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Actuarial Society of the PhilippinesGuidance on Developing Actuarial ItemsIn Accordance with PAS 19 as revisedFor Retirement Plans with aDefined Contribution Structure

But are subject to a Defined Benefit Floor

This exposure draft is being provided to all members of the Society for comments. It was

prepared based on a consensus of opinion at a joint meeting of the Employee Benefits

Committee, the Professional Standards and Review Council, practicing Fellows and a member

of the current Board who is also a previous member of the PSRC.

Comments to this Exposure Draft are requested by 26 March 2014. Comments should be sent

to the PSRC through the ASP secretariat by email: actuarial@pldtdsl.net

Exposur e Draft

This guidance document is provided to all members of the Society in relation to the

development of actuarial items required for recognition and disclosure in the financial

statements of reporting entities in accordance with PAS 19, as revised.

This guidance relates specifically to valuations of retirement plans with a defined contribution

structure but with a defined benefit floor. In particular, this would apply to defined contribution

(DC) plans for entities that are covered by RA 7641, the law mandating a minimum retirement

benefit. This benefit acts as a defined benefit (DB) floor for retirement benefits of eligible

employees.

The following guidance is to be strictly observed:

1. Nature of the Plan and manner of presentation

The entire plan is to be considered as a DB Plan for purposes of the standard. This

means that all of the required disclosures and information must be provided for the entire

plan.

It must be made clear that the risks arising from the benefit guarantee apply to the plan

as a whole.

There is to be no disaggregation that could be interpreted as showing that the DC

balances are not subject to the risks that the plan becomes subject to as a result of the

DB floor.

Even in cases where reasonable expectations indicate that future DC balances will be

enough to satisfy the expected mandatory benefit, the whole plan is to be treated as a

DB plan., This means all of the information that provide the reader with an understanding

of the material circumstances, assumptions and risks involved in the plan must be

provided.

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2. Development of Actuarial Items

All of the actuarial items required for a DB plan will be provided. This includes, among

others, sensitivities on the DBO, expected projected benefit payments, explanations of

gain and loss, components of plan expense, explanation of changes in benefit obligation,

explanation of changes in plan assets and explanation of changes in retirement benefit

obligation or asset.

All of the development of the actuarial items will begin with the development of the two

key actuarial estimates:

Benefit Obligation

Current Service Cost

3. The Benefit Obligation will be the higher of the benefit liability under the DC structure (in

accordance with PAS 19) and the DBO (defined benefit obligation) of the Defined Benefit

floor, using the Projected Unit Credit (PUC) Cost Method, in accordance with PAS 19.

4. The Current Service Cost, net of interest for the year, will be the higher of the

contribution payable as a result of service rendered for the year, and the normal cost for

the DB floor, calculated using the PUC method, in accordance with PAS 19.

5. In cases, where the actuary opts to calculate the benefit obligation by projecting the DC

benefit and comparing with the DB floor:

The interest used to project the DC balance must be the discount rate used to

develop the DBO for the DB floor.

Future contributions must not be taken into account.

The DC balance must be projected using interest only.

The DB floor must be projected using survival and salary increases identical to

those assumed in order to determine the DBO for the DB floor.

The actuary must ensure that the resulting obligation is identical to the benefit

obligation defined in item 3 of this guidance.

This Exposure Draft is being released with a workbook prepared by Maria Elena B. Herrera. The

workbook provides illustrative calculations as well as more detailed discussions and

explanations that provide an understanding of the basis for this consensus guidance. To

download, please go to this adress:

https://dl.dropboxusercontent.com/u/29694377/PAS%2019%20calculations%20and%20guidance.xlsx

Please note that the PIC Q&A is not a binding guidance for accountants or auditors. Please

further note that a Standard or Guidance from the ASP, once promulgated, becomes binding for

ASP members. However, please note that use of the Sample worksheet in the workbook

provided can be used to show to auditors that the resulting obligation is equivalent.