Pensions Accounting: A busy year scheduled
Another year, another 12 months of pensions accounting change and uncertainty. By any guess, 2015 promises to be a busy year for both defined benefit (DB) and defined contribution (DC) pension plan sponsors.
One event worth watching during 2015 is the launch of the IASB’s second three-yearly agenda consultation. The board said after its first consultation, that it would issue neither a discussion paper nor a research document on post-employment benefits “within the next three years”.
However, recent developments suggest otherwise. First, it emerged at the IASB’s September 2014 meeting that it might publish some sort of due-process pensions document before the year end. Any such move would render more or less pointless any call during the agenda consultation for the board to address pensions.
IASB staff said that they “have not yet decided” whether they will go down the discussion paper route or, instead, put out a research paper during 2015. Any such discussion paper is likely to explore a “conceptually sound and robust measurement model” for pension plans, as staff phrased it, as well as the cost–benefit analysis of any such accounting model given recent trends in plan design. A discussion paper could follow after that.
In the board’s sights are so-called troublesome pension promises – in other words, those that fall outside IAS19’s two plan classifications of DB and DC accounting. The IASB and its interpretations committee have tried and failed – repeatedly – to tackle pensions over the past decade. The International Financial Reporting Interpretations Committee (IFRS IC) released the IFRIC D9 approach for contribution-based promises in 2004, but was overtaken by the IASB’s own failed attempt to address pensions with its 2008 discussion paper.
So against that background, and because the board might issue a research paper at the least during 2015, it is unlikely that we will see any further attempts from the board’s interpretations committee to fix pensions. Equally worthy of mention is the board’s ongoing, low-key research into discount rates.
Nonetheless, what 2015 does hold is movement from the IFRS IC in relation to changes to IFRIC14, which gives guidance on applying the asset ceiling under IAS19. The fact that the staff have yet to release the document hints that the changes are proving a challenge to draft.
The changes in question deal with how DB plan sponsors account for a schedule of contributions and the need to recognise an additional liability. By the summer of 2014, the proposals looked as if they might prove to be controversial. Certainly, Aon Hewitt has warned that UK pension schemes were at risk of a multi-billion-pound hit.
Aon Hewitt consultant actuary, Simon Robinson said that, based on its discussions, IFRS IC could be about to make far-reaching changes to IFRIC14. Those fears have receded, although experts warn that the devil will be in the detail of the final drafting.
The basis for this optimism is the fact that the committee appears to be drawing a distinction between a buyout of a plan and a buy-in. With a buy-in, a plan’s trustees buy the same annuity policy but in their names not their members. Experts who spoke to IPE during 2014 believe that the committee’s amendments will confirm that a buy-in must be treated like any other investment decision made by a sponsor.
So although the interpretations committee’s recent discussions have hinted that the proposed changes to IFRIC14 might be more focused than first feared, there might still be plan sponsors out there who have interpreted IFRIC14 in a particular way and are no longer able to report an unconditional right to a plan surplus.
For these DB plan sponsors, the changes to IFRIC14 will be an issue well worth watching during 2015.