Canadian Association of University Business Officers
Financial Reporting Information Note– Employee Future Benefits
January 2012
Purpose
Canadian colleges and universities hereinafter referred to as higher education institutions (“Institutions”)
will be adopting a new basis of accounting for fiscal years beginning on or after January 1, 2012.
Depending on their provincial jurisdiction and control structure, Institutions will be preparing their financial
statements using (1) Part III of the CICA Handbook – Accounting Standards for Not for Profit
Organizations, (2) Public Sector Accounting Standards with the Section 4200 series, or (3) Public Sector
Accounting Standards without the Section 4200 series.
Institutions who are government not-for-profit organizations (GNPO) will be reporting under the Public
Sector Accounting standards either with or without the 4200 series. For these Institutions, the accounting
and reporting of employee future benefits will be based upon sections PS3250 Retirement Benefits, and
PS3255 Post- Employment Benefits and Termination Benefits.
Part III of the CICA Handbook – Accounting Standards for Not for Profit Organizations does not include a
section on employee future benefits specific to not for profits. Rather, Institutions who will be applying
Part III of the Handbook as their basis of accounting are directed to follow CICA Handbook Section 3461
Employee Future Benefits which is found in Part II of the Handbook.
This financial reporting information note assesses the impact of adoption of both PS 3250 and PS3255,
and CICA Handbook section 3461 by Canadian Institutions.
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Key Topics
This financial reporting information note will address the following key areas with respect to employee
future benefits:
Purpose ____________________________________________________________________________ 1
Key Topics __________________________________________________________________________ 2
Employee Future Benefits Offered By Canadian Institutions ___________________________________ 3
Current Accounting for Employee Future Benefits_________________________________________ 3
Analysis of Accounting Treatment under PSA and ASPE ______________________________________ 3
Pension Benefits ___________________________________________________________________ 3
Termination Benefits _______________________________________________________________ 8
Other Post Retirement Benefits _______________________________________________________ 8
Discount Rate ____________________________________________________________________ 10
Actuarial Gains and Losses __________________________________________________________ 10
Disclosure Requirements ___________________________________________________________ 11
Transitional Provisions _______________________________________________________________ 19
Closing Comments and On-Going Application _____________________________________________ 21
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Employee Future Benefits Offered By Canadian Institutions
For Canadian Institutions, employee future benefits typically represent pension benefits earned by
employees, retirement and other future employee benefits (such as medical and dental care, life
insurance commitments to eligible employees and retirees, long- and short-term disability payments and
compensated absence such as sick leave), and termination benefits.
Current Accounting for Employee Future Benefits
Prior to the requirement for adoption of a new basis of accounting for all entities for fiscal years beginning
on or after January 1, 2012, an Institution’s accounting for employee future benefits has been based upon
the accounting standards issued by the Accounting Standards Board of the Canadian Institute of
Chartered Accountants (hereinafter referred to as “commercial GAAP”) with respect to the recognition,
measurement, and disclosure of the cost of employee future benefits, contained in Section 3461
Employee Future Benefits.
In accordance with Section 3461 of commercial GAAP, an Institution presently accrues its obligations with
respect to the defined benefit component of its pension plan and the related costs, net of plan assets. The
costs and the obligations of the plans are actuarially determined using the projected benefit method prorated on services rendered and the Institution’s best estimate of a number of future conditions, including
investment returns, compensation changes, withdrawals, mortality rates, and expected health care costs.
The benefit plan expense for the year consists of the current service cost, the interest cost on the benefit
obligation, the expected return on plan assets, and the amortization of actuarial losses (gains).
For Institutions with defined contribution pension plans, their contributions to the plan would be expensed
in the year to which the contributions relate.
Analysis of Accounting Treatment under PSA and ASPE
An Institution’s employee future benefits are broadly comprised of pension benefits and retirement and
other future employee benefits, as well as severance benefits.
Pension Benefits
The pension plans offered by Canadian Institutions are typically defined contribution plans which include
a defined benefit component to ensure a minimum level of pension benefits. In some jurisdictions, the
Institution operates its own pension plan as administrator and sponsor. In other jurisdictions, Institutions
participate with other employers in multi-employer plans such as the Public Service Pension Plan (PSPP),
the Universities Academic Pension Plan (UAPP), or the Local Authorities Pension Plan (LAPP).
