Accounting for pension plans under IFRS. Defined Benefit Pension Plans

IAS 26
Applies to pension plans of companies,
where such reports are made.
Considers the pension plan as a separate
accountable organization.
For pension plans apply
the provisions of all other IFRSs except
the prevailing value of IFRS 26.
Regulates the formation of reports,
considering all participants as
groups.

2

IAS 26
IAS 26 does not apply:
Layoff compensation.
Deferred compensation payments.
Longevity awards.
Staff cuts.
Health plans and
social security.
Premium Bonus Plans.
State pensions.
IAS 26. Accounting and reporting on pension plans (programs).
3

IAS 26
There are two types of pension plans:

the amount of contributions.
Fixed Pension Plans
the amount of payments.
Hybrid plans are treated as plans with
set amount of payments.
IAS 26. Accounting and reporting on pension plans (programs).
4

DEFINED CONTRIBUTION PLANS
Reporting should reflect:
amount of net assets available for payment
allowances;
description of the funding policy.
Purpose of reporting:
periodic submission of information on
the effectiveness of the respective investments.
Reporting should include:
description of the main activities,
reporting on operations and investment performance,
description of the main directions of investment policy.
IAS 26. Accounting and reporting on pension plans (programs).
5


The firm promises a pension in the future.
The amount of contributions required
hiring an actuary.
To calculate liabilities, you need to determine:
- the future experience of the employee,
- retirement age
- last size wages,
- indicator of survival,
– return on investment of the pension plan.
IAS 26. Accounting and reporting on pension plans (programs).
6

SET BENEFIT PLANS
Reporting should contain a report that reflects:
net assets to pay benefits;
actuarial present value of promised pensions
breakdown into unconditional and contingent remuneration;
a program deficit or surplus, or
indicators of net assets for the payment of pensions, including:
– actuarial present value notes
promised pensions, broken down into unconditional and
contingent rewards; or
– a link to such information in the attached report
actuary.
IAS 26. Accounting and reporting on pension plans (programs).
7

actuarial present value
PROMISED PENSIONS
Can be calculated from:
from the current salary level,
projected salary level
at the time of retirement.
IAS 26. Accounting and reporting on pension plans (programs).
8

PLAN ASSET VALUATION
The pension plan investment should
be accounted for at fair value.
If it is impossible to assess the fair
cost should disclose the reasons why
for which fair value accounting is not
is underway.
IAS 26. Accounting and reporting on pension plans (programs).
9

10.

INFORMATION DISCLOSURE
Reporting on pension plans should
contain the following information:
statement of changes in net assets,
available for payment of benefits;
summary of the main points
accounting policy;
description of the program, as well as the consequences
any changes to the program during the reporting
period.
IAS 26. Accounting and reporting on pension plans (programs).
10

11.

INFORMATION DISCLOSURE
Reporting on pension plans when required
contains:
Statement of Net Assets for Benefits Disclosure:
– information about assets at the end of the reporting period;
– method for determining the value of assets;
– information on individual investments exceeding either
5% net assets earmarked for benefits,
or 5% of the cost valuable papers any class or
type;
– information about any investments in the company
employer;
– other liabilities (other than actuarial present value)
value of promised pensions).
IAS 26. Accounting and reporting on pension plans (programs).
11

12.

INFORMATION DISCLOSURE
certificate indicating changes in net assets for payment
allowances containing:
– employer and employee contributions;
– income from investments;
- Other income;
– Benefits paid or payable;
– administrative and other expenses;
– income taxes;
– profit and loss on disposal of investments;
- transfer of funds between programs.
IAS 26. Accounting and reporting on pension plans (programs).

IAS 26 used for reporting on pension plans in companies that prepare such reports. IAS 19 Employee Benefits addresses the definition of pension costs in the financial statements of employers with plans, so IAS 26 complements IAS 19.

Funding is a transfer of assets to another enterprise (fund), independent of the employer's enterprise, to cover future pension obligations.

Members are members of the pension plan, as well as other persons entitled to receive payments under this plan.

The net assets of the pension plan serving as the source of benefits, are pension plan assets less liabilities, other than the actuarial present value of those due pension payments.

Actuarial present value of pension benefits due is the present value of the expected pension plan benefits due to retired and active employees, based on the services they have already provided.

Unconditional payments are benefits that are not dependent on continued employment under the terms of the pension plan.

Some pension plans have sponsors who are not employers. IAS 26 also applies to the financial statements of such plans.

Most pension plans are based on officially concluded contracts. Some plans are informal but acquire some degree of compulsion as a result of employers' work practices. Although some pension plans allow employers to limit the obligations under these plans, canceling a pension plan is usually difficult because employers want to keep employees. The same accounting and reporting methods apply to informal pension plans as to formal plans.

