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IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their

Interaction

References

o IAS 19 Employee Benefits

Amendments under consideration by the IASB

o IAS 19/IFRIC 14 Remeasurement at a plan amendment, curtailment or settlement / Availability of a


refund of a surplus from a defined benefit plan

Summary of IFRIC 14

In many countries, laws or contractual terms require employers to make minimum funding payments for
their pension or other employee benefit plans. This enhances the security of the retirement benefit promise
made to members of an employee benefit plan.

Normally, such statutory or contractual funding requirements would not affect the measurement of the
defined benefit asset or liability. This is because the contributions, once paid, become plan assets and the
additional net liability would be nil. However, paragraph 64 of IAS 19 Employee Benefits (2011) limits the
measurement of the defined benefit asset to the 'present value of economic benefits available in the form
of refunds from the plan or reductions in future contributions to the plan.' IFRIC 14 addresses the interaction
between a minimum funding requirement and the limit placed by paragraph 64 of IAS 19 on the measure-
ment of the defined benefit asset or liability.

When determining the limit on a defined benefit asset in accordance with IAS 19.64, under IFRIC 14 entities
are required to measure any economic benefits available to them in the form of refunds or reductions in
future contributions at the maximum amount that is consistent with the terms and conditions of the plan and
any statutory requirements in the jurisdiction of the plan. The entity's intentions on how to use a surplus (for
instance, whether the entity intends to improve benefits rather than reduce contributions or get a refund)
must be disregarded.

Such economic benefits are regarded as available to an entity if the entity has an unconditional right to
realise them at some point during the life of the plan or when the plan is settled, even if they are not realis-
able immediately at the balance sheet date. Such an unconditional right would not exist when the availability
of the refund or the reduction in future contribution would be contingent upon factors beyond the entity's
control (for example, approval by third parties such as plan trustees). To the extent the right is contingent,
no asset would be recognised.
Economic benefits available as a refund
If an entity has an unconditional right to a refund
a. during the life of the plan, without assuming that the plan liabilities must be settled in order to obtain
the refund, or

b. assuming the gradual settlement of the plan liabilities over time until all members have left the plan,
or

c. assuming the full settlement of the plan liabilities in a single event (i.e. as a plan wind-up),

it recognises an asset measured as the amount of the surplus at the balance sheet date that it has a right
to receive as a refund. This is the fair value of the plan assets less the present value of the defined benefit
obligation, less any associated costs, such as taxes.

If the refund is determined as the full amount or a proportion of the surplus, rather than a fixed amount, the
amount shall be calculated without further adjustment for the time value of money, even if the refund is
realisable only at a future date, as both the defined benefit obligation and the fair value of plan assets are
already measured on a present value basis.

Economic benefits available as a reduction in contributions


In the absence of a minimum funding requirement, IFRIC 14 requires entities to determine economic
benefits available as a reduction in future contributions as:
o the present value of the future service cost to the entity (excluding costs borne by employees) over:

o the shorter of the expected life of the plan; and

o the expected life of the entity;

o determined using assumptions consistent with those used to determine the defined benefit obligation
(including the discount rate); and

o based on conditions that exist at the balance sheet date.

This means, an entity shall assume


o no change to the benefits provided by a plan in the future until the plan is amended, and

o a stable workforce unless it is demonstrably committed at the balance sheet date to make a reduction
in the number of employees covered by the plan.

IFRIC 14 contains illustrative examples that outline the accounting treatments under a number of different
scenarios.

Effective date and transition


IFRIC 14 is effective for annual periods beginning on or after 1 January 2008. Earlier application is
permitted.
The Interpretation is to be applied from the beginning of the first period presented in the financial statements
for annual periods beginning on or after the effective date. The IFRIC had initially proposed full retrospective
application, but decided to amend the transitional provisions reflecting concerns from constituents.