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EFRAG research project on pension plans with an asset-return promise



Concerns have been raised about the application of the accounting requirements in IAS 19 Employee Benefits for post-retirement plans that some refer to as 'hybrid' - i.e. plans that share characteristics of both defined contribution and defined benefit plans. Some of the concerns expressed are:

  • When the benefits are linked to the return of the plan assets, IAS 19 requires to project the benefits using the expected rate of return and to discount them back using the rate of high quality corporate bonds. This is perceived to create an accounting mismatch;
  • In some cases, entities provide minimum guarantee returns that are below the level of returns on the plan assets. IAS 19 requirements may result in recognising a liability even in those cases when an outflow of resources is highly unlikely. Also, the requirements are perceived to be too costly and complex to apply. 

The IASB has been considering the issue of hybrids but has found it difficult to define an appropriate scope that would result in improvements for a sufficiently wide range of plans without creating unintended consequences. However, the IASB i currently considering whether introducing a cap on promises on returns on assets in defined benefit plans. For such promises, the IASB is considering to cap the expected return to the rate of high quality corporate bonds.

What is the objective of the project?

The objective of EFRAG's research project is to consider possible amendments to the accounting requirements in IAS 19 in relation to plans where the promised benefit is linked to the return on specified assets held. by the plan 

The project is not expected to consider a fundamental revision of the IAS 19 model.

Project history

In January 2017, EFRAG launched a call for participants to an Advisory Panel on the topic.

In 2017 - 2019, the Advisory Panel and EFRAG TEG have considered different alternatives, including the approach currently being examined by the IASB, to account for pension plans promising the higher of the return on assets held by the plan and a minimum guaranteed return.

On 15 May 2019 EFRAG issued a discussion paper.

The discussion paper includes illustrative examples. Additional information about the figures presented in these illustrative examples is published an addendum made by the EFRAG Secretariat. The addendum is available here.

The key elements developed in the Discussion Paper are presented in the following video ​ 



Comments were invited by 15 November 2019.

The discussion paper was considered at the July 2019 meeting of the Accounting Standards Advisory Forum (ASAF).

A feedback statement summarising the comments received at the ASAF meeting and in writing by constituents was published on 28 April 2020.

The feedback was considered by EFRAG TEG in March 2020. EFRAG TEG noted that the IASB was considering the issues described in the discussion paper and the proposed solution generally favoured by constituents. Accordingly, as next step EFRAG would contribute to the IASB due process and would therefore not do further activities in relation to its own pro-active project on the issue.

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