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Chapter
19 /
Accounting and Reporting
by
Retirement Benefit Plans (lAS 26)
187
Defined contribution plans. Retirement benefit plans whereb y retirement benefits to be paid
to plan participant s are determined by contributions to a fund together with investment earn–
ings thereon .
Funding . The transfer of assets to a separate entit y (distinct from the empl oyer ' s enterprise),
the "fund," to meet future obligations for the payment of retirement benefits.
Net assets available for ben efits. The assets of a retirement benefit plan less its liabilities
other than the actuarial present value of promi sed retirement benefits.
Participan ts. The members of a retirement benefit plan and others who are entitled to benefits
under the plan.
Retirement benefit plan s. Formal or informa l arrangements based on which an enterprise
provide s benefits for its employees on or after termination of service, which usuall y are re–
ferred
to
as termination benefits. These could take the form of annu al pension payments or
lump-sum payment s. Such benefits, or the employer' s contributions toward them, should
however be determinable or possible of estimation in advance of retirement from the provi–
sions of a document (i.e., based on a formal arrangement) or from the enterprise ' s prac tices
(which is referred to as an informal arran gemen t).
Veste d benefits. Entitlements, the rights to which, under the terms of a retirement benefit
plan, are not conditional on contin ued employment.
4. DEFINED CONTRIBUTI ON PLANS
4.1 Retirement benefit plans can either be defined contribution plans or defined benefit plans.
When the amount of the future benefit s payable to the participants of the retirement benefit plan is
determin ed by the contrib utions made by the participant s' employer , the participants, or both, to–
gether with investment earnings thereon, such plans are defined contribution plans. Defined benefit
plans guarantee certain defined benefits, often determined by a formula that takes into considera–
tion factors such as number of years of service of employees and their salary level at the time of
retirement, irrespective of whether the plan has sufficient assets; thus the ultimate responsibility for
payment (which may be guaranteed by an insurance company, the government, or some other en–
tity, depending on local law and custom) remains with the empl oyer. In rare cases, a retirement
benefit plan may contain characteristics of both defined contribution and defined benefit plans ; for
the purposes of this Standard, such a hybrid plan is deemed to be a defined benefit plan .
4.2 According to lAS 26, the report of a defined contribution plan should contain a "Statement of
the Net Assets Available for Benefit s" and a description of the fundin g policy.
In
preparing the
statement of the net assets availab le for benefits, the plan investment s should be carried at "fair
value ," which in the case of marketabl e securities would be their "market value." If an estimate of
fair value is not possible, the entity must disclose why "fair value" has not been used .
Practical In sight
In practice in many cases "plan assets" will have determinable market values, because in dis–
charge of their fiduciary responsibilities, plan trustees generally will manda te that the retire–
ment plans hold only marke table investments.
Example
An example of a statement of net assets available for plan benefit s. fo r a defined contribution plan.
is presented next.