Under both the PSA and the ASPE standards, an Institution must account for the defined contribution and
defined benefit components of its pension plan separately, based upon their substance. The accounting
for each of these components of a pension plan is generally similar under the PSA and the ASPE
standards with a few differences in treatment as summarized below in the table. There are also some
particular areas where significant GAAP differences exist between PSA and ASPE as it relates to pension
plans – these are with respect to the recognition of actuarial gains and losses for defined benefit plans
and the discount rate used in actuarial valuations. These significant GAAP differences are also
summarized in the following table, and further explained in greater depth through this analysis section:
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Commercial GAAP Existing requirements
Public Sector
Accounting Standards
Accounting Standards
for Private Enterprises
PS 3250 and 3255
Requirements
Section 3461
Requirements
Defined contribution
plan
An Institution
recognizes a cost for a
period comprising the
current service cost for
the period, the interest
cost for the period, the
amortization for the
period of past service
costs, and any reduction
for the interest income
for the period on any
unallocated plan
surplus.
A liability is recorded by
an Institution for
retirement benefits it
was required to
contribute, but had not
yet paid. A
corresponding expense
is recorded representing
the amount of required
contributions provided
for employees' services
rendered in the period,
also plus any accrued
interest.
An Institution
recognizes a cost for a
period comprising the
current service cost for
the period, the interest
cost for the period, the
amortization for the
period of past service
costs, and any reduction
for the interest income
for the period on any
unallocated plan
surplus.
Defined benefit plan
Institutions recognize a
liability and a cost for
employee future
benefits in the period in
which employees render
services in return for the
benefits.
Institutions recognize a
liability and a cost for
employee future
benefits in the period in
which employees render
services in return for the
benefits.
Institutions either (1)
recognize an accrued
benefit obligation net of
the fair value of any
plan assets, adjusted for
any valuation
allowance, and the cost
of the plan for the year
as an expense
(immediate recognition
approach) or (2) a
liability and a cost for
employee future
benefits in the period in
which employees render
services in return for the
benefits (defer and
amortize approach).
The accrued benefit
obligation is determined
in reference to either the
projected benefit
method prorated on
services, or the
accumulated benefit
method.
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The accrued benefit
obligation is determined
in reference to the
projected benefit
method prorated on
services.
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The accrued benefit
obligation is determined
in reference to the most
recent actuarial
valuation under the
immediate recognition
approach. Under the
defer and amortize
approach, the accrued
January 2012
Commercial GAAP Existing requirements
Public Sector
Accounting Standards
Accounting Standards
for Private Enterprises
PS 3250 and 3255
Requirements
Section 3461
Requirements
benefit obligation is
determined in reference
to either the projected
benefit method prorated
on services, or the
accumulated benefit
method.
Multi-employer plan
Accounting policy
choice – an Institution
shall accounting for its
defined benefit plans
using the deferral and
amortization approach
with the corridor
method, or any other
systematic method that
recognizes gains and
losses faster than the
corridor method.
Accounting policy
choice - an Institution
account for its defined
benefit plans using the
deferral and
amortization approach
in a systematic and
rational manner.
Corridor method is not
available.
Accounted for following
the standards on
defined contribution
plans.
If an Institution is the
sponsor of a defined
benefit multiemployer
retirement plan, the
Institution follows the
standards for defined
benefit plans in
accounting for its
obligation under the
plan.
Accounting policy
choice - an Institution
may account for its
defined benefit plans
using the immediate
recognition approach; or
the deferral and
amortization approach
with the corridor method
or any other systematic
method that recognizes
gains and losses faster
than the corridor
method.
Accounted for following
the standards on
defined contribution
plans.
If an Institution is a
participating Institution
in a defined benefit
multiemployer
retirement plan , the
Institution follows the
standards for defined
contribution plans in
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Commercial GAAP Existing requirements
Public Sector
Accounting Standards
Accounting Standards
for Private Enterprises
PS 3250 and 3255
Requirements
Section 3461
Requirements
accounting for the
multiemployer plan.
Institution
Recognition of
actuarial gains and
losses – defined
benefit plans
An Institution uses a
systematic method of
recognizing actuarial
gains and losses in
income based upon the
corridor method.
An Institution must
recognize actuarial
gains and losses on a
systematic basis over
the remaining service
life of the active
employees. The corridor
method of recognition is
not permitted.
An Institution may
continue to use a
systematic method of
recognizing actuarial
gains and losses in
income based upon the
corridor method, or may
recognize actuarial
gains and losses in
income immediately in
the year.
Discount rate
Determined as an
interest rate in reference
to the market interest
rates at the
measurement date on
high-quality debt
instruments, or as the
interest rate inherent in
the amount at which the
accrued benefit
obligation could be
settled.
Determined in reference
to either the pension
plan asset earnings
(where relevant) or by
reference to an
Institution’s cost of
borrowing
Determined as an
interest rate in reference
to the market interest
rates at the
measurement date on
high-quality debt
instruments, or as the
interest rate inherent in
the amount at which the
accrued benefit
obligation could be
settled.
