2013-06-07 AcSB Issues New Standards on Employee Future Benefits, Section 3462

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Background

The Accounting Standards Board (AcSB) has issued new Section 3462, Employee Future Benefits, in Part II of the CICA Handbook — Accounting, replacing Section 3461. The new standard is effective for annual periods beginning on or after January 1, 2014.

The final standard includes two significant changes:

  • The option for an entity to defer the recognition of gains and losses on its defined benefit plans to future periods — the deferral and amortization approach — has been eliminated.
  • Plan obligations and plan assets would be measured at the balance sheet date rather than up to three months before that date.

Who’s affected?

  • Private enterprises applying Part II of the Handbook that have defined benefit plans (including individual pension plans providing defined benefits).
  • Pension plans applying Part IV of the Handbook that have a defined benefit plan for their employees may also be affected.
  • Not-for-profit organizations reporting under Part III of the Handbook should account for employee future benefits in accordance with Section 3462. However the AcSB have agreed to propose amendments specific for NPOs that will require "remeasurements and other items" related to a defined benefit plan to be presented as a separate component of changes in net assets rather than in the statement of operations. The proposed changes to Part III of the Handbook will be issued in an exposure draft shortly.

Summary of Significant Changes

Recognition
The defined benefit liability (asset) recognized on the balance sheet will be the defined benefit obligation less the fair value of plan assets, adjusted for any valuation allowance, at the balance sheet date.

Changes from remeasuring defined benefit plan assets and obligations will be recognized immediately in the income statement. Such changes, known as "remeasurements and other items", include actuarial gains and losses, past service costs, settlements, and curtailments. Entities will no longer have the option to defer and amortize gains and losses in future periods.

This may introduce some volatility in the income statement.

Valuation and Measurement Date
The measurement of plan assets and plan obligations is required at the balance sheet date rather than up to three months before that date. However, a roll-forward technique may be applied for obligations calculated prior to the balance sheet date.

An entity may choose to use either a funding valuation or a separate valuation for accounting purposes. This valuation choice must be consistent for all defined benefit plans with an appropriate funding valuation. Previously, under Section 3461, there was no option to use a valuation prepared for accounting purposes if an appropriate funding valuation existed for a defined benefit plan accounted for using the immediate recognition approach.

Expected Rate of Return
The expected rate of return on plan assets is not included in Section 3462 as a result of eliminating the deferral and amortization approach. The determination of defined benefit cost for the period would include the actual return on plan assets. Administration costs for the management of plan assets would be deducted from the actual return on plan assets.

Defined Contribution Plans
For defined contribution plans, past service costs will be recognized in the current period, instead of amortizing them over future periods. This change is consistent with the elimination of deferral and amortization for defined benefit plans.

Disclosures
Section 3462 requires disclosure of the amounts related to remeasurements, plan amendments, curtailments and settlements. There are also other minor revisions to disclosure requirements.

Transitional Provisions
The new standard will be applied retrospectively except that benefit costs capitalized as part of the cost of assets in prior years would not have to be restated. Relief is also provided with respect to a change in the measurement date for plan assets and the defined benefit obligation.

Early adoption is permitted, but only if applied to all of an entity’s benefit plans.