Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p61
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 61/101)
Character Range: 199683–202607

on the above deliberations, the Boards decided to propose as an indicator of public sector arrangements to be accounted for as insurance contracts, the absence of a practical ability to retrospectively change coverage or benefits. The Boards also decided to propose the 'practical ability' is linked to existing or substantively enacted legislative powers. The Boards noted that, otherwise, in a public sector context, an assessment of 'practical ability' would probably need to take into account a range of factors, including whether the entity (or its controlling government) has sufficient political capital to make a change that reduces a benefit, which would not be workable.

     BC186        The Boards also decided that the existence or otherwise of 'contracts' versus legislative requirements is not, of itself, likely to be a useful indicator of arrangements that would be accounted for as insurance contracts. Instead, the Boards consider the enforceable nature of the arrangements (the absence of a practical ability to retrospectively change coverage or benefits) is the most relevant focus, not the form of the documentation of the arrangements.

Source and extent of funding

Fully funded

     BC187        One of the criteria in IPSAS 42 for being eligible to apply the insurance approach is that an arrangement is intended to be fully funded from contributions and levies. NZASB ED 2018-7 proposed using the 'fully-funded' criterion for determining whether PBE IFRS 17 would apply [ED 2018-7.AG1.1 to AG1.4].

     BC188        IPSAS 42.AG20 explains 'fully funded' as follows.
AG20 A social benefit scheme is intended to be fully funded from contributions when:
(a) The legislation or other arrangement governing the social benefit scheme provides for the scheme to be funded by contributions or levies paid by or on behalf of either the potential beneficiaries or those whose activities create or exacerbate the social risks which are mitigated by the social benefit scheme, together with investment returns arising from the contributions or levies; and
(b) One or both of the following indicators (individually or in combination) is satisfied:
(i) Contribution rates or levy rates are reviewed (and, where appropriate, adjusted in line with the scheme's funding policy), either on a regular basis or when specified criteria are met, with the aim of ensuring that the revenue from contributions or levies will be sufficient to fully fund the social benefit scheme; and/or
(ii) Social benefit levels are reviewed (and, where appropriate, adjusted in line with the scheme's funding policy), either on a regular basis or when specified criteria are met, with the aim of ensuring that the levels of social benefits provided will not exceed the level of funding available from contributions or levies.

     BC189        Some respondents to NZASB ED 2018-7 commented that the meaning of 'fully funded' is not