Employment Benefits
H
ot off the press! The Public Sector Accounting Board released in July an exposure draft for employee benefits. Comments to PSAB on proposed Section PS 3251 are due by November 25, 2021. Proposed Section PS 3251 would apply to fiscal years beginning on or after April 1, 2026 and should be applied retroactively. Earlier adoption is permitted. The proposed PS3251 would replace existing Section PS 3250, Retirement Benefits and Section PS 3255, PostEmployment Benefits, Compensated Absences and Termination Benefits. What is particularly notable is that this Exposure Draft leverages the principles from International Public Sector Accounting Standard (IPSAS) 39, Employment Benefits, as a starting point. The Employment Benefits exposure draft is the first to formally start with IPSAS principles as a foundation for standards development, consistent with PSAB’s international strategy approved late in 2020. The guidance in the proposed PS 3251 would apply to formal benefit plans and arrangements; informal practices creating a constructive obligation; and benefits provided under legislative requirements or industry arrangements, including joint defined benefit plans and multi-employer plans like the Municipal Pension Plan.
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This proposed section would result in public sector entities recognizing the impact of revaluations of the net defined benefit liability (asset) immediately on the statement of financial position. Public sector entities would also assess the funding status of their post-employment benefit plans to determine the appropriate rate for discounting post-employment benefit obligations. Some highlights of the proposed Section PS 3251: Consistent with existing practice, the proposed PS 3251 distinguishes the accounting for defined contribution plans and defined benefit plans. For defined contribution plans, when an employee has rendered service to a public sector entity during a period, the public sector entity should recognize the contribution payable as a liability (net of contributions already paid), and as an expense. For defined benefit plans, public sector entities use the projected unit credit method to determine the present value of defined benefit obligations and the related current service cost and, where applicable, past service cost. Public sector entities must recognize the components of defined benefit cost, including service cost in surplus or deficit; net interest on the net defined benefit
liability (asset) in surplus or deficit; and revaluations of the net defined benefit liability (asset) in net assets. Revaluations of the net defined benefit liability (asset) recognized in net assets should not be reclassified to surplus or deficit in a subsequent period. A public sector entity should classify a multi-employer plan as a defined contribution plan or a defined benefit plan under the terms of the plan. If a public sector entity participates in a multi-employer defined benefit plan, it must account for its proportionate share of the defined benefit obligation unless sufficient information is not available. In British Columbia, local governments are members of the Municipal Pension Plan, which is a multi-employer defined benefit plan. Local governments presently account for the plan using defined contribution accounting, as plan deficits/ surpluses are not split between employers. It is not expected that this accounting would change under the proposed PS 3251. Based on the Exposure Draft, defined benefit plans that share risks among various public sector entities under common control are not considered multi-employer plans. How the net benefit costs for the plan are accounted for depends on the contractual
