Pension Plans

Status: Final standards and Background Information and Basis for Conclusions issued. Deliberation of comments on expanded scope Exposure Draft completed. Amendment regarding presentation approved.

Background
Activities to Date
Next Steps
Related Information
Contact Information

Background,

Reasons for the Project
The AcSB’s April 2008 Exposure Draft, “Adopting IFRSs in Canada,” proposed that, upon adoption of International Financial Reporting Standards (IFRSs) by publicly accountable enterprises, pension plans would continue to prepare their financial statements in accordance with Section 4100, Pension Plans, rather than IAS 26 Accounting and Reporting by Retirement Benefit Plans. The AcSB subsequently confirmed this intent in its March 2009 Exposure Draft, “Adopting IFRSs in Canada, II,” and, in addition, noted that:

“… the AcSB is considering the extent to which Section 4100 requires change, as well as whether guidance in addition to that found in Section 4100 is needed after 2011, and, if so, the appropriate source of such guidance. The AcSB’s proposals in this area will be exposed for public comment separately from this Exposure Draft.”

Activities to Date

On July 30, 2009, the AcSB issued an Exposure Draft, "Pension Plans," that proposed changes to existing Section 4100 in the areas of presentation and disclosure. It also provided more guidance on how to measure fair value of investment assets and investment liabilities. The comment period closed on October 31, 2009.

To solicit the views of stakeholders on the proposals, AcSB staff held a roundtable discussion in Toronto on October 8, 2009. The discussions provided participants with the opportunity to share their views and assist the AcSB in developing a final standard.  AcSB staff also consulted with other stakeholders on the proposals.

At its December 2009 through February 2010 meetings, the AcSB redeliberated the proposals as a result of comments received from stakeholders, including input from roundtable discussions and written submissions.

Final standard

In April 2010, the AcSB issued Section 4600, Pension Plans, in Part IV of the Handbook. The new Section is based on existing Section 4100, Pension Plans, in Part V of the Handbook, with the following substantive modifications:

Scope

• The standards apply to all pension plans as well as to benefit plans with characteristics similar to pension plans that provide benefits other than pensions (for example, retiree health care and life insurance benefits, and long-term disability plans), with necessary adaptations.

Basis of Accounting

• A pension plan follows the requirements set out in the standards for the measurement, presentation, and disclosure of its investment portfolio and pension obligations.
• In selecting or changing accounting policies that do not relate to its investment portfolio or pension obligations, a pension plan complies (on a consistent basis) with either IFRSs in Part I of the Handbook, or accounting standards for private enterprises in Part II of the Handbook, to the extent that those standards do not conflict with the requirements of the Section.
• A pension plan also follows the general financial statement presentation requirements with respect to fair presentation, comparative information and materiality in Part I or Part II of the Handbook (consistent with the choice made for accounting policies that do not relate to the investment portfolio or pension obligations).
  

Statement of financial position (renamed from “statement of net assets available for benefits”)

Presentation

• The statement of financial position includes the net assets available for benefits (a total including investment assets, investment liabilities, and any other assets and liabilities of the pension plan), the pension obligations, and the resulting surplus or deficit.
• Investment assets and investment liabilities are distinguished by type.
• Investments in entities over which the pension plan has control or can exercise significant influence are presented on the same basis as all other investments (for example, consolidation or equity accounting are not to be used).

Recognition

• All financial assets and financial liabilities are recognized and derecognized in accordance with the applicable requirements in either IAS 39 Financial Instruments: Recognition and Measurement in Part I of the Handbook, or Section 3856, Financial Instruments, in Part II of the Handbook, consistent with the basis of accounting chosen (see above).

Measurement

• Fair value is determined in accordance with the guidance in IAS 39 Financial Instruments: Recognition and Measurement in Part I of the Handbook. (The AcSB intends to have Section 4600 refer to the proposed IFRS on Fair Value Measurement when it is issued later in 2010.)
• Investment assets cannot be measured on an actuarial asset value basis. Also, the difference between fair value and actuarial asset value does not represent an asset or a liability that can be included in a pension plan’s financial statements.
• Consistent with IAS 39, transaction costs are not included in fair value, but are included in the statement of changes in net assets available for benefits as part of expenses incurred in the period.
• An interest in a master trust is measured at fair value, consistent with all other investment assets.  Proportionate consolidation and the equity method of accounting are not permitted.
• Measurement of a pension obligation at the accrued benefit obligation amount determined by the plan’s sponsor is permitted.

