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Riley Turnbull: Good afternoon, everyone, or morning. We’ll just give people a few moments to log into the webinar and then we’ll get going.
Iman Sheikh: Thank you for joining PSAB’s webinar update on its Employee Benefits project. We have over 180 registrants for today’s session. We are very excited to provide you with an overview of our recently issued Re-exposure Draft. This webinar will take you through a project history, a brief overview of the project approach and then key components of the Re-exposure Draft. Our goal is that by the end of today’s webinar you will have a better understanding of the proposals included in the Re-exposure Draft.
We are excited about the future of this project and look forward to continued consultation with you, our interested and affected parties, who have provided invaluable feedback on this project to date.
Please note: This webinar may qualify towards fulfilling your CPD requirements. After the webinar, you must successfully complete a post-webinar quiz. The link to the post-webinar quiz is provided in one of the slides to follow. After completing the quiz, an email will be sent notifying you as to whether you successfully answered the quiz questions. Upon successful completion of the quiz, you will receive a link to your certificate of completion. If you need to retry the quiz, you will be sent a link to the quiz.
Before we start, I’d like to mention some features of our meeting.
First, we are pleased to offer French interpretation during this webinar. To listen to the webinar in French, please locate the interpretation option in the toolbar at the bottom of your Zoom window and select French.
Secondly, the PowerPoint slides are available in both English and French as well. Please note the slides in both languages can be found on the Employee Benefits webinar event page.
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This meeting will be recorded in English and in French and will be available on demand soon after today’s live session via the webinar web page.
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I’m Iman Sheikh, and I’m excited to be joined by my colleague, Riley Turnbull, to present for today’s webinar. We’re both Principals with the Public Sector Accounting Board. And we work together on the Employee Benefits project. We also work on other projects, supporting PSAB’s mission to serve the public interest by developing accounting standards and other related supporting guidance to support accountability, informed decision-making and stewardship for the Canadian public sector.
PSAB has a commitment to diversity and inclusion. In keeping with Indigenous protocol and building respectful and successful relationships with Indigenous and non-Indigenous peoples in Canada, it is customary to acknowledge the traditional territories or ancestral lands of Indigenous peoples. We’re meeting virtually, so we’d like to acknowledge that the Indigenous peoples are the traditional stewards of the lands and waters where each of us attends the meeting this afternoon or morning, depending on where you’re attending from.
I respectfully acknowledge that the land on which I live and work in Mississauga is part of the treaty and traditional territory of the Mississaugas of the Credit First Nation. This land has also been home to the Huron-Wendat, the Haudenosaunee and the Anishinaabe peoples. I recognize that this territory has been inhabited by Indigenous peoples for thousands of years long before European settlement. I’m grateful for the opportunity to live and work on this land. And I acknowledge the ongoing history, spirituality and culture of the Mississaugas of the Credit and other Indigenous peoples who continue to care for this land. I also recognize the injustices of the past and present and commit to working towards reconciliation and building respectful relationships with Indigenous communities.
Riley Turnbull: I’m Riley Turnbull, and I’m presenting today from Vancouver Island on the traditional lands of the Lekwungen-speaking peoples, the Songhees and the Esquimalt Nation.
When we acknowledge the land on which we live, work, and learn from the past, present and future Indigenous peoples, it’s just a small way in which we can affirm the past and present home of the families of this land and honour the practice of respectful acknowledgement of their deep ties to it.
Iman Sheikh: Thank you, Riley. So, in today’s session, the agenda that we will be reviewing is a brief overview of the project history, details relating to the development of the new standard, the amended discount rate proposals, and the amendments to some other topics related to PSAB’s Employee Benefits standard.
We will start today’s presentation with a brief project history.
In 2014, PSAB approved its Employee Benefits project, and work began to develop Invitation to Comment papers to solicit feedback from interested and affected parties on three core topics.
Between 2016 and 2018, three of these Invitation to Comment papers were issued. They covered the topics of Discount Rate Guidance, which was issued in November 2016; Deferral Provisions, which was issued in November 2017; and Non-traditional Pension Plans, which was issued in 2018.
In 2019, after extensive discussion regarding the feedback received on the Invitation to Comment papers, PSAB decided to revisit the project plan for the Employee Benefits project. This was done to ensure delivery of an Employee Benefits standard that responded to the most pressing needs of interested parties.
