Research Report

Research on Application of International Accounting Standard 19
in Australia and Its Implications[Revised]This is an English translation of “オーストラリアにおける国際会計
基 準 （ IAS19 ）の 適 用に関 す る海 外調 査 と示 唆 ［改 訂 版 ］ ”. The
original was issued in Japanese.

July 2011

The Japanese Society of Certified Pension Actuaries

This report is authorized to be made public at the meeting of the Board of Directors of theJapanese Society of Certified Pension Actuaries (JSCPA) held on May 19, 2011 according
to the document publication rule of JSCPA .



The contents of this report are based on the information available when the report was
authorized to be made public and are subject to change without prior notice due to changes
in the economic or social environment and revision of laws and regulations.



JSCPA assumes no responsibility for damages incurred by the use of any analysis or
simulation contained in this report.

The Japanese Society of Certified Pension Actuaries
B1F Mita NN Building
4-1-23 Shiba Minato-ku, Tokyo
108-0014 Japan
Tel: +81-(0)3-5442-0208
Fax: +81-(0)3-5442-0700

1Preface
This research report was prepared based on the field research on applying the International
Financial Reporting Standards (IFRS, mainly IAS 19 employee benefits) in Australia that was
conducted in April 2011.
Based on the progress of the convergence of Japanese standards and IFRS and the development of
discussions on the adoption of IFRS in Japan, the Accounting Standards Committee of JSCPA
conducted some field research in European countries, which have already introduced IFRS, in
September 2010 and issued the research report titled “Overseas Research on Application ofInternational Accounting Standard 19 and Its Implications” in March 2011.
At its meeting in January 2011, the Board of Directors of JSCPA authorized field research to be
carried out in Australia as with the research in European countries, and we immediately began
preparations.

Since Australia has the following characteristics, it seems to be worthwhile

expanding the range of our research.


Introduced IFRS in 2005 (similar to Europe)Conversion of its own standards with IFRS (different from Europe, similar to Japan?)Lump-sum payment is common (different from Europe, similar to Japan)DC plans are currently predominant

In fact, this research was planned partly because I had an opportunity to go on a business trip toAustralia to attend the meetings of the International Actuarial Association (IAA) in Sydney in April
2011. Takahito Hombe and I conducted the research.
In deciding on the places to visit, the following member of the Committee made arrangements forthe organizations they belonged to respectively.
Akihiro Hotta

Deloitte Touche Tohmatsu LLC

Takahito Hombe

Russell Investments

Takanobu Miwa

KPMG AZSA LLC

Shinichi Nasukawa Mercer Japan
As with the research in Europe, interviews were conducted based on a questionnaire that had been
e-mailed in advance.

I would like to thank those who kindly accepted having an interview for

sparing their valuable time.
Utilizing the face-to-face interview, we not only obtained answers but also tried to grasp thebackground to the situation. On the other hand, since the research was based on interviews, it does
not necessarily reflect statistical facts, and we may have misinterpreted some points.

Wesummarized the results by exchanging information among the two of us in order to avoid suchproblems as far as possible.
I sincerely hope these research findings and their implications will be of interest to the many
people who are interested in accounting for post-employment benefits as well as to members of
JSCPA .
July 2011
Yasuyuki Fujii, Chair
Accounting Standards Committee of JSCPA

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Table of Contents

I.

Research Method

II.

Background, Summary of Research Findings and Implications

III. Research Findings

3

I. Research Method

1. Research period
April 4–5, 2011

2. Research member
Yasuyuki Fujii(Sumitomo Trust & Banking)Takahito Hombe (Russell Investments)

3. Places to visit
Company nameInterviewee

Deloitte

Diane Somerville

KPMG

Trent Duvall, Sarah Inglis, David McNeil

MercerTim Jenkins, Mark Nelson

Russell Investments

Donald Campbell, Tim Furlan**

Tim Furlan: Vice Chair, Accounting Standards Subcommittee of PEBC of IAA**
We are grateful for the comments received from him on the draft of this report(English version).