PSA Standards
With respect to the accounting for the defined contribution portion of a pension plan, an Institution
should record a liability for retirement benefits which represents the difference between the amount it was
required to contribute, and the amount actually contributed during the fiscal year including accumulated
interest on any outstanding amounts payable to the fund. The expense recorded by the Institution
represents the amount of required contributions provided for employees' services rendered in the period,
also plus any accrued interest.
Where there is a past service plan amendment to a defined contribution plan, the cost of current and
expected future years' contributions should be accounted for in the period of the plan amendment.
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January 2012
With respect to the accounting for the defined benefit portion of a pension plan, the statement of
financial position reports an Institution’s retirement benefit liability and the statement of operations reports
the expenses for retirement benefits based on the value of the benefits attributed to employee service to
the financial statement date. An Institution records a retirement benefit liability comprised of the accrued
benefit obligation including the effects of plan amendments, settlements and curtailments, plan assets, if
any, and unamortized actuarial gains and losses.
Where an Institution has a multiemployer plan (defined by PS3255 to be a defined benefit plan to which
two or more governments or government organizations contribute) the accounting for the plan is based on
whether the Institution is the sponsor of the plan, or is a participant in the plan. If an Institution has
sponsored a defined benefit multiemployer retirement plan, the PSA standards requires that it follow the
standards for defined benefit plans in accounting for the obligation for the plan. For participating
Institutions though, a multiemployer plan is accounted for by each participating Institution as a defined
contribution plans because sufficient information is generally not available for it to be accounted for as a
defined benefit plan.
ASPE standards
With respect to the accounting for the defined contribution component of a pension plan, an Institution
recognizes a cost for a period comprising of the following:
(a)
the current service cost for the period (based on contributions required to be made in the current
or future period based on services rendered by employees during the fiscal year);
(b)
the interest cost for the period on the estimated present value of any contributions required in
future periods related to employee services rendered during the current period or prior periods;
(c)
the amortization for the period of past service costs; and
(d)
a reduction for the interest income for the period on any unallocated plan surplus.
Past service costs arising from a plan initiation or amendment are to be amortized in a rational and
systematic manner over the period during which an Institution expects to realize economic benefits from
the plan initiation or amendment.
The ASPE standards require an Institution to make an accounting policy selection with respect to defined
benefit plans. An Institution may account for its defined benefit plans using the immediate recognition
approach or the deferral and amortization approach.
Immediate recognition approach - the accrued benefit obligation is determined based on an actuarial
valuation report prepared for funding purposes or, when an appropriate valuation report is not available,
using the same assumptions as are required under the deferral and amortization approach. The
Institution recognizes the net amount of the accrued benefit obligation and the fair value of plan assets, if
any, in the statement of financial position. Actuarial gains and losses and past service costs are included
in the cost of the plan for the year.
Deferral and amortization approach - the accrued benefit obligation is determined based on an actuarial
valuation report prepared specifically for accounting purposes. The Institution recognizes on the
statement of financial position, an accrued benefit liability or accrued benefit asset, which represents the
sum of the current and prior years' benefit costs less the Institution's accumulated cash contributions to
the plan. Past service costs are deferred and amortized over future periods. Actuarial gains and losses
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may also be deferred and amortized over future periods. The fair value of plan assets, if any, and the
accrued benefit obligation are disclosed in the notes to the financial statements.
Termination Benefits
Employees of an Institution are typically entitled to termination benefits based upon their length of service,
and dependent upon their reason for departure. The accounting for these benefits depends on whether
the termination benefits are considered, in substance, to be retirement or post retirement benefits rather
than termination benefits.
The accounting for termination benefits is similar under the PSA and the ASPE standards.
PSA Standards
Where an Institution’s termination benefit is considered in substance to be a retirement or post retirement
benefit (for example, benefits are payable regardless of the reason for an employee's departure), the
resulting liability should be determined based upon a projected benefit method which considers such
factors as the effect of future salary and wage changes to ensure consistency in determining the present
value of the cost of the severance benefits earned to the financial statement date.
Institutions recognize termination benefits as a liability and expense when they are committed to either
terminating employment of an employee, or to providing termination benefits as a result of an offer to
encourage voluntary termination.
ASPE Standards
Where an Institution’s termination benefit is considered in substance to be a retirement or post retirement
benefit, it should be accounted for based upon the nature of the termination benefit, in a manner
consistent with other post retirement benefits. Typically a liability would be accrued as employees render
the service that gives rise to the benefits, in accordance with an actuarial methodology.
Similar to the PSA standards, an Institution recognizes a liability for termination benefits when it is
required by the existing terms of a benefit plan to provide termination benefits to employees, and it is
probable that employees will be entitled to benefits and the amount can be reasonably estimated.
Institutions also recognize a liability when employees accept a termination benefit offer and the amount of
the special termination benefits can be reasonably estimated.
