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IAS 19 — Settlement

Date recorded:

The IFRIC considered a request to clarify the treatment of lump-sum payments when a defined benefit plan gives plan members the option to receive a lump sum payment at retirement instead of ongoing payments.

The following views were discussed:

View A:

The lump-sum payment is not a settlement, that is, any gain or loss arising because actual experience differs from the best estimate will be treated as an actuarial gain or loss.

Supporters of this view consider settlements to be special events, not just part of the normal running of the plan. Hence, if the payments were part of the expected running of the plan, they would not be regarded as settlements. The staff pointed out that this view is also supported by guidance from two of the manuals published by the large accounting firms.

View B:

The lump-sum payment is a settlement, that is, any gain or loss arising because actual experience differs from the best estimate will be recognised immediately in profit or loss.

Supporters of this view note that the wording in paragraph 112 of IAS 19 Employee Benefits does not require special event but that 'a settlement occurs when the entity enters into a transaction that eliminates all further legal or constructive obligation for part or all of the benefits provided under a defined benefit plan'.

There seemed to be a majority for View B.

The IFRIC tentatively agreed not to add the issue to the agenda but asked the staff to further investigate the current accounting practice for lump-sum payments and to bring back a revised tentative agenda decision for discussion at a future meeting.

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