IAS 19 - Employee benefits

Đây là một trong những Standard khó nuốt nhất của IFRS vì những practice về employee benefit chưa được phổ biến ở Việt Nam và vì cách tính toán khá complicated, subjective and predictive. However, by studying this Standard, some cheats are unveiled.
The Standard deals with the following benefits:
+ Short-term benefits
+ Post employment benefits (defined contribution & defined benefit)
+ Other long term benefits
+ Termination benefits

Scope:

1. 1 not in scope: IFRS 2 share-based payment; IAS 26 accounting and reporting by employee benefit plans
2. 2 in scope:

• * short-term benefits: monetary (salary) & non-monetary benefits (housing rent)
• * post-employment benefits: pension, post-employment life insurance
• * other long-term employee benefits: long-service leave, sabbatical leave
• * termination benefits

Ở Việt Nam, short-term benefit và termination benefits khá là phổ biến, một vài long-term benefits cũng phổ biến như nghỉ mất sức (disability benefit). Post-employment benefits có thể kể đến là bảo hiểm xã hội => sau này được chuyển thành lương hưu. Điểm khác biệt lớn nhất giữa practice của thế giới và practice ở Việt Nam đó là the money contributed to those benefits fund, esp. post-employment benefits. Ở Việt Nam, doanh nghiệp và người lao động cùng đóng góp vào bảo hiểm xã hội do Bảo hiểm xã hội Việt Nam quản lý , một cơ quan thuộc chính phủ. Mức đóng do bảo hiểm xã hội quy định, và được khấu trừ khi tính thuế thu nhập cá nhân. Bảo hiểm xã hội sử dụng nguồn này cho các hoạt động đầu tư cực kỳ thận trọng của mình. Đây có thể coi là một conservative pension fund và với tính chất contribution như vậy, mô hình của Việt Nam có thể gọi là defined contribution plan. Employer không có nghĩa vụ hay trách nhiệm đối với khoản tiền đã đóng cho bảo hiểm xã hội. Tuy nhiên, khác với defined contribution plan, employee ở Việt Nam cũng không chịu rủi ro do sự sụt giảm của the fund, ở đây Bảo hiểm xã hội là người chịu trách nhiệm chính cho fund này.
Ở nước ngoài còn có một mô hình khác đối với post-employment benefits, đó là defined benefit benefits. Đây là dạng benefits khá đặc biệt, công ty đóng góp tiền vào fund và chịu trách nhiệm cũng như quyền lợi với mọi tăng giảm của fund đó. Ưu điểm của fund này là không có giới hạn, employer và employee có thể thương thảo to put a large amount of money to that fund which is then 100% tax deductible. Mô hình này đòi hỏi chi phí quản lý rất lớn, và theo đánh giá của 1 công ty tư vấn thì mô hình này hợp với SME, những công ty chỉ có khoảng 3-4 người và những người này có thể contribute to that fund cho những năm cuối trong cuộc đời đi làm của họ, trước khi nghỉ hưu.
Personal comment: phải thừa nhận rằng, không dễ dàng gì để hiểu cách tính của defined benefit plan.

Definition: Một số khái niệm cần nắm trước khi đi sâu vào các hình thức benefits

1. 1 employee benefits: consideration given by an entity in exchange for service rendered by employees
2. 2 short-term benefits: employee benefits due <= 12 months
3. 3 post-employment benefits: employee benefits payable after the completion date of employment
4. 4 post-employment benefit plans: arrangements under which an entity provide benefits to its employees
5. 5 defined contribution plans:

• * post-employment plans
• * an entity pays FIXED contributions to a separate fund/entity
• * have no legal / constructive obligation to pay further obligations

1. 6 other long-term employee benefits: benefits not due within 12 months
2. 7 termination benefits: benefits payable when:

• * an entity terminates an employee's employment or
• * an employee accepts voluntary redundancy

1. 8 vested employee benefits: unconditional benefits
2. 9 PV of defined benefit obligation: PV of expected payments to settle employees' benefit obligation w/o deduction of any plan assets
3. 10 Current service cost: INCREASE in PV of defined benefit obligation due to employee service of current period
4. 11 Past service cost: INCREASE/ DECREASE in PV of defined benefit obligation due to introduction of / change to post-employment benefit plans
5. 12 Plan assets:

• * held by a fund/ entity which is

• + separate from reporting entity
• + existing only for employee benefits purpose

• * are not available for reporting entity's creditors
• * are returned to reporting entity only when

• + remaining assets are sufficient to meet benefit obligations; or
• + they are reimbursement to the entity

• * comprises a qualifying insurance policy which is a policy issued by an unrelated party insurer & the proceed of which is

• + used to pay employee benefit only
• + not available to reporting entity's creditors
• + not returned to reporting entity unless:

