Public Sector Accounting Standards

Invitation to Comment, Employment Benefits: Discount Rate Guidance in Section PS 3250


The main features of this Invitation to Comment are as follows:

  • Section PS 3250 does not provide specific guidance on which discount rate should be used to estimate accrued benefit obligation.
  • In practice, the expected return on plan assets is usually used to determine the present value of the accrued benefit obligation of benefit plans that are fully or partially funded. The entity’s cost of borrowing is usually used to determine the present value of the accrued benefit obligation of benefit plans that are unfunded.
  • PSAB needs to consider if the discount rate guidance in Section PS 3250 is sufficient and whether the two discountrate bases commonly used in the public sector are appropriate and provide useful information for accountability purposes.
  • Benefit obligation is often incurred years before benefit payments are due. Reporting accrued benefit obligation at each reporting date requires applying a discount rate to the best estimate of future benefit payments to determine a single amount that represents its present value.
  • Understanding the role of discount rate in present value measurement including the time value of money concept may help evaluate alternative discount rate approaches and develop appropriate discount rate guidance.
  • Alternative discount rates may be based on the following, reflecting a current, an average or a projected rate:
    • expected return on plan assets;
    • expected return of an effective hedge portfolio;
    • market yields of high-quality debt instruments;
    • market yields of risk-free debt instruments;
    • the entity’s cost of borrowing; or
    • the effective settlement rate.
  • Determining the appropriate discount rate for accounting purpose should be based on the financial reporting concepts set out in the conceptual framework, including:
    • the objectives of financial statements;
    • benefit versus cost constraint; and
    • the qualitative characteristics of useful financial information such as relevance, reliability,comparability and understandability.

Staff Contact(s)

Michael Puskaric, MBA, CPA, CMA

Director, Public Sector Accounting Board


This is the second Invitation to Comment issued under this project. The Invitation to Comment, “Employment Benefits: Deferral Provisions in Sections PS 3250 and PS 3255,” was issued in November 2016.

Given the complexity of the issues involved and the potential implications of any changes that may result from a review of Sections PS 3250 and PS 3255, PSAB decided to issue an Invitation to Comment on each key issue to seek input from stakeholders prior to establishing its positions.

Other issues that will be addressed in this project include:

  • the accounting for plans with risk-sharing features different from the traditional defined benefit and defined contribution plans (which include, but are not limited to, shared risk or target benefit plans);
  • the accounting for multi-employer defined benefit plans and sick leave benefits;
  • other improvements to existing guidance; and
  • issues that may arise or be identified by stakeholders throughout the development of the project.