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IAS 19 — Definition of termination benefits

Date recorded:

At its November 2011 meeting, the Committee discussed a request for clarification on the classification of bonus payment benefits in 'Altersteilzeit' plans (ATZ plans) in Germany, following the issuance of IAS 19 Employee Benefits (as issued in June 2011). ATZ plans are early retirement programs designed to create an incentive for employees within a certain age group to 'ease' the transition from (full or part time) employment into retirement before the employees' legal retirement age. ATZ plans offer bonus payments to employees in exchange for a 50 per cent reduction in employment, with the employment terminated at the end of a required service period. The bonus payments are conditional on the completion of the required service period. If employment ends for any reason before the required service is provided, the employees do not receive the bonus payments.

The submitter questioned whether the benefit is more appropriately classified as a termination benefit or a service (stay) benefit given that such a benefit payment was seen to have both a required service condition (akin to a service benefit) and a termination of employment condition (akin to a termination benefit). At its November 2011 meeting, the Committee tentatively concluded that the bonus payment was economically similar to a service (stay) benefit (as opposed to a termination benefit). Its analysis in reaching this tentative conclusion was based on paragraph 162 of IAS 19(2011). In particular, although termination of service earlier than would otherwise be the case is part of the overall arrangement (i.e., an indicator of a termination benefit), the bonus payments are only paid if the employee provides the required service during the specified period (i.e., an indicator of a stay bonus); which was considered key to the analysis.

At this meeting, the staff noted that three comment letters were received with respect to the tentative agenda decision published in the November 2011 IFRIC Update. The constituents supported the decision not to take the issue onto the Committee's agenda. However, constituents raised concerns over the wording of the tentative agenda decision (e.g., the agenda decision incorrectly emphasised one indicator as the sole determining factor in classifying employee benefits between termination benefits and benefits in exchange for services; and the Committee should not attempt to resolve an issue and change existing or emerging practice through an agenda decision which is not subject to full due process). Hearing this feedback, one Committee member expressed reservations about the Committee providing perceived interpretations through agenda decisions. The Chair of the Committee noted that the form of agenda decisions will be discussed in tomorrow's private session. Another Committee member suggested that an interpretation be drafted on this topic. However, other Committee members noted that the guidance was clear in this area, and therefore, no interpretation was necessary. Similarly, it was noted that the Committee generally refrains from issuing interpretations for jurisdictional specific fact patterns.

Ultimately, the Committee decided to uphold its previous tentative decision. However, the final agenda decision wording would emphasise that the Committee's conclusion that the benefit is more appropriately classified as a service (stay) benefit is based on the fact that, consistent with paragraph 162(a) of IAS 19(2011), the bonus payment is wholly conditional upon completion of employee service over a specified period. Other fact patterns would require consideration to all relevant facts and circumstances for each individual entity's offer of benefits under the plan considered, the indicators provided in IAS 19(2011) and the definition of the different categories of employee benefits in IAS 19(2011).

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