Pensions Accounting: If at first you don’t succeed...
It was only a matter of time before the issues left unresolved by the International Accounting Standards Board’s (IASB) 2006 pensions accounting project landed on the desk of the International Financial Reporting Standards (IFRS) interpretations committee. The first issue was raised by the German Accounting Standards Board (GASB) concerning the treatment of so-called Altersteilzeit (ATZ) early retirement schemes.
The committee noted in the November edition of IFRIC update that the 2011 amendments to IAS19, among other things, “amended the guidance relating to termination benefits”.
The update continues, although ATZ plans have attributes of both required service and termination benefits, consistent with paragraph 162(a) of IAS19, “the fact that the bonus payments are conditional upon completion of employee service over a specified period indicates that the benefits are in exchange for that service and they therefore do not meet the definition of termination benefits”.
Anyone who had heard the grumbling in the Netherlands during 2011 would have known there was more to come. And so in January, the Netherlands took centre stage with the release by the ASB of its Statement 2012-13.
This guidance is prefaced with the health warning that it “contains no authoritative statements or recommendations”. Even so, it goes on to explore “the possibilities under IAS19R to classify a plan as defined contribution”.
And then came the third IAS19 issue. The GASB wanted clarity around the treatment of risk-sharing features arising out of so-called contribution-based promises (see IPE October 2012). Although the committee declined to add the issue to its agenda, its members nonetheless decided to see if they might issue guidance on the question.
And there was more. Towers Watson argued in a submission to the committee’s September meeting that there is a lack of clarity in the recently amended standard around how entities ought to measure the net defined-benefit obligation (DBO) for post-employment benefit plans where employees make contributions.
Under paragraph 93 of IAS19, contributions from either employees or third parties, where they are made under the terms of a pension plan, will either reduce service cost, if they are linked to service, or reduce re-measurements of the net DBO. Contributions in respect of service cost are attributed in accordance with the requirements of paragraph 70 of IAS19.
Towers Watson argued that paragraph 93 of IAS19 (2011) is intended to address measurement of the net DBO where the risk of plan deficits and/or surplus is shared with employees through their contributions to the plan.
The consultants went on to argue that this requirement, as it is currently drafted, will capture any plan with employee contributions. And this, they warn, has the potential to change the measurement of the net DBO for virtually all of those plans.
The interpretations committee, however, argues that the 2011 revisions to IAS19 did not change the measurement requirements of the standard.
Summing up, the committee’s chairman Wayne Upton said the committee would develop examples for possible inclusion in the standard in order to clarify its requirements on this issue. He also said the committee would consider whether “there are some additional words that we can add to the standard” as a possible alternative clarification of IAS19’s requirements.