**

PEBC: Pensions and Employee Benefits Committee
IAA: International Actuarial Association

44. Research procedure
We e-mailed the following questionnaire to the interviewees in advance.

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II. Background, Summary of Research Findings and Implications

1. Corporate pensions in Australia
In Australia, corporate pension is generally called “superannuation”.
The 1992 Superannuation Guarantee Law made superannuation compulsory which consists of
employer’s contributions (the minimum contribution was 3% at first but increased to 9% in 2002)
and employees’ contributions (voluntary). Superannuation covers not only full-time employees but
also part-time employees and fixed-term workers.

Previously, most pension plans covered high-income and long-service employees, but after its
implementation, superannuation became widespread as the second pillar of pensions in Australia.

In general, Australia is known as a country where DC is predominant, but unlike Japan, DC was
not developed by transferring from DB (including lump-sum post-employment benefits). They
enacted the law and mandatorily introduced corporate pension plans to areas that were not
traditionally covered by such plans, and this led to an increase in the number of DC. Although DB
is said to be disappearing, in fact, the number of closed-type DB (that does not accept new members,
although the members existing at the closure receive the same benefits as before) has stayed largely
stable.

One of the main features of superannuation in Australia is its management scheme. Since thelaw stipulates a mandatory minimum contribution rate, the fundamental way to manage the plan isfrom the perspective of contributions.

The DB and DC are incorporated into a single management

scheme, and it is designed to allocate employer’s contributions and employees’ contributions(voluntary) to the DB and DC components. Therefore, there is a strong sense of unity between the
DB and DC. Some participate in both the DB and DC, and some plans determine the benefits basedon a comparison between the DB and DC formulae.

Most DB formulae are relatively simple, final-salary proportional (the definition of final salaryvaries). A lot of DB funds provide lump sum only, i.e. people in those plans do not have anotherchoice. If lump-sum payments are optional, most people do choose them.

There are several

reasons for this: 1) lump-sum payments are tax-exempted for those aged 60 or over, 2) relation to themeans test of the public pension plan, and 3) some people believe lump-sum payments are easier to7leave as an inheritance.

A means test of the public pension plan is to check the amount of income and assets to see
whether pension benefits can be reduced. For example, in the case of checking the income of amarried couple, the upper income limit for receiving full benefits is A$256 (per two weeks), and theincome must not exceed A$2,454.8 (per two weeks) for partial benefits (source: AustralianGovernment, Centrelink (Website)). Therefore, they may receive more benefits from the public
pension plan if they receive a lump-sum payment and use it to cover lump-sum repayments ofmortgages or such like. As a result, the total amount of benefits may become larger.

The effect on financial report of the DB sponsor is commonly not very material and is decreasing
since the traditional DB plans cover only high-income and long-service employees, and closed-type
DB is becoming more popular. Accordingly, people are relatively uninterested in post-employment
benefits accounting.

2. Bond market in Australia

Next, let’s look at the bond market, since it is essential to understanding the practice regarding thediscount rate.

According to the Reserve Bank of Australia, the total amount of outstanding corporate bonds in
2005, when the accounting standards amended, was approximately A$380 billion (including thoseissued by financial institutions), which was larger than the A$121 billion of government bonds.
However, 75% of them were short-term corporate bonds, and long-term corporate bonds amounted
to only A$96 billion.

In addition, the issuers of high-quality corporate bonds (with a rating of AA or higher) are only
financial institutions and the largest telecommunications company in Australia. Not only is theamount of issuance small but also there are few issuers.

As such, the high-quality corporate bond market in Australia is considered to be small. In theinterview, people answered that the high-quality corporate bond market in Australia is small with
only one or two issues and no long-term corporate bonds. The discount rate in the process of
calculating DBO is generally determined by referring to yields on government bonds.

