Accounting Standards for Private Enterprises

Employee Future Benefits – Use of a Funding Valuation

Summary

Stakeholders have informed the AcSB about diversity arising in practice from enterprises applying Section 3462, Employee Future Benefits. This diversity relates to the use of an actuarial valuation for funding purposes (funding valuation) in the measurement of the defined benefit obligation and how this section’s requirements interact with recent changes to pension legislation, including changes in Ontario and Quebec. This project proposes to modify guidance about using the funding valuation in the measurement of the defined benefit obligation.

Staff Contact(s)

Nancy Estey, CPA, CA

Principal, Accounting Standards Board

Project Status

  • Information gathering

    Completed prior to March 2019

  • Approving project

    The AcSB approved this project in March 2019

  • Consulting stakeholders

    The AcSB is developing an exposure draft that it expects to issue no later than the third quarter of 2019

  • Deliberating feedback
  • Final pronouncement

Meeting & event summaries


June 18, 2019

AcSB Decision Summary – June 18, 2019

The AcSB considered feedback received from its Private Enterprise Advisory Committee and through outreach with actuaries on a draft of the proposals relating to the use of a funding valuation to measure the defined benefit obligation for defined benefit plans with a funding valuation requirement. The Board agreed that the defined benefit obligation should be measured at the amount that is required to be funded in accordance with legislative, regulatory, or contractual requirements.

The AcSB also discussed a draft of the proposals relating to the use of a funding valuation to measure the defined benefit obligation for defined benefit plans for which there is no legislative, regulatory, or contractual requirement to prepare a funding valuation.

For these defined benefit plans, the Board reconsidered the accounting policy choice in paragraph 3462.029C to measure the defined benefit obligation using an accounting valuation or a funding valuation. The Board understands that this accommodation to allow the use of a funding valuation for these defined benefit plans is causing diversity in practice. As a result, the Board tentatively agreed to remove this accommodation and plans to expose this proposed removal in the forthcoming exposure draft.

The AcSB also considered the transitional provisions for the proposed amendments and confirmed that transitional relief should be provided.

The AcSB plans to issue the exposure draft no later than the third quarter of 2019.

June 13, 2019

Private Enterprise Advisory Committee Notes – May 22, 2019

At its recent meeting, the Committee discussed a number of topics including employee future benefits, amendments to other frameworks, and much more.

May 15, 2019

AcSB Decision Summary – May 15, 2019

The AcSB continued its discussion regarding changes to pension legislation in Ontario and Quebec and the effects on the measurement of the defined benefit obligation for registered defined benefit plans when an enterprise elects to use a funding valuation in accordance with Section 3462, Employee Future Benefits.

The AcSB plans to issue an exposure draft to clarify that all components of a going concern funding valuation required for legislative or regulatory purposes be included in the measurement of the defined benefit obligation when the funding valuation is chosen. The Board agreed that it would not refer to specific legislation so that the amended guidance would address current and future legislation.

The AcSB also considered the use of the funding valuation for defined benefit plans for which there is no legislative, regulatory, or contractual requirement to prepare a funding valuation. Specifically, the Board discussed the meaning of “on a basis consistent with” in paragraph 3462.029C. The Board reviewed the work done when Section 3462 was developed and determined that the intent was that “on a basis consistent with” is equivalent to “the same”. The Board decided to clarify the guidance relating to this issue in the exposure draft.

The AcSB directed staff to consult with actuaries on a preliminary draft of the proposed amendments relating to these issues.

The AcSB also considered the transitional provisions for the proposed amendments and decided that transitional relief should be provided.

The AcSB plans to discuss this topic further at its June 2019 meeting, including considering the feedback received from consultations with its Private Enterprise Advisory Committee as well as actuaries.

The AcSB plans to issue the exposure draft no later than the third quarter of 2019.

March 6, 2019

AcSB Decision Summary – March 6-7, 2019

Quebec Stabilization Provision

The AcSB continued its discussion regarding changes to pension legislation. The Board considered the use of a funding valuation for registered defined benefit plans in Quebec, which includes the Stabilization Provision as established in 2016 by Quebec’s pension regulator for private sector plans. The Board is concerned with the diversity arising in practice as to whether the Stabilization Provision is included in the measurement of the defined benefit obligation when an enterprise elects to use a funding valuation in accordance with Section 3462, Employee Future Benefits. The Board was advised that the diversity arises from the view of some stakeholders that the inclusion of the Stabilization Provision results in a measurement akin to a solvency valuation.