In 2020, PSAB approved its revised project plan, and staff began working on developing an Exposure Draft, which was approved in March 2021 and issued in July 2021. The current phase would focus on discount rate and deferral provisions. The comment period for the July 2021 Exposure Draft closed in November 2021.
PSAB deliberated on the feedback received between 2022 and 2024. Guidance in the Exposure Draft was updated in response to feedback received from interested parties. Upon the completion of its deliberation, PSAB decided to proceed with issuing a limited re-exposure document for comment for substantive changes made to the discount rate guidance from the proposals of the Exposure Draft issued in July 2021. The Re-exposure Draft was released for comment in October 2024. The changes to the discount rate guidance will be discussed in more detail later in the webinar.
We will now provide an overview of engagement from our interested and affected parties to various documents for comments in relation to the project.
Participation from interested parties is an essential component of standard setting and PSAB’s due process. PSAB received a lot of engagement and a large number of responses from interested parties through various stages of the project.
As noted on this slide, ITC 1 relating to deferral provisions received responses that reflected the views of over 75 interested parties, ITC 2 relating to discount rate guidance received responses that reflected views of over 50 interested parties, ITC 3 relating to non-traditional plans, received responses that reflected views of over 270 interested parties. Feedback obtained to ITC 1 and ITC 2 was considered in developing the Exposure Draft that was issued in July 2021.
The Exposure Draft released in July 2021 received responses that reflected views of over three hundred interested parties. Feedback obtained to the July 2021 Exposure Draft was considered in developing the proposals in the Re-exposure Draft.
The Re-exposure Draft was issued on October 17, 2024. The common period for the Re-exposure Draft closes on January 20, 2025.
Next, Riley will review the details relating to developing the new standard. Over to you, Riley.
Riley Turnbull: Thanks, Iman. Let’s take a look at PSAB’s approach for developing the proposals of the new Employee Benefits standard.
Initiated in 2014, the Employee Benefits project received approval for an updated project plan in June of 2020, adopting a multi-phase approach.
This phased approach segmented the project into manageable parts, allowing the board to efficiently achieve the project objective of issuing one high-quality standard to replace the existing Section PS 3250, Retirement Benefits, and Section PS 3255, Post-employment Benefits, Compensated Absences and Termination Benefits in the Public Sector Accounting Handbook, also known as the PSA Handbook.
Now, for the current phase, the board’s discussions have focused on two foundational concepts in employee benefits: discount rate and deferral provisions.
The board acknowledges that there may be other issues that require further consideration, such as the diverse forms of risk-sharing plans in the Canadian public sector. Instead of addressing all issues at once, the board decided to begin with fundamental proposals, leaving room for a future phase to consider further amendments as needed.
Although the project was approved prior to PSAB’s international strategy, the board determined that leveraging the underlying principles of the International Public Sector Accounting Standard, IPSAS 39, Employee Benefits, was the best starting point for developing proposed Section PS 3251, Employee Benefits.
A note that the proposed new section is not in addition to the existing sections PS 3250 and PS 3255. These sections would be removed from the PSA Handbook and fully replaced by the comprehensive proposals for Employee Benefits in proposed Section PS 3251.
Now, while the board’s discussions focused on discount rate and deferral provisions, it’s essential to note that these are not the only topics that are covered by either the previous Exposure Draft issued in July 2021 or the Re-exposure Draft currently out for comment. In fact, the proposed standard is intended to be comprehensive, addressing all employee benefits.
The proposals include guidance on short-term employee benefits such as wages, certain types of paid sick leave, and bonuses—areas where the existing PSA Handbook is currently silent.
Additionally, it addresses accounting for both defined contribution (DC) and defined benefit (DB) pension plans, introducing enhanced disclosure rate guidance that is absent from the existing PSA Handbook. Various risk-sharing plans are also included, such as multi-employer pension plans, plans that share risk between entities under common control, and joint defined benefit plans. Finally, the standard includes proposals related to other types of long-term employee benefits and termination benefits as well as transition provisions to facilitate the adoption of the new standard.
