A description of the funding arrangements, including the method used to determine the entity’s rate of contributions and any minimum funding requirements. A description of the regulatory framework in which the plan operates, for example the level of any minimum funding requirements, and any effect of the regulatory framework on the plan, such as the asset ceiling (see paragraph 64). Between conditional benefits, amounts attributable to future salary increases and other benefits.

This means there are periodic updates to the pension obligations, the fund performance and the financial health of the plan. Depending on plan participation rates, market performance and other factors, the pension plan may experience an actuarial gain or loss in their projected benefit obligation. Understanding the concept of actuarial gains and losses is essential for institutional investors, as these figures significantly impact pension accounting for defined benefit plans. As previously discussed, the funded status of a pension plan under GAAP and IFRS measures the net asset or liability difference between the value of plan assets and the projected benefit obligation (PBO). Actuarial gains and losses arise due to changes in key assumptions, particularly economic and demographic factors, used to calculate the PBO.

• Actuarial adjustments are a result of changes to an employer’s expected pension payments.
• Actuaries begin by establishing a set of assumptions based on historical data, economic forecasts, and demographic trends.
• Additionally, an actuary who is familiar with the specific industry or market can provide more accurate assumptions.
• Information about any deficit or surplus in the plan that may affect the amount of future contributions, including the basis used to determine that deficit or surplus and the implications, if any, for the entity.

Because termination benefits are not provided in exchange for service, paragraphs 70⁠–⁠74 relating to the attribution of the benefit to periods of service are not relevant. An entity shall recognise a gain or loss on the settlement of a defined benefit plan when the settlement occurs. For example, the terms of the plan may state that it will pay reduced benefits or require additional contributions from employees if the plan assets are insufficient. The measurement of the obligation reflects the best estimate of the effect of the performance target or other criteria. The discount rate reflects the time value of money but not the actuarial or investment risk. Furthermore, the discount rate does not reflect the entity‑specific credit risk borne by the entity’s creditors, nor does it reflect the risk that future experience may differ from actuarial assumptions.

Actuarial gain or loss on DBO

• An entity participating in such a plan shall obtain information about the plan as a whole measured in accordance with this Standard on the basis of assumptions that apply to the plan as a whole.
• Actuarial gains and losses are essential concepts in actuarial science, particularly in the context of pension and other post-employment benefit plans.
• These differences typically arise due to incorrect assumptions or unexpected changes in reality over time.
• Enhancement of post‑employment benefits, either indirectly through an employee benefit plan or directly.
• An entity discounts the whole of a post‑employment benefit obligation, even if part of the obligation is expected to be settled before twelve months after the reporting period.

These gains or losses are recognized under International Accounting Standards (IAS 19) and, in some cases, must be spread over a worker’s remaining service period or immediately recognized via the statement of comprehensive income. Key assumptions include demographic (life expectancy, retirement age, service period) and economic (interest rate, expected return on assets, salary increases). The process of pension accounting requires the estimation of future cash flows to pay employee benefits under a DB plan. Actuarial estimates are essential for determining the projected benefit obligation (PBO), which represents the present value of future promised benefits.

An entity applies this Standard to all such arrangements whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits. In Ind AS 19 accounting, actuarial gains and losses do not affect the profit and loss statement, however have to be disclosed by reporting entity. These figures which are not yet realised are captured separately in Other Comprehensive Income (OCI) as re-measurement effect or re-measurement reserves. This ensures that the actuarial gains and losses do not cause volatility in the profit and loss statements.

An entity shall recognise the net defined benefit liability (asset) in the statement of financial position. Determining the amount of the net defined benefit liability (asset) as the amount of the deficit or surplus determined in (a), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling (see paragraph 64). Use those assets to provide benefits to employees of more than one entity, on the basis that contribution and benefit levels are determined without regard to the identity of the entity that employs the employees. An expense when the entity consumes the economic benefit arising from service provided by an employee in exchange for employee benefits. The difference between the actual return on plan assets and expected return on plan assets is shown as changes due to plan assets and becomes a component of the re-measurement effects shown in the OCI.

