ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits
Belmont Co operates a pension plan where it pays contributions to an insurer and promises employees a pension of 1/60 of final salary per year of service. Belmont has agreed to make additional payments if the insurer's assets prove inadequate. How should Belmont classify the plan under IAS 19?
The plan is defined benefit because Belmont promises a final-salary pension and must make additional payments if assets are inadequate, so it bears actuarial and investment risk. Using an insurer or paying regular contributions does not make a plan defined contribution.
- ADefined contribution, because the assets are held by a separate insurer
- BDefined benefit, because Belmont bears actuarial and investment risk through its obligation to top upCorrect
- CDefined contribution, because contributions are paid regularly
- DDefined benefit only if the plan is in deficit at the reporting date
Explanation
Classification depends on who bears actuarial and investment risk, not on whether assets are held separately or contributions are regular. Belmont promises a final-salary pension and must top up shortfalls, so it retains the risk. Classification is not determined by whether a deficit currently exists.
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