In developing the previously issued Exposure Draft, PSAB began with the framework of IPSAS 39, modifying its principles if they conflicted with PSAB’s conceptual framework or were deemed unsuitable for Canada’s public interest.
While PSAB made the decision to start with the IPSAS 39 principles, it’s important to again note that the revised Employee Benefits project predates the approval of PSAB’s international strategy in 2020. However, PSAB determined that developing the new standard, using IPSAS 39 principles as a starting point, was the best approach to providing a high-quality solution to interested and affected parties.
This approach allowed for flexibility to leverage IPSAS 39’s foundations while also making broader adjustments, beyond the criteria of PSAB’s international strategy, largely driven by the valuable feedback received to PSAB’s previously issued Employee Benefits Invitations to Comment.
Interestingly, the feedback from the Invitation to Comment on discount rates was very much echoed in what we heard from Exposure Draft respondents. Respondents generally supported using a different discount rate to measure post-employment benefit obligations, based on a plan’s funding status. However, concerns were raised about how a plan’s level of funding would be determined, which directly impacts its discount rate.
Iman, can you tell us a little bit more about what we heard?
Iman Sheikh: Absolutely. Thanks, Riley.
Let’s review the feedback received in relation to the discount rate guidance provided in the July 2021 Exposure Draft.
From the responses we received from interested parties, it was noted that there was general support for a differentiated discount rate approach.
However, most respondents raised concerns related to the quantitative approach to determining the funding status of a defined benefit plan. The proposed quantitative approach would result in increased costs, and administrative burden for preparers may result in an increased auditor-preparer debate and in many cases would be of limited benefit for plans that believe they are clearly in a fully funded category.
This is the themes that we heard from the feedback.
In the responses, interested parties asked for simplification of the proposed discount rate guidance. They asked for reduced prescription in the guidance and that the guidance that was provided leveraged existing funding assessments.
In response to the feedback from interested and affected parties, the discount rate proposals were simplified by removing the guidance relating to partially funded plans. The funded status assessment was amended to be less prescriptive and leveraged existing funding assessments. Riley will be discussing the simplifications in more detail shortly.
Also, new disclosure requirements were added relating to fully funded plans. We will review these disclosure requirements in more detail later in the webinar.
PSAB viewed the amendments to the discount rate guidance as substantive in nature and, therefore, decided to pursue a limited re-exposure due to the significance of the changes to this guidance.
However, there were areas where some non-substantive amendments were made. These non-substantive amendments are listed here, and we will come back to them later in the presentation.
Next, Riley will walk through the amended discount rate proposals. Back to you, Riley.
Riley Turnbull: Thanks for that overview, Iman.
Absolutely. Let’s take a closer look at the amended discount rate proposals in the Re-exposure Draft.
We heard from our interested and affected parties a desire for a simplified methodology for determining funding status, less prescription in the approach for determining funding status, and to leverage existing funding status evidence in place of requiring a novel quantitative assessment, as was proposed in the July 2021 Exposure Draft.
In response to this feedback, the Re-exposure Draft includes three substantive amendments where the board is seeking further feedback.
First, the Re-exposure Draft proposes to remove the classification for and proposals related to partially funded plans. These plans are those that have set aside a proportion of, but not all, assets necessary to fully satisfy the obligations of the plan. The removal of partially funded plans from the standard means a public sector entity would now only be required to make a binary assessment of whether a plan is fully funded or less than fully funded, referred to in the Re-exposure Draft as underfunded.
Second, the Re-exposure Draft proposes a simplified funding status assessment that leverages existing evidence of a plan’s funding status and allows for additional professional judgment in assessing whether the plan’s assets are sufficient to meet its long-term obligations, rather than that complex model that we proposed in the July 2021 Exposure Draft. The amended approach is intended to address concerns that a single bright line test will result in a plan being inappropriately assessed as fully funded or underfunded based purely on a point in time estimate without considering the long-term funding horizon and unique facts and circumstances of these plan arrangements. We’ll talk a little bit more about this shortly.
Finally, with increased professional judgment in the measurement of what is often a material financial statement balance with significant measurement uncertainty, the board determined that the sensitivity disclosure for fully funded plans should include the estimated impact of applying an underfunded plan discount rate on the measurement of the defined benefit obligation.
