Convergence - Short-Term Project

Date recorded:

- Post-Employment Benefits

At a previous meeting, the Board discussed whether to retain the corridor approach in IAS 19 for the return on assets in relation to the performance reporting project. Therefore the discussion was better characterised as a reporting performance discussion if the proposed changes to pension accounting are decided upon. That is, if the Board decided to eliminate the corridor, how should the performance statement report the actual return on plan assets? As a result of the tentative decisions to date (removal of the pension corridor and two-column performance statement) any discussion on this matter depends on successful completion of these projects.

The Board reiterated its previous conclusion to eliminate the current approach in IAS 19 and require that the actual return on plan assets be recognised in the performance statement. The Board also reiterated its previous conclusion that the following presentation in the performance statement should be required:

Income Before Remeasurement


Business Activities

Service Costs

Actuarial gains and losses on the pension liability

Financial Assets (subset of Business Activities)

Actual return on plan assets (similar to other assets held by the company)


Interest Costs

Other actuarial gains and losses

As a result of this decision, an entity must decide whether the pension assets are available for sale, held for trading, or held to maturity at the purchase date. The change in the value of pension assets would be accounted for similarly to respective assets held outside of a pension plan.

The Board discussed the accounting when, for example, an employee is issued a pension benefit of 500 to be received at the end of 5 years. After year two, the employer decides to double that benefit to 1,000. The current approach in IAS 19 is to account for the portion related to prior service as a prior service cost. The Board reiterated this approach with a 9 to 5 vote. Those objecting preferred a straight-line approach.

The Board also decided to require that entities disclose in their annual financial statements the total fair value of assets by class. The Board noted that IAS 19.120(c)(iii) requires that the company disclose the fair value of plan assets anyway. Therefore, the Board assumes that it should not be too difficult to provide the disclosure by class of asset. A few Board members believed the disclosure by class would be too burdensome and potentially could not be audited in the time frame necessary for an annual report, especially for large multinational corporations.

The Board requested the staff develop a set of guidelines related to classes that should be disclosed. One Board member suggested classes such as equities, fixed return instruments, variable return instruments, and other. The Board also stated that investment in assets or equities of the entity should be disclosed.

The Board discussed practical problems related to the potential elimination of the corridor. The suggestion was that the surplus in plans and the deficit in other plans should be presented separately on the balance sheet if material.

The Board discussed a fact pattern where a large multinational has a general pool of assets that it uses to fund several different pension schemes (in substance similar to a multi-employer plan). The Board agreed that companies should be allowed the same exception in paragraph 30 of IAS 19 for use of defined contribution accounting when sufficient information is not available to use defined benefit accounting.

The Board also concluded that the difference between the change in the pension surplus and the change in the pension asset should be recorded in the remeasurement column in the performance statement.

At a previous meeting, the Board decided to require sensitivity analysis disclosures related to health care cost trend rates. The Board indicated that certain other sensitivity analysis should be disclosed. The staff will identify candidates for this requirement and will provide a paper to the Board for discussion at a future meeting. Regardless of whether a series of candidates can be identified, the Board noted that if the information is material and disclosure of such information is not required by IAS 19, then the requirements in IAS 1 would require such analysis be disclosed.

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