Potential actuarial contributions to the redesign of employers’ accounting standards for employee benefit plans (IAS 19 / SFAS 87)

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Jean-François Gavanou~Linda Thissier, France
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Summary:
The most important and widely used accounting standards for employer’s cost (IAS* 19, US GAAP*) in respect of benefit plans rely significantly on actuarial methods and a significant portion of the actuarial profession is employed by benefit plans’ sponsors to assist with the valuation of their long term accounting commitments.Benefit plans which give rise to significant financial liabilities or assets are predominantly pension plans (and related pension funds or insurance contracts) and post retirement healthcare subsidy plans. Beyond this typology, a variety of deferred compensation arrangements – often mandatory by labour legislation – are subject to periodic actuarial valuations for accounting purposes.Accounting standards applicable to employers sponsoring employee benefit plans have a very significant influence on their benefit policy, and the financial management of these funds which are also the main investors on many markets. Any evolution of these standards will therefore have a very significant impact on financial markets and coverage of employees.These accounting standards are currently under profound revision by the respective standard setters – the IASB* and the FASB*. Actuarial methods and principles rank among the key topics which are likely to be significantly revised in 2006-2008. Any modification of current actuarial methods used will have a deep impact for our profession, and it is therefore very strategic that actuaries get involved in the underlying technical debates, even if the matter is predominantly accounting.The projected unit credit method (PUCM) is currently the unique actuarial approach which can be used to report for employer’s costs in respect of benefit plans under the above mentioned accounting standards.This article intends to review and illustrate, based on the experience of the author with the implementation of IAS 19 or US GAAP principles to a variety of international benefit plans - the criticism which can be addressed to the PUCM, and make actuarial proposals for the future accounting standards to be developed.
 
Date: 30 May - Time: 13:45 to 15:15 - Room: 243
Theme: 2.B. The point of view and the role of the actuaries with respect to the new accounting standards