2.1 Employee Benefits

The accounting for defined contribution and defined benefit plans is very similar under IFRS Accounting Standards and U.S. GAAP. For defined contribution plans, the cost recognized is the contribution due from the employer, and for defined benefit plans, the defined benefit obligation is the present value of benefits accrued for service. Outlined in the table below are the key differences between the two frameworks.

Topic	IFRS Accounting Standards (IAS 19, IFRIC Interpretation 14)	U.S. GAAP (ASC 420, ASC 710, ASC 712, ASC 715)
Accounting for termination benefits	Termination benefits are subject to a single recognition framework that is generally consistent with the accounting requirements for one-time benefit arrangements under U.S. GAAP.	Termination benefits are categorized into several types (e.g., special, contractual, or one-time benefit arrangements), each with its own recognition criteria.
Other long-term benefits	Other long-term employee benefits are measured at present value according to a simplified method of accounting that is similar to that often used to measure postemployment benefits under U.S. GAAP. However, IFRS Accounting Standards require entities to recognize changes in the benefit obligation in profit and loss rather than other comprehensive income (OCI).	Certain nonretirement postemployment benefits are usually measured on a present value basis, and the actuarial adjustments may be recognized initially in OCI. Many other long-term employee benefits described in IFRS Accounting Standards are not addressed by U.S. GAAP guidance on compensation.
Recognition of prepaid benefit assets	A net defined benefit asset is subject to a “ceiling” test that limits its measurement to the lower of (1) the surplus in the defined benefit plan and (2) the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.	There is no limitation on the amount of the net pension asset that can be recognized on the balance sheet.
Minimum funding requirements	To the extent that the contributions payable will not be available after they are paid into the plan, an entity must recognize a liability when the contribution arises.	An entity is not required to recognize a liability for minimum funding requirements.
Recognition of past service cost	Past service cost (equivalent to “prior service cost”) is recognized immediately in profit or loss.	Prior service cost is initially recognized in OCI and then amortized into income over the plan participants’ remaining service periods (or life expectancy if all, or almost all, of the participants are inactive).
Expected return on plan assets and net interest method	An entity determines net interest expense or income by multiplying the net defined benefit liability or asset by the discount rate.	An expected return on plan assets is a component of net periodic benefit cost and is determined on the basis of the expected long-term rate of return on plan assets. For a funded plan, this difference will often result in less periodic benefit cost under U.S. GAAP than under IFRS Accounting Standards because the expected rate of return on plan assets typically would be higher than the discount rate.
Recognition of actuarial gains and losses for defined benefit plans	An entity must immediately recognize all actuarial gains and losses in OCI. Those amounts are not recycled to profit or loss in future periods.	An entity may elect an accounting policy to (1) recognize actuarial gains and losses in OCI and then amortize them into the income statement in subsequent periods or (2) immediately recognize all such gains and losses through the income statement.
Accounting for defined benefit plan curtailments	Recognition — A curtailment gain or loss is recognized in net income when the event that causes the curtailment occurs. Measurement — A curtailment gain or loss is calculated as the change in the present value of the defined benefit obligation resulting from the curtailment (ignoring the effect of the asset ceiling if the defined benefit plan is in a surplus position). If the plan curtailment results in a change in the effect of the asset ceiling, