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IAS 19 — Accounting for contribution based promises

Date recorded:

In considering the narrow question about the impact of the 2011 revisions to IAS 19 Employee Benefits on the accounting for contribution-based promises during its May 2012 meeting, the Committee acknowledged a broader question about how to account for contribution-based promises. The Committee previously considered this issue and published IFRIC Draft Interpretation D9 Employee Benefit Plans with a Promised Return on Contributions or Notional Contributions in 2004 which considered the accounting for contribution-based promises within its scope. However, the Committee suspended this project in 2006 and instead referred the issue to the IASB to be included in the IASB’s project on post-employment benefits. The IASB later deferred work on this issue to a future broader project on employee benefits.

Given the IASB’s decision to defer work on this issue, the Committee decided to revisit the issue and requested that the staff bring proposals regarding how to address the accounting for contribution-based promises to a future meeting.

At this meeting, the staff summarised outreach performed to gather information about the types of plans the Committee should consider in its reassessment of D9.

Based on responses to this feedback, the staff recommended that the employee benefit plans that should fall within the scope of the Committee’s work should have the following characteristic:

  • the plans would be classified as defined contributions plans under IAS 19 if not for the guarantee provided by the employer on the return of the contributions made;
  • the contributions made to the plans can be notional contributions (i.e., whether the plans are funded or not should not affect the accounting for these plans);
  • there should be a guarantee of return by the employer on the contribution (notional contributions) made;
  • the benefit under the plans should not be dependent or future events (i.e., salary changes, vesting or demographic risk); and
  • the guarantee under the plan may be based on the value of one or more underlying assets.

The staff also suggested that the draft interpretation should include in its scope not only post-retirement benefits but also other long-term benefits.

Consequently, the staff’s proposed scope for a draft interpretation would include employee benefit plans or other employee long-term benefits where the employer has a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to cover all employee benefits relating to employee service in the current and prior periods in respect of:

  • a promised return on contributions, actual or notional; or
  • any other guarantee on contribution, actual or notional based on the value of one or more underlying assets.

In reaching the above recommendation, the staff considered an alternative scope which was more narrow (i.e., including only plans that have benefits that vary with return on assets and benefits with a ‘higher of option’ where one of the benefits varies with the return on assets). However, if reaching its recommendation, the staff noted that a more narrow scope would not resolve the issues in accounting for plans with a fixed return on assets or contribution, and therefore, would have to be addressed separately.

One Committee member noted that past practice suggests that plans with a fixed rate of return are not creating divergence in accounting. Rather, the issue is with plans with variable returns. Therefore, she suggested the staff’s proposed scope could be amended to exclude plans with guaranteed fixed returns. However, another Committee member noted that fixed guarantees were the crux of another issue recently discussed by the Committee (see the IAS 19: Accounting for contribution based promises section below), and therefore, he believed that fixed returns should be covered in this draft interpretation. Another Committee member questioned whether career average plans would be included in the scope of the draft interpretation given the above characteristic that the draft interpretation should not be dependent on future events. The staff noted it would consider this question in further developing the draft interpretation.

With little additional feedback, the Committee tentatively agreed with the staff recommendation.

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