8However, the situation with the corporate bond market has been changing dramatically in recent
years. As of the end of February 2011, the total amount of corporate bonds reached nearly A$600
billion, and this figure keeps growing. In addition, the total amount of long-term corporate bonds
increased to A$230 billion, placing them on a par with long-term government bonds (A$320
billion).

If this market continues to expand, the high-quality corporate bond market may become deeper,and how to practically determine the discount rate might be re-examined in the future.

Reference・ Australian Prudential Regulation Authority, Statistics Annual Superannuation Bulletin, June
2010
・ Reserve Bank of Australia, The Australian Bond Market in 2011 and Beyond, March 15,
201194. Summary of research findings and implications

What is important when looking at the research findings is to consider ingenuities andsimplification on a practical level against the backdrop of the market size and the perspective ofmateriality in Australia.

As mentioned above, since the high-quality corporate bond market is not sufficiently deep inAustralia, determining the discount rate is generally done by referring to government bonds.

As a way to determine the discount rate, they do not use a yield curve but pick up the market yieldfrom the trading performance of government bonds which corresponds to the average period of
benefit payments calculated by some method.

In practice, most plans seemed to use the yield of the 10-year government bonds for the following
three reasons: 1) the yield curve has been very flat since they adopted IAS 19, 2) the maximum
period for issuing government bonds is 12 years, and the market yields on government bonds are
published for up to 10 years , and 3) the effect of the difference in discount rates is not large because
the sensitivity of DBO to discount rate is relatively small mainly based on the fact that lump-sum
payments are predominant.

This simplification on a practical level is observed in other aspects as well. For example, it iscommon to calculate DBO by using data before the end of the reporting period (three months before
in general; the discount rate often refers to the market yield of one month before), and they do not
implement roll forwards or make adjustments to reflect the market yields at the end of the reporting
period from the perspective of materiality.

It is also rare to use the market price itself at the end of

the reporting period for plan assets. This is because they place emphasis on ensuring consistency
between measurements of DBO and plan assets.

Furthermore, we found that they solved issues and managed practical affairs by giving sufficientconsideration to the following systems unique to Australia, for which IAS 19 does not stipulate any
concrete standard for handling.
Hybrid plan

Pension tax system

The whole concept of the actuarial practice guideline for post-employment benefits accounting
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also can be used as a reference for our thinking.

In Australia, the text of the local standard was amended to be fundamentally the same as IAS 19 in
2005. The Institute of Actuaries of Australia is preparing an actuarial practice guideline for the
local standard that corresponds to IAS 19 and is now in the final stage. The exposure draft was
opened to comments until March 18, 2011.

The actuarial practice guideline (exposure draft) is not mandatory.

However, when actual

practice significantly deviates from it, a member should consider explaining the situation to theclient and document it.
Furthermore, the actuarial practice guideline (exposure draft) says “In particular, it is noted that
the Member’s role is as an adviser and that final decisions on assumptions and methodology remain
the responsibility of the Entity. Following the instructions of the Entity represents reasonablegrounds for departure from this Practice Guideline. However, the Member should document in the
final report any instructions received, especially those that lead to results that the Member believes
are unreasonable.”11III. Research Findings

1. Discount rate

Government bond or corporate bond?
Since there are few high-quality corporate bonds in Australia (a few issues with active
trading, terms generally less than five years), and the market is not “deep”, they use
government bonds instead. Companies that apply US-GAAP may use corporate bonds.
Since issues of ultralong-term government bonds are limited, it is difficult to obtain market
yields for government bonds of 12 years or longer.

With regard to the background as to how they came to use government bonds, theinterviewees told us as follows.
・ Australian 2005 version of IAS 19 (AASB 119) used to have the Australianparagraph (see the section 9 of this report) : Aus 78.1

In applying therequirement in paragraph 78, Australia does not have a sufficiently active andliquid market for high quality corporate bonds. Accordingly, market yields on
government bonds shall be used to discount post-employment benefit obligations
denominated in Australian currency.

This had a major effect later.