Let’s talk about that first key amendment: the removal of a proposed distinct discount rate for partially funded pension plans.
Partially funded plans, again, by definition, are those that fall somewhere between fully funded, having sufficient assets to satisfy all of the plan’s existing obligations, and unfunded, having no assets to satisfy these obligations.
The level of prescription necessary to assess the funding status of such plans and determining discount rate was a significant driver for the complexity of the proposed funding status assessment in the July 2021 Exposure Draft, and we received feedback that this guidance may not be relevant to most plans, which in the Canadian public sector are generally either fully funded or unfunded. The removal of partially funded plans from the Re-exposure Draft means a public sector entity would now only perform a binary assessment of whether the plan is fully funded or less than fully funded, now referred to in the standard as underfunded.
For fully funded plans, the discount rate to be used would be the rate that approximates the expected market-based return at the end of the reporting period unplanned assets. The rate should reflect the economic substance of the plan arrangement. Any known changes to be made to the investment policy after the end of the reporting period would be considered. The expected market-based return would also be calculated in a way that maximizes the use of relevant, observable, and verifiable inputs at the end of the reporting period and minimizes the use of unobservable inputs. Now, having said that, professional judgment and estimation techniques may be needed to determine the expected market-based return on some plant assets, such as where there’s no active market that exists for calculating a return. An example that we heard of this is infrastructure investments.
The Re-exposure Draft’s proposed discount rate for unfunded plans, now referred to as underfunded, captures all arrangements that don’t meet the definition of a fully funded plan, which is slightly amended from the previously exposed document. Where the July 2021 Exposure Draft prescribes the use of provincial government bonds to determine discount rate, the Re-exposure Draft proposes using a discount rate based on the market yield of government bonds, high quality corporate bonds or another appropriate financial instrument. This amendment is intended to allow for greater professional judgment in determining the instruments that would faithfully represent the time value of money for a plan across the diverse forms of arrangements in the Canadian public sector. Whereas just prescribing the provincial government bond rate does result in a comparable discount rate, it may in fact negatively impact faithful representation. So, there’s a balance there.
Due to the complex nature of actuarial modeling, entities are encouraged to engage appropriate actuarial professionals to assist with this work.
Now, the amended discount rate approach for the Re-exposure Draft also replaces the quantitative funding status assessment with a more integrated, evidence-based approach that leverages primary and secondary indicators and existing evidence to assess a plan’s level of funding. As such, determining whether a plan is fully funded is proposed to be driven by a comprehensive evaluation of the planned circumstances, using a mix of both qualitative and quantitative evidence.
Primary indicators of funding status include both an assessment of a plan’s actuarial valuation for funding purposes, a quantitative measure, as well as any contractual regulatory or legislative funding requirements, a qualitative measure. The board recognizes that not all funding valuations communicate the same information. By incorporating funding valuations in the assessment of a plan’s funding status, the proposed standard provides the flexibility of professional judgment to consider the substance of the arrangement and how this may or may not be reflected in a funding valuation. For many plans, an assessment of primary indicators of funding status may be sufficient to determine whether a plan is fully funded or underfunded.
Professional judgment further comes into play when the public sector entity determines that the primary indicators are insufficient to determine or faithfully represent the plan’s funding status as of the financial reporting date. Defined benefit plans are long-term arrangements, and therefore, the assessment of a single indicator such as an entity’s most recently prepared actuarial valuation for funding purposes may not accurately reflect the plan’s ability to fully fund its obligations—for example, where temporary volatility as of the report date or significant subsequent events materially affect the plan’s balances. In such cases, secondary indicators allow for the funding status assessment to include other qualitative funding status considerations that may more faithfully represent the substance of the pension arrangement. These secondary indicators allow, for example, the consideration of contingent benefits (where the funding valuation may not reflect the true funding status) and the potential for considering discretionary funding, by having the substance of the arrangement and the preponderance of evidence available, drive the assessment for funding, rather than a single criterion driven by legal, regulatory or contractual requirement.
The board acknowledges that the proposed approach is highly reliant on professional judgment in assessing the substance and circumstances of a specific plan. This results in a more subjective assessment than a strictly quantitative approach and may lead to more frequent discussions between auditors and preparers. However, the proposed approach is responsive to the Exposure Draft feedback received and provides greater flexibility to reflect the diverse landscape of public sector pension arrangements to determine whether their plan meets the definition of fully funded.