The AcSB decided to undertake standard-setting action by developing an exposure draft to propose changes to Section 3462 to clarify its intent that the Stabilization Provision should be included in the measurement of the defined benefit obligation when the funding valuation is chosen. Given the reported diversity in practice, the Board will also consider transitional provisions in developing its exposure draft.

The Board plans to issue the exposure draft no later than the third quarter of 2019.

Defined benefit plans without a funding valuation requirement

The AcSB considered the use of the funding valuation for defined benefit plans for which there is no legislative, regulatory, or contractual requirement to prepare a funding valuation. An example of such a plan is an unfunded defined benefit supplemental executive retirement plan offering pension benefits. The Board is concerned with the diversity arising in practice as to whether an assumed Provision for Adverse Deviation (PfAD) based on that required by Ontario’s pension regulator and the Quebec Stabilization Provision should be included in the measurement of the defined benefit obligation when an enterprise elects to use a funding valuation for these defined benefit plans.

The AcSB discussed the meaning of “on a basis consistent with” in paragraph 3462.029C. The Board’s intent was that “on a basis consistent with” is equivalent to “the same”. Accordingly, the Board agreed that the PfAD and Stabilization Provision should be included in the measurement of the defined benefit obligation for these defined benefit plans. The Board also noted that allowing the use of a funding valuation was an accommodation that eliminated the additional costs of preparing a separate accounting valuation, which would otherwise be required.

The AcSB understands that some enterprises, consistent with their approach for funded defined benefit plans, did not include the relevant provision in the measurement of the defined benefit obligation for unfunded defined benefit plans. Accordingly, the Board will consider including this issue, along with any transitional provisions, in developing the exposure draft on the first issue under “Quebec Stabilization Provision.”

December 18, 2018

AcSB Decision Summary – December 12, 2018

The AcSB considered an issue that stakeholders raised about using the funding valuation in Section 3462, Employee Future Benefits, in the measurement of the defined benefit obligation. This issue has been highlighted by recent changes to pension legislation. The Board also considered feedback from its Private Enterprise Advisory Committee on this topic. The Board is concerned about potential diversity in practice that could arise. Therefore, it wants to communicate clearly its intention of allowing the use of the funding valuation.

The AcSB agreed that using the funding valuation was an accommodation that eliminated the additional costs of preparing a separate accounting valuation and is itself not management’s best estimate; an accounting valuation is management’s best estimate. The Board also agreed that the standard describes a funding valuation as being prepared in accordance with legislative, regulatory, or contractual requirements. It is the amount at which the legislation, regulation, or contract would require funding. The Board observed that when legislative, regulatory, or contractual requirements stipulate calculations of various components of the funding requirement separately, it is the aggregate of those components that make up the funding valuation to be reflected in the financial statements.

Accordingly, the Board directed staff to explore activities to communicate its intent with respect to using the funding valuation in the measurement of the defined benefit obligation.

September 11, 2018

Private Enterprise Advisory Committee Meeting Notes – September 11, 2018

The Committee discussed an issue relating to the accounting under Section 3462, Employee Future Benefits, for a provision for adverse deviations in the going concern funding valuation. The provision was established by Ontario’s new funding rules for defined benefit pension plans with valuation dates of December 31, 2017, or later and filed after April 30, 2018.

The Committee advised that diversity is arising in practice regarding whether to include the provision for adverse deviations in the measurement of the defined benefit obligation when an enterprise elects to use a funding valuation under Section 3462. The Committee also discussed the practice in Quebec for accounting for the stabilization reserve in the measurement of the defined benefit obligation.

The Committee advised that the Board consider:

  • whether it intended the funding valuation used in Section 3462 to be in accordance with regulation or a best estimate; and
  • the implications of this issue for a defined benefit plan in which there is no legislative, regulatory or contractual requirement to prepare an actuarial valuation for funding purposes.

News


Disclaimer

This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.