Other Post Retirement Benefits
Other types of future employee benefits for an Institution typically include medical and dental care plans,
life insurance for eligible retirees and employees, short and long term disability, as well as sick leave
benefits for employees that accumulate but do not vest.
Based upon both PSA and ASPE standards, the accounting for other post retirement benefits is based
upon whether the benefit plan is defined contribution or defined benefit in nature. The benefit plan must
be accounted for in a manner consistent with pension benefits.
The accounting for compensated absences that accumulate but do not vest is one significant GAAP
difference between the ASPE and the PSA standards. Please refer to table below for an overview of the
difference with further detailed discussion following.
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Existing requirements
- commercial GAAP
Compensated
absences
Not required to accrue a
liability for compensated
absences that
accumulate but do not
vest.
Public Sector
Accounting Standards
Accounting Standards
for Private Enterprises
PS 3250 and 3255
Requirements
Section 3461
Requirements
Institutions must accrue
for post-employment
benefits and
compensated absences
that vest or accumulate
in the period in which
employees render
services in return for the
benefits
Not required to accrue a
liability for compensated
absences that
accumulate but do not
vest.
PSA Standards
Based upon the PSA standards, PS3255 distinguishes between benefits which vest and accumulate.
PS3255.12 notes that “A benefit vests if, after a specific or determinable date, the employees' right to
receive the benefit is no longer conditional on the employees remaining in the service of the government.”
PS3255.13 indicates that “A benefit accumulates if the employee rendering service earns the right to the
benefit and, based on the length of service provided, the amount of the benefit increases. The benefit is
earned but unused; the employee retains the right to use the benefit in future periods. This would be the
case even if benefits increase only once as more years of service are rendered.”
Examples of post-employment benefits and compensated absences are sick days that are paid out when
the employee terminates, sick days which accumulate for use in future fiscal periods, or sabbaticals in
which the leave is granted to provide unrestricted time off for past service.
An Institution must recognize a liability and an expense for post-employment benefits and compensated
absences that vest or accumulate in the period in which employees render services to the government in
return for the benefits. The key here is that vesting and accumulation don’t have to occur for the liability
to be accrued; as long as the benefits vest or accumulate, a liability must be accrued.
In accordance with PS3255, the measurement of the obligation for benefits that accumulate but do not
vest would consider the expectation of future utilization of the benefits. Typically, an actuarial valuation is
undertaken to estimate the liability.
Further, as noted in PS3255.21, for post-employment benefits or compensated absences that do not vest
or accumulate, such as self-insured short-term and long-term disability benefits not related to service and
self-insured workers' compensation benefits, a liability is recognized when an event that obligates the
Institution occurs, such as an employee injury or illness which qualifies as a disability.
It is important to note that prior to the transition to PSA, an Institution was not required to record an
accrued benefit obligation related to sick leave benefits that did not vest.
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ASPE Standards
Consistent with the PSA standards, the accounting for other post retirement benefits is based upon
whether the benefit plan is defined contribution or defined benefit in nature. The benefit plan must be
accounted for in a manner consistent with pension benefits.
However, unlike the PSA standards, an Institution is not required to accrue a liability for compensated
absences that accumulate but do not vest. Section 3461.044 specifically notes that, “…as a practical
matter, an Institution is not required to accrue a liability for sick-pay benefits that accumulate but do not
vest.”
Discount Rate
Institutions apply discount rates as one of the key actuarial assumptions to determine the costs and the
obligations of their benefit plans using the projected benefit method.
Guidance for determining an appropriate discount rate represents a key GAAP difference between the
PSA and the ASPE standards as noted in the table above.
PSA Standards
PS 3255 requires the discount rate to be determined in reference to either the pension plan asset
earnings (where relevant) or by reference to an Institution’s cost of borrowing.
Note that as discussed in the Transitional Provisions section of this financial information note below, upon
transition to the PSA standards Institutions have an option to delay the application of the change in the
discount rate used until the sooner of the date of their next actuarial valuation or a date that is within three
years of the transition date.
ASPE Standards
Section 3461 of the ASPE standards determines the discount rate in a consistent manner with an
Institution’s present practice under commercial GAAP.
Actuarial Gains and Losses
Actuarial gains (losses) on an Institution’s accrued benefit obligation arise from differences between
actual and expected experience and from changes in the actuarial assumptions used to determine the
accrued benefit obligation.
The recognition of actuarial gains and losses represents a key GAAP difference between the PSA and
the ASPE standards as noted in the table above.
PSA Standards
PS3255 does not allow the application of the corridor method for the amortization of actuarial gains and
losses. Consequently, upon the adoption of the PSA Standards, an Institution would need to revise its
accounting policy to recognize actuarial gains and losses on a systematic basis over the remaining
service life of the active employees.