Illustrative examples are provided to help demonstrate how to determine the funding status, recognizing that this is definitely not a one-size-fits-all approach. Rather, the funding status assessment will depend on the unique facts and circumstances of each plan.
Iman Sheikh: Riley spoke about the simplified discount rate proposals and how they leveraged existing funding evidence. She noted the actuarial valuations for funding purposes are included as a primary indicator in determining whether a plan meets a definition of being fully funded. However, in accounting for defined benefit pension plans, two different valuations may be prepared: a funding valuation and an accounting valuation.
Funding valuations help to assess the financial condition of a pension plan as a whole, and it is used to determine the contributions required to ensure the plan can adequately fund plan benefits over the life of the plan. It may then inform changes to investment strategy. These valuations may be performed every few years, depending on regulatory requirements.
Accounting valuations focus on reporting of pension balances such as the net pension asset or liability and pension expense in the financial statements for a particular entity. Accounting valuations are performed annually for reporting purposes.
The limited Re-exposure Draft proposes to amend sensitivity disclosure requirements for fully funded plans to include the estimated impact of an underfunded discount rate on a public sector entity’s defined benefit obligation.
These changes reflect the guidance in PSAB’s conceptual framework, which requires prudence as an inherent characteristic of applying professional judgment. Further, the measurement of defined benefit obligations involve significant measurement uncertainty due to their long-term nature and the materiality of related balances.
Additional disclosure requirements support the accountability objective of financial reporting and provide valuable information for financial statement users. In its deliberations, PSAB determined the benefits of the added disclosures outweighed the costs required to provide them.
In the previous slides, we had listed some of the other amendments that were non-substantive in nature, and, therefore, PSAB is not asking any questions related to these in the Re-exposure Draft.
We will review these amendments next.
The non-substantive amendments are proposals that are near final, pending any impacts related to the feedback obtained for the limited re-exposure of the proposed amendments to discount rate principles.
Although interested parties were generally supportive of the July 2021 Exposure Draft proposals, interested parties asked for additional clarifications to guidance in certain areas. Non-substantive amendments were made to respond to this feedback from interested parties as a result.
Let’s explore these non-substantive amendments relating to deferral provisions, social benefit programs, classification of defined benefit plans, joint defined benefit plans, and multi-employer plans next.
PSAB is proposing certain amendments to the guidance pertaining to remeasurement gains and losses of the net defined benefit liability or asset in response to the feedback from interested and affected parties. Three areas of change to the July 2021 Exposure Draft are noted as follows.
First of these three changes is the use of accumulated remeasurements to record actuarial gains and losses. In response to the July 2021 Exposure Draft, interested parties raised concerns around using accumulated other to record actuarial gains or losses. Interested parties were concerned that accumulated other was a new component introduced in PSAB’s conceptual framework and that this component may be used to recognize items, transactions, or other events that PSAB feels should be recognized outside of surplus or deficit when they arise, to better serve the accountability objective. However, considering this feedback, PSAB proposed amendments to require actuarial gains and losses to be recorded in accumulated remeasurements gains and losses, based on their nature.
The second change was—the terminology has changed from revaluation to remeasurements. In the July 2021 Exposure Draft, actuarial gains and losses were referred to as revaluations with the intention to differentiate them from other unrealized remeasurement gains and losses, such as those related to financial instruments. Based on the proposals to record actuarial gains and losses in accumulated remeasurements based on their nature, PSAB decided to change the terminology of revaluations to remeasurements accordingly. However, they should be presented within accumulated remeasurement gains and losses separately from other remeasurement balances for enhanced transparency.
Lastly, guidance on treatment of remeasurements on settlement was added. Interested parties also requested additional guidance related to the treatment of remeasurement gains and losses on plan settlement. As a result, PSAB proposed permitting a net reclassification of remeasurement gains and losses directly to the accumulated surplus/deficit on settlement of a plan, where practicable, with no recycling to the statement of operations.
Riley Turnbull: Thanks for that. Now let’s talk a little bit about social benefit programs.
