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IAS 19/IFRIC 14 — Availability of a refund of a surplus from a defined benefit plan and remeasurement on a plan amendment, curtailment or settlement

Date recorded:

Exposure Draft of proposed amendments to IAS 19 and IFRIC 14 — Agenda paper 6

 Background

The IASB issued an ED to amend to IAS 19 Employee Benefits and IFRIC 14 IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction). The purpose of this session was for the staff to inform the Interpretations Committee about the comments received. The Interpretations Committee was not asked to make technical decisions.

The staff presented the following agenda papers:

  1. Agenda paper 6A: Summary of the feedback received on the proposed amendments to IFRIC 14 to address the availability of a refund from a defined benefit plan.
  2. Agenda paper 6B: Summary of the feedback received on the proposed amendments to IAS 19 to address remeasurement when a plan amendment, curtailment or settlement occurs.

The staff analysis of the feedback received and recommendations would be presented at a future meeting.

Exposure Draft of proposed amendments to IAS 19 and IFRIC 14 — Comment letter summary of proposed amendments to IFRIC 14 — Agenda paper 6A

This paper summarised the feedback on matters that affect IFRIC 14 that the staff thought would require further consideration. Other issues were presented in Appendix A and B of the agenda paper.

Other parties can wind up a plan without the entity’s consent

The ED proposed to clarify (a) if other parties, such as its trustees, can wind up the plan without  the entity’s consent, the entity did not have an unconditional right to a  refund of a surplus; (b) amounts that other parties can use for other purposes without the entity’s consent are excluded from the amount of the surplus that the entity recognises as an asset; and (c) the power other parties have to buy annuities or make other  investment decisions, without affecting the benefits for plan members, did not affect the availability of a refund.   

There was general support for the proposed amendments. However, the following issues would need further analysis:

  1. Potential inconsistencies between the principles in IAS 19 and IFRIC 14:  (a) the effect of uncertain future events on the existence of a right to a refund because of decisions by other parties; (b) inconsistent treatment of events that could affect the surplus; (c) appropriateness of the use of control to recognise any surplus as an asset; (d) the mixed measurement approach proposed; and (e) possible inconsistency between the proposal and the measurement of defined benefit obligations.
  2. Reflection of the economic substance of defined benefit plans: (a) the proposal is too prescriptive and do not allow an entity to exercise judgement; (b) an entity should consider other parties powers only when the power is substantive or more likely than not to be executed; and (c) the proposed restrictions on the right to a refund may not be relevant given the practical reality of how decisions are made.
  3. Other substantive issues: (a) the distinction between the purchase of annuities and the purchase of annuities as part of a wind-up of a plan; (b) an entity’s right to a refund if decisions must be made jointly between the entity and others; (c) how the proposals affect the availability of a refund in future contributions.

The statutory requirements that affect the economic benefit available to the entity

The proposal was that the entity takes into account the statutory requirements that are substantially enacted, as well as the term and conditions of a plan that are contractually agreed and any constructive obligations. The staff indicated that the majority of respondents agreed with the proposed amendments and the matters raised would be considered during drafting but would not be analysed further—see appendix A of the agenda paper.

Exposure Draft of proposed amendments to IAS 19 and IFRIC 14 — Comment letter summary of proposed amendments to IAS 19 — Agenda paper 6B

This paper summarised the feedback on matters that affected IAS 19 that the staff though would require further consideration. Other issues were presented in Appendix A of the agenda paper.

Interaction between the asset ceiling and past service cost or gain or loss on settlement

The ED proposed that when a plan event occurs, an entity recognises the past service cost or a gain or loss on settlement separately from its assessment of the asset ceiling.  The staff indicated that most respondents agreed with the proposal. The main issues identified are: (i) inappropriate recognition of a gain or loss on settlement; and (ii) effective recycling of amounts recognised in OCI.

Accounting when a plan amendment, curtailment or settlement occurs

The proposed amendments specify that when an entity remeasures the net defined benefit liability (asset) when a plan event occurs, it determines:  (a) the current service cost and the net interest for the period after the remeasurement using the assumptions used for the remeasurement; and (b) the net interest for the remaining period based on the remeasured net defined benefit liability (asset).

The current service cost and the net interest in the current reporting period before a plan event are not affected by, or included in, the past service cost or a gain or loss on settlement.

The staff noted that close to half of respondents agreed with the ED.  However, other respondents either disagreed with the proposed amendments or expressed concerns about specific aspects of the ED.  The main issues raised were:  the consequences of a minor plan event (and materiality judgements); the unit of account and lack of comparability; additional costs in applying the proposed amendments; and the potential to make changes to achieve a particular accounting treatment.  Some respondents also expressed concerns about the lack of consistency with IAS 34.

Transition

The ED proposed that the amendments should be applied retrospectively with an exception included for adjustments to the carrying amount of assets outside the scope of IAS 19. The staff indicates that the majority agreed with the proposed amendments. The staff indicates that there were concerns about specific aspects of the transition requirements which are included in appendix A of the agenda paper.

Discussion

There were no significant comments or issues raised during the discussion. The Chairman pointed out that the objective of this session was for information purposes only. He also mentioned that the next discussion on this topic would take place in September.

One observing Board member pointed out that it would be important to separate in future analysis those concerns that were related to recognition and measurement issues from those concerns that related specifically to the application of the principle to determine whether an entity had an unconditional right. There was agreement from the staff and some Interpretation Committee members with this suggestion.

One Interpretation Committee member asked about the particular circumstances that lead to this issue. The staff noted that the issue was raised in the UK, some Interpretation Committee members added that in the UK the issue was widespread and there was diversity in practice.

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