Document ID: chunk:federal_register_of_legislation:F2024L00075:reg:38:p43
Version: federal_register_of_legislation:F2024L00075
Segment Type: reg
Provision Reference: reg 38 (pt 43/76)
Character Range: 154277–157538

because the entity's estimated earnings rate will generally be used to discount future benefits for the purpose of the actuarial review and will generally be greater than a risk-free rate.  Accordingly, deficits would be more likely to be reported under ED 179.  As employer-sponsors are generally disinclined to make contributions above those needed for funding purposes, members may incorrectly conclude their entitlements are at risk.
BC121        Some respondents to ED 179 preferred that defined benefit member liabilities be measured at the amount of vested benefits for a number of reasons, including:
(a)                   the amount of vested benefits is easier and less costly to calculate than accrued benefits;
(b)                   users, particularly members, are more familiar with the concept of vested benefits (as it is reported in individual benefit statements).  Also, users arguably have relatively less understanding of accrued benefits and what they mean in the context of a superannuation entity's financial position;
(c)                   the amount of accrued benefits is relevant to an employer-sponsor that promises a future benefit, but arguably less relevant if a plan limits its legal obligation to members to the amount of its assets net of any obligations other than member liabilities;
(d)                   vested benefits can be a reasonable proxy for accrued benefits, particularly when members are close to expected retirement age; and
(e)                   measuring defined benefit member liabilities as vested benefits would be consistent with the proposed measurement of defined contribution member liabilities.
BC122        Other respondents to ED 179 expressed a preference for defined benefit member liabilities being measured in accordance with the approach in AASB 119 for defined benefit member liabilities, noting that such an approach:
(a)                   would facilitate greater consistency between employer-sponsor and superannuation entity financial statements;
(b)                   would not impose significant additional preparation and audit costs on superannuation entities; and
(c)                   would be likely to yield a figure that is similar to the amount that would be calculated under ED 179 because:
(i)                     expected administration costs are generally not material and not normally included in calculating defined benefit member liabilities under AASB 119;
(ii)                   Superannuation Guarantee minimum benefits have meant few entities provide defined benefit entitlements that accrue materially higher levels of benefits as members approach retirement age; and
(iii)                 most defined benefit member liabilities for employers are discounted using a rate determined on the basis of government bond yields, which would generally be consistent with a risk-free rate.
BC123        However, the AASB noted the following drawbacks of requiring superannuation entities to measure defined benefit member liabilities as vested benefits or in accordance with the approach in AASB 119.
(a)                   A vested benefits approach is inconsistent with the going concern concept because it is somewhat akin to a liquidation value and therefore not consistent