・ Big four audit firms agreed to use market yields on government bonds.
・ The government bond market in Australia is not necessarily deep. However,IAS 19 stipulates the use of government bonds when the high-quality corporatebond market is not deep and does not mention the depth of the government bondmarket.
・ Although the situation of the market has changed somewhat since then, no review
has been conducted, and the original practice has been followed.

Opinions are sometimes divided over which bonds should be treated as government
bonds, the ones issued by the federal government or the ones issued by the State
governments for example New South Wales (NSW).

Yield curve
They do not generally use a yield curve. They use the market yields of government
bonds published by the Reserve Bank of Australia.
12When we looked at the website of the Reserve Bank of Australia after the interview, we
confirmed that the market yields of the federal government bonds (2, 3, 5 and 10-year) as
well as the NSW government bonds (3, 5 and 10-year) were published as the statistics ofCapital Markets Yields – Government Bonds.
(Source: http://www.rba.gov.au/statistics/tables/index.html#interest_rates)

As for the market yields on corporate bonds, which are used by companies that apply
US-GAAP, they calculate a credit spread of government bonds based on 1) the data of
Bloomberg or 2) the SWAP rate, and add it to the market yields on government bonds.

Type of discount rate
Single discount rate

Calculation method of single discount rate
They calculate the duration of DBO or the average period of benefit payments by somemethod and determine the discount rate by applying it to the market yield table by terms
published by the Reserve Bank of Australia.

In theory, when there is no matching term, interpolation/extrapolation becomes
necessary. However, in practice, since there is no material impact, the market yield of
10-year government bonds is often used as it is.

The reasons for implementing this type of practice are as follows: 1) the yield curve isvery flat compared with the rest of the world (and has been since they adopted IAS 19),
their cash rate (government overnight rate) is currently 4.75%, the 5 year rate is 4.8% and
10 year rate is 5.143%, 2)

the maximum period for issuing government bonds is 12 years,

and the market yields on government bonds are published for up to 10 years, and 3) the
effect of the difference in discount rates is not large because the sensitivity of DBO todiscount rate is relatively small mainly based on the fact that lump-sum payments are
predominant.

The reason why lump-sum payments are preferred is because lump-sum payments are
tax-exempted for those aged 60 or over, and because of the relation to the means test of the
public pension plan. And, some people believe lump-sum payments are easier to leave asa heritage.

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Treatment in the case of multiple plans
It is common to use a single discount rate (the market yield on 10-year government
bonds) for multiple plans.

However, companies that apply US-GAAP may determine thediscount rate for each plan.

Involvement of actuaries in determination of the discount rate
As with other assumptions, although the decision-making entity is a company, the roleof actuaries is significant. In most cases, the discount rate proposed by actuaries is used
as it is. However, very occasionally, companies that collect market data on their own
may express their opinions.

Other
If there are any fractions in the discount rate, they may be rounded to the nearest
thousandth of a unit (0.1%) or to the quarter of the nearest hundredth of a unit (0.25%) (theactuarial practice guideline (exposure draft) has a description on this).

2. Inflation rate

The assumption of inflation rate is determined by referring to the target inflation rate set
by the Reserve Bank of Australia or the inflation rate calculated based on inflation-linked
bonds (break-even inflation rate).

3. Salary increase

The rate of future salary increase is determined by having discussions with companies.
If there is any salary increase that has already been agreed to with parties such as labor
unions, that rate will be referenced.

4. Mortality

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Status of standard mortality table
They use the mortality table of Australia, but a very few pension plans of public officials
may prepare its own mortality rate as the group characteristics may differ.

Form of standard mortality table
The standard mortality table does not incorporate future improvements nor consist ofgeneration tables.

Device in actual application of mortality table
The mortality table may be applied by shifting ages (applying the mortality rate of (n-m)
years old to the mortality rate of n years old).

Other
Since most benefits are paid by lump-sum, the effect of the mortality rate is not
significant. Therefore, it is not given importance.