Upon transition to the PSA standards, an Institution may chose to apply certain of the exemptions
provided under PS2125 First time Adoption of Public Sector Accounting by Government Organizations
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regarding retirement and post-employment benefits. These exemptions are discussed further in the
Transitional Provisions section of this note.
ASPE Standards
Section 3461 of the ASPE standards provides an option to recognize actuarial gains and losses in a
consistent manner with an Institution’s present practice.
In other words, an Institution could continue to use a systematic method of recognizing actuarial gains
and losses in income. An Institution would recognize the amortization of actuarial gains and losses in a
period in which, as of the beginning of the period, the unamortized net actuarial gain or loss exceeds 10
percent (the “corridor”) of the greater of:
(a)
the accrued benefit obligation at the beginning of the year; and
(b)
the fair value, or market-related value, of plan assets at the beginning of the year.
When amortization is required, the minimum amortization is the excess divided by the average remaining
service period of active employees expected to receive benefits under the plan. This method of
recognition is generally referred to as the “corridor method”.
Under ASPE, Institutions are also given an accounting policy choice of recognizing actuarial gains and
losses in income immediately. The method adopted must be applied consistently year over year and to
both actuarial gains and losses.
Disclosure Requirements
Canadian Public Sector Accounting standards and the Accounting Standards for Private Enterprises both
present a number of disclosure requirements that need to be addressed by Institutions. Many of these
requirements are somewhat addressed with an Institution’s existing employee future benefits disclosure
in their financial statements based upon commercial GAAP.
The following table provides a detailed discussion and comparison between PSA and ASPE disclosure
requirements:
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Existing disclosure requirements commercial GAAP
General
Institutions must provide the
disclosures required for pension plans
separately for plans that provide:
(a)
pension benefits; and
(b)
primarily other employee
future benefits.
Defined
contribution
plans
For defined contribution plans, an
Institution discloses:
(a)
the cost recognized for the
period; and
(b)
a description of the nature
and effect of each significant change
during the period affecting the
comparability of the costs for the
current and prior periods, such as a
change in the rate of employer
contributions, a business combination
or a divestiture.
The Institution also discloses the total
cash amount initially recognized in the
period as paid or payable for that
period for employee future benefits.
This amount includes contributions to
funded defined benefit plans and to
defined contribution plans; payments
directly to employees, their
beneficiaries or estates; and
payments to a third-party service
provider on behalf of the employees.
When the Institution discloses any
component of the total cash amount
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Public Sector Accounting Standards
PS 3250 and 3255 Disclosure
Requirements
Institutions are to provide the disclosures
required for pension plans separately for
plans that provide pension benefits and
plans that provide retirement benefits
other than pensions.
For defined contribution plans, financial
statements should disclose:
Accounting Standards for Private
Enterprises
Section 3461 Disclosure Requirements
Institutions must provide the disclosures
required for pension plans separately for
plans that provide:
(a)
pension benefits; and
(b)
primarily other employee future
benefits.
The ASPE standards do not specifically
provide disclosure requirements for defined
contribution plans.
(a)
a general description of benefit
plans, contribution formulae and funding
policy;
(b)
the expense recognized for the
period; and
(c)
a description of
significant
changes to benefit plans during the
period.
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Existing disclosure requirements commercial GAAP
Public Sector Accounting Standards
Accounting Standards for Private
Enterprises
PS 3250 and 3255 Disclosure
Requirements
Section 3461 Disclosure Requirements
separately, it provides a reconciliation
of this component to that total.
Defined
benefit plans
An Institution discloses the following
information about the effect of defined
benefit plans on its financial
statements for the period:
(a)
Description of the type(s) of
plans;
(b)
Measurement date and dates
of actuarial valuations;
(c)
Costs recognized (a
breakdown of the total amount of
benefit cost recognized for the period)
(d)
Assets and liabilities
(e)
Reconciliation of the accrued
benefit obligation to the accrued
benefit liability or accrued benefit
asset (net of any valuation allowance)
at the end of the period
An Institution must also disclose the
following information about defined
benefit plans for which it is the
sponsor:
(a)
Plan asset information,
including :
ii)
the percentage of the fair
value of total plan assets held at the
measurement date represented by
each major category of plan assets;
and
(iii) the amounts and types of
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Financial statements should disclose:
(a)
a general description of
retirement benefit plans, benefit formulae
and funding policy, including a description
of significant changes to retirement
benefit plans during the period;
(b)
the accrued benefit obligation at
the end of the period, as determined by
the actuarial valuation;
(c)
the market value of plan assets at
the beginning and the end of the period
and, if different, the market-related value
of plan assets at the beginning and the
end of the period;
(d)
the amount of retirement benefit
liability or accrued benefit asset at the end
of the period, indicating separately the
amount of any valuation allowance.
