At its May meeting, the International Accounting Standards Board (IASB) approved the tentative agenda decision on Attributing Benefit to Periods of Service (IAS 19 – Employee Benefits) that was finalised by the IFRS Interpretations Committee (IFRS IC) at its April meeting.
19 July 2021
IASB published in the IFRIC Update (available here).
Readers will remember that the original request concerned a defined benefit plan under which employees are entitled to a lump sum benefit payment when they reach retirement age, provided that they are employed by the entity at that point.
The amount of the payment depends on the employee’s length of service but is capped at a set number of consecutive years of service.
In the fact pattern submitted to the IFRS IC:
- the employees are not entitled to a retirement benefit from the plan until they reach the retirement age of 62, provided that they are still employed by the entity at this point;
- the amount of the benefit is one month of final salary for each consecutive year of service prior to retirement;
- the amount of the lump sum is capped at 16 years of service (in other words, the maximum retirement benefit to which an employee may be entitled is 16 months of their final salary);
- the amount is calculated using only the number of consecutive years of service immediately before the retirement age.
The request asked which periods of service the benefits should be attributed to, if the employee has rendered service to the entity for more than 16 consecutive years. In other words, should these benefits be attributed to the last 16 consecutive years of service immediately prior to retirement, or should they be attributed to the entire length of service, i.e. more than 16 years?
At its May meeting, the IASB approved the conclusions of the IFRS IC, which were based on the provisions of IAS 19 (paragraphs 70 to 74 and the first part of example 2, illustrating paragraph 73). The IFRS IC had concluded that the entity should attribute retirement benefits to each year in which the employee renders service between the ages of 46 and 62 (or, if employment commences at or after the age of 46, from the date the employee first renders service until the age of 62).