A certain firm said that it frequently uses the mortality table of the United Kingdom.
The reason for this practice is as follows:
Since not so many people receive pensions, there is no mortality table for pensioners inAustralia. Therefore, actuaries need to choose whether to use the mortality table ofpensioners overseas (the UK, in general) or the mortality table of the overall population inAustralia as basis for their assumptions.

They believe that the mortality table ofpensioners in the UK better reflects the fact that pensions are optional than the table of theoverall population in Australia.
For a similar reason, the solvency standards for life insurance in Australia specify theAustralian table for the insured, while that of the UK for pensioners.

5. Use of computational short cuts and approximation, roll forward

Fundamental idea
It is based on the materiality against the overall accounting.

Specific computational short cuts and practice of roll forward (flow of practice andcriteria for judgment)
Full actuarial valuation is conducted every year in general, but the period between the15data reference date and the end of the reporting period is typically three months. Roll
forward is done by reflecting the service cost, amount of benefits and interest cost in DBO
up to the end of the reporting period on the data reference date. Adjustments to thediscount rate to readjust it to the one as of the end of the reporting period are made byusing the sensitivity of DBO to discount rate.

However, since the effect is not so large to begin with, roll forward or adjustments of
DBO are not conducted in many cases. Since preparers of financial reports also prefer nochange in the numbers if the effect is limited, it is rare for roll forwards to be conducted.
・ The situation was different during the period from the start of the financial crisis inautumn 2008 to the first half of 2009, but the market yields on government bonds
have been stable in general with little change.
・ Since lump-sum payments are predominant, and the duration of DBO is relatively
short, the interest risk of DBO is less significant.
・ For many companies, the effect of DBO on the overall accounting is limited.
・ The data reference date is three months prior to the end of the reporting period, but
for the discount rate, the market yield one month prior is often used. The market
yields change little in one month in general.

The market price as of the end of the reporting period is rarely used for plan assets, notjust with DBO. This is because they place emphasis on ensuring consistency between
measurements of DBO and plan assets.

6. Back loading

Existence of plan that generates back loading
In general, since the benefit formula for the DB is “Final salary (for example, averagesalary for three years with the highest salary out of the final 10 years) × Years of service ×
Fixed rate”, there is considered to be no back loading. There have been no problems inthis area.

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7. IFRIC 14

There has been no issue regarding IFRIC14 in effect because the funding level of the
DB in Australia does not become so high that it requires considering a ceiling on DB
assets.

The reasons why the issue of asset ceiling rarely occurs are as follows:
In a common pension plan in Australia, the DB (closed-type with no new members inwhich additional DC is established together) and the DC (in many cases, only the DC
accepts new members) coexist in a single plan.
The law requires companies to make contributions (total of the DB and DC) that exceed
a certain level (for a common plan, contributions consist of company’s contributions (thestatutory minimum contribution rate is 9%) and employees’ contributions (voluntary,
approximately 4% on average)). Thus, if surplus funding exists in the DB in which an
additional DC is established, contributions to the DB are terminated and switched to the
DC (overflowing contributions to the DB are terminated and poured into the DC instead).

In addition, Minimum Funding Requirement is likely to have little meaning since it is
far below the contribution level of a standard company.

8. Hybrid plan

Are there hybrid plans?
Yes, there are.

Details of hybrid plan
In Australia, there are basically two types of meaning for the word hybrid plan:i.

A single plan that has two different structures, DB and DC. This means either
type of plan where members of the DB and DC are different or one where a single
member can participate in both the DB and DC at the same time. In the latter
case, a member of the DB may additionally place his or her contributions in the
DC.

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ii.

A plan where the amount of benefit will be either DB or DC, whichever is higher.
For example, there is a plan where the amount of benefit will be the lump-sum
payment of the DB or the DC balance, whichever is higher at retirement.

In thiscase, asset allocation of the DC is generally determined by a company, not by its
member.

