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CCH® PENSION — 03/25/11

IASB planning to issue amendments to IAS 19 by the end of March

The International Accounting Standards Board (IASB) continued to make tentative decisions at two meetings on February 2 and 14, 2011, regarding amendments to its defined benefit plan accounting rules in IAS 19, Employee Benefits. The Board plans to finalize the amendment by the end of March 2011.

For a plan to be classified as a defined benefit plan, the IASB tentatively decided at its February 2, 2011 meeting to clarify that the benefit formula needs to give rise to a legal or constructive obligation that may require the employer to pay additional contributions as a result of current or past service beyond any contributions already paid for that service.

The risk-sharing features of a defined benefit plan should be measured "net of the effect of the employee contributions," the IASB tentatively decided. Therefore, employee contributions should be deducted in determining the defined benefit obligation of the plan sponsor. The IASB clarified that if there exist any limits on the legal and constructive obligation to pay additional contributions, the effect of those limits should be included in the calculation of the defined benefit obligation.

In addition, any conditional indexation should be reflected in the measurement of the defined benefit obligation regardless of whether the indexation or changes in benefits are automatic or are subject to a decision by the employer, by the employee, or by a third party such as trustees or administrators of the plan. The assumptions used to estimate conditional indexation or changes in benefits should be compatible with the other assumptions used to determine the defined benefit obligation, the IASB said.

Remeasurement and disclosure

At its February 14, 2011 meeting, the IASB decided that remeasurements should be presented in "other comprehensive income," reversing an earlier decision that remeasurements should be presented in "profit or loss." The change back to "other comprehensive income" was not unanimous; only 8 of 15 Board members voted in favor of the change.

The IASB was unanimous in its decisions about disclosure and administration costs. After feedback from its Employee Benefits Working Group, the IASB decided to require the disclosure of the weighted-average duration of the defined benefit obligation. It also agreed that the amendments to IAS 19 should include examples of the types of additional information that could be provided about the maturity analysis to meet the disclosure objective.

Finally, the IASB agreed that administration costs related to the management of plan assets should be deducted from the return on plan assets. A requirement to disclose a disaggregation of the defined benefit obligation was rejected by the IASB by a vote of nine to six. Instead, the IASB directed that the amendment to IAS 19 should include an example of the type of disclosure that may meet the disclosure objectives.

Effective date decision postponed

The Board decided to defer its decision on the effective date but tentatively agreed that it should not be earlier than January 1, 2013.

The IASB tentatively decided that entities already applying the International Financial Reporting Standards (IFRSs) should apply the amendments to IAS 19 retrospectively in accordance with the general requirements of IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. However, the carrying amount of assets outside the scope of IAS 19 need not be adjusted for changes in employee benefit costs that were included in the carrying amount before the beginning of the financial year in which this standard is first applied. In other words, previously unrecognized actuarial gains and losses and past service cost should be recognized by adjusting equity, not by adjusting the carrying amount of assets that include employee benefit costs. In addition, comparatives need not be presented for the disclosures for the sensitivity of the defined benefit obligation for the year of initial application of the amendments to IAS 19.

Entities adopting IFRSs for the first time should apply the amendments to IAS 19 retrospectively in accordance with the general requirements of IFRS 1, First-time Adoption of International Financial Reporting Standards, except that the Board will allow a temporary exemption for entities adopting IFRSs with a date of transition to IFRSs before the effective date of the amendments to IAS 19. That exemption would mean that comparatives need not be presented for the disclosures for the sensitivity of the defined benefit obligation.

The final approval process for the amendment to IAS 19 begins in March 2011.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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