GLOBAL - The International Accounting Standards Board has proposed guidance on the "tricky issue" of how to reconcile pension funds' minimum funding requirements with the IAS19 pensions accounting standard.

The IASB's International Financial Reporting Interpretations Committee has released a 21-page draft interpretation, with examples, in response to requests to clarify the interaction between statutory or contractual minimum funding requirements and IAS19.

The proposals seek to clarify how to determine the limit on the asset that an employer's balance sheet may contain in respect of its pension plan. And they also make clear how the pensions asset or liability may be affected by a minimum funding requirement.

"This is a tricky issue and one that has taxed the minds of practitioners," said committee chairman Robert Garnett. "The proposed interpretation will provide useful guidance on the application of IAS19 at a time when minimum funding requirements are becoming increasingly common in many jurisdictions."

The issue arises because IAS19 limits the measurement of the defined benefit pension asset to the ‘present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan".

But at the same time, a minimum funding requirement may stipulate a minimum level of contributions that must be paid into a plan over a given period.

Such a requirement may result in contributions that do not become available to the entity, either as a refund or a cut in future contributions.

Comments on the draft should be submitted by October 31.