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In 2014, the Public Sector Accounting Board (PSAB) identified employee benefits as a top priority in the Project Priority Survey. PSAB has since been reviewing Section PS 3250
Retirement Benefits and Section PS 3255
Post-employment Benefits, Compensated Absences and Termination Benefits. These Sections have existed for decades without change, while pension plans have undergone major changes with the introduction of new types of pension plans and changes in the related accounting concepts. The PSAB intends to replace the existing two Sections with a new, comprehensive Section on employee benefits.
Due to the complexity of the topics, PSAB has decided to publish a separate Invitation to Comment (ITC) on each key issue. The ITCs are summarized below.
On November 25, 2016, PSAB issued an ITC on
Employment Benefits: Deferral Provisions in Sections PS 3250 and PS 3255. This ITC intended to seek stakeholder input prior to forming preliminary views on the deferral provisions in the employment benefits standards.
Public sector standards in Canada currently contain deferral provisions related to the deferral and amortization of actuarial gains and losses, and a deferral provision related to the valuation of plan assets at market-related values. As many equivalent employee benefits standards issued by other standard setters have moved away from the deferral approach, PSAB is evaluating whether the existing deferral provisions are still appropriate and justified for use in the Canadian public sector.
The main accounting considerations discussed within this ITC are:
Discount Rate Guidance
On November 30, 2017, PSAB issued an ITC on
Employment Benefits: Discount Rate Guidance in Section PS 3250. This ITC intended to seek stakeholder input prior to forming preliminary views on the discount rate guidance in the employment benefits standards.
Currently, there is a lack of specific guidance in Section PS 3250 related to discount rates to use in estimating accrued benefit obligations. This means that public sector entities are allowed to use plan asset earning rates to estimate their benefit obligations, while other publicly accountable organizations in Canada are required to use market yields of high-quality corporate bonds to estimate their benefit obligations. This has led to criticism that the public sector entities are reporting a more positive financial position.
This ITC identified alternative discount rate bases, including:
The ITC sought feedback on the appropriateness of the discount rate bases identified, and whether the same discount rate should apply to all benefit plans, or if it should vary based on funding policy and/or funding level.
Non-traditional Pension Plans
On October 19, 2018, PSAB issued an ITC on
Employment Benefits: Non-traditional Pension Plans. This ITC intended to seek stakeholder input prior to forming preliminary views on how to account for the accrued benefit obligation of all types of pension plans including traditional and non-traditional pension plans.
A pension plan is defined as “non-traditional” when it is neither a traditional defined contribution plan where the plan members bear all the risks, nor a traditional defined benefit plan where the employer bears all the risks. Some examples of non-traditional pension plans in which employers may share different degrees of risk related to pension benefits with employees or other employers include:
In this ITC, PSAB proposed a general principle which would apply for all types of pension plans. The general principle proposed is for an entity to recognize its share of the accrued benefit obligation of the pension plan in its financial statements, reflecting the substance of the terms in the plan and taking into consideration relevant factors, facts, events, and circumstances.
The ITC provided further guidance for how this proposed general principle would apply to the following different types of employee benefit plans:
Comments for all three ITCs are now closed. The PSAB plans to consider responses to the three ITCs when developing a statement of principles, prior to issuing an exposure draft of the proposed employment benefits standard.
The full history of this PSAB project, including related supporting materials, can be accessed
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of April 17, 2019. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2019. All rights reserved.
Categories:Public Sector Standards
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