Plan assets

Learning objectives

• Identify the assets that constitute plan assets (long-term employee benefit funds and qualifying insurance policies).L1
• Explain the measurement of plan assets at fair value and the case of policies that exactly match the benefits.L2

Normative references

• IAS 19 §8Definitions: categories of benefits (short-term, i.e. expected to be settled wholly before twelve months after the end of the annual reporting period in which the service is rendered; post-employment; other long-term; termination benefits); defined contribution plan (fixed contributions paid into a separate entity, with no legal or constructive obligation to pay further contributions if the fund is insufficient) and defined benefit plan (any other plan); deficit or surplus (present value of the obligation less the fair value of plan assets), net defined benefit liability (asset) (the deficit or surplus adjusted for the effect of the asset ceiling) and asset ceiling (present value of the refunds or reductions in future contributions available); plan assets (assets held by a legally separate fund dedicated to the benefits, and qualifying insurance policies, not available to the entity's creditors); past service cost (change in the obligation for prior service resulting from a plan amendment or a curtailment, the latter being a significant reduction in the number of employees covered); settlement (a transaction that eliminates all or part of the obligations, other than benefits provided for in the plan terms and included in the actuarial assumptions).
• IAS 19 §115Where plan assets include qualifying insurance policies that exactly match the amount and timing of some or all of the benefits payable, the fair value of those policies is deemed to be the present value of the related obligations, subject to any reduction required if the amounts receivable are not recoverable in full; the definition of plan assets is in para. 8.
• IAS 19 §116When it is virtually certain that another party will reimburse some or all of the expenditure required to settle the obligation, the entity recognises its right to reimbursement as a separate asset, measured at fair value, whose changes are disaggregated and recognised in the same way as changes in plan assets.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Securities that the employer holds directly, and that its creditors can seize in bankruptcy, are not plan assets, even if the employer has internally earmarked them to fund pensions.L1
• Ormel SA funds its pensions in two ways. A legally separate fund, which exists only to pay employee benefits, whose assets are beyond the reach of the entity's creditors and return to the employer only under limited conditions, holds 9,400,000 of investments. In addition, the entity directly holds 2,100,000 of securities that it has earmarked as an internal reserve for pensions, with no separate fund (case facts). What amount is deducted from the obligation as plan assets?L2