Many pension plans have separate funds into which contributions are made and out of which payments are made. Such funds may be managed by persons who independently manage the assets of the funds. In some countries, these persons are referred to as trustees. The term "trustee" is used in IAS 26 in relation to such persons, regardless of whether there is a formal creation of a trust (trust).

The financial statements of a defined benefit or defined contribution pension plan include the following information:

a) a statement of changes in the net assets of the pension plan serving as the source of payments;

b) a summary of major accounting policies, and

c) a description of the plan and the impact of any changes to the plan during the period.

The financial statements provided by pension plans include the following information (where applicable):

a) a statement of the net assets of the pension plan that serve as the source of payments, disclosing the following information:

1) assets as of the end of the period, classified accordingly;

2) asset valuation method;

3) information about each individual investment that exceeds either 5% of the net assets of the pension plan that serve as a source of payments, or 5% of the total value of securities of any class or type;

4) details of each investment in the employer and

5) liabilities other than the actuarial present value of pension benefits due;

b) a statement of changes in the net assets of the pension plan, which are the source of payments, with the following information:

1) contributions from employers;

2) employee contributions;

3) investment income, such as interest and dividends;

4) other income;

5) benefits paid or payable (displayed by category, for example: old-age pensions, death benefits, disability benefits, and lump sum payments);

6) administrative expenses;

7) other expenses;

8) profit taxes;

9) profits and losses from the sale of investments and changes in the value of investments and

10) transfers from other plans and to other plans;

c) description of the funding policy pension fund;

d) for defined benefit plans, the actuarial present value of the pension benefits due (which may be separated into unconditional and unconditional benefits) based on the benefits due under the terms of the plan, the cost of services provided to date, and the use of either current wage levels. fees or projected levels; this information may be included in the accompanying actuary's report, which is intended to be read in conjunction with the related financial statements, and

e) for defined benefit plans, a description of the significant actuarial assumptions made and the method used to calculate the actuarial present value of the pension benefits due.

The pension plan statement contains a description of the plan, either as part of the financial statements or as a separate statement. It may include the following information:

a) the names of employers and groups of workers covered by the plan;

b) the number of participants receiving payments and the number of other participants classified accordingly;

c) plan type – defined contribution plan or defined benefit plan;

d) a note indicating whether members of the plan contribute;

e) a description of the pension benefits due to members;

f) a description of each of the participant's withdrawal conditions from the plan; and

g) changes during the period covered by the report.

17 The financial statements of a defined benefit program include one of the following statements:

(a) a report showing:
(i) net assets available for payments;

(ii) the actuarial present value of the pension benefits due, broken down into vested and vested benefits; and

(iii) the resulting surplus or deficit; or

(b) a statement of net assets available for payment that includes one of the following:

(i) a note disclosing the actuarial present value of pension benefits due, broken down into vested and vested benefits; or

If an actuarial valuation has not been prepared as of the compilation date financial reporting, the most recent estimate available is used as the basis, with the date it was completed.

28 For defined benefit plans, information is presented in one of the following formats, which reflect the various methods used in practice to disclose and present actuarial data:

(a) the financial statements include a statement showing the net assets available for benefits, the actuarial present value of pension benefits due, and the resulting surplus or deficit. The program's financial statements also contain statements of changes in net assets available for payment and changes in the actuarial present value of pension benefits due. The financial statements may be accompanied by a separate actuary's report substantiating the actuarial present value of pension benefits due;

(b) the financial statements, which include a statement of net assets available for payment and a statement of changes in net assets available for payments. The actuarial present value of pension benefits due is disclosed in a note to the accounts. The financial statements may be accompanied by an actuary's report substantiating the actuarial present value of pension benefits due; and

(c) financial statements that include a statement of net assets available for benefits and a statement of changes in net assets available for benefits, the actuarial present value of pension benefits due is presented in a separate report by the actuary.

In each format, the financial statements may also be accompanied by a trustees' report in the form of a management or directors' report and an investment report.

29 Proponents of the formats described in paragraphs (a) and (b) believe that the quantification of pension benefits due and other information provided based on such approaches helps users assess Current state program and the likelihood of fulfilling obligations under it. They also believe that financial statements should be complete in and of themselves and should not rely on accompanying statements. However, some argue that the format described in (a) may give the impression that there is a liability, while in their view the actuarial present value of the pension benefits due does not have all the characteristics of a liability.

30 Proponents of the format in paragraph (c) argue that the actuarial present value of pension benefits due should not be included in the statement of net assets available for payment as required by the format in paragraph (a), or even simply disclosed. in a note according to the format in paragraph (b) because it would be compared directly with program assets, and such a comparison may not be justified. They argue that actuaries do not always compare the actuarial present value of pension benefits due to the market value of an investment, instead they may estimate the present value of the cash flows expected from an investment. Therefore, proponents of this format believe that such a comparison is unlikely to reflect the actuary's overall assessment of the program and may be misunderstood. Some also believe that information on pension benefits due, whether or not presented in numerical terms, should only be contained in a separate actuarial report, which may contain an appropriate explanation.