• $ it's a surplus asset to meet all benefit obligations
• $ it's a reimbursement

1. 13 Return on plan assets =

• + interest
• + dividend
• + other revenue generate from plan assets
• + realized & unrealized gains/losses
• - administration cost
• - tax payable

1. 14 Actuarial gains/losses

• * experience adjustments = actuarial assumption - actual
• * changes in actuarial assumption

Short-term employee benefits

1. 1 Recognition:

• * a liability
• * an expense
• * cost of an asset

1. 2 General treatment: undiscounted basis, no actuarial assumption, no actuarial gain / loss

1. 3 Special types

• * Short-term compensated absences

• + accumulating: carried forward, used in future
• + non accumulating

• * Profit sharing & bonus plans

• + recognition criteria: present legal / constructive obligation + reliable measure

Post-employment benefits
Phân biệt giữa defined contribution plans và defined benefit plans nằm ở trách nhiệm đối với actuarial & investment risk (who bears the risk). Under defined contribution plans, employer chỉ cần contribute fixed amount periodically và không hưởng lợi / chịu trách nhiệm từ sự tăng giảm của benefit fund. Quyền lợi và trách nhiệm đó thuộc về employee. Còn defined benefit plans thì ngược lại. Cái tên của mỗi plan đã thể hiện sự khác nhau: defined contribution cho thấy amount of contribution đã được xác định trước, còn defined benefit cho thấy amount of benefit paid to employee đã được xác định trước.

Defined benefit plan: the methodology of defining benefit obligation is extremely subjective and costly.

• Discounted basis
• Actuarial assumption
• Contributed to a separate entity / fund
• Funded (invest in plan assets) or unfunded
• Expense incurred is not the amount contributed for current period

Steps:

1. Estimated amount of payable benefit for current & prior periods, actuarial assumption = demographic variables + financial variables
2. Discounted that estimate by PUCM
3. FV of plan asset
4. Actuarial gain / loss
5. Past service cost if there’s a change to / introduction of the plan
6. Resulting gain/ loss when curtailed / settled

Explanation:

1. 1. Estimated amount of payable benefit depends on:

1. The plan
2. The base amount: final salary, fixed amount (financial variables)
3. Period of service of an employee (demographic variables)

1. 2. Discounted rate depends on:

1. Inflation
2. Market yield of high quality corporate bonds or of government bonds, or extrapolated yield
3. Not the credit risk, or actuarial risk

1. 3. Actuarial gain/ loss is due to

1. Changes in discount rate
2. Changes in estimates
3. Actual figure is unexpectedly different from estimates
4. Actual return on plan asset is different from expected return

• + Entity is permitted, not required to follow the 10% corridor => recognized as comprehensive income and added to retained earning
• + 10%corridor: a portion of actuarial gain/loss exceed the MAX [10% PV with plan asset incl. ; 10% FV of plan asset] is recognized as P&L

1. 4. Past service cost: amortized on a straight-line basis over the period until the benefits are vested. Negative cost is when the introduction of / change to benefit plan causes PV to decrease.
2. 5. FV = market price / PV of future benefits.

• + Reimbursement by a third party, excl. qualifying insurance policy – which is a plan asset, => recognized as a separate asset on BS, as comprehensive income on IS
• + Return on plan assets => actuarial gain / loss

Financial position
Defined benefit liability (A) = PV (already include total past service cost) + actuarial gain – actuarial loss – past service cost not yet recognized – FV of plan asset
If defined benefit liability <0 => defined benefit asset = MIN [ (A); (B)]
(B)= cumulative unrecognized actuarial loss + past service cost + PV of refunds

P&L
Defined benefit expense = current service cost + interest cost + expected return on asset + actuarial gain/loss + past service cost + curtailment/settlement effects + (B)’s effects
Employee’s service in later years @ higher level than earlier years => attribute benefit on a straight-line basis

Business Combination

Curtailment

• + significant reduction in the number of employees covered by the plan
• + terms of defined benefit plan amended => current employees will no longer qualify for significant benefits of future service

Settlement: all further legal / constructive obligation for part / all of benefits are eliminated

Transitional provisions: transitional liability > liability would be recognized under previous accounting policy

• + immediately recognized under IAS 8 & under (A)
• + recognized as an expense on a straight-line basis up to 5 years:
• * using MIN [ (A), (B) ] in defined benefit asset
• * subsequent actuarial gains are limited
• * related part of unrecognized transitional liability in calculating curtailment/ settlement’s gain / loss

Other long term benefits

• simplified method
• actuarial gains/losses => immediately recognized
• all past service cost => immediately recognized
• liability = PV – FV of plan asset

Termination benefits

• different from others as others relate to employee service while this relates to termination of service
• recognized as expense immediately