This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

IFRIC 14 — Should an entity assume continuation of a minimum funding requirement?

Date recorded:

A Committee member noted that he supported the staff’s conclusion, adding that the staff’s description of the accounting was consistent with his reading of IAS 19 and IFRIC 14.  With respect to the drafting of the tentative agenda decision, he suggested that the words “in the absence of evidence to the contrary” should be removed because he believed the tentative agenda decision was saying that an entity would account in accordance with the funding principle rather than a schedule of payments, and that he was concerned that someone could suggest that, for example, an intention to renegotiate could provide evidence to the contrary.

Another Committee member agreed with the staff’s view that an entity should assume a continuation of the existing funding requirement for future service when estimating the future minimum funding requirement but questioned how this amount would be determined, noting that the previously negotiated amount was not necessarily reflective of the amount going forward.

The Chairman clarified that, in a situation where negotiated funding covered both future service costs and making up a deficit, an entity would only consider the funding for future service costs.

A Committee member noted that he agreed that an entity needed to separate out the funding for a deficit, but noted that the issue was still whether the entity expected the funding to continue at the same rate agreed with the trustees or whether the entity expected it to be at a different rate.  He noted that IFRIC 14 requires that estimates used in minimum funding requirements are consistent with estimates used to determine the defined benefit obligation, which may not be the current rate.  He agreed with the staff view that the minimum funding requirement for contributions relating to future service would continue over the estimated life of the plan, but that the question was how that minimum funding requirement was measured over the ongoing life, suggesting that an entity would need to estimate what that rate was going to be consistently with the estimates used in measuring the defined benefit obligation.

Another Committee member noted that the way these plans worked (using the UK as an example), was that there would be a funding regime which was something that continued, but within that regime, trustees would renegotiate funding objectives from time to time, and to meet those objectives, a periodic schedule of contributions would be agreed.  He noted that he agreed that an entity should not just extrapolate the schedule of contributions, but that the view could be taken that the funding objectives could be extrapolated until they have been renegotiated, noting that the thing that definitely continued was the overall regime.  He noted that he agreed there was some form of extrapolation required, but that there was a question around what exactly was being extrapolated.

The ESMA representative present noted that ESMA believed that the tentative agenda decision provided a solution to their submission by highlighting the relevant paragraphs in IFRIC 14 that provided guidance on this issue.

Another Committee member observed that the Committee members appeared to be in general agreement that an entity could not assume the minimum funding requirement disappeared simply because the period of the agreement disappeared, and that an entity should continue to apply the principle that underpins the minimum funding requirement to make assumptions that are consistent between the way the defined benefit obligation and minimum funding requirement are measured.  He suggested that this could be clarified in the wording in the tentative agenda decision.

A further Committee member noted that the wording in the tentative agenda decision made it clear that the staff were proposing that an entity should assume continuation of the funding requirement, which he agreed with; but also that an entity should assume continuation of the rate of funding, which he did not agree with.  He noted that paragraph 21 of IFRIC 14 requires that, in estimating the future minimum funding requirement contributions for future service, “an entity shall use assumptions consistent with the minimum funding basis and, for any factors not specified by that basis, assumptions consistent with those used to determine the defined benefit obligation and with the situation that exists at the end of the reporting period…”.  He noted that he believed that in practice, most people were looking at the defined benefit obligation and estimating at the end of the contracted period what the minimum funding rate will be.  He noted that his assessment of the staff’s view was that they believed the continuation of the minimum funding basis included the continuation of the actual contribution rate, which he did not agree with.

Another Committee member noted that he believed there was a valid interpretive question in paragraph 21 of IFRIC 14 as to what the minimum funding basis actually meant; and whether it meant the objectives of the minimum funding requirement or the rate at which an entity had negotiated for the period.

The Chairman noted that he read it as the rate; however, a Committee member noted that he read it as continuing with the principle, but not necessarily the absolute rate.

An IASB member present commented that making it clear that it was the principle not the rate would be an important clarification to add to the tentative agenda decision.

The Chairman summed up the discussion, noting that there was general consensus from the Committee members that the tentative agenda decision was right; but that the notion of the underlying principle of the negotiation / underlying negotiation foundation should be made clear.

All Committee members agreed with this proposal.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.