31 This Standard adopts the viewpoint that permits disclosure of information regarding pension benefits due in a separate actuary report. The standard rejects arguments against quantifying the actuarial present value of pension benefits due. Therefore, this Standard considers the formats described in paragraphs (a) and (b) to be acceptable, as is the format described in paragraph (c), if the financial statements refer to an actuary's report and are accompanied by that report containing an actuarial present value. due pension payments.

"Accounting", 2007, N 24

Pension plans are classified into defined contribution plans and defined benefit plans. This article is devoted to the peculiarities of reflecting information on pension plans of each type in accounting and reporting.

International Financial Reporting Standard 26 "Accounting and Reporting for Pension Plans (Pension Plans)" (hereinafter - IFRS 26) supplements IFRS 19 "Employee Benefits", which considers the definition and presentation of pension costs in the accounting (financial) statements of employers who have entered into pension agreements for their employees.

IAS 26 defines a pension plan as a financial reporting unit that is separate from employers or plan participants. In other words, these are statements compiled by the pension fund itself.

A pension plan is an agreement (contract) under which an organization provides pensions to its employees at the end of their service. At the same time, pensions under pension plans have the following features:

a) they can be provided both in the form of a certain amount of income paid annually, and in the form of a lump sum;

b) the amount of the pension can be determined (calculated) well in advance of retirement;

c) the amount of the employer's contribution for the payment of a certain pension to the employee must and can be determined in advance both on the basis of the submitted documents and on the basis of the practice adopted in the employing organization.

Reporting a pension plan has nothing to do with reporting to individual plan members about their pension rights. The reporting of a pension plan, the formation of which is regulated by IFRS 26, is reporting to all participants in this plan as a whole as a group.

Pension plans are divided into:

  • defined contribution plans, in accordance with which the amount of pensions payable is determined on the basis of contributions to the pension fund and the return on these investments received from the investment of pension contributions;
  • defined benefit plans, in which the amounts of pensions payable are determined by a formula that is usually based on the amount of remuneration received by the employee and/or length of service.

Institutional pension plans can be secured by:

  • creation of separate pension funds - legal entities;
  • transfer of funds for trust management to management companies;
  • investment in Insurance companies(unless the contract with the insurance company is entered into on behalf of a specific pension plan participant and the obligations for pension payments are the obligations of the insurance company itself).

The pension plan reporting must contain the following information:

  • description of significant activities for reporting period and the effect of any changes to the pension plan, membership, terms and conditions;
  • on operations and results of investment activities for the period;
  • about financial position plan as of the end of the reporting period;
  • about the investment policy of the plan;
  • actuarial information presented either as part of the financial statements or as separate financial statements.

Let us consider the features of the reflection in accounting and reporting of information on pension plans of each type.

Defined Contribution Pension Plans

A defined contribution plan must report:

  • a section on the net assets of the pension plan;
  • a description of its funding policy.

In these pension plans, the amount of an employee's pension is determined by the following factors:

  • employer contributions;
  • employee contributions;
  • the performance of the pension fund;
  • investment income of the pension fund.

The employer's obligation is usually settled by making contributions to the fund. An entity recognizes a liability to make contributions to the pension fund in the period in which the employee renders services to the entity. The provision of services by an employee is reflected in the accounting by accruing wages to him. At the same time, expenses in the amount of contributions to the pension fund are recognized (as a rule, as a fixed percentage of wages), or the amount of contributions is included in the cost of assets.

Defined Benefit Pension Plans

The reporting of a defined benefit plan must either contain a statement showing:

  • net assets of the pension fund that serve as a source of pension payments;
  • actuarial present value of pensions due (ADPP), broken down by guaranteed<1>and non-guaranteed pensions;
  • total excess or deficit;

or reporting on the net assets of the pension plan, including:

  • a note showing the actuarial present value of pensions due<2>, divided into guaranteed and non-guaranteed pensions;
  • a link to this information in the actuary's accompanying reports<3>.
<1>Guaranteed pensions are pensions for which entitlement under the terms of the pension plan is not conditional on the continuation of the employee's employment relationship.
<2>The ADSP is the present value of expected pension plan benefits due to retired and active employees based on seniority.
<3>Actuary - a person who meets the requirements established for persons carrying out an actuarial assessment of the activities of pension funds.

In many countries, actuarial valuations are carried out no more than once a year. Therefore, if the actuary did not prepare an actuarial valuation at the reporting date, then the most recent available valuation should be used as the basis for the preparation of the financial statements, indicating the date it was made.

