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07 September 2010

EFRP comments on IASB defined benefit plans - proposed amendments to IAS 19


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EFRP is concerned that the withdrawal of the corridor option may contribute to the ever growing pressure on DB plans to close. This could lead to social consequences in many European countries.


General comments:
·         EFRP welcomed the Board’s decision not to go ahead with its earlier proposals for Contribution Based promises. The proposals represented a fundamental change in pensions accounting in general and were clearly incompatible with the regulations applying to defined benefit promises, specifically.
·         EFRP also welcomed the Board’s decision not to require the multiemployer schemes account for individual employer’s liabilities in all cases, as this raises a number of fundamental issues which can not be resolved in what is intended as an interim amending standard.
·         The views of the different national associations within the EFRP are divided on immediate recognition. The extent to which companies make use of the corridor option differs between countries and between industries. In some countries - notably the UK, Germany and Ireland - limited use is made of the corridor option. In a number of other countries, including France, the Netherlands, Sweden and Portugal, extensive use is made of it.
·         IAS 19 distinguishes between DC plans, in which all risks are borne by the plan members, and DB plans, in which most or all risks are borne by the plan sponsor. However, in some countries, the risks in pension plans are shared between employers and employees. Consequently, it is important to recognise the arrangements for risk sharing between employees and employers and in some cases within industries for multi-employer plans.
·         EFRP is concerned that the withdrawal of the corridor option may, in countries where its use is prevalent, contribute to the ever growing pressure on DB plans to close. This may lead to social consequences in many European countries, as occupational DB plans represent a significant part of those countries social and pension arrangements.
·         EFRP is attracted to the simple and pragmatic “net interest approach”, but is concerned that this could lead to a systematic misstatement of the net of actual investment performance and interest accrual over the lifetime of the plan. The IASB’s proposal that pension income (or expense) should be measured by the application of the discount rate on the scheme liabilities to the pension surplus (or deficit) may not reflect the reality of actual investment models applied.


© EFRP - European Federation for Retirement Provision

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