(e)
unamortized actuarial gains and
losses and the periods of amortization;
(f)
current period benefit cost;
(g)
cost of plan amendments incurred
during the period;
(h)
net actuarial gains or losses
recognized in the determination of the
cost of plan amendments;
(i)
other gains and losses on
accrued benefit obligations arising during
the period;
(j)
other gains and losses on plan
assets arising during the period;
(k)
gains and losses arising from plan
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Institutions shall disclose the following
information about defined benefit plans:
(a)
a general description of each type of
plan, including whether the plan is a pension
plan or a plan other than a pension plan such
as a retiree health care plan;
(b)
the fair value of plan assets at the
end of the year;
(c)
the accrued benefit obligation at the
end of the year;
(d)
the plan surplus or deficit at the end
of the year (the result of amount (b), if any,
less amount (c));
(e)
an explanation of any differences
between the amount recognized in the
statement of financial position and the plan
surplus or deficit at the end of the year,
including the amount of any valuation
allowance;
(f)
the effective date of the most recent
actuarial valuation for funding purposes; and
(g)
the nature and effect of significant
changes in the contractual elements of the
plans during the year.
January 2012
Existing disclosure requirements commercial GAAP
securities of the Institution and related
parties included in plan assets, the
approximate amount of future annual
benefits covered by insurance
contracts issued by the Institution or
related parties, and transactions
between the Institution and the plan
during the period.
(b)
Non-routine events
An Institution discloses the significant
assumptions used in accounting for
employee future benefits, including:
(a)
the weighted average of the
amounts assumed in accounting for
the plan for:
(i)
the discount rate at the end of
the period used to determine the
accrued benefit obligation;
(ii)
the discount rate at the
preceding year end;
(iii) the expected long-term rate of
return on plan assets; and
(iv)
the rate of compensation
increase (for pay-related plans);
specifying, in a tabular form,
the assumptions used to determine
the accrued benefit obligation and the
assumptions used to determine
benefit cost; and
(b)
the assumed health care cost
trend rate(s) for the next year used to
measure the expected cost of benefits
covered by the plan (gross eligible
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Public Sector Accounting Standards
PS 3250 and 3255 Disclosure
Requirements
settlements and curtailments incurred
during the period;
(l)
amortization of actuarial gains
and losses reflected in the current year
expense;
(m)
the amount recognized as a result
of a temporary deviation from the plan;
(n)
the change in a valuation
allowance;
(o)
the amount of contributions by
employees during the period;
(p)
the components of the retirement
benefits interest expense for the period;
(q)
the amount of contributions by the
government during the period;
(r)
the amount of benefits paid
during the period;
(s)
the expected return and actual
return on plan assets during the period;
(t)
assumptions about long-term
inflation rates, expected rate of return on
plan assets, assumed health care cost
trends, rate of compensation increase (for
pay-related plans) and discount rate; and
(u)
the date of the most recent
actuarial valuation performed for
accounting purposes.
Some of this disclosure information may
be presented in reconciliations of the
beginning and ending balances of the
accrued benefit obligation and plan assets
for the period, taking into account any
unamortized actuarial gains or losses
existing at the financial statement date.
Page 14 of 21
January 2012
Accounting Standards for Private
Enterprises
Section 3461 Disclosure Requirements
Existing disclosure requirements commercial GAAP
Public Sector Accounting Standards
Accounting Standards for Private
Enterprises
PS 3250 and 3255 Disclosure
Requirements
Section 3461 Disclosure Requirements
charges), and a general description of
the direction and pattern of change in
the assumed trend rate(s) thereafter,
together with the ultimate trend rate(s)
and when each such rate is expected
to be achieved.
Termination
benefits
No specific disclosure requirements.
No specific reference is provided in the
PSA standards to disclosure requirements
related to termination benefits. An
Institution would follow the disclosure
requirements outlined for post
employment benefits.
An Institution shall disclose the nature and
effect of any termination benefits provided in
the period.
Disclosure of
accounting
policies
An Institution discloses the significant
accounting policies it has adopted in
applying this Section, including where
applicable:
(a)
whether future salary levels or
cost escalation affect the amount of
employee future benefits, and that
therefore, the projected benefit
method prorated on services has been
used to determine the accrued benefit
obligation, or whether future salary
levels or cost escalation do not affect
the amount of employee future
benefits, and that therefore, the
accumulated benefit method has been
used to determine the accrued benefit
obligation;
(b)
whether the expected return
on plan assets is based on the fair
value of plan assets or on a marketrelated value, and in the latter case,
PS2100, Disclosure of Accounting
Policies, requires that a clear and concise
description of all significant accounting
policies of an Institution be included as an
integral part of its financial statements. No
specific reference is made to other
general disclosure requirements of
accounting policies with respect to
employee future benefits.