To form an actuarial present value of the pensions due, the calculation should be based on:

  • the amount of pension due to employees in accordance with the terms of the plan for services rendered to the employer to date;
  • current or planned salary level.

The method used by the actuary to calculate should also be disclosed in the accounts. The reporting should explain the relationship between the actuarial present value of the pensions due and the net assets of the pension plan, as well as the funding policy of the pensions due.

To do this, a defined benefit plan periodically needs the advice of an actuary to assess its financial position, review actuarial assumptions, and make recommendations about the level of future pensions.

The purpose of reporting on a defined benefit plan is to periodically provide information about the financial resources and activities of the plan in order to assess the relationship between resource accumulation and pension benefits throughout the period.

The discounted value of expected benefits under a pension plan can be calculated and reported accordingly based on:

  • at current wage levels;
  • at projected wage levels until the retirement of plan participants.

The grounds for which preference is given to one of the above methods are presented in Table. one.

Table 1

The present value of the expected benefits under the pension plan

Current salary levelsProjected salary levels
ADSPP, being the sum of the values,
coming at the moment
to the share of each participant in the plan,
can be calculated over
objectively than predicted
wage levels,
because it contains less
assumptions		For plans using the principle
last salary, amount
pension is determined relative to
salary at the time of dismissal
retirement or for some period
before dismissal; so dimensions
wages, contribution levels
and discount rates should
predicted
The increase in pensions associated
with an increase in wages
becomes an obligation
pension plan at the moment
salary increase		Financial information must be prepared
based on the principle of continuity
activities, regardless of the
assumptions and calculations
Amount of actuarial discounted
the value of pensions due,
based on current levels
wages, mostly
more closely related to the amount
payable in case
termination or liquidation of the plan		Exclusion of predicted dimensions
wages, when most
contributions to the pension fund is based
to these values, can lead
to the reporting of excess
funding, while
it doesn't actually happen, or
reporting will show sufficient
level of funding when the plan
is actually lacking
funding
Disclosed in reporting
under a pension plan to
show commitment to
earned pension as of
at the reporting date		Revealed to reflect
potential liability based
the principle of business continuity,
which is usually the basis
contributions to the pension fund

The pension fund accounts, in addition to disclosing the actuarial present value of pensions due, provide a detailed explanation of the context in which this value should be taken.

Such an explanation may take the form of information:

  • on the sufficiency of the planned future contributions to the pension fund;
  • on a pension fund financing policy based on wage forecasts.

This information is included either in the financial information section or in the actuary's accounts.

Information about defined benefit plans is presented in one of three formats that reflect the various methods of disclosure and presentation of actuarial data that have been established in practice. Characteristics of the formats are presented in Table. 2.

table 2

Options
comparisons		Pension plan reporting formats
defined benefit
BUTBAT
Content
reporting		Chapter,
showing
net assets
pension
plan, ADSPP;
final
actuarial profit
or loss;
information about
ADSPP changes		Net assets
pension plan
and changes
in them. ADSPP
revealed
in notes
to reporting		Includes information
on net assets
pension plan
and changes in them
together with ADSPP,
contained
in a separate actuarial
reporting
Additional
information		May include
separate form
reporting
actuary
confirming
ADSPP		May include
separate form
reporting
actuary
confirming
ADSPP
Information,
common to all
formats		Reporting may be accompanied by reporting by fiduciary
owners, built on the principle of reporting
management, investment reporting
Rationale
applications
format		quantitative expression
due pensions and other
information provided on
basis of such approaches, helps
users to evaluate the current
the state of the pension plan and
probability of fulfillment of obligations
according to him		ADSPP should not
turn on
in the net
pension assets
plan (as in the format
A) or even just
open up
in a note (like
in format B), because
what will she be
compare
directly
with plan assets,
and such a comparison
may be
illegal
Financial reporting should be
self-sufficient, not lean
for accompanying reports		Actuaries at all
not necessary
compare ADSPP
with market value
investment, instead of
they can
evaluate
discounted
flow cost
Money,
expected
from investments
Flaws
format		Can create
impression
availability
obligations,
while ADSPP
does not have all
characteristics
obligations

Let us consider the use of information provided by a pension fund for the formation of accounting (financial) statements of an organization that has a defined benefit pension plan (see Tables 3, 4).

Table 3

Key performance indicators of the pension fund for the reporting year

IndexPercentSum,
million
rub.
Fair value of pension fund assets at the beginning
year (actual data on the balance of the plan)		 1500
Present value of pension fund liabilities
at the beginning of the year (actual balance sheet data)		 1500
Unrecognized actuarial differences at the beginning of the year (1500 -
1500) 		0
Contributions actually paid during the year
to the pension fund		 100
Pensions actually paid during the year 150
The cost of current services<*>(increment of discounted
value of liabilities) (according to the actuary)		 110
Interest rate(discount rate) (according to the actuary) 8
Return on investment (according to the actuary) 11
<*>Current service cost is the increase in the present value of a defined benefit obligation as a result of service provided by an employee in the current period (IFRS 19).

