IAS 19 – Employee Benefits has been changed regarding amendments, curtailments and settlements of post-employment benefit plans effective as from 1 January 2019.
When a change to a plan – an amendment, curtailment or settlement – takes place, an entity should remeasure its net defined benefit liability or asset using the actuarial assumptions applicable as at the date of the plan change. The amendment requires an entity to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the plan change. Prior to the amendment, the standard did not specify how to determine these expenses for the period after the change to the plan.
One of the key actuarial assumptions in calculating the defined benefit obligation (DBO) and the pension expense is the discount rate. According to IAS 19, that discount rate is to be determined by reference to market yields at the end of the reporting period on high-quality corporate bonds (typically rated AA or higher) denominated in the same currency and with the same duration as the DBO. In light of the current market conditions, we consider the discount rates indicated below as generally acceptable for determining the DBO of a Swiss pension plan as of 31 December 2018:
| Duration of underlying DBO | Discount rate |
| 10 years | 0.5 % |
| 15 years | 0.8 % |
| 20 years | 1.0 % |
| 25 years | 1.2 % |
| 0.5% |
| 0.5% |
At a glance:
- The IAS 19 amendment effective as from 1 January 2019 specifies how entities determine pension expenses when changes to a defined benefit plan occur.
- The discount rate as a key actuarial assumption is to be determined by reference to market yields at the end of the reporting period on high-quality corporate bonds.
