Document ID: chunk:federal_register_of_legislation:F2023C00383:front:0:p15
Version: federal_register_of_legislation:F2023C00383
Segment Type: other
Provision Reference: 
Character Range: 37388–40269

the plan) a legal or constructive obligation either:
(a) to pay the employee benefits directly when they fall due; or
(b) to pay further amounts if the insurer does not pay all future employee benefits relating to employee service in the current and prior periods.
If the entity retains such a legal or constructive obligation, the entity shall treat the plan as a defined benefit plan.
47 The benefits insured by an insurance policy need not have a direct or automatic relationship with the entity's obligation for employee benefits. Post-employment benefit plans involving insurance policies are subject to the same distinction between accounting and funding as other funded plans.
48 Where an entity funds a post-employment benefit obligation by contributing to an insurance policy under which the entity (either directly, indirectly through the plan, through the mechanism for setting future premiums or through a related party relationship with the insurer) retains a legal or constructive obligation, the payment of the premiums does not amount to a defined contribution arrangement. It follows that the entity:
(a) accounts for a qualifying insurance policy as a plan asset (see paragraph 8); and
(b) recognises other insurance policies as reimbursement rights (if the policies satisfy the criterion in paragraph 116).
49 Where an insurance policy is in the name of a specified plan participant or a group of plan participants and the entity does not have any legal or constructive obligation to cover any loss on the policy, the entity has no obligation to pay benefits to the employees and the insurer has sole responsibility for paying the benefits. The payment of fixed premiums under such contracts is, in substance, the settlement of the employee benefit obligation, rather than an investment to meet the obligation. Consequently, the entity no longer has an asset or a liability. Therefore, an entity treats such payments as contributions to a defined contribution plan.

Post-employment benefits: defined contribution plans
50 Accounting for defined contribution plans is straightforward because the reporting entity's obligation for each period is determined by the amounts to be contributed for that period. Consequently, no actuarial assumptions are required to measure the obligation or the expense and there is no possibility of any actuarial gain or loss. Moreover, the obligations are measured on an undiscounted basis, except where they are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.

Recognition and measurement
51 When an employee has rendered service to an entity during a period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for that service:
(a) as a liability (accrued expense), after deducting