Table 4

Calculation of the value of assets and liabilities of the pension fund at the end of the year

(million rubles)

IndicatorsCommitmentAssets
For the beginning of the year 1500 1500
The cost of current services 110
Interest costs (1500 x 8%)<*> 120
Return on investment (Amount of assets x Percentage
return on investment = 1500 x 11%)		 165
Paid pensions (150) (150)
Contributions actually paid 100
Total estimated value of liabilities and assets
(assuming all the actuary's assumptions are correct)		 1580 1615
Fair value of liabilities and plan assets
at the end of the year (actual)		 1775 1620
actuarial differences:
actuarial loss (1775 - 1580)
actuarial profit (1620 - 1615)		 195 5
Net actuarial difference RUB 190 mln. (5 - 195) -
net actuarial loss
<*>Interest cost is the increase in the present value of a defined benefit obligation during a period that arises due to the advance of one period of payment of benefits (IFRS 19).

Actuarial gains and losses can arise from changes in the value of the assets and liabilities of the pension plan: inaccuracies in the calculations of staff turnover, mortality after retirement, discount rate, investment rate of return, etc.

Thus actuarial differences arise at the end of each year. However, due to so many uncertainties, IAS 19 Employee Benefits requires actuarial gains and losses to be recognized only to the extent that they fall outside the "corridor", which is calculated according to established rules.

The amount of actuarial gain (loss) is charged to profit (loss) of the reporting period over the average remaining service life of the employees of the organization. Recognition of actuarial gain (loss) calculated at the end of the reporting period is carried out in the next period.

Let's calculate the "corridor" to determine the amount of actuarial gains (losses) that should be recognized in the period following the reporting period, based on the data in Table. 3, 4. The calculation is presented in table. 5.

Table 5

IndexThe value of the indicator,
mln rub.
10% of the fair value of plan assets
(1775x10:100)<*> 		178
10% of the fair value of liabilities
plan (1620x10:100)		 162
The accepted boundary of the "corridor" is the largest
from quantities		 178
Unrecognized actuarial difference at the beginning of the year 0
Actuarial gain for the period 5
Actuarial loss for the period 195
Unrecognized actuarial loss at the end of the year (0 + 5 -
195) 		(190)
Unrecognized actuarial loss at the beginning of the next
of the year		 (190)
The border of the "corridor" 178
Actuarial loss to be recognised (190 - 178) (12)
<*>A percentage of 10 for both the fair value of the plan assets and the present value of the liabilities is set out in paragraph 92 of IAS 19 Employee Benefits.

In the accounting of an organization participating in a pension plan, only the amount of actuarial loss that has gone beyond the "corridor" is recognized.

The value of assets and liabilities of the pension fund is assessed at each reporting date. As a rule, an entity participating in a pension plan recognizes a net liability of the pension fund in its balance sheet. A net asset is recognized in very rare cases.

Pension plan investments are valued at fair (market) value. Since pension funds are only entitled to invest in securities, in the case of investments in securities listed on stock exchanges, fair value is the market value of these securities at the reporting date. If the funds of the pension fund are invested in investments for which fair value is not determined, in financial statements The reasons why the investment cannot be measured at fair value must be disclosed. Pension plan reporting includes:

  • reporting on the net assets of the pension fund:

assets as of the end of the period in accordance with the classification;

asset valuation method;

details of each individual investment exceeding either 5% of the net assets of the pension plan or 5% of the total value of securities of any class or type;

details of each employer's investment;

any obligations other than ADSPP;

  • reporting of changes in the net assets of the pension plan:

employer contributions;

employee contributions;

investment income (interest, dividends);

other income;

pensions paid or payable by category;

Administrative expenses;

other expenses;

income taxes;

profits and losses from the sale of investments and changes in the value of investments;

transfers from one plan to another;

  • plan description:

the names of employers and groups of workers covered by the plan;

number of participants receiving pensions;

type of plan (defined benefit or contribution);

notes explaining whether members contribute to the plan;

description of pensions due to participants;

a description of each of the conditions for terminating the plan.

T.I. Kafanova

Non-state pension

Fund "Transneft"

Scope of application

1 This Standard IAS 26 is applied to the financial statements of pension plans by entities that prepare such financial statements.

2 Pension plans are sometimes referred to by other names, such as "pension schemes", "service pension schemes" or "pension schemes". This Standard treats a pension plan as a reporting entity that is separate from the employers of plan participants. All other standards apply to the financial statements of pension plans to the extent that they are not covered by this Standard.

3 This Standard applies to plan accounting and reporting for all participants as a group as a whole.
It does not apply to reporting to individual plan members regarding their pension rights.

