Post-employment Benefits

Date recorded:

Cash balance and similar plans

The staff introduced three possible approaches the Board might take in determining the most appropriate accounting treatment for cash balance and similar plans:

  • The approach in Draft IFRIC Interpretation D9 Employee Benefits with a Promised Return on Contributions or Notional Contributions
  • An embedded derivative approach
  • A deconstruction approach

Several Board members noted that the reason that the IFRIC could not conclude on D9 was because they were constrained by the Standard as written. These Board members saw the issue as one with a very clear cut: if the sponsor guarantees the asset side of the transaction, it has written a derivative. If the sponsor guarantees anything to do with salary, benefits, or service, the plan is a defined benefit plan.

The staff was concerned about plans with a guaranteed return on assets. For example, if a plan contains a benefit promise of ten per cent of salary plus a guaranteed return of four per cent, the staff suggested this was a mix of defined contribution (ten percent of salary) and defined benefit (the guaranteed four per cent return).

Board members disagreed. In their view, the plan is still a defined contribution plan. If the plan earns more than four per cent and this is not available to the plan participants, the plan has current income in profit or loss; if the plan earns less than four percent, it has a current loss.

The Board agreed that the staff should explore splitting asset risk from salary-service-benefit risk, and that anything not captured by asset risk should be accounted for in accordance with IAS 19.

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