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Speaking during the board’s January meeting, IASB member Jianqiao Lu said it was “a better practical approach to take forward” and that he agreed staff should develop an illustrative example to test how it might work in practice.
The board is currently working on a model dubbed the “capped ultimate costs adjustment approach”.
The board’s decision means staff will now bring illustrative examples to a future board meeting to demonstrate how accounting outcomes would differ under that model compared to existing IAS 19 requirements.
Staff revealed during the meeting that they are focused on three main questions:
The IASB’s work on hybrid pension plans is intended to address an inconsistency that arises from the use of a corporate bond rate to discount benefits that are based on a higher-than-risk-free asset rate of return under IAS 19.
Staff think one solution might be to calculate the defined benefit obligation (DBO) with an asset rate of return that does not exceed the discount rate.
The staff have already indicated that if the approach turns out to be unfeasible, they will recommend that the board calls time on the project.
Meanwhile, during the same meeting session, the IASB also concluded discussion on a set of revamped disclosure objectives for IAS 19 that could see the volume of pensions disclosures shrink, while at the same time giving users of financial statements more focused and relevant information about pensions obligations.