4 IAS 19 "Employee Benefits" reviews the definition of pension costs in the financial statements of employers with pension plans. Therefore, this Standard complements IAS 19.

5 Pension plans are divided into defined contribution pension plans and defined benefit pension plans. Many require the creation of separate funds, which can be established both with the formation of a separate legal entity and who may or may not have trustees to whom contributions are made and pensions paid. This Standard applies whether such a fund is created or whether there are trustees.

6 Pension plans whose assets are invested in insurance companies must meet the same accounting and funding requirements as private investment agreements. Accordingly, they are within the scope of this Standard unless the contract with the insurance company is entered into on behalf of a particular member or group of members of the pension plan, and the obligations under the pension plans are not solely liabilities of the insurance company.

7 This Standard does not apply to other forms of employee benefits, such as severance pay, deferred compensation arrangements, seniority benefits, special programs early retirement or redundancy, sickness and accident insurance, or bonus systems. Agreements within state system social security are also excluded from the scope of this standard.

Definitions

8 In this standard IAS 26 the following terms are used with the meanings indicated:

Retirement plans- these are agreements under which the enterprise provides payments to its employees during or after the end of employment (in the form of annual income or in the form of a lump sum payment). At the same time, such payments, as well as contributions to ensure them, can be determined or calculated in advance of retirement, both in accordance with the documents and on the basis of the practice adopted by the enterprise.

Defined Contribution Pension Plans are pension plans under which the amount of pensions payable is determined on the basis of contributions to the pension fund and subsequent investment income.

Defined Benefit Pension Plansare pension plans in which the amounts of pensions payable are determined by a formula that is usually based on the amount of remuneration received by the employee and / or length of service.

Funding is the transfer of assets to another enterprise (fund ), independent of the employer's enterprise, to cover future pension obligations.

This standard also uses the following terms:

Members - These are members of the pension plan, as well as other persons entitled to receive payments under this plan.

Net assets of the pension plan serving as the source of benefits are pension plan assets less liabilities, other than the actuarial present value of the pension benefits due.

is the present value of the expected pension plan benefits due to retired and active employees, based on the services they have already provided.

Unconditional payments - These are payments, the right to receive which under the terms of the pension plan does not depend on the continuation of the employment relationship.

9 Some pension plans have non-employer sponsors. This Standard also applies to the financial statements of such plans.

10 Most pension plans are based on formal contracts. Some plans are informal but acquire some degree of compulsion as a result of employers' work practices. Although some pension plans allow employers to limit the obligations under these plans, canceling a pension plan is usually difficult because employers want to keep employees. The same accounting and reporting methods apply to informal pension plans as to formal plans.

11 Many pension plans have separate funds into which contributions are made and out of which payments are made. Such funds may be managed by persons who independently manage the assets of the funds. In some countries, these persons are referred to as trustees. The term “trustee” is used in this Standard to refer to such persons, whether or not a trust has been formally created.

12 Pension plans are usually defined contribution plans or defined benefit plans, each with its own distinctive features. Sometimes there may be plans that have the properties of both options. For the purposes of this Standard, such mixed plans are treated as defined benefit plans.

Defined Contribution Pension Plans

13 The financial statements of a defined contribution plan include a statement of the net assets of the plan that are the source of benefits and a description of the plan's funding policy.

14 In a defined contribution pension plan, future benefits to members are determined by the contribution of the employer, the member, or both parties to the pension fund, and the performance operating activities and investment income of the fund. The fulfillment of the obligations of the employer is usually limited to contributions to the pension fund. Actuarial advice is not normally required, although it is sometimes used to estimate the amount of future benefits that can be secured based on current contributions and various levels of future contributions and investment returns.

15 Participants are interested in the activities of the plan because it directly affects the level of their future payments. Participants are also interested in knowing whether contributions to the pension fund have been received and whether appropriate controls are in place to protect the rights of beneficiaries. The employer, in turn, is interested in the effective and conscientious operation of the plan.

16 The purpose of reporting a defined contribution plan is to periodically provide information about the plan and the results of its investment activities. Typically, this goal is achieved by providing financial statements that contain the following information:

  • (c) a description of the investment policy.

Defined Benefit Pension Plans

17 The financial statements of a defined benefit plan include one of the following:

  • (a) a report showing:
    • (i) the net assets of the pension plan that are the source of benefits;
    • (ii) the actuarial present value of pension benefits due, broken down into unconditional and unconditional benefits; and
    • (iii) the resulting surplus or deficit; or
  • (b) a statement of the net assets of the pension plan that is the source of benefits, including one of the following:
    • (i) a note showing the actuarial present value of pension benefits due, broken down into unconditional and unconditional benefits; or
    • (ii) a reference to this information in the attached actuary's report.

If an actuarial valuation has not been prepared as of the date of the financial statements, the most recent available valuation is used as the basis, indicating the date the valuation was made.