Accounting for hybrid plan
Treatment of these types of plan is not specifically considered in IAS 19. The actuarial
practice guideline (exposure draft) states that it is necessary to handle such system byconsidering the substance of the plan.

That is, when the substance of a hybrid plan is separate DB and DC arrangements, andthe separate arrangements are material, they may be accounted for as separate plans.
When the benefit for an individual is the greater of DB and DC formulae, it may beappropriate to treat the entire benefit as DB or to treat the benefit as DC with a DB top-up.
The guideline also states that the separate treatment is a matter of accounting policy andhence the responsibility of the company, and subject to review by its auditors.

We confirmed on site that practical matters are managed in accordance with the actuarial
practice guideline (exposure draft). In addition, when they treat the entire benefit as DB,
for example, the component of DBO that corresponds to the DC will be the same as theDC balance. As a result, the difference between DBO and plan assets will be the same as
the one when treated as DC with a DB top-up.

9. IAS 19 and local GAAP

Changes in local GAAP
Before the standards were amended to ones similar to IFRS, there was no
post-employment benefits accounting standard like IAS 19. Contributions were treatedas expenses.

The local GAAP amended to be similar to IFRS was applied from 2005. The local
standard that is equivalent to IAS 19 is AASB119.

Australian Accounting Standards Board (AASB) still exists.
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The local GAAP consists of the same text as IFRS plus some new paragraphs added
originally by AASB.

Those new paragraphs unique to AASB stipulate the date ofapplication as the Australian standards for instance, and have “Aus” before each paragraphnumber to distinguish them from IFRS original paragraphs.

10. Topics regarding application of IFRS (difficulties, etc.)

We obtained the following comments:
・ Since there were no post-employment benefits accounting before theapplication of IFRS, the administrative workload at the time of application
was quite heavy.
・ Since there are many companies in Australia whose parent companies arelocated in the UK and US, they have had experience in DBO calculation.
Therefore, for actuarial consulting firms and others, the technological hurdles
they had to overcome regarding system development for calculating
obligations were not high.

11. Actuarial practice standards for IAS19

Are there direct actuarial practice standards or such like of IAS 19?
No, there aren’t.

Treatment already adopted on a practical level (alternate standards, etc.)
Since the local standard was amended to be similar to IAS 19, the actuarial practiceguideline for the local standard is now being prepared by the Institute of Actuaries ofAustralia and is now in the final stage. The exposure draft was opened to comments until
March 18, 2011.

Although the local GAAP was amended to one similar to IAS 19 six years ago, theexposure draft of the actuarial practice guideline was published in 2011. The exposure
draft was published as the guidance note in 2005, but it took six years for the guideline to19

be finalized since the Institute of Actuaries of Australia reviewed the whole concept of theactuarial guidelines after that, and the accounting standards were amended several times.

Positioning, binding force and penalty
The actuarial practice guideline (exposure draft) is not mandatory.

However, when actual practice significantly deviates from it, a member should consider
explaining the situation to the client and document it. This indicates that it is mandatory
to some extent.

Other points
Throughout the entire actuarial practice guidelines (exposure draft), the emphasis is on
issues unique to Australia.

For areas where a conflict of interest is likely to be created between actuaries and acompany, the following reminder is presented.
In particular, it is noted that the Member’s role is as an adviser and that final decisions
on assumptions and methodology remain the responsibility of the Entity. Following the
instructions of the Entity represents reasonable grounds for departure from this Practice
Guideline. However, the Member should document in the final report any instructions
received, especially those that lead to results that the Member believes are unreasonable.

12. Role of actuaries who belong to actuarial consulting firms

Involvement in actuarial practice regarding post-employment benefits accounting
In a certain consulting firm, only one actuary signs, but another actuary may sign inaddition as necessary.

Involvement in preparation of financial reports
It seems that actuaries are not generally involved in qualitative disclosure information.

