IASB halts project on IAS 19 pension benefits that depend on asset returns

From 2018 to 2021, the IASB (International Accounting Standards Board) studied the feasibility of amending IAS 19 Employee Benefits to address pension benefits that depend on the returns on specified assets, such as shares or bonds.

Keywords: Mazars, Thailand, IFRS, IASB, IAS 19

20 June 2022

For these pension benefits, there is an inconsistency between (a) the cash flows included in the estimate of the pension benefits, which depend on the expected returns on the specified assets, and (b) the discount rate applied to measure the present value of the defined benefit obligation, which is determined by reference to the high-quality corporate bond market. This inconsistency means that the present value of the pension obligation will exceed the expected cash outflow if the expected rate of return on the specified assets is higher than the IAS 19 discount rate.

To address this, the IASB investigated whether it would be possible to add a capped approach to IAS 19. Applying the capped approach, an entity would estimate the pension benefit by applying the IAS 19 discount rate, if that discount rate is lower than the expected rate of return on those assets.

The IASB has just announced that it is calling a halt to the project, as its research has not provided sufficient evidence that such pension benefits are common in all jurisdictions. It concluded that the cost of implementing such a change would outweigh the potential advantages in terms of improved financial reporting. It also noted that by amending the standard to permit a capped approach, it would be introducing an exception to the measurement requirements of IAS 19.

The project summary is available here.