IAS 19 Employee Benefits |

Defined Contribution Pension Plans

In a defined contribution (DC) pension plan, workers accrue funds in individual accounts administered by the plan sponsor. The contributions of employees are typically deducted directly from their pay and frequently some portion of these contributions is matched by the employer. Since contributions to DC plans are generally a fixed percentage of earnings, DC assets build at a fairly steady rate over time (abstracting from the time-pattern of investment returns) – avoiding the backloading of accrued benefits that is a hallmark of DB plans. So in contrast to a DB plan, it is the contributions rather than the benefit that is fixed in a DC pension plan; the retirement income that will be provided is unknown in advance. The pension Read more

Defined Benefit Pension Plans

IFRS Definition: Post-employment benefit plans other than defined contribution plans. Defined Benefit Pension Plans

In a traditional defined benefit (DB) pension plan, workers accrue a promise of a regular monthly payment from the date of their retirement until their death, or, in some cases, until the death of their spouse. The promised life annuity (deferred) is commonly based on a formula linked to an employee’s wages or salary and years of tenure at the sponsoring firm. In a typical DB plan the member earns a unit of pension, usually expressed as a percentage of nominal earnings, for each year of credited service/participation. The DB pension may be indexed to inflation but in a number of countries such as the U.S. Read more

Interaction Defined Benefit Asset and Minimum Funding Requirements

Illustrative examples

These examples accompany, but are not part of, IFRIC 14.

Example 1 – Effect of the minimum funding requirement when there is an IAS 19 surplus and the minimum funding contributions payable are fully refundable to the entity

IE1 An entity has a funding level on the minimum funding requirement basis (which is measured on a different basis from that required under IAS 19) of 82 per cent in Plan A. Under the minimum funding requirements, the entity is required to increase the funding level to 95 per cent immediately. As a result, the entity has a statutory obligation at the balance sheet date to contribute 200 to Plan A immediately. The plan rules permit a Read more

What is a correct discount rate in pension calculations?

Some background information on the discussion on pension plans and discount rates. Choosing the correct discount rate in calculation pension liabilities is not an easy task and a task that brings public responsibility.

Interest rates in the European area are close to zero because the ECB holds its benchmark refinancing rate at zero since March 2016, see table below:

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Sponsor Accounting for a Pension Asset

A pension asset arises when total contributions by the sponsor of a defined-benefit plan (plus interest income) are greater than all pension expense since the plan’s inception.

For example, a pension plan fund had a net pension asset of $9.312 billion before considering any valuation allowance.

As with any recorded asset (think of accounts receivable, or a building), a pension asset signals that the sponsor can benefit from the asset in the future. However, unlike other types of assets, a sponsor does not own the plan assets in a pension plan. This unique accounting situation requires a sponsor to consider whether and when it can benefit from the surplus assets in a pension plan.

Before a sponsor can record … Read more

Determining annual pension expense

In general terms, pension expense reported in the statement of profit or loss is driven by how much the pension liability increased during the year, net of returns on the plan’s assets. Normally, a pension liability increases as employees earn additional future benefits from an additional year of service, and as they get closer to collecting retirement benefits. These factors also increase the pension expense in the statement of profit or loss.

Plan assets increase with returns that the plan earns on its investments, reducing the pension expense reported in the statement of profit or loss.

The company’s annual pension expense consists of the following components:

(- cost, + income)



Cost of benefits earned by employees in the
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