Other
Since most of the DB are closed-type (no new members), the number of traditional

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actuarial services is decreasing. On the other hand, actuaries are expanding their scope ofservices in various areas including investment.

13. Involvement of actuaries who are engaged in audit work

Involvement in actuarial practice regarding post-employment benefits accounting
Actuaries are not necessarily involved in audit work of all the clients.

14. Other matters regarding post-employment benefits accounting

Current common treatments of the actuarial gains and losses
We obtained the following comments:
・ OCI recognition is common. In the case where a parent company is US
based and US-GAAP is applied, for example, delayed recognition (needless tosay) is adopted.
・ OCI recognition is common. Some companies adopt immediate recognitionin the P&L.
・ OCI recognition is common. Delayed recognition is selected most often next
to OCI recognition.

Few companies adopt immediate recognition in the

P&L.

Are there any cases where actuaries do not get involved in measuring DBO?
We obtained the responses that they had never seen such cases.

Involvement of actuaries in post-employment benefits accounting of foreign subsidiaries
It is rare for actuaries to get involved in post-employment benefits accounting of foreignsubsidiaries, but global actuaries who provide services to US parent companies may
confirm the reasonableness and compatibility of actuarial assumptions.

However, since Australia is geographically far away from other major countries, it is notcommon for actuaries in other countries to get involved directly.

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Investors’ utilization of post-employment benefits accounting (reflection in corporate
analysis, etc.)
We obtained the following comment:

In the case of deficit, future impact on cash flow (increase in contributions) may beconsidered.

Opinions and comments on the exposure draft for the amendments of IAS 19
We obtained the following comments:
・ Since the materiality of post-employment benefits is limited, there might belittle interest to begin with.
・ Companies that adopt immediate recognition in the P&L for actuarial gains
and losses may be faced with a lack of choices.
・ Since the expected rate of return is generally set higher than the discount rate,
it may be better if the expected rate of return does not exist.
・ It is not good if we have too much disclosed information. We should only
have information that is meaningful.

15. Other

Involvement of company in pension plan management
As with the UK, the basis of corporate pension plans is the trust scheme. The original
structure is that persons appointed by a company and its members serve as trustees, andthey are obliged to act only for the benefit of beneficiaries.
However, many pension plans have been using the scheme of “master trust” recently.
In this scheme, a trustee board is established first, consisting of a consulting firm (or its
employees) or third parties, and the board structures a master trust with a license from thegovernment. Then, a sub-trust committee is created for each plan, which serves as a basis
for each plan. The sub-trust committee virtually plays the role of a trustee, but the trustee
board becomes a trustee in a legal sense.

In applying accounting standards, whether a master trust falls under the category of themulti-employer plan may become a point at issue.

However, since each plan22

participating it is managed and administered separately, a master trust does not fall under
the category of a multi-employer plan.

The reason why the usage of a master trust is increasing is because it has a cost-cutting
effect since it leads to efficient management and administration.

It is the plan sponsor that generally determines the investment policy for plan assets, nota trustee board or a sub-trust committee. Therefore, it is generally the plan sponsor thatseeks advice from a consulting firm regarding the investment of plan assets.
Investors’ perspective on net income and comprehensive income
We obtained the following comments:
・ They observe net income.
・ They observe P&L. Since the impact is limited, other comprehensive income
may not be referenced. They have little interest in pensions to start with.

Dividend rule and policy
We could not obtain detailed information, but the dividend rule regarding realized gains
and losses and OCI seems to be similar to that in the UK.

Pension tax system
In Australia, pensions are taxed at contributions, investment and tax-exempted at
benefits payment. Specifically, companies can treat contributions as losses, but tax is
imposed on a pension plan for 15% of contributions. Regarding investment, 15% tax is
imposed on returns on plan assets. Benefits are tax-exempted when recipients are aged
60 or over, even if benefits are provided as lump-sum payments.

IAS 19 does not specify the treatment of these matters. One of the major challenges inAustralia is how to incorporate these issues into DBO measurement.

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