Statement of changes in net assets available for benefits

• Details of contributions, administrative expenses and benefit payments are presented.
• Changes in the fair value of investment assets and investment liabilities on the statement of financial position include both realized and unrealized gains and losses.

Statement of changes in pension obligations

• Details of changes in pension obligations are presented.

Disclosure

Investment portfolio

• For those investments that are financial instruments, the disclosures in IFRS 7 Financial Instruments: Disclosures in Part I of the Handbook are required. For all other investments, a description of how fair values have been determined is provided.
• Defined contribution plans in which the plan participants direct their investments may omit disclosure of the quantitative sensitivity analysis disclosures for market risk required in IFRS 7.

Capital

• Disclosures are made that enable pension plan financial statement users to evaluate a plan’s objectives, policies, and processes for managing capital in accordance with the requirements in IAS 1 Presentation of Financial Statements in Part I of the Handbook.

Other disclosures

• A pension plan that prepares its financial statements in accordance with Canadian accounting standards for pension plans is required to state this basis of presentation prominently in the notes to its financial statements.
• The effective date of the next required actuarial valuation, significant accounting policies, additional related party information, the name of the actuarial firm that performed the valuation, and significant assumptions used in determining the pension obligation including the rate of compensation increase and the discount rate are required disclosures.
• Other existing “desirable” disclosures are now required disclosures.

The standards will apply for annual financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier application is permitted. The standards apply retrospectively to all prior periods presented.

In June 2010, the AcSB issued a Background Information and Basis for Conclusions document to accompany the final standards.

Scope expansion

At its February 2010 meeting, the AcSB discussed expanding the scope of Section 4600 to include an entity that is separate from a pension plan and whose sole purpose is to hold and invest assets received from one or more pension plans, but does not itself have a pension obligation. A master trust is an example of such an entity. The AcSB agreed that this change in scope would require exposure for public comment. It decided to issue Section 4600 without the scope expansion and to issue, concurrently, an exposure draft proposing the expanded scope — “Pension Plans (Proposed amendment to the Scope of Section 4600”.

As part of that exposure, the AcSB asked stakeholders whether entities that would be brought into the scope of Section 4600 as a result of the change should be required to apply the accounting standards for pension plans in Part IV of the Handbook or be permitted a choice to apply Part I (IFRSs).

At its June 2010 meeting, the AcSB discussed the comments received on the proposed scope expansion. The AcSB noted that entities that would be included within the proposed scope expansion would meet the definition of an investment company in Accounting Guideline AcG-18, Investment Companies.  The AcSB decided to propose a one-year deferral of the IFRS changeover date for investment companies applying AcG-18 while the IASB finalizes its consolidation project.  Accordingly, the AcSB decided not to proceed with an amendment to the scope of Section 4600 at this time and to reconsider the need for such an amendment once the IASB finalizes its consolidation project.  The AcSB continues to believe that entities described in the Exposure Draft should measure their investments at fair value, consistent with the accounting standards for pension plans.

Next Steps

The AcSB will amend Section 4600 to permit a pension plan to present the details of investment income by type of investment either on the face of the statement of changes in net assets available for benefits or in the notes to the financial statements in its August 2010 Handbook update.

Related Information

• Background Information and Basis for Conclusions
• Responses to the AcSB's April 2010 Exposure Draft, “Pension Plans (Proposed amendment to the Scope of Section 4600),” are available here
• AcSB April 2010 Exposure Draft, “Pension Plans (Proposed amendment to the Scope of Section 4600)”
• Responses to the AcSB's July 2009 Exposure Draft, “Pension Plans,” are available here
• AcSB's July 2009 Exposure Draft, “Pension Plans”
• AcSB’s March 2009 Exposure Draft, “Adopting IFRSs in Canada, II”

Contact Information,

Questions or comments on this project should be directed to:

Nancy A. Estey, CA
Principal, Accounting Standards
Telephone: +1 (416) 204-3271
Fax: +1 (416) 204-3412

Canadian Accounting Standards Board
277 Wellington Street West
Toronto ON M5V 3H2 Canada