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This revised International Accounting Standard supersedes IAS 19, retirement benefit costs, which was approved by the Board in a revised version in 1993. This revised Standard became operative for financial statements covering periods beginning on or after 1 January 1999.

In May 1999, IAS 10 (revised 1999), events after the balance sheet date, amended paragraphs 20(b), 35, 125 and 141. These amendments became operative for annual financial statements covering periods beginning on or after 1 January 2000.

This Standard was amended in 2000 to change the definition of plan assets and to introduce recognition, measurement and disclosure requirements for reimbursements. These amendments became operative for accounting periods beginning on or after 1 January 2001.

Further amendments were made in 2002 to prevent the recognition of gains solely as a result of actuarial losses or past service cost and the recognition of losses solely as a result of actuarial gains. These amendments take effect for accounting periods ending on or after 31 May 2002. Earlier application is encouraged.

Introduction

1. The Standard prescribes the accounting and disclosure by employers for employee benefits. It replaces IAS 19, retirement benefit costs, which was approved in 1993. The major changes from the old IAS 19 are set out in the Basis for conclusions (Appendix D). The Standard does not deal with reporting by employee benefit plans (see IAS 26, accounting and reporting by retirement benefit plans).

2. The Standard identifies four categories of employee benefits:

(a) short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, profit-sharing and bonuses (if payable within 12 months of the end of the period) and non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees;

(b) post-employment benefits such as pensions, other retirement benefits, post-employment life insurance and post-employment medical care;

(c) other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are payable 12 months or more after the end of the period, profit-sharing, bonuses and deferred compensation; and

(d) termination benefits.’

3. The Standard requires an enterprise to recognise short-term employee benefits when an employee has rendered service in exchange for those benefits.

4. Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans. The Standard gives specific guidance on the classification of multi-employer plans, State plans and plans with insured benefits.

5. Under defined contribution plans, an enterprise pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. The Standard requires an enterprise to recognise contributions to a defined contribution plan when an employee has rendered service in exchange for those contributions.

6. All other post-employment benefit plans are defined benefit plans. Defined benefit plans may be unfunded, or they may be wholly or partly funded. The Standard requires an enterprise to:

(a) account not only for its legal obligation, but also for any constructive obligation that arises from the enterprise's practices;

(b) determine the present value of defined benefit obligations and the fair value of any plan assets with sufficient regularity that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the balance sheet date;

(c) use the projected unit credit method to measure its obligations and costs;

(d) attribute benefit to periods of service under the plan's benefit formula, unless an employee's service in later years will lead to a materially higher level of benefit than in earlier years;

(e) use unbiased and mutually compatible actuarial assumptions about demographic variables (such as employee turnover and mortality) and financial variables (such as future increases in salaries, changes in medical costs and certain changes in State benefits). Financial assumptions should be based on market expectations, at the balance sheet date, for the period over which the obligations are to be settled;

(f) determine the discount rate by reference to market yields at the balance sheet date on high quality corporate bonds (or, in countries where there is no deep market in such bonds, government bonds) of a currency and term consistent with the currency and term of the post-employment benefit obligations;

(g) deduct the fair value of any plan assets from the carrying amount of the obligation. Certain reimbursement rights that do not qualify as plan assets are treated in the same way as plan assets, except that they are presented as a separate asset, rather than as a deduction from the obligation;

(h) limit the carrying amount of an asset so that it does not exceed the net total of:

(i) any unrecognised past service cost and actuarial losses; plus

(ii) the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan;

(i) recognise past service cost on a straight-line basis over the average period until the amended benefits become vested;

(j) recognise gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss should comprise any resulting change in the present value of the defined benefit obligation and of the fair value of the plan assets and the unrecognised part of any related actuarial gains and losses and past service cost; and

(k) recognise a specified portion of the net cumulative actuarial gains and losses that exceed the greater of:

(i) 10 % of the present value of the defined benefit obligation (before deducting plan assets); and

(ii) 10 % of the fair value of any plan assets.

The portion of actuarial gains and losses to be recognised for each defined benefit plan is the excess that fell outside the 10 % "corridor" at the previous reporting date, divided by the expected average remaining working lives of the employees participating in that plan.

The Standard also permits systematic methods of faster recognition, provided that the same basis is applied to both gains and losses and the basis is applied consistently from period to period. Such permitted methods include immediate recognition of all actuarial gains and losses.

7. The Standard requires a simpler method of accounting for other long-term employee benefits than for post-employment benefits: actuarial gains and losses and past service cost are recognised immediately.

8. Termination benefits are employee benefits payable as a result of either: an enterprise's decision to terminate an employee's employment before the normal retirement date; or an employee's decision to accept voluntary redundancy in exchange for those benefits. The event which gives rise to an obligation is the termination rather than employee service. Therefore, an enterprise should recognise termination benefits when, and only when, the enterprise is demonstrably committed to either:

(a) terminate the employment of an employee or group of employees before the normal retirement date; or

(b) provide termination benefits as a result of an offer made in order to encourage voluntary redundancy.

9. An enterprise is demonstrably committed to a termination when, and only when, the enterprise has a detailed formal plan (with specified minimum contents) for the termination and is without realistic possibility of withdrawal.

10. Where termination benefits fall due more than 12 months after the balance sheet date, they should be discounted. In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits should be based on the number of employees expected to accept the offer.

11. [deleted]

12. The Standard is effective for accounting periods beginning on or after 1 January 1999. Earlier application is encouraged. On first adopting the Standard, an enterprise is permitted to recognise any resulting increase in its liability for post-employment benefits over not more than five years. If the adoption of the standard decreases the liability, an enterprise is required to recognise the decrease immediately.

13. This Standard was amended in 2000 to amend the definition of plan assets and to introduce recognition, measurement and disclosure requirements for reimbursements. These amendments take effect for accounting periods beginning on or after 1 January 2001. Earlier application is encouraged.

The standards, which have been set in bold italic type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the "Preface to International Accounting Standards". International Accounting Standards are not intended to apply to immaterial items (see paragraph 12 of the Preface).

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