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IASB proposes amendments to IAS 19 and IFRIC 14 on pension accounting

  • IASB document (blue) Image

18 Jun 2015

The International Accounting Standards Board (IASB) has published an Exposure Draft (ED) of proposed amendments to IAS 19 'Employee Benefits' and IFRIC 14 'IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. The amendments address two issues submitted to the IFRS Interpretations Committee. Comments are requested by 19 October 2015.

 

Background

Requests were submitted to the IFRS Interpretations Committee to clarify:

  • the calculation of current service cost and net interest when an entity remeasures the net defined benefit liability (asset) when a plan amendment, curtailment or settlement occurs; and
  • whether a trustee's power to augment benefits or to wind up a plan affects the employer's unconditional right to a refund and thus, in accordance with IFRIC 14, restricts recognition of an asset.

As both issues relate to IAS 19 and as the IASB believes that a single package of amendments carried out at the same time would reduce the administrative burden on those responding to both issues, the IASB decided to deal with the two issues in one narrow-scope Exposure Draft.

 

Suggested changes

The amendments proposed in ED/2015/5 Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan (Proposed amendments to IAS 19 and IFRIC 14) are:

Remeasurement on a plan amendment, curtailment or settlement

The IASB proposes:

  • When the net defined benefit liability or asset is remeasured on a plan amendment, curtailment or settlement, the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement.
  • The net interest for the remaining period is determined based on the remeasured net defined benefit liability or asset.
  • The current service cost and the net interest in the current reporting period before a plan amendment, curtailment or settlement are not affected by the past service cost or a gain or loss on settlement.
  • These amendments should be applied retrospectively, but the IASB proposes providing an exemption for adjustments of the carrying amount of assets outside the scope of IAS 19.

Availability of a refund from a defined benefit plan

The IASB proposes:

  • When an entity determines the availability of a refund from a defined benefit plan, amounts that other parties can use for other purposes are not included in the amount of the surplus that an entity recognises as an asset on the basis of a future refund.
  • A gradual settlement should not be assumed if other parties can wind up the plan without the entity's consent.
  • The availability of a refund is not affected by other parties' power to make investment decisions without changing the benefits for plan members.
  • When an entity determines the availability of a refund and a reduction in future contributions, the entity takes into account the statutory requirements that are substantively enacted as well as constructive obligations and terms and conditions that have been contractually agreed.
  • Regarding the interaction between the asset ceiling and the past service cost or a gain or loss on settlement, IAS 19 shall clarify that the past service cost or a gain or loss on settlement is measured and recognised in profit or loss in accordance with the existing requirements in IAS 19 and changes in the effect of the asset ceiling are recognised in other comprehensive income.

 

Effective date and transition requirements

The ED does not contain a proposed effective date. However, the ED proposes that the amendments would be applied retrospectively and that early application should be permitted.

 

Additional information

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