Post-employment benefits

Date recorded:

The staff summarised, in very broad terms, the comment letters and the feedback received during the comment period and outreach activities in order to provide the Board with an overview of the main issues raised by respondents. The staff explained that overall the responses to the ED have been supportive of the overall objectives of improving transparency, comparability and understandability by eliminating the options for recognition and presentation of changes in defined benefit plan assets and liabilities as well as improving the disclosures about those plans. However, in many cases the support is based on the condition that the Board perform a comprehensive review of post-employment benefit accounting in future. Some respondents did not support the limited scope of the project and suggest that effort would be better spent on proceeding directly to a comprehensive review.


The Board was informed that a majority of respondents agreed with the proposal to eliminate the corridor approach and to recognise all changes in the defined benefit obligation and the fair value of plan assets when they occur. Those respondents disagreeing with the proposal, stated that the recognition requirements should not be changed until the problems with the measurement of the defined benefit obligation have been resolved. Others argued that the proposal would make pensions appear riskier than other economically similar liabilities that are not measured at a current value.

The staff reminded the Board that it previously acknowledged that there are some general questions that are yet to be answered about performance reporting in the financial statement presentation (FSP) project, but that the Board has previously decided to address presentation of post-employment benefits now, rather than to risk delaying progress on immediate recognition by waiting for the FSP project to be finalised.

Some Board members question whether any new arguments were put forward not to eliminate the corridor approach. The staff responded that most concerns were around volatility in the statement of financial position and that no new information has been provided to invalidate the Board's previous discussions and decisions on the matter. The Board unanimously confirmed the decision to eliminate the corridor approach.

The Board then turned its attention to the proposals around the recognition of unvested past service cost. The staff noted that those respondents that supported the elimination of the corridor approach, also supported the proposal to recognise unvested past service cost at the time of the plan amendments. Those opposing the proposal argued that the majority of plan amendments are initiated with the intent to benefit future periods and that the proposal is therefore not consistent with the principle that employee benefit expense is recognised in the period when the employee must provide the service needed to qualify for the benefit.

Some Board members were concerned with the apparent inconsistency between IAS 19 and IFRS 2 with regards to unvested past service cost. It was pointed out that this project does not include re-examining the accounting for defined benefit plans based on a benefit formula. If the Board retains the attribution of benefits in accordance with a benefit formula, the unvested past service cost will be a liability in accordance with IAS 19. Some Board members were also concerned about the opportunities for structuring opportunities. The Board was reminded that it has previously identified this apparent inconsistency but decided to address that as part of the comprehensive project and not as part of this limited scope project. The majority of Board members voted in favour of confirming the proposals in the ED to recognise unvested past service costs when the plan amendment occurs.

By a large majority, the Board also confirmed its previous tentative decision to include in the definition of termination benefits only those benefits provided in exchange for termination of employment.


The staff noted that most respondents agreed with the proposal to disaggregate defined benefit cost into a service cost, finance cost and remeasurement component. Those disagreeing with the proposal regard the determination of an appropriate disaggregation method as intrinsically linked to the accounting model and that is should be considered as part of the fundamental review of IAS 19. The staff explained that disaggregation is the step before presentation and that regardless of what the Board decides on presentation in the statement of comprehensive income, the cost should be disaggregated into separate components.

The Board unanimously confirmed the proposal that entities should disaggregate the changes in the defined benefit obligation and fair value of plan assets into the three specified components and that the service cost component should exclude gains and losses arising from changes in the estimates of assumptions used to measure the service cost.

Defining the finance cost component

The staff explained that the majority of prepares and pension funds supported the expected return approach, while the majority of actuaries, accounting professional bodies and national standard setters supported the net interest approach. Views from the accounting firms and users were mixed with no clear majority for either approach. The staff also noted that the members of the Employment Benefits Working Group were divided between the two approaches. The staff explained that the advantages and disadvantages of each approach do not clearly favour either and that the staff does not believe that the net interest approach represents a significant enough improvement to justify a change in the existing requirements of IAS 19.

Some Board members supported the staff proposal to retain the existing requirements of IAS 19 with regards to the expected return as they do not consider the existing model to be broken or the alternative to be a significant improvement. Other Board members regarded the corridor approach as an integral part of expected return. By eliminating the corridor, the expected return becomes meaningless. Another Board member noted that by recognising the expected return on risky assets in profit or loss, while the actuarial gains or losses (risk) on those assets are recognised in OCI without any recycling, is not reflecting the underlying economics of the investments.

Several other Board members were supportive of the net interest approach but were concerned about the timing of making such a significant change.

Some other Board members suggested retaining the option to recognise all changes in immediately in profit or loss. Another Board member noted that if you use expected return, there is more pressure on recycling to profit or loss. If the Board decided to retain the expected return approach, it would have to retain the option of recognise all changes immediately in profit or loss.

When put to a vote, the Board voted in favour (9 against 4) of the net interest approach as articulated in the ED. The Board will continue to deliberate the remaining issues at the next meeting.

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