Based on the feedback we received, the Re-exposure Draft now explicitly excludes social benefit programs from the scope of the proposed standard. Some respondents questioned whether programs like the Canada Pension Plan were included within the scope, as the July 2021 Exposure Draft language suggested that all benefits with legislative or constructive obligations may be in scope.
The board has clarified in the Re-exposure Draft that such plans are outside the intended scope. These programs differ fundamentally from employee benefits, as they are designed to serve broader social policy objectives rather than being compensation for services rendered by employees to public sector entities. These social benefit programs aim to provide benefits, based on eligibility criteria, mitigate social risks, and address national needs, and do not therefore meet the definition of an employee benefit.
We also received feedback that the proposals for classifying defined benefit plans were confusing to many interested and affected parties. The existing PSA Handbook section for employee benefits included guidance for (1) multi-employer pension plans—plans that pool assets contributed by various entities not under common control, and use these assets to provide benefits to employees of more than one entity—and (2) joint defined benefit plans—certain plans in the Canadian public sector that mutually share funding contributions between a public sector entity and other parties representing plan participants.
The July 2021 Exposure Draft included additional proposals for defined benefit plans that share risk between public sector entities under common control. These are shared risk plans where all participating entities are controlled by a single public sector entity. It also included guidance for category-wide pension plans—a broad category for plans established by legislation that operate as if they are multi-employer plans for all entities in economic categories laid down in legislation.
However, respondents found these classifications, particularly for category-wide plans, to be unclear. Many questioned the relevance of category-wide plan guidance in the Canadian public sector if they were proposed to be accounted for in the same manner as multi-employer plans. To address concerns of respondents, the Re-exposure Draft has been simplified by removing category-wide plan guidance. The removal of these proposals from the Re-exposure Draft is not expected to result in a change in practice for financial statement preparers. The Re-exposure Draft also includes an illustrative decision tree to help users determine the appropriate paragraphs of the standard to apply for their specific plans.
Iman Sheikh: Thanks, Riley. So, next we’ll look at joint defined benefit plans.
The guidance related to joint defined benefit plans as provided in the July 2021 Exposure Draft was amended to respond to feedback from interested parties also.
The July 2021 Exposure Draft directed public sector entities to apply guidance related to multi-employer plans when accounting for joint defined benefit plans. However, interested parties raised concerns with this approach, stating that participants of multi-employer plans may account for their plans on a defined contribution basis (when sufficient information is not available). Aligning the treatment to multi-employer plans may result in a change in practice. PSAB concluded that the intent was not to significantly alter the guidance for joint defined benefit plans, as provided in Section PS 3250. As a result, amendments were made to direct public sector entities to apply guidance related to defined benefit plans in accounting for their proportionate share of a joint defined benefit plan, instead of the guidance related to multi-employer plans.
Multi-employer plan guidance in the July 2021 Exposure Draft included a requirement to perform an assessment to determine if sufficient information was available to participants to enable them to account for their proportionate share of the defined benefit multi-employer plan. This requirement was not found in Section 3250.
Interested parties raised concerns over the ability of plan administrators in supplying sufficient information to participants of such plans to allow accounting of their proportionate share of a defined benefit multi-employer plan.
In its deliberations, PSAB reaffirmed that an assessment of sufficient information was an improvement over the blanket exemption from defined benefit accounting, as provided under Section 3250, and which allowed participants to apply defined contribution accounting as a default. PSAB also acknowledged that the requirements for an assessment of sufficient information may result in additional work for participating entities and plan administrators of such plans. While this may result in more work to be performed, it would not necessarily result in a default to define benefit accounting by participants of multi-employer plans. PSAB acknowledged that for many plans, sufficient information may not be available and recognizes that while it would be appropriate for defined benefit plans to follow defined benefit accounting where possible, complexity in application and cost and benefit considerations would mean DC accounting is more appropriate in some instances, based on the unique facts and circumstances of plans and their participating entities.
PSAB affirmed that the guidance was conceptually sound and provided enhanced informational and accountability value for the users.
Riley Turnbull: The July 2021 Exposure Draft included prescriptive disclosure requirements for both other long-term employee benefits and termination benefits, based on the disclosure requirements for defined benefit plans, which is different from existing section PS 3255 and the requirements of IPSAS 39, which direct preparers to apply disclosures as deemed appropriate by references to other areas of the section and the PSA Handbook.
