Proposed amendments to FRS 102 for pension accounting

The Financial Reporting Council (FRC) is considering feedback on future changes to FRS 102 in relation to multi-employer defined benefit plans and the transition from defined contribution accounting to defined benefit accounting.

Some multi-employer defined benefit plans are carrying out exercises with a view to being able to provide, for the first time, sufficient information to participating employers to facilitate the use of defined benefit accounting. FRS 102 does not set out specific requirements to address the transition from defined contribution accounting to defined benefit accounting for a multi-employer pension plan. There are differences of opinion over how related requirements of FRS 102 should be interpreted and applied to such transitions. 

As a result, the FRC has proposed new and explicit requirements for how an entity should make the transition from defined contribution accounting to defined benefit accounting when sufficient information becomes available to do so. These are set out in FRED 71.

The FRC believes that the benefits of these proposals include:

  • consistent information for users of the financial statements, given that when sufficient information becomes available in relation to a defined benefit plan it is likely to apply to all sponsoring employers participating in that plan; and
  • clarity over the requirements which may save time in the production of the financial statements.

If an entity has previously applied defined contribution accounting and has entered into an agreement that determines how it will fund a deficit, it will have recognised a deficit funding liability for the contributions payable. The difference between any deficit funding liability and the net defined benefit liability (recognised under defined benefit accounting) would need to be recognised in other comprehensive income. 

It is proposed that the amendments are effective for accounting periods beginning on or after 1 January 2020, with early application permitted. 

The relevant date for transition is the later of:

  • the actual date for which sufficient information to use defined benefit accounting becomes available; and
  • the first day of the current reporting period.

If you have any further queries about FRED 71 or any other aspects of FRS 102, please contact Danielle Stewart.