Document ID: chunk:federal_register_of_legislation:F2024L00075:reg:38:p38
Version: federal_register_of_legislation:F2024L00075
Segment Type: reg
Provision Reference: reg 38 (pt 38/76)
Character Range: 139581–142916

nature.
BC102        The AASB considered the respective legal/contractual and constructive obligations of superannuation entities and employer-sponsors and concluded that member liabilities should be recognised as liabilities of superannuation entities because:
(a)                   the obligation to fund a member's defined contribution entitlements falls on the member's superannuation entity and the obligation is legally enforceable; and
(b)                   the obligation to fund a member's defined benefit entitlements, as specified in the relevant trust deed, falls primarily on the member's plan and the obligation is contractual and/or constructive in nature.
BC103        The AASB also considered the main characteristics of superannuation members' vested and accrued benefits and noted:
(a)                   member contributions and benefit transfers into a superannuation entity fully vest in the member upon receipt by the entity;
(b)                   employer contributions on behalf of a defined contribution member fully vest with the member upon their receipt by the superannuation entity whereas employer contributions on behalf of a defined benefit member may only vest with the member progressively in line with the relevant benefit formula.  Accordingly, for the vast majority of defined contribution members, the difference between defined contribution members' vested and accrued benefits is immaterial.  However, for some defined benefit members, the amount of defined benefit members' vested benefits may be materially different from the amount of such members' accrued benefits; and
(c)                   most defined contribution members are entitled to transfer their vested benefits to another regulated superannuation entity under the Superannuation Guarantee (Administration) Act, whereas most defined benefit members are prohibited from transferring their defined benefit entitlements by the same legislation.
BC104        Accordingly, the AASB proposed in ED 179 and ED 223 that:
(a)                   consistent with the treatment of a financial liability with a demand feature under AASB 139, defined contribution members' vested benefits should be recognised as liabilities of superannuation entities; and
(b)                   consistent with the recognition of net defined benefit member liabilities of employers under AASB 119, superannuation entities should recognise defined benefit member liabilities.
BC105        Most respondents to ED 179 and ED 223 agreed with the proposal to recognise member liabilities.  However, many of them disagreed with the measurement proposals (refer to paragraphs BC120 to BC123 and BC127).

Puttable financial instruments and obligations arising on liquidation
BC106        The AASB considered the implications of applying to superannuation entities the exception to the definition of 'financial liability' in AASB 132 to classify as equity instruments certain puttable financial instruments and certain instruments that impose on an entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation of the entity.[9]
BC107        The AASB noted that applying the puttable instruments exception could give rise to inconsistent reporting outcomes – for example:
(a)                   defined contribution