by Any Plan which suggests or mandated by Law to pay employees “agreed benefits” (Determinable by various means). Further Any Actuarial Risk will be borne by Employer.
Employer’s obligation is to provide the agreed benefits to current and former employees and the actuarial and investment risk fall, in substance is on the employer. Examples are pension, gratuity, post-employment medical benefit, etc. Contribution and benefit plans can be varied like State plans, multi-Employer plans or Insured plans and they require separate disclosures in the financial statement.
Recognition of defined benefit cost
| Component | Recognition |
| Recognizing current and past periods service cost | P&L |
| Recognize the net interest on the net defined benefit liability or asset arrived using discount rate (beginning of an accounting period) | P&L |
| Remeasurement of defined benefit liability or asset consisting of: Actuarial gains/losses Return on plan assets Changes in the asset ceiling effect | Other comprehensive income (should not be reclassified to P&L in subsequent period) |
Other long-term employee benefits are all employee benefits other than short-term employee benefits, post-employment benefits and termination benefits.
The Standard does not require the measurement of other long -term employee benefits to the same degree of uncertainty as the measurement of post-employment benefits. The Standard requires a simplified method of accounting for other long-term employee benefits. Unlike the accounting required for post-employment benefits, this method does not recognise re- measurements in other comprehensive income.
Accounting treatment for defined benefit plan by an employer
- Make reliable estimate of the employee benefit amount using actuarial techniques.
- Discount such benefit using PUCM* to determine the present value of the benefit obligation and also the current service cost.
- Determine the fair value of any plan assets.
- Determine the total actuarial gain/losses to be recognized in other comprehensive income.
- On introduction or change of a plan, determine the past service cost.
- On curtailment or settlement of a plan, determine the resulting gain/loss.
Under PUCM, each period of employee service gives rise to an additional unit of benefit and such units are measured separately and added to the final obligation. It is applying the present value concept and recognizing a future value as on the balance sheet date. Actuarial gain/losses can result in an increase or decrease in either present value of a defined benefit obligation or the fair value of plan assets. Past service cost is the change in the present value of defined benefit obligations caused by employee service in prior periods.
Actuarial Valuation and Assumptions
Actuarial valuation for employee benefits aims to calculate the present value of benefit payment that will be paid to an employee in future as part of a benefit plan. Calculation of defined benefit obligation is the first step in this valuation. For the above valuation, actuaries will make assumptions to determine how likely an employee is to resign or die prior to the retirement age, how the employee salaries are expected to increase, etc.
In order to arrive at these, actuaries use probabilities for various events which are termed as actuaries’ assumptions. Actuarial assumptions should be unbiased and mutually compatible and cover both financial & demographic assumptions. Financial assumptions should be based on market expectations and also include:
| Final Assumptions | Demographic Assumptions |
| Discount rate | Probable mortality rate |
| Employee salary escalation | Employee Attrition rate |
| Medical cost escalation | Probable disability |
Recognition & Measurement
The net total of the following should be recognized in P&L, except to the extent that another IND AS permits or requires their inclusion in the asset cost:
- Service cost
- Net interest on the net defined benefit liability (asset)
- Re-measurements of the net defined benefit liability (asset)
PUCM is used to actuarially value the other long-term benefits.
