Post-employment Benefits

Date recorded:

Definitions of defined benefit promises

Based on the comments made at the meeting in April the staff presented the following revised proposed definitions and measurement features of the three benefit promises:

  • A defined contribution benefit promise obliges the employer to pay specified contributions to a separate entity (a fund). Payment by the employer of those specified contributions extinguishes the obligation. These benefit promises are accounted for in accordance with current IAS 19 requirements for defined contribution plans.
  • A defined return promise (formerly described as 'asset-based') is comprised of a contribution requirement and a promised return on those contributions.

The contribution requirement obliges the employer to pay specified actual or notional contributions to an actual or notional fund. Payment by the employer of those specified contributions extinguishes that obligation.

The promised return component obliges the employer to provide a defined return on the specified contributions. That defined return is linked to the change in an asset or index.

The employer's liability for the contribution requirement is measured as the sum of the accumulated unpaid contributions. The employer's liability for the promised return component is measured as the fair value of the promised return less any plan assets available to satisfy that liability.

All other benefit promises are defined benefit. Typically, defined benefit promises change in line with service or salary or include demographic risks to the employer while the benefit is in payment. These benefit promises are measured in accordance with the current IAS 19 requirements for defined benefit plans.

The Board generally agreed to the proposal. Suggestions to improve the wording will be provided to the staff offline. The following issues were discussed in detail:

  • Definition of defined return promises: 'notional fund' The Board agreed to clarify that 'notional' means that contributions to the fund are deferred; the fund itself is not notional.
  • Measurement of the components of defined return promises Some Board members raised the question whether the contribution component should also be measured at fair value, that is, taking into consideration the credit risk of the entity for notional contributions. The majority of Board members expressed the view that this component is a 'defined contribution piece' and should be measured in accordance with current IAS 19 requirements for defined contribution plans.

Finally, the Board unanimously agreed to the staff proposal that plan assets and the promised return component should be measured at fair value while the contribution component should not.

Promises with guaranteed fixed returns compared to salary-related promises

The Board decided that salary-related promises that can be expressed wholly in terms of contributions based on current salary should be treated as defined return. Salary-related promises that cannot be so expressed should be classified as defined benefit.


  • benefit promises with guaranteed fixed returns are classified as defined return,
  • current salary and full career average benefit promises are classified as defined return,
  • other salary-related promises, when the benefit earned in previous years is affected by future salary increases, are classified as defined benefit.

Curtailments and negative past service cost

The Board continued its deliberations on an issue referred by the IFRIC, namely, whether plan amendments that reduce benefits are curtailments or negative past service costs.

The Board decided with a majority of 10 votes that paragraph 98(e) of IAS 19 Employee Benefits should be interpreted in a way that if a plan amendment results in reduction in benefits for past and future service, the reduction relating to future service is a curtailment (not past service cost) while the reduction relating to past service is negative past service cost.

One Board member noted that it would be desirable to eliminate the need to allocate the reduction in defined benefit obligations between past and future service but that this would go beyond a clarification of IAS 19.

Additionally, the Board unanimously decided to replace the term 'material" by 'significant' in paragraph 111(a) and 111(b) of IAS 19 and to delete the third sentence in paragraph 111 of IAS 19 ('An event is material enough...') as it was considered to be redundant.

The staff was asked to draft an amendment to be included in the annual improvement process.

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