At the time, the board believed including specific disclosure guidance would reduce potential confusion in determining the disclosure requirements for these benefits. However, feedback indicated that the approach led to concerns about unnecessary or onerous disclosure requirements, particularly where these long-term benefits were not complex enough to justify defined benefit plan disclosures.
The Re-exposure Draft therefore proposes to remove this prescriptive disclosure guidance and instead directs readers to the other disclosure sections of the standard. This adjustment aligns the proposals with the disclosure requirements for these types of benefits in existing Section PS 3255 and IPSAS 39, allowing the disclosures to be tailored to the substance and complexity of the benefit. The intent here is to simplify the disclosures without compromising the relevance and decision usefulness of financial statement information to users.
Additionally, the Re-exposure Draft includes transitional provisions to mitigate the potential impact of an updated definition of plan assets that excludes non-transferable financial instruments issued by the public sector entity that were previously included in plan assets under existing sections PS 3250 and PS 3255. An entity would be permitted to retain such balances that previously met the definition of plan assets, upon transition. This approach acknowledges the potential significant impact to the measurement of plan assets upon transition, supporting comparability while avoiding significant changes that may not faithfully reflect an entity’s defined benefit obligations.
Finally, the Re-exposure Draft proposes an effective date of April 1, 2029, allowing a minimum of three full fiscal years to implement these changes after issuance.
We look forward to hearing your thoughts on PSAB’s proposals. We encourage you to write a letter or share your views on PSAB’s community platform at connect.frascanada.ca. The comment deadline for this Re-exposure Draft is January 20, 2025.
Now, our contact information for both myself and Iman is on this slide here. You will also have access to all of this material. The slide decks were mailed out to participants before, and an updated version, including the QR code on the next slide will be available shortly after.
Please feel free to reach out to either of us if we’re unable to get to your question in our Q&A portion.
And a final note that the slides, a transcript of our presentation and a recording of the webinar will be available in both English and French after the close of this webinar. It may take a bit of time for that posting to happen, but it’ll be there.
I will bring the presentation portion of this webinar to a close now to take questions from our Q&A, so please feel free to put them in there.
You’ll see a QR code for our CPD quiz on this slide. This will also go up on the webpage if you don’t have access to it, and a link will go into the chat. So, please feel free to access that and complete a quick quiz. If you’re not successful on your first attempt, please feel free to access it another time and give it another go.
Thank you very much. And we’ll move on to the Q&A session of our webinar.
Let me find where to stop sharing my screen. Thank you very much.
Perfect! So, I’ll take a look at our Q&A. We see we have some questions in here right now. All right, so… I see a question from Carolyn here, Carolyn Picard. Iman, perhaps this is a question that you could help us with: How do you expect to present the accumulated remeasurement gains and losses in the statement of financial position?
Iman Sheikh: Yes. Thank you, Riley. So, how we envisioned that this would appear would be in the statement of changes in net assets where you would have the opening balance of accumulated remeasurement gains and losses and the changes in the period. And then you have the closing balance. So, we basically, in utilizing this category, are proposing to have a separate line to capture the remeasurement gains and losses related to defined benefit pension plans. So, I hope that answers your question, Carolyn.
And I think you have another part. But I’ll defer back to Riley.
Riley Turnbull: Yes. I’ll move into the second part of the question before we move that over to our answered questions. Thank you for that. Yes, that shows up as a separate line and accumulated where measurements, gains and losses. It’s an immediate recognition approach.
Now, the second part of this question: Can you use any discount rate from PS 3251.116 to present the sensitivity analysis if you would have concluded that it’s underfunded—i.e., the market yield or market rate of an appropriate financial instrument?
Now, I believe paragraph 116 is a paragraph that’s in reference to the discount rate for underfunded plans, where it details that you can utilize a rate that’s based on high quality government bonds, high quality corporate debt, or another financial instrument. So, important note here is that the enhanced sensitivity analysis disclosure at the underfunded rate … You don’t have to do the extra piece of the fully funded to underfunded, because that’s only for fully funded plans. Now, if you concluded that it’s underfunded, can you use any discount rate from there? You can use the discount rate that based on the proposals provides the faithful representation of the timing and cost and currency of your obligation stream. So, there is some work in determining what the appropriate rate is there. And then additional sensitivity disclosure analysis is basically just around the significant actuarial inputs, not so much as a part of the enhanced sensitivity disclosures. So, hopefully that answered your question.