18 For the purposes of paragraph 17, the actuarial present value of pension benefits due is based on benefits due to employees under the terms of the plan for services rendered to date, using either current or projected wage levels in the calculations and disclosing the method used. It also discloses the effect of any changes in actuarial assumptions that have a significant effect on the actuarial present value of pension benefits due.

19 The financial statements explain the relationship between the actuarial present value of pension benefits due and the net assets of the pension plan that are the source of the benefits, as well as the policy of funding the benefits due.

20 In a defined benefit plan, the amount of pension benefits due depends on the financial position of the plan and the ability of contributors to contribute to it in the future, as well as the plan's investment and operating performance.

21 A defined benefit plan periodically requires the advice of an actuary to assess the financial health of the plan, review actuarial assumptions, and make recommendations on future contribution levels.

22 The purpose of reporting a defined benefit plan is to periodically provide information about the plan's financial resources and activities that can be useful in assessing the relationship between resource accumulation and the plan's benefits over time. Typically, this goal is achieved by providing financial statements that contain the following information:

  • (a) a description of significant activity during the period and the impact of any changes relating to the plan, membership, terms and conditions;
  • (b) statements of operations and investment results for the period and the financial position of the plan at the end of the period; and
  • (c) actuarial information presented either as part of the financial statements or as a separate report; (d) a description of the investment policy.

Actuarial present value of pension benefits due

23 The present value of expected benefits from a pension plan can be calculated and reported either on the basis of current wage levels or on the basis of projected wage levels until the retirement of plan participants.

24 Reasons for preferring the current wage method:

  • (a) the actuarial present value of the pension benefits due, being the sum of the values ​​currently attributable to each plan participant, can be calculated more objectively than predicted wage levels because it involves fewer assumptions;
  • (b) increase in benefits associated with an increase in wages become a liability of the pension plan at the time of the increase in wages; and
  • (c) the amount of the actuarial present value of pension benefits due, based on current wage levels, is generally more closely linked to the amount payable if a participant withdraws from the plan or the plan terminates.

25 Reasons for preferring the wage forecast method:

  • (a) the financial information must be prepared on a going concern basis, irrespective of the necessary assumptions and calculations;
  • (b) for plans using the last pay principle, the benefit is based on wages at or shortly before retirement, so wages, contribution levels and rates of return must be predictable; and
  • (c) failure to include salary projections when most of the pension fund funding relies on those values, may result in overfunding being reported when in fact it is not, or reporting sufficient funding when the plan actually not funded enough.

26 The actuarial present value of pension benefits due, based on current salary levels, is disclosed in the financial statements of the pension plan to show the obligation for earned benefits as at the date of the financial statements. The actuarial present value of the pension benefits due, based on the salary forecast, is disclosed to reflect the amount of the potential liability on a going concern basis, which is generally the funding basis. In addition to disclosing the actuarial present value of pension benefits due, a lengthy explanation may be required to clearly show the context in which the actuarial present value is to be taken. Such an explanation may take the form of information about the sufficiency of the planned future funding of the pension plan and about the funding policy based on salary forecasts. This information may be included in the financial statements or in an actuary's report.

Frequency of actuarial valuations

27 In many countries, actuarial valuations are carried out no more than once every three years. If an actuarial valuation has not been prepared as of the date of the financial statements, the most recent available valuation is used as the basis, indicating the date the valuation was made.

28 For defined benefit plans, information is presented in one of the following formats, which reflect the various methods of disclosure and presentation of actuarial data that have been established in practice:

  • (a) the financial statements include a statement showing the net assets of the pension plan that are the source of benefits, the actuarial present value of the pension benefits due, and the resulting excess or deficit. The financial statements of the pension plan also contain statements of changes in the net assets of the pension plan that are the source of benefits and changes in the actuarial present value of pension benefits due. The financial statements may be accompanied by a separate actuarial report substantiating the actuarial present value of pension benefits due;
  • (b) the financial statements, which include a statement of the net assets of the pension plan that are the source of benefits and a statement of changes in the net assets of the pension plan that are the source of benefits. The actuarial present value of pension benefits due is disclosed in a note to the accounts. The financial statements may be accompanied by an actuary's report substantiating the actuarial present value of pension benefits due; and
  • (c) financial statements that include a statement of the net assets of the pension plan that are the source of benefits and a statement of changes in the net assets of the pension plan that are the source of benefits, the actuarial present value of the pension benefits due is presented in a separate report by the actuary.

In each format, the financial statements may also be accompanied by a trustee's report, presented on a management or directors' basis, and an investment report.