Q: How are actuarial gains and losses recognized and measured?

In such cases, an entity uses current market rates of the appropriate term to discount shorter‑term payments, and estimates the discount rate for longer maturities by extrapolating current market rates along the yield curve. The total present value of a defined benefit obligation is unlikely to be particularly sensitive to the discount rate applied to the portion of benefits that is payable beyond the final maturity of the available corporate or government bonds. An entity shall use the projected unit credit method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost.

International Accounting Standard 19Employee Benefits

Deducting the fair value of any plan assets (see paragraphs 113⁠–⁠115) from the present value of the defined benefit obligation. An entity participating in such a plan shall obtain information about the plan as a whole measured in accordance with this Standard on the basis of assumptions that apply to the plan as a whole. If there is no such agreement or policy, the net defined benefit cost shall be recognised in the separate or individual financial statements of the group entity that is legally the sponsoring employer for the plan. The other group entities shall, in their separate or individual financial statements, recognise a cost equal to their contribution payable for the period. Post‑employment benefit plans are formal or informal arrangements under which an entity provides post‑employment benefits for one or more employees.

Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. This Standard does not deal with reporting by employee benefit plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans). As far as the reconciliation table goes, there is no natural interpretation of actuarial loss, other than being a balancing item. In very broad terms, actuarial loss is the combined impact of everything that didn’t happen ‘as per plan’ during the reporting period. Consider a scenario where the discount rate assumed for actuarial valuations was 5%, but the actual viable rate turned out to be 6%. The discrepancy would lead to an actuarial gain, as the liabilities would be lower than initially expected due to a higher discount rate.

Post‑employment benefits: defined benefit plans

A plan pays a benefit of CU100 for each year of service, excluding service before the age of 25. An entity shall account for a state plan in the same way as for a multi‑employer plan (see paragraphs 32⁠–⁠39). Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

Actuarial gain or loss refers to an increase or a decrease in the actuarial gains and losses projections used to value a corporation’s defined benefit pension plan obligations. The actuarial assumptions of a pension plan are directly affected by the discount rate used to calculate the present value of benefit payments and the expected rate of return on plan assets. The Financial Accounting Standards Board (FASB) SFAS No. 158 requires the funding status of pension funds to be reported on the plan sponsor’s balance sheet.

Under US GAAP, prior service cost related to a plan amendment is recognized in OCI at the date of the amendment and amortized as a component of net periodic cost in future periods. Defined Benefit Obligations may include an asset ceiling which stipulates how much surplus from the DBO plan could be transferred back to the company/reporting entity. For example, after discharging all the liability towards employee benefits, a DBO may have a surplus of Rs 100 crores. However, if the asset ceiling is 25 Crores, the entity will be allowed to transfer back only till the max of asset ceiling i.e 25 crores. Actuarial Gains/Losses Due to Experience in DBO capture the difference between the actuarial assumptions used in the previous valuation and the actuals that occurred.

Frequently Asked Questions about actuarial gains and losses

For example, the salary growth rate could have been considered as 10% however the actual growth rate was experienced by the company was only 3%. If the actuarial assumptions of salary increase, attrition rate and discount rate change from one valuation year to another, it may lead to Actuarial Gain or Loss on Plan Liabilities. Also if there is a large growth in number of employees in the company due to new joiners, this may also lead to actuarial gain/loss on Plan Liabilities.

Q: How can actuarial gains and losses be managed?

Tools like actuarial valuation software can assist in generating these disclosures, ensuring accuracy and compliance with reporting standards. In contrast, an actuarial loss occurs when the employer pays more than the projected amount. It can occur in instances when employees decide to retire early or a larger number of employees decide to retire than originally projected. In such a case, an employer needs to pay more than originally projected, resulting in a loss.