D9 Employee Benefit Plans with a Promised Return on Contributions or National Contributions
Status of the issue:
At its July 2006 meeting, the IASB voted to add an employee benefits project to its active agenda. The first phase of this project will consider the definition of defined benefit and defined contribution arrangements as well as other key issues.
In the light of the IASB’s decision, in November 2006, the IFRIC decided to discontinue its project on defined benefit plans with a promised return on contributions or notional contributions, including the work on the distinction between defined benefit and defined contribution plans. Content related to this project will be deleted from the Website in or around June 2007.
One matter identified in D9 concerning allocation of the effects of salary increases will be brought in due course to the Agenda Committee for consideration as a separate issue.
Summary of the issue:
IFRIC D9: Employee Benefits with a Promised Return on Contributions or Notional Contributions was issued on 8 July 2004. This draft Interpretation addressed how IAS 19 should be applied to a plan that would be a defined contribution plan but for the existence of a minimum return guarantee.
Many respondents to the draft Interpretation asked for further clarification in respect of the scope of D9, and the distinction between defined contribution and defined benefit plans. A significant minority disagreed with the detailed requirements of the proposed calculation methods.
A number of other issues were raised in respect of the definitions, treatment of gains and losses, in particular, the application of the corridor, transition requirements, definitions and the examples put forward.
Some respondents also noted that currently, practice is evolving to use valuation methods such as the Black-Scholes method to measure the value of guarantees. Respondents were concerned that the adoption of D9 would preclude methods other than a fixed/variable split.
At the August 2005 meeting, the staff presented an initial draft Interpretation on a proposed distinction between defined benefit and defined contribution plans. The IFRIC asked for the draft Interpretation to be amended to clarify the effects on career average plans of requirements for compulsory plan membership and insurance arrangements.
It also suggested further amendments to the illustrative examples and the treatment of plans with interdependent defined benefit and defined contribution components. The staff agreed to present a revised draft at a future meeting.
On the other issues in D9, the staff consulted with a group of consulting actuaries (the Group) at the IFRIC’s request. The Group agreed that the issues in D9 should be addressed but felt that it would be more appropriate to do so as part of a comprehensive review of the standard. In particular, the Group commented that there were larger issues in IAS 19 to be addressed than the D9 issues, including the treatment of gains and losses, and that the staff’s proposed approach should be considered along with those issues as part of a comprehensive project on pensions rather than as an IFRIC project.
Last discussed by the IFRIC:
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