The Association of Canadian Pension Management is providing feedback on the Accounting Standards Board’s proposed amendments to the Chartered Professional Accountants of Canada’s handbook, including changes to sections covering defined benefit pension plan obligations and amalgamations.
In an open letter responding to the board’s proposal, Ric Marrero, chief executive officer of the ACPM, said when determining a pension amalgamation or split date, consideration for the actual transfers of assets and liabilities — as proposed by the board — would result in a cash-basis accounting approach, contrary to the accrual approach typically used by pensions.
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While the ACPM agrees pension plans should no longer recognize the investment asset and related obligation in a buyout arrangement when the risks of the obligation are transferred to the issuer of an annuity, this practice could also lead to pension plans taking a cash-basis approach, noted Marrero.
The ACPM also agrees pension plans should disclose the nature of buyout annuities as well as the extent of pension obligations offset by the buyout, but he added plans shouldn’t be required to disclose the risk of the pension obligation returning to the plan.
“We don’t believe this is an appropriate disclosure requirement given the nature of a buyout annuity contract, where it relieves the pension plan of the obligation that has transferred to the annuity issuer. The relevant assets are also transferred and, in such case, it doesn’t seem appropriate that a pension plan would be disclosing risks of potential return of the obligation.”
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And while the ACPM agrees a buy-in annuity should be measured at an amount equal to the related pension obligation, further guidance may be required as most defined benefit pension plans prepare financial statements with the exclusion of pension obligations, as allowed by respective pension plan regulatory authorities.
“Given that pension obligations are excluded [from financial statements], it could result in variance in practice amongst preparers, since there’s no clear guidance on the basis of measurement when pension obligations aren’t being included in financial statements,” said Marrero.
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