Why did PSAB undertake this project?
PSAB undertook the Employee Benefits project to modernize and consolidate public sector accounting guidance for employee benefits and to address long‑standing concerns with specific aspects of the existing standards. Before this project, employee benefits were accounted for under Section PS 3250 and Section PS 3255, which the Board issued more than 20 years ago. Over time, these standards no longer reflected best practice in several key areas, particularly with respect to the deferral and amortization of actuarial gains and losses and the lack of clear, principles-based guidance for the selection of the discount rate for defined benefit plans.
The new standard, Section PS 3251, consolidates employee benefits guidance into a single, comprehensive standard, and establishes foundational guidance for the recognition, measurement, presentation, and disclosure of all employee benefits, with the intention to improve transparency, consistency, and decision‑usefulness of public sector financial statements.
What is the scope of the standard?
Section PS 3251 applies to all forms of employee benefits, bringing them together under a single, principles‑based framework. The scope includes:
- short‑term employee benefits, such as salaries and wages, paid absences, and other benefits expected to be settled wholly within 12 months after the end of the reporting period;
- post‑employment benefits, including defined contribution and defined benefit plans;
- other long‑term employee benefits, such as long‑service leave and long‑term disability benefits; and
- termination benefits.
Social benefit programs are explicitly excluded from the scope of the standard.
What are the key changes?
Short-term employee benefits
Section PS 3250 did not include prescriptive guidance on the recognition and measurement of short‑term employee benefits. By including guidance for short-term employee benefits, Section PS 3251 fills a gap in the previous standards and helps ensure the new standard provides comprehensive guidance for all forms of employee benefits.
Updated accounting for deferral provisions
Section PS 3251 updates the accounting for deferral provisions associated with defined benefit plans. Under the new standard, actuarial gains and losses are no longer deferred and amortized over time, as was previously permitted under Section PS 3250. Instead, these remeasurements of the net defined benefit liability (asset) are recognized directly in the statement of financial position as a component of accumulated remeasurement gains and losses, with limited reclassification permitted within the statement of financial position when a plan is settled.
By removing deferral provisions for actuarial gains and losses that were previously permitted under Section PS 3250, the new standard provides users with clearer and more timely information about the financial effects of defined benefit plan remeasurements.
Updated discount rate guidance based on funding status
Section PS 3251 requires an entity to perform an annual funding status assessment to determine the appropriate discount rate for defined benefit obligations. Entities are required to assess whether a plan is fully funded or underfunded and select a discount rate that reflects the nature of the obligation.
The funding status assessment is based on a combination of:
- primary indicators, including any legislative, regulatory, or contractual funding requirements and evidence from the plan’s most recently prepared actuarial valuation for funding purposes; and
- secondary indicators, where the assessment of primary indicators is insufficient to determine the plan’s funding status. These indicators may include contribution requirements, funding policies, and other relevant plan characteristics.
Where a plan is assessed as fully funded, the discount rate is based on the expected market‑based return on plan assets.
Where a plan is assessed as underfunded, the discount rate is based on an appropriate financial instrument, such as government bond yields.
The standard requires entities to apply professional judgment in evaluating these indicators and selecting a discount rate that faithfully represents the economic substance of the plan.
Multi-employer plans
Section PS 3251 clarifies the accounting for multi‑employer plans to improve the relevance, faithful representation, and comparability of information reported for defined benefit plans, while recognizing the practical constraints that may exist for measuring a participating entity’s proportionate participation in these plans.
Where sufficient information is available, the standard requires an entity apply defined benefit accounting for the measurement of its proportionate participation in a multi-employer plan.
However, Section PS 3251 acknowledges that entities participating in multi‑employer plans may not always have access to sufficient information necessary to apply defined benefit accounting. In such cases, the standard permits these plans to be accounted for as defined contribution plans.
Defined benefit plans that share risks between public sector entities under common control
Under Section PS 3251, public sector entities participating in these plans measure their participation based on assumptions that apply to the whole plan, not just their own participation. In the absence of a contractual agreement, binding arrangement, or stated policy for allocating defined benefit costs, controlled entities account for their participation on a defined contribution basis for their in-period contributions. Controlling entities are required to recognize the whole plan on a defined benefit basis.
When are the proposals effective?
The new standard is effective for periods beginning on or after April 1, 2029, and may be applied retroactively, with or without prior period restatement.
Staff Contact
Riley Turnbull, CPA, CA
Principal, Public Sector Accounting Standards
[email protected]