Introduction to IFRS IAS 19 Clarity and perspectives kpmg.com/be/pensions
Scope - Covers all kinds of employee benefits, not just pensions - And all forms of consideration given by an enterprise in exchange for service rendered by employees (constructive obligation) - Accounting and Reporting by Retirement Benefit Plans (IAS 26) - Share-based payment made to employees (IFRS 2) 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 2
Overview of employee benefits Short-term benefits Post-employment benefits Termination benefits Other long-term benefits 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 3
Classification of Belgian DC plans under IFRS Defined contribution Defined benefit Obligation limited to amount of contributions paid Plans under which entity has no further obligation, legal or constructive, to pay amounts in addition to contributions as set out in plan documentation All other plans Obligation to pay the agreed benefits Plans for which the entity has a legal or constructive obligation to make good any shortfall in benefits levels as set out in plan documentation 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 4
How to value Belgian DC plans under IASR19? General Principle: Belgian Defined Contribution schemes with minimum return guarantee borne by the employer are currently Defined Benefit plans under IASR 19. The paragraph IASR19.67 states that an entity shall use the Projected Unit Credit method (PUC) to determine the present value of its defined benefit obligations. The PUC method is defined by the following steps (IASR19.57): 1. Make a reliable estimate of the ultimate cost to the entity of the benefit that employees have earned in return for their service in the current and prior periods. This requires the use of estimations (actuarial assumptions) about demographic and financial variables that will affect the cost of the benefit. 2. Discount that benefit in order to determine the present value of the defined benefit obligation. 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 5
How to value Defined benefit plans? Accounting complexity in DB plans: Actuarial technique Projected unit credit method Demographic assumptions such as: Mortality Financial assumptions such as: Discount rate Estimate of ultimate cost Discounted using high quality corporate bonds (principle) Rate of employee turnover, disability, early retirement Future salary and benefit levels Usually requires involvement of an actuary DBO = Defined Benefit Obligation 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 6
Measurement of liability - Actuarial assumptions Economic assumptions (based on market expectation or depending on company experience and forecast) : Discount rate Long term return on plan assets (= DR for IASR) Salary increase Salary scale Social security increase Demographic assumptions (based on past experience) : Mortality in service and after retirement Personnel turnover Age at retirement Disability 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 7
Fair value of plan assets Plan assets are assets held by a long-term employee benefit fund and qualifying insurance policies Other insurance policies recognised as reimbursement rights Or For some specific case non qualifying assets Measure plan assets at fair value at end of reporting period 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 8
Deficit Deficit DBO exceed Assets Generally for insured pension plans (no active FF) Usually a significant liability IFRS / IAS 19 cost > premiums 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 9
Statement of financial position Defined benefit obligation - Fair value of plan assets ± Effect of asset ceiling (if any) = Net defined benefit liability (asset) 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 10
Movements for the period in net defined benefit liability Opening net defined benefit liability (asset) Defined Benefit Cost Service cost Net interest Profit or Loss Remeasurements OCI Benefit payments Contributions Statement of financial position Net defined benefit liability (asset) OCI = other comprehensive income 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 11
Contact us Muriel Lejour Director & Qualified Actuary IABE Financial Risk Management T: +32 2 708 43 74 E: mlejour@kpmg.com Gaëtan Pirart Manager Financial Risk Management T: +32 2 708 42 86 E: gpirart@kpmg.com Vincent Simonart Manager Financial Risk Management T: +32 2 708 37 36 E: vsimonart@kpmg.com kpmg.com/be/pensions kpmg.com/app 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.