Section 1505, Disclosure of Accounting
Policies requires disclosure of significant
accounting policies. For defined benefit
plans, this requirement includes whether or
not the accrued benefit obligation is
measured using a funding valuation, and
whether actuarial gains and losses and past
service costs are included in the cost of the
plan for the year as described in paragraph
3461.028 or are deferred and amortized to
future periods as described in paragraphs.
Employee Future Benefits
CAUBO/ACPAU
Page 15 of 21
January 2012
Existing disclosure requirements commercial GAAP
Public Sector Accounting Standards
PS 3250 and 3255 Disclosure
Requirements
the method used in calculating the
market-related value for each class of
asset;
(c)
the method used to amortize
past service costs and the
amortization period;
(d)
whether all actuarial gains
and losses are amortized or only
those in excess of 10 percent of the
greater of the accrued benefit
obligation and the fair value (or
market-related value) of plan assets at
the beginning of the year, the method
used to amortize actuarial gains and
losses, and the amortization period;
(e)
when the Institution applies
this Section prospectively, the method
used to amortize a transitional
obligation or transitional asset and the
amortization period;
(f)
the sequence in which a
settlement and a curtailment are
accounted for when a transaction or
event gives rise to both;
(g)
the use of defined contribution
plan accounting by an Institution that
is part of a multiemployer plan for
which the Institution has insufficient
information to apply defined benefit
plan accounting; and
(h)
the use of defined contribution
plan accounting by an Institution that
is part of a multiemployer plan of a
related group of companies.
Employee Future Benefits
CAUBO/ACPAU
Page 16 of 21
January 2012
Accounting Standards for Private
Enterprises
Section 3461 Disclosure Requirements
Existing disclosure requirements commercial GAAP
Post
employment
benefits and
compensated
absences
There is no specific reference to
disclosure requirements related to
post employment benefits and
compensated absences under
commercial GAAP.
An Institution would determine the
required disclosure based on the
nature of the benefit plan, and
disclose information similar to the
disclosures required for pension plans
of a similar nature.
Multiemployer
plans
For multiemployer plans, an Institution
discloses:
(a)
the cost recognized for the
period; and
(b)
a description of the nature
and effect of each significant change
during the period affecting
comparability, such as a change in the
rate of employer contributions, a
business combination or a divestiture.
Employee Future Benefits
CAUBO/ACPAU
Public Sector Accounting Standards
PS 3250 and 3255 Disclosure
Requirements
For post-employment benefits and
compensated absences, financial
statements would disclose information
similar to the disclosures required for
pension plans. Professional judgment will
be necessary to determine what
disclosures will meet the requirements set
out in PS 3250.
For post-employment benefits and
compensated absences, Institutions are
encouraged to disclose a general
description of the plans, information about
key assumptions, a reconciliation of
assets and accrued benefit obligations
from the beginning of a fiscal period to the
end of a fiscal period, and the expense for
the period. The reconciliation of assets
and accrued benefit obligations would
specifically identify the effects of
termination benefits. Similarly, the
expense for the period would specifically
identify the amount due to termination
benefits.
An Institution should disclose any
available information about any surplus or
deficit in a multiemployer plan, the basis
used to determine the surplus or deficit
and the implications, if any, for the
Institution.
Page 17 of 21
Accounting Standards for Private
Enterprises
Section 3461 Disclosure Requirements
There is no specific reference to disclosure
requirements related to post employment
benefits and compensated absences under
the ASPE standards.
An Institution would determine the required
disclosure based on the nature of the benefit
plan, and disclose information similar to the
disclosures required for pension plans of a
similar nature.
An Institution shall disclose the following
information about multiemployer plans:
(a)
a general description of the plan,
including whether the plan is a pension plan
or a plan other than a pension plan such as a
retiree health care plan, and whether the
plan is a defined benefit plan or a defined
contribution plan; and
(b)
when the plan is a multiemployer
defined benefit plan but sufficient information
January 2012
Existing disclosure requirements commercial GAAP
In some circumstances, an Institution
may be unable to obtain sufficient
information about its multiemployer
plans to disaggregate amounts it has
contributed to provide pension
benefits from amounts it has
contributed primarily to provide other
employee benefits. When such
disaggregation is impracticable, an
Institution discloses total contributions
to multiemployer plans.
Employee Future Benefits
CAUBO/ACPAU
Page 18 of 21
Public Sector Accounting Standards
PS 3250 and 3255 Disclosure
Requirements
Accounting Standards for Private
Enterprises
Section 3461 Disclosure Requirements
is not available to use defined benefit plan
accounting, and defined contribution plan
accounting is used:
(i)
the fact that the plan is a defined
benefit plan;
(ii)
the reason why it is being accounted
for as a defined contribution plan;
(iii) any available information about the plan's
surplus or deficit, and
(iv) the nature and effect of significant
changes in the contractual elements of the
plan.
