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IAS 19 Longevity swaps held under a defined benefit plan be measured at fair value

Date recorded:

The Project manager introduced the agenda paper which related to a request for clarification received by the Interpretation Committee. She explained that a longevity swap transferred the risk of pension scheme members living longer (or shorter) than expected. The swap transfers this risk from the pension scheme to an external party (usually an insurance company or a bank). If a defined benefit plan entered into a longevity swap, it would pay fixed amounts and it would receive variable amounts. These amounts were settled on a net basis. The amounts under the variable leg were calculated as the amounts actually paid to beneficiaries. The question was how the longevity swap under a defined benefit plan should be treated. The submitter had identified the following views. View 1: The longevity swap was part of plan assets that should be measured at fair value. View 2: The swap should be split into a variable leg and a fixed leg.

The Project manager indicated that they did not find the issue to be widespread and they would not recommend adding the issue to the agenda. She said that when that transaction was applied, the predominant approach was to apply paragraph 8 and 113 of IAS 19 and IFRS 13.

The Chairman asked whether the staff was recommending that it was a plan asset that should be measured at fair value. The Project manager confirmed his assessment.

Several Committee members agreed with the staff recommendation. However, some expressed concern as to why the staff concluded that the issue was rare. One member also said that it would be important to clarify in the agenda decision that they noted that the predominant practice was to reflect the transaction as a plan asset.

One Committee member expressed concern because he found the approach of saying to apply paragraph 8 and 113 would be simplistic. He said that those paragraphs would be applied in any circumstances even though there could be different accounting outcomes (for example bifurcation). He suggested clarifying that fair value would be applied as part of a single instrument of the plan asset.  That suggestion was supported by other members.

The Chairman called to vote and twelve members approved the staff recommendation with further considerations of wording.

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