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CMA Intermediate · Corporate Accounting and Auditing · Employee Benefits (Ind AS 19)

Under Ind AS 19, in a defined contribution plan, who bears the actuarial risk (that benefits will be less than expected) and the investment risk, in substance?

The employee bears both actuarial and investment risk in a defined contribution plan. The employer's obligation is limited to the agreed contribution, and the final benefit depends on contributions plus investment returns, so any shortfall in benefits falls in substance on the employee rather than on the entity.

  1. AThe employer entity
  2. BThe employeeCorrect
  3. CThe trustees of the fund jointly with the employer
  4. DThe insurance regulator

Explanation

Ind AS 19 states that in a defined contribution plan the entity's obligation is limited to the amount it agrees to contribute. The benefit depends on contributions plus investment returns, so actuarial and investment risk fall in substance on the employee. Placing the risk on the employer describes a defined benefit plan.

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