GLOBAL - The OECD has called for the International Accounting Standards Board's (IASB) proposed changes to IAS19 to highlight the long-term nature of DB pension promises when recognising the actuarial losses of pension plans.

The suggestion was contained in the OECD's official submission to the IASB's proposals, which was made by the Secretariat of the OECD's working party on private pensions.

The accounting body is planning to change IAS19 to include the immediate recognition of actuarial gains and losses in pension plans.

According to the OECD, some of its member countries support immediate recognition of these gains and losses, while other countries are opposed.

Clara Severinson, pensions expert at the OECD, said: "At present, gains and losses can be recognised over the future working lifetime of active workers, which for the average open plan, is ten to 15 years.

"The amendments make for more transparent accounting, but the accounting figures will be a lot more volatile," she added.

However, Severinson said: "The IASB has been very consistent about requiring immediate recognition, so given that this is certainly going to happen, we want to highlight that the long-term nature of defined benefit pension promises should be taken into account when valuing liabilities.
"There are things you can do, for instance, instead of measuring discount rates on a daily basis, you can take an average discount rate so that liabilities don't fluctuate."

The OECD has also called for the IASB to review the definitions of DB and DC plans in due course, saying that some of its member countries feel the current definitions do not fit well in the context of their national pension systems. The IASB has said it is not going to carry out such a review at present.

"IAS19 was created from a US/UK perspective which doesn't fit that well with some other countries," Severinson added. "And unless a scheme is defined as a 'pure' DC scheme, it is defined as a DB scheme, which is subject to more onerous accounting standards because of its liabilities.

"But there are many plans, such as Dutch plans with conditional indexation, which lie in a grey area," she said.

However, the OECD does agree with the proposals that risk-sharing and conditional indexation should be considered in determining the DB obligation, and that disclosures should be disaggregated to distinguish plans or groups with materially different risks, especially across geographical locations.
Severinson added: "Some of these issues have been very controversial ones for a long time, and the IASB has done a really good job of reaching out to stakeholds."

The amendments are expected to be published in the first quarter of 2011.

The deadline for submissions was 6 September. All responses can be found here in the "Comment Letters" section.