It’s just going to take me a second to read some of these. We’ll just go into it.
I see, referring to examples 12 and 14 in the Re-exposure Draft. They appear to indicate that even if the plan’s funding policy and associated regulations require the plan to be fully funded, a very strong primary indicator, the PSAB discount rate is based on the funding status of the plan, which will vary over time. It seems to indicate that depending on the changes in market conditions, you may need to flip-flop between fully funded and underfunded at each year-end. Despite the long-term funding objective of the plan being unchanged, are these examples capturing the intention of being discussed?
Absolutely not. No, that’s not how it’s intended to work. In fact, the secondary indicators are intended to avoid exactly that situation of having a snapshot from your last funding valuation kick you in and out of being fully funded based on short-term information.
Now, mind you, where that funding valuation indicates a plan is underfunded, based on something that is non-temporary or enduring, that may be an indicator that a plan is fully funded and a change needs to happen from fully funded to underfunded. However, there may be many instances where a plan may temporarily dip between having a funding ratio of 100%, as it’s referred to. That may happen on a short-term basis. There could be temporary fluctuations. These secondary indicators are intended to allow for that flexibility beyond a point-in-time snapshot to look at the long-term funding horizon for a plan. So, it’s specifically to try to avoid this exact concern that you have there. Hopefully, that helps. We’ll certainly look forward to some feedback on those illustrative examples to make sure that that point is coming across—that we’re looking at the long-term funding objective of these plans. It’s a holistic assessment.
All right. I see a question here. Also from Murray! Thank you for the question. I’ll read it off:
A follow-on from my previous question: Can you confirm that both primary indicators need to be met for full funding, and none or only one is met you consider secondary indicators? Or would a strong primary indicator like a funding policy that requires full funding of the plan be sufficient? The latter seems to make the most sense, but it’s inconsistent with example 14.
Would you like to take a crack at this, Iman? Or I can hop in and answer this if you’d like me to?
Iman Sheikh: Oh, please go ahead.
Riley Turnbull: Okay. All right. I just don’t want to take all the air.
You do need to look at both of the primary indicators. They’re required. So just because there is a legislative, regulatory or contractual funding requirement doesn’t necessarily mean the plan in all instances will be funded. These are both strong indicators of funding status. And the guidance does require looking at both whether there is a requirement and how that’s being actioned as of the most recent actuarial evaluation for funding purposes. Now, if those are both strong indicators of being fully funded, there’s no need to then go to secondary indicators. However, if both of them aren’t showing evidence, sufficient evidence to indicate that the plan is fully funded, that’s when you go and start looking at secondary indicators. So, if both of them aren’t met, you would potentially, yes, be looking at your secondary indicators then in order to avoid a situation where: “Oh, I don’t meet both my primary indicators! Suddenly I’m required to be underfunded.”
Question here from Malcolm Hamilton. Hi, Malcolm.
What is the estimated impact of deviating from International Public Sector Accounting Standards on the reported annual cost of Canada’s public sector DB plans? Presumably, this has been estimated and communicated to PSAB.
So that’s really a challenging question to answer on the spot—to do a full quantitative analysis of the estimated impact of a standard, considering that discount rates also vary over time. So, an assessment at one point of time would change. We do an assessment of the cost-benefit of the implementation of the standards. Doing this kind of full work like that is … there’s certainly … didn’t work around potential impact, but that’s not something that I’m able to go to provide in this session.
Certainly would welcome that feedback from you, and if you’d like to reach out to us. If there are any other questions, I’m happy to take them on, recognizing we may have time for only one more. But I don’t see any open questions at this time.
I don’t see any more coming in, so maybe I will just take this opportunity to thank all of you for being here. We’re really grateful for your feedback. We hope you take the chance to read through the Re-exposure Draft and write us either a comment letter or take our simplified survey on our connect platform. Thank you all so much. And hope you have a fantastic rest of your day! Bye for now.