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IFRIC 14 – Availability of refunds from a defined benefit plan managed by an independent trustee

Date recorded:

The Committee received a request to clarify whether a trustee’s power to augment benefits or to wind up a plan affect the employer’s unconditional right to a refund and thus restrict recognition of an asset, in accordance with IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

The purpose of the agenda paper is to provide the Committee with a summary of the issue, and the staff’s research and analysis of the issue. The staff put forward a proposed amendment to paragraph 12 of IFRIC 14, and recommended that the issue should be added to the Committee’s agenda for annual improvements.


A Committee member noted that he agreed with the analysis in the paper. He noted that in the situation where a trustee had the discretion to direct excess amounts to enhance benefits, that fact should be taken into account in calculating the defined benefit obligation in the first place. He added that this fact should be made clear in whatever communication the Committee issues. He also noted that the fact that benefits might be enhanced by the trustee in the future was not directly relevant to determining the existence of an asset, because the entity should be looking at whether they had a right to the surplus today. He added that the fact that this may change in the future did not preclude an entity from recognising an asset; however, noted that the trustee’s powers may affect the measurement of the asset that exists, and could potentially drive the measurement of the asset down to zero. He further noted that he did not believe that the proposed amendment was the best way to deal with the issue, unless the Basis for Conclusions was really good, and noted that the amendment proposed only dealt with one aspect of the issue (recognition), and not the other aspect (measurement) which was equally important. He noted that the proposed additional sentence was correct, but suggested that the word ‘directly’ was removed from the proposed amendment – and noted that guidance on the measurement issue also needed to be added.

Another Committee member noted that she had several concerns with the proposed amendment. She questioned the substance of a right and the existence of an asset in situations where the trustees had the ability to take out anything that was in the surplus. She noted that the amendment was very confusing as the sentence that was being added appeared to contradict the first sentence of the paragraph. She also questioned how the amendment sat with BC12 of IFRIC 14 which was clear that, where it can be concluded that trustees can act, then an asset does not exist.

Another Committee member noted that he agreed with the staff analysis, noting that it was clear that if an entity had a right they controlled, then an asset existed, and that the measurement of that asset would be a function of various things that might happen to the amount of the refund. He added that he was happy with the proposed amendment given the question that had been asked.

Another Committee member noted that he agreed with most of the staff technical analysis, but suggested that the issue was not added to the Committee’s agenda for annual improvements. He noted that without clearly identifying the role of the trustee, any conclusion could be misleading, and noted that if this issue was taken to the agenda for annual improvements, it would be necessary to clarify what type of power the trustees had. He also added that he did not support amending paragraph 12 of IFRIC 14 as he did not believe the proposed change resolved the issue and that it resulted in further confusion that would require further interpretation.

Another Committee member noted that he was comfortable with the proposed amendment. He noted that he did not believe that the first and last sentences in paragraph 12 were inconsistent (a concern raised by another Committee member), noting that the first sentence talks about the existence of a right, and the last sentence states that things that may happen in the future do not take away an entity’s right to the surplus today, and therefore, the issue is one of measurement and what needs to be thought about is whether the trustees have the ability to say the entity cannot have the surplus, and if the trustees do not have that ability, then an entity has the right to that surplus as it exists today, which is what is being accounted for, not what it might become in the future. He noted that he understood the fact that people struggled with booking an asset that might disappear, but noted that what was being accounted for here was the right, and that if the right existed, it should be accounted for. He further noted that, given the uncertainty and diversity of views around this issue, there needs to be tight wording in the Basis for Conclusions.

Another Committee member noted that he agreed with the technical analysis with respect to the existence of a right, but noted that, as stated by other Committee members, measurement was inextricably linked, and therefore, it was important that the measurement issue was also addressed (possibly in the Basis for Conclusions) to address the issue of diversity in practice.

Another Committee member noted that he agreed with the technical analysis in the agenda paper and also with the comments made by other Committee members that either the Basis for Conclusions or the amendment needs to be clearer, particularly with respect to distinguishing between a trustee’s right to refuse a request for a refund and a trustee’s right to enhance benefits in the future. He noted that without that clarification, the amendment could be inconsistently applied. He further noted that he agreed that the accounting for the plan should follow the legal or constructive benefits currently provided, and not anticipate future possible enhancements to benefits; however they may come about.

Another Committee member clarified, for purposes of the discussion, that there were two situations that could arise. Firstly, a situation where the trustee had the absolute right to say to the entity, regardless of what the surplus is, the entity cannot have it, which is a recognition question, and if the asset ceiling was being applied by reference to that recognition issue, it would appear in the disclosures (as IAS 19 requires the terms of the plan to be disclosed). Secondly, in the situation where the trustee had the right to invest the surplus or enhance benefits, this does not affect the entity’s ability to access the surplus, but does impact on the amount of the surplus, which is a measurement issue.

Another Committee member questioned whether the Committee was having the appropriate discussion, noting that the asset that should be recognised was the surplus, and that for the surplus to be recognised as an asset, the entity would need to control the economic benefits flowing from the asset, which would not be the case if a third party (the trustee) could take away the economic benefits. She suggested that the debate should be focused on the surplus not the right.

An IASB member present noted that she while she agreed with the comment made by the previous Committee member that the trustees rather than the plan’s sponsor controlled the assets in the plan; she noted that there was language in IAS 19 that suggested that this area was an exception to the Conceptual Framework notion of control of an asset, and therefore, the analysis presented by the staff was correct. She added that more wording was needed to explain why this was the case, as the plan sponsor does not control the assets in the plan, the trustee does.

Another Committee member noted that the asset that the Committee was discussing was the right to the refund, not the refund itself (and existence thereof). He noted that paragraph 12 of IFRIC 14 talked about an entity’s right to the refund of the surplus, noting that if the trustee has to approve that the entity has the right then the right does not exist, but anything the trustee does to enhance etc. is not relevant to the existence of the right, and if an entity has that right and it is unconditional at balance sheet date then that is the asset that should be measured. He noted that accordingly he agreed with the staff’s analysis in terms of the asset that the Committee should be focused on in discussing the issue.

In response to the preceding discussion, the Chairman proposed three options:

  1. The Committee does nothing as IFRIC 14 is sufficient to answer the question. Three Committee members voted in favour of this option.
  2. The Committee accepts the staff analysis and amendment, but further wording is required (in the Interpretation and in the Basis for Conclusions), including a discussion with respect to measurement. Nine Committee members voted in favour of this option.
  3. The Committee accepts the amendment proposed by the staff as written, with the removal of the word ‘directly’. No Committee members voted in favour of this option.

A Committee member expressed concern that this was a significant issue and beyond the scope of an annual improvement; however, the Chairman noted that this was a decision that would be made at a later date.

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