January 2012
Transitional Provisions
PSA Standards
For Institutions adopting the Canadian Public Sector Accounting standards, Sections PS3250 and
PS3255 would be applied to the opening statement of financial position for the first year presented in the
financial statements for the year of adoption of those standards. The PSA standards provide certain
elections which can be applied to minimize the difficulties of retroactive application of parts of these
sections.
Based upon PS3250 and PS3255, an Institution would determine its accrued benefit obligations, postemployment benefits and compensated absences by applying a discount rate with reference to its plan
asset earnings or with reference to its cost of borrowing. Retroactive application of these sections would
require an Institution to recalculate accrued benefit obligations, post-employment benefits and
compensated absences at the time of transition to Public Sector Accounting Standards.
Institutions adopting the Public Sector Accounting standards for the first time may apply an exemption
available under PS2125, First Time Adoption by Government Organizations, to delay application of these
sections relative to the discount rate used until the date of their next actuarial valuation or within three
years of the transition date to Public Sector Accounting Standards, whichever is sooner. If a first-time
adopter uses this election, it must be applied to all plans.
PS3250 and PS3255 also require an Institution to amortize its actuarial gains and losses to the liability or
asset, and the related expense in a systematic and rational manner over the expected average remaining
service life of the related employee group. Retroactive application of this approach would require an
Institution to split the cumulative actuarial gains and losses from the inception of the plan until the date of
transition to Public Sector Accounting Standards into a recognized portion and an unrecognized portion.
Institutions adopting the Public Sector Accounting standards for the first time may apply an exemption
available under PS2125, First Time Adoption by Government Organizations to recognize all cumulative
actuarial gains and losses as the date of transition to Public Sector Accounting Standards directly in
accumulated surplus / deficit. Actuarial gains and losses after the date of transition to Public Sector
Accounting Standards are to be accounted for in accordance with Sections PS 3250 and PS 3255. If a
first-time adopter uses this election, it must be applied to all plans.
ASPE Standards
For Institutions adopting the Accounting Standards for Private Enterprises, and those reporting under Part
III of the CICA Handbook – Accounting Standards for Not for Profit Organizations, CICA Handbook
Section 3461 would be applied to the Institution’s opening statement of financial position for the first year
presented in the financial statements for the year of adoption of those standards. The ASPE standards
provide certain elections which can be applied to minimize the difficulties of retroactive application of
parts of these sections.
Under the deferral and amortization approach in Section 3461, an Institution may elect to use a "corridor"
method for its defined benefit plans that leaves some actuarial gains and losses unrecognized.
Retrospective application of this approach requires an Institution to split the accumulated actuarial gains
and losses from the inception of the plan until the date of transition to the ASPE standards into a
recognized portion and an unrecognized portion. Also, an Institution may not have recognized some past
service costs at the date of transition to accounting standards for private enterprises. Institutions adopting
Employee Future Benefits
CAUBO/ACPAU
Page 19 of 21
January 2012
the ASPE standards for the first time may apply an election available under section 1500, First Time
Adoption to:
(a)
recognize all accumulated actuarial gains and losses and past service costs in opening retained
earnings at the date of transition to accounting standards for private enterprises, even if it uses
the corridor approach for later actuarial gains and losses; or
(b)
carry forward unrecognized actuarial gains and losses and past service costs that were
determined previously in accordance with Section 3461, or an equivalent basis of accounting
such as IAS 19 Employee Benefits in Part I of the Handbook.
If a first-time adopter uses one of these elections, it must be applied it to all defined benefit plans.
When an Institution makes the accounting policy choice at the date of transition to measure its benefit
obligations using the funding valuation (when one is available) and to recognize all past service costs and
actuarial gains and losses in the period they arise, it applies that accounting policy to all comparative
years shown.
Where a first-time adopter had an unamortized transitional asset or an unamortized transitional obligation
in preparing financial statements using its previous accounting policies, any such transitional amount is
recognized in opening retained earnings at the date of transition to accounting standards for private
enterprises.
Employee Future Benefits
CAUBO/ACPAU
Page 20 of 21
January 2012
Closing Comments and On-Going Application
Going forward, Institutions reporting under the Canadian public sector accounting standards should
assess, with the assistance of an actuary the liability and expense relating to sick leave credits which
accumulate for employees as at the end of each fiscal year. Institutions should ensure that this
assessment considers any revisions to the entitlement to sick leave based upon changes to the collective
agreements.
Institutions should ensure that the next actuarial valuation to measure their accrued benefit obligation for
employee future benefits continues to apply a discount rate consistent with the requirements of their
selected basis of accounting.
Employee Future Benefits
CAUBO/ACPAU
Page 21 of 21
January 2012