIC Meeting November 2002: Background discussion. IFRIC will consider a draft interpretation at a future meeting. Discussion at IFRIC Meeting February 2003: The staff proposed guidance that would be issued on when the exemption regarding accounting for multi-employer defined benefit plans as defined contribution plans would apply. The IFRIC noted that it would be extremely rare for the situation to exist that there was no consistent and reliable basis for allocating the obligation, plan assets and cost to individual entities participating in the plan. The IFRIC agreed that the interpretation would contain wording indicating this. They further agreed that the interpretation contain guidance that indicated that significant effort needed to be made before concluding that the information needed would not be available. An IFRIC member stated that the proposed interpretation should address the measurement implications of cross subsidisation inherent in these plans. IFRIC agreed that the staff would address the issues raised and that a draft interpretation would be prepared. Discussion at IFRIC Meeting April 2003: The IFRIC discussed two issues: How to define a multi-employer plan that meets the exemption in IAS 19.30, and If the plan does not meet the exemption, how it should apply defined benefit-plan accounting. The IFRIC did not amend its previous definition of multi-employer plan, but it concluded that it did not have sufficient information to state categorically that it would be rare for the exemption to be applied. The Interpretation will address plans in which there are a small number of dominant members in a large fund with many members and that it was likely that the dominant members would have access to plan information. The Interpretation will clarify that a multi-employer plan as defined in IAS 19.7 for which the contribution is set at a fixed level of the underlying payroll is not necessarily excluded. The IFRIC agreed that the staff would consider what guidance is needed on changes arising from allocations between entities in the plan or arising from other entities employees. The Interpretation will be discussed further at IFRIC's July 2003 meeting. Discussion at September 2003 IFRIC Meeting: The IFRIC discussed a draft interpretation. Several IFRIC members expressed concern over whether defined benefit accounting would be operational for multi-employer plans since IAS 19 requires balance sheet date measurement of the plan assets and liabilities. The final draft interpretation will provide guidance that the 'corridor' should be applied to these plans at the company level, not the group level, because of IAS 19's requirement for consistent policies. The draft interpretation will note that if the information to apply the corridor approach is not available, then all changes should be recorded immediately. Because of the difficulties in predicting future estimated returns reliably. several members expressed doubt about whether an interpretation should be issued – because defined benefit accounting may only be possible in rare situations. The IFRIC members noted that US GAAP requires multi-employer plans be accounted for as defined contribution plans. Current practice in applying IAS 19 is to default to defined contribution accounting and therefore this interpretation, by tightening the rules of IAS 19, would diverge from US GAAP even further. Some members expressed the view that this interpretation merely explains existing IAS 19 requires and does not 'tighten' (change) them. In their view, if this interpretation caused a change in accounting for a multi-employer plan, that change should be accounted for as a correction of an error. The IFRIC asked the staff clarify that the scope of the interpretation will exclude state plans, such as national social security plans. The staff will continue working on the draft interpretation as originally drafted – defined contribution accounting only in rare cases. Three IFRIC members stated that they would object to the draft. Four other IFRIC members abstained from the vote until a final document is presented to them. Discussion at December 2003 IFRIC Meeting: The IFRIC discussed a draft interpretation on when the exception from defined benefit accounting (and therefore the application of defined contribution accounting) can be used for multi-employer plans that meet the definition of a defined benefit plan. Several members expressed concern with the model proposed for various reasons (including divergence with US GAAP and disagreement on when information will not be available). The IFRIC decided to issue the current draft (with minor amendments and clarifications) for exposure. Draft Interpretation D6 Issued May 2004 For information about Draft Interpretation D6 Multi-employer Plans, please Click Here. Draft Interpretation Not Finalised The issues were addressed in the December 2004 amendments to IAS 19.