📖 Overview
This standard addresses accounting treatment for retirement benefits plans, including defined contribution plans and defined benefit plans. Requires actuarial valuations and recognition of costs and gains/losses.
🎯 Scope
This standard applies to the accounting treatment for retirement benefits, including:
- Defined Contribution Plans.
- Defined Benefit Plans.
- Multi-Employer Plans.
- Postretirement Health Plans.
⚙️ Key Principles
1. **Defined Contribution Plans**:
- The entity commits to paying fixed contributions.
- Expense is recognized when contributions are due.
- No additional obligations after contributions are paid.
2. **Defined Benefit Plans**:
- The entity commits to providing specific benefits to employees upon retirement.
- The obligation is calculated using actuarial valuations.
- Components of defined benefit cost are recognized in the income statement and OCI.
3. **Corridor Approach**:
- Was previously used to avoid immediate recognition of actuarial gains and losses.
- Has been eliminated for new applications.
4. **Settlement / Curtailment**:
- Recognized when they occur.
- Gain or loss is recognized in the income statement.
📏 Measurement
**Defined Contribution Plans:**
- Measured as contributions due for the period.
**Defined Benefit Plans:**
- **Projected Benefit Obligation (PBO)**: Present value of benefits based on future salaries.
- **Plan Assets**: Assets set aside to fund the benefits.
- **Funded Status**: PBO - Plan Assets.
- **Net Liability/Asset**: Appears on the balance sheet.
**Annual Cost Components:**
- Service Cost: Increase in obligation due to services rendered during the year.
- Interest Cost: Interest on the obligation.
- Expected Return on Plan Assets.
- Actuarial Gains and Losses.
✅ Recognition
**Defined Contribution Plans:**
- Expense is recognized when contributions are due.
**Defined Benefit Plans:**
- The defined benefit obligation is recognized on the balance sheet (Funded Status).
- **Service Cost**: Recognized in the income statement.
- **Interest Cost and Net Return on Plan Assets**: Recognized in the income statement.
- **Actuarial Gains and Losses and Remeasurements**: Recognized in OCI.
- Accumulated gains/losses in OCI are amortized to the income statement over time (for legacy plans).
📊 Presentation
**On the Balance Sheet:**
- **Net Defined Benefit Asset/Liability**: Appears as an asset or liability (typically non-current liability).
- Assets and liabilities are not offset across different plans.
**On the Income Statement:**
- Service Cost.
- Interest Cost.
- Expected Return on Plan Assets.
**On OCI:**
- Actuarial gains and losses.
- Difference between actual and expected return on plan assets.
**Note Disclosures:**
- Key actuarial assumptions.
- Reconciliation of obligation and assets.
- Components of defined benefit cost.
📝 Disclosure Requirements
Disclosures required:
- Description of defined benefit plans.
- Key actuarial assumptions:
- Discount Rate.
- Expected Salary Increase Rate.
- Employee Turnover Rate.
- Mortality Rate.
- Reconciliation of the obligation from beginning to end of period.
- Reconciliation of plan assets from beginning to end of period.
- Funded Status at the balance sheet date.
- Components of defined benefit cost recognized in income statement and OCI.
- Amount of accumulated actuarial gains and losses.
- Expected cash flows for the next five years.
- Defined contribution plans: Amount of expense recognized.
🔗 Related Standards
ASC 710 (Compensation), ASC 960 (Retirement Plans), ASC 962 (Retirement Plans for Employees)