Defined benefit plans

An entity might operate more than one plan, with some in surplus and some in deficit. Aggregate amounts of net defined benefit assets and net defined benefit liabilities, including any unfunded benefits, are shown separately on the face of the balance sheet.

A net asset in respect of one plan and a net liability in respect of another cannot be offset in arriving at the amounts to be presented on the face of the balance sheet, unless the entity: has a legally enforceable right to use a surplus in one plan to settle obligations under the other plan; and intends either to settle the obligations on a net basis, or to realise the surplus in one plan and settle its obligation under the other plan simultaneously.

Offset of pension plan balances in different plans Entity A operates four defined benefit schemes, two in Bermuda and one each in Switzerland and the United States. The plans in each country are separate and administered by independent trustees. One of the Bermuda plans covers management-grade staff, and the other is for manufacturing staff. Strong investment performance means that the management plan has a substantial surplus. Benefit enhancements in connection with a redundancy programme caused a deficit in the manufacturing plan. The same trustees administer the two plans. The trustees have agreed that entity A can use the surplus in the management plan to cover the deficit in the manufacturing plan, subject to granting certain benefit enhancements to management. Entity A will arrange for the trustees to transfer assets from one plan to the other. The balance sheet position under IAS 19 for each scheme at the end of the year is as follows: Switzerland Liabilities of C100 Bermuda (manufacturing) Liabilities of C150 Bermuda (management, after deducting C50 benefit enhancements) Assets of C300 United States Assets of C50 Entity A offsets assets of C300 in the Bermuda management plan with liabilities of C150 in the Bermuda manufacturing plan. Entity A has a legally enforceable right of offset because of its agreement with the trustees, and it plans to transfer assets from one plan to the other. Entity A should present a net pension asset of C200 (C50 in the United States, plus C150, being the net asset in the Bermuda management plan after deducting the benefit enhancements and the payment to the manufacturing plan) and a net pension liability of C100 in the Swiss plan.

Further breakdown of total assets and liabilities to explain net position A consequence of the netting-off criterion is that at least some of the footnote disclosures have to be disaggregated into plans that have given rise to assets in the balance sheet and plans that have given rise to liabilities. This is necessary, for example, in order to comply with the requirement to reconcile plan surpluses or deficits to balance sheet assets and liabilities. To comply with that reconciliation requirement (For example, where there is an irrecoverable surplus), the following would have to be disclosed as a minimum. However, a further breakdown of the total assets and liabilities might also be necessary for a proper understanding of the net position. C C C Total plans’ assets 400 Total plans’ liabilities 380 Net surpluses 20 Comprising: Surplus not recoverable Net pension asset (liability) Surpluses 50 (10) 40 Deficits (30) (30) 20 (10) 10

A net post-employment asset or liability will typically have a current and non-current portion. The distinction between the two might be arbitrary and difficult to determine. This is particularly the case for funded post-employment plans, where the funded status of the plan in the balance sheet is already the net of plan assets and liabilities. The net plan asset or liability is generally presented as a single non-current item for funded post-employment plans.

An entity might be able to make a reliable distinction between the current and non-current portions of these liabilities – for example, where the actuary provides the information for an unfunded post-employment benefit plan, where the entity has no ability to defer settlement, or where there is an agreed refund receivable within the next 12 months. Separate presentation of these balances would be appropriate.

An entity should recognise the following components of defined benefit cost, within profit and loss for the period, except to the extent that another IFRS requires or permits their inclusion in the cost of an asset: Service cost. Net interest on the net defined benefit liability (asset). The standard does not specify where in the income statement these items are to be presented or whether they are to be presented as a single item or two separate items. The entity needs to present these components in accordance with IAS 1.

An entity could choose, for example, to include net interest on the net defined liability (asset) within operating expenses or alternatively as a component of finance cost (income).

Other long-term employee benefit plan

The net amount of current service cost, net interest and remeasurements should be shown in profit and loss, but these components are not required to be presented in a single line item. An entity might choose to follow the treatment of equivalent income statement items arising from defined benefit pension obligations.

Disclosures

Defined contribution plans

An entity should disclose the amount recognised as an expense in the period in respect of defined contribution plans. Pension plans are related parties, and so contributions paid into defined contribution plans are transactions with related parties and should be disclosed as such. Additionally, disclosure of contributions paid and any balances outstanding in respect of key management personnel might also be required by IAS 24.

Defined benefit plans

An entity should provide relevant information about material defined benefit plans. The objectives are to provide relevant information that:

• explains the characteristics of its defined benefit plans and risks associated with them;
• identifies and explains the amounts in its financial statements arising from its defined benefit plan; and
• describes how its defined benefit plans might affect the amount, timing and uncertainty of the entity’s future cash flows.

An entity should consider all of the following to meet these objectives:

• the level of detail necessary to satisfy the disclosure requirements;
• how much emphasis to place on each of the various requirements;
• how much aggregation or disaggregation to undertake; and
• whether users of financial statements need additional information to evaluate the quantitative information disclosed.

An entity should also assess whether all or some disclosures should be disaggregated, to distinguish plans or groups of plans with materially different risks. IAS 19 gives more details on disaggregation features.

The standard includes extensive disclosure requirements.

IAS 19 requires sensitivity analysis showing the impact on the defined benefit obligation for changes in the significant actuarial assumptions.

An entity that participates in a defined benefit plan that shares risks between various entities under common control, such as a group plan, is subject to specific disclosure requirements.

Certain additional disclosures are required if a multi-employer defined benefit plan is accounted for as if it were a defined contribution plan.

The guidance in IAS 37 is applied to the recognition and measurement of contingent liabilities in respect of any withdrawal or winding-up liability that might arise from participation in a multi-employer plan. However, the disclosure requirements in IAS 19 rather than IAS 37 should be followed.

There might be other contingent liabilities arising from other post-employment benefit obligations, and disclosures will be required by IAS 37.

A post-employment benefit plan established for the benefit of an entity’s employees is a related party of the entity. Transactions between an entity and its pension plan fall within the scope of IAS 24. IAS 24 also contains a requirement to disclose compensation of key management personnel, which comprises all employee benefits as defined in IAS 19, together with share-based payments as dealt with in IFRS 2.

Short-term employee benefits

There are no specific disclosures in respect of benefits payable during employment. However, other standards might require some disclosure, for example:

• IAS 1 requires disclosure of employee benefits expense.
• IAS 24 requires disclosure of employee benefits payable to key management personnel.

Termination benefits

There are no specific disclosure requirements relating to termination benefits. Instead, reference is made to the requirements of other standards. For example, disclosure might be required:

• In accordance with IAS 37, which requires disclosure of the carrying amount, movement in the period and other information relating to the provision.
• In accordance with IAS 1, where the expense is of such size, nature or incidence that disclosure is relevant to explain performance.
• In accordance with IAS 24, where the termination benefits are payable to key management.