IAS 26 Retirement Benefit Plans - Summary

IAS 26 Accounting and Reporting by Retirement Benefit Plans

IFRS Summaries by Imad Uddin, FRM

Objective

Prescribe the accounting and reporting requirements specifically for the financial statements of retirement benefit plans themselves (as separate reporting entities).

Ensure transparency and comparability in the financial reporting of these plans to participants and other interested parties.

This standard focuses on the Plan's perspective, distinct from IAS 19 which focuses on the Employer's accounting.

Scope

Applies to the financial statements of retirement benefit plans, including reports prepared for all participants as a group.

Covers both:

Defined contribution plans.

Defined benefit plans.

Excludes:

Information provided by an employer about employee benefits under IAS 19.

Reports to individual participants about their specific benefit rights.

Plans that are essentially individual contracts between an entity and specific employees.

Key Definitions

Term	Meaning
Retirement Benefit Plan	Arrangements (formal or informal) whereby an entity provides benefits for employees on or after termination of service (either in the form of an annual income or as a lump sum) when such benefits can be determined or estimated in advance of retirement from the provisions of a document or from the entity’s practices.
Defined Contribution Plan	Retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon. (Risk on employee).
Defined Benefit Plan	Retirement benefit plans under which amounts to be paid as retirement benefits are determined by reference to a formula usually based on employees' earnings and/or years of service. (Risk on employer/plan).
Funding	The transfer of assets to an entity (the fund) separate from the employer's entity to meet future obligations for the payment of retirement benefits.
Participants	The members of a retirement benefit plan and others who are entitled to benefits under the plan.
Net Assets Available for Benefits	The assets of a plan less its liabilities, other than the actuarial present value of promised retirement benefits.
Actuarial Present Value of Promised Retirement Benefits	The present value of the expected payments by a retirement benefit plan to existing and past employees, attributable to the service already rendered. (Specific to DB plans).
Vested Benefits	Benefits, the rights to which, under the conditions of a retirement benefit plan, are not conditional on continued employment.

Financial Statements Requirements

Financial statements of a retirement benefit plan (the Plan itself) should provide information about its financial resources and activities.

Defined Contribution Plans:

Financial statements should contain a statement of net assets available for benefits.

Notes should disclose:

Description of the plan and effect of any changes during the period.

Summary of significant accounting policies.

Description of the funding policy.

Focus is on assets available, as the obligation is limited to contributions made/due.

Defined Benefit Plans:

Financial statements should contain either:

Option 1: A statement showing:

Net assets available for benefits;

Actuarial present value of promised retirement benefits (distinguishing between vested and non-vested); AND

The resulting surplus or deficit (Net Assets vs Actuarial PV).

Option 2: Statements including:

A statement of net assets available for benefits; AND

Disclosure of the actuarial present value of promised retirement benefits in the notes (distinguishing vested/non-vested); OR

A reference in the notes to an accompanying actuarial report that contains this information.

If an actuarial valuation has not been prepared at the date of the financial statements, the most recent valuation should be used as a base and the date disclosed.

The actuarial present value of promised benefits should be based on benefits promised under the terms of the plan for service rendered to date, using either current salary levels or projected salary levels (disclosure of basis required).

Measurement

Retirement benefit plan investments should be carried at fair value.

For marketable securities, fair value is usually market value.

If fair value cannot be estimated for certain investments (e.g., ownership of an entity):

Disclose the reason why fair value is not used.

Explain the basis used for valuation (e.g., cost).

Disclosures Required

Disclosure Requirement	Explanation / Detail
Description of the Plan	Type (DC/DB), classes of participants, summary of benefits promised, description of any plan termination terms.
Accounting Policies	Summary of significant policies, including basis of preparation, valuation methods for assets.
Actuarial PV of Promised Benefits (DB)	Amount, distinguishing vested/non-vested. Basis used (current or projected salaries). Key actuarial assumptions used.
Actuarial Valuation Date (DB)	Date of the most recent actuarial valuation.
Investment Policies & Risks	Description of investment policies. Fair value of major classes of investments. Details of any single investment exceeding 5% of net assets or 5% of any class. Details of investments in the employer.
Expenses	Nature and amount of administrative expenses, investment management expenses, taxes.
Funding Policy	Description of how the promised benefits are funded (employer/employee contributions).
Related Party Transactions	Disclosures as required by IAS 24.

Summary Table: Plan Types

Plan Type	Financial Statement Components	Key Disclosures
Defined Contribution	Statement of net assets available for benefits. (Statement of changes in net assets optional).	Description of plan, Funding policy, Accounting policies, Investment details.
Defined Benefit	Statement of Net Assets Available for Benefits. Statement showing Surplus/Deficit (comparing Net Assets to Actuarial PV of Benefits) OR Note disclosure of Actuarial PV. (Statement of changes in net assets / changes in PV of benefits optional but common).	Actuarial assumptions & PV of benefits (vested/non-vested), Valuation date, Funding policy, Investment details & policies, Reconciliation of PVDBO & Plan Assets (if statement shows surplus/deficit).

Key Judgments and Estimates

Determining the actuarial present value of promised retirement benefits (for DB plans), involving significant actuarial assumptions (discount rate, mortality, salary growth etc.).

Assessing the fair value of plan investments, especially for unquoted or illiquid assets.

Evaluating the plan's funding policy and commenting on its adequacy to meet promised benefits (often involves actuarial input).

Comparison with IAS 19

Aspect	IAS 26 (The Plan)	IAS 19 (The Employer)
Focus	Financial position & performance of the Plan as a separate entity.	Recognition of benefit expense & liability in the Employer's financial statements.
Applicability	Retirement Benefit Plans (Funds).	Employers sponsoring such plans.
Measurement of Obligation (DB)	Actuarial Present Value of Promised Benefits (benefits earned to date).	Present Value of Defined Benefit Obligation (PVDBO) (benefits earned to date). Conceptually similar but perspective differs.
Recognition of Liability/Asset	Plan's Surplus or Deficit (Net Assets vs APV of Benefits).	Employer's Net Defined Benefit Liability/Asset (PVDBO vs Plan Assets, subject to ceiling).
Remeasurements (DB)	Impact Net Assets Available for Benefits. Disclosed, but no specific OCI treatment prescribed for the Plan itself.	Recognized in Employer's OCI, not reclassified to P&L.

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