IAS 19 — Measurement of the net defined benefit obligation (DBO) for post-employment benefit plans with employee contributions

Date recorded:

The Committee previously considered a request to clarify paragraph 93 of IAS 19 (2011). The submission requested confirmation as to whether paragraph 93 of IAS 19 (2011) was intended to address measurement of the net DBO only for those plans in which the risk of plan deficits and surpluses is shared with employees through their contributions to the plan, or any plan with employee contributions.

At the previous meeting, the Committee directed the staff to develop specific examples of how to account for employee contributions in accordance with paragraph 93 of IAS 19 (2011) for discussion at a future meeting.

The staff was of the view that the requirements of paragraph 93 of IAS 19 (2011) are a clarification of the requirements in IAS 19 (2008) rather than a change in accounting for the measurement of the defined benefit obligation. If employee contributions are linked to employee service, the ultimate cost (and therefore risk) is shared between employee and employer. The revisions did not change the fundamental measurement approach that an entity estimate the ultimate cost of the benefits and attribute those benefits to periods of service.

However, at the request of the Committee, and acknowledging general concerns that it was unclear how to account for employee contributions (and hence this could cause different accounting treatments relating to interpretations of the standard), the staff presented 5 application examples to the Committee for consideration as to whether additional guidance should be added to IAS 19 (2011) to clarify the application of paragraph 93 of IAS 19 (2011).

A key theme that the Committee discussed was the ability to distinguish discretionary contributions to those that are part of any given plan, particularly in the context of salary sacrifice. Several Committee members noted, that to a degree, the attribution of contributions can be considered somewhat arbitrary in that you can assert an employee contribution as a reduction in current service costs since how would you be certain other than some form of risk analysis, to what degree the plan was under/over funded. The Committee agreed that the form and constitution of the particular plan was significant in this regard.

The Committee agreed that there may be instances which would result in additional complexity and costs, for example, the retention of historical financial information for the purposes of supporting calculations. However, the Committee agreed that this should not impact their considerations in the context of concluding on the correct accounting treatment for current service costs.

The Chair summarised the responses from Committee members and noted that the role of the Committee was not to decide how to account, but how to interpret paragraph 93 of IAS 19 (2011). In this regard, the Committee believed that more emphasis needed to be placed on deciding whether a payment is within the scope of paragraph 93. The Chair requested the staff to perform further analysis on this issue.

All members were in agreement with this proposal, and the Committee will revisit this issue in a future meeting.

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