The International Financial Reporting Standards Interpretations Committee (IFRS IC) has signalled it is ready to consider the next steps on its stalled project to address the availability of plan surpluses to a plan sponsor under IFRIC 14.
The move comes despite the mixed response from defined benefit (DB) plan sponsors and their advisers to its proposals.
Introducing the issue to the committee, staff said they planned to bring back a more detailed analysis of the feedback, together with recommendations for moving the project forward in September.
A total of 75 respondents commented on these proposed amendments.
Royal Bank of Scotland, which earlier this year anticipated the proposals by booking a £4.2bn (€5bn) hit for past service cost, wrote: “We are not convinced restricting the recognition of a defined benefit surplus by considering the rights of pension trustees in isolation is the right approach.
“Despite these rights, it may well be the case the surplus is an asset – i.e. the employer expects to receive economic benefits from it.
“The rights of pension trustees – in the UK, at least – are subject to trustees’ fiduciary and other obligations.”
But consultants Willis Towers Watson argued: “The proposed changes should reduce diversity in practice.
“However, difficulties remain in interpreting the intent of IFRIC 14 with respect to unlikely or irrational actions that could potentially affect an entity’s unconditional right to a plan’s surplus.”
In total, roughly half of all respondents supported the committee’s approach to the project, while the remainder disagreed or voiced specific concerns on the proposals.
Critics argued that they were either inconsistent with the principles in IFRIC 14 and IAS 19, or that they failed to represent the substance of DB pension schemes.
In addition, critics said the committee’s approach draws an artificial distinction between a scheme buy-in and a buyout.
The amendments address how a DB sponsor should assess the availability of a refund from a DB plan when other parties can either wind up a plan or change its benefits without the sponsor’s consent.
The committee has proposed an amendment to paragraph 12 of IFRIC 14.
This would clarify that an entity does not have an unconditional right to a refund if other parties can wind up a plan or use any surplus without the sponsor’s consent.
But, although the committee believes the exercise of these powers could affect the existence of an entity’s right to access a surplus, it said it did not think the same was true of a trustee’s ability to undertake a buy-in.
In explaining the distinction, the committee said that, although this investment decision affects the amount of any surplus, it does not affect the existence of a right to a surplus.
In addition, the committee proposed an amendment to paragraph 7 of the interpretation.
This will require plan sponsors to take account of substantially enacted legal requirements, as well as terms and conditions of the plan that are contractually agreed, plus any constructive obligations.