29 Proponents of the formats described in paragraphs 28(a) and (b) believe that the quantification of pension benefits due and other information provided through such approaches helps users assess the current state of the plan and the likelihood of meeting obligations under it. They also believe that financial statements should be complete in and of themselves and should not rely on accompanying statements. However, some argue that the format described in paragraph 28(a) may give the impression that a liability exists, while they argue that the actuarial present value of pension benefits due does not have all the characteristics of a liability.

30 Proponents of the format in paragraph 28(c) argue that the actuarial present value of pension benefits due should not be included in the statement of net assets of the pension plan that is the source of the benefit, as required by the format in paragraph 28(a), or even simply disclosed in a note, following the format presented in paragraph 28(b), because it would be compared directly with plan assets, and such a comparison may not be reasonable. They argue that actuaries may not compare the actuarial present value of pension benefits due to the market value of the investment, but may instead estimate the present value of the cash flows expected from the investment. Therefore, proponents of this format believe that such a comparison is unlikely to reflect the actuary's overall assessment of the plan, and it may be misunderstood. Some also believe that information on pension benefits due, whether or not presented in numerical terms, should only be contained in a separate actuarial report, which may contain an appropriate explanation.

31 This Standard adopts the viewpoint that permits disclosure of information regarding pension benefits due in a separate actuary report. The standard rejects arguments against quantifying the actuarial present value of pension benefits due. Accordingly, this Standard considers the formats described in paragraphs 28(a) and (b) as acceptable, as is the format described in paragraph 28(c), if the financial statements refer to an actuary’s report and are accompanied by that report containing an actuarial the present value of the pension benefits due.

All plans

Valuation of plan assets

32 Pension plan investments are carried at fair value. The fair value of marketable securities is their market value. If there are pension plan investments for which the fair value cannot be estimated, the reason why the fair value is not used is disclosed.

33 The fair value of marketable securities is usually taken to be their market value as the most appropriate measure of the valuation of securities at the date of reporting and investment performance for the period. Securities that have a fixed redemption value and were purchased to meet plan obligations or specific portions of the obligations may be carried at a value based on their ultimate redemption value, assuming a constant rate of return to maturity. Where it is not possible to calculate the fair value of a pension plan investment, such as wholly owned a business, the financial statements disclose the reason why the fair value is not used. For investments that are carried at an amount other than market or fair value, fair value is generally also disclosed. Assets used in the operations of the fund are accounted for in the manner set out in the relevant standards.

Information disclosure

34 The financial statements of a defined benefit or defined contribution pension plan also contain the following information:

  • (a) a statement of changes in the net assets of the pension plan that are the source of benefits;
  • (b) a summary of significant accounting policies; and
  • (c) a description of the plan and the impact of any changes to the plan during the period.

35 The financial statements provided by pension plans include the following information (where applicable):

  • (a) a statement of the net assets of the pension plan that are the source of benefits, disclosing the following information:
    • (i) assets at the end of the period, classified accordingly;
    • (ii) asset valuation method;
    • (iii) details of each individual investment that exceeds either 5% of the net assets of the pension plan that are the source of the benefits, or 5% of the total value of securities of any class or type;
    • (iv) details of each investment in the employer; and
    • (v) liabilities other than the actuarial present value of pension benefits due;
  • (b) a statement of changes in the net assets of the pension plan that are the source of benefits, showing the following information:
    • (i) employer contributions;
    • (ii) employee contributions;
    • (iii) investment income, such as interest and dividends;
    • (iv) other income;
    • (v) benefits paid or payable (displayed by category, for example: old-age pensions, death benefits, disability benefits, and lump sum payments);
    • (vi) administrative expenses;
    • (vii) other expenses;
    • (viii) income taxes;
    • (ix) gains and losses on the disposal of investments and changes in the value of investments; and
    • (x) transfers from and to other plans; (c) a description of the pension fund's funding policy;
  • (d) for defined benefit plans, the actuarial present value of the pension benefits due (which may be separated into unconditional and unconditional benefits) based on the benefits due under the terms of the plan, the cost of services provided to date, and the use of either current levels wages or projected levels; this information may be included in the attached actuary's report, which is intended to be read in conjunction with the related financial statements; and
  • (e) for defined benefit plans, a description of the significant actuarial assumptions made and the method used to calculate the actuarial present value of the pension benefits due.

36 The pension plan statement contains a description of the plan, either as part of the financial statements or as a separate statement. It may include the following information:

  • (a) the names of employers and groups of workers covered by the plan;
  • (b) the number of participants receiving payments and the number of other participants classified accordingly;
  • (c) plan type - defined contribution plan or defined benefit plan;
  • (d) a note indicating whether members of the plan contribute;
  • (e) a description of the pension benefits due to members;
  • (f) a description of each of the participant's withdrawal conditions from the plan; and
  • (g) changes in items (a) to (f) during the period covered by the report.

Effective Date

37 This Standard shall apply to the financial statements of pension plans that
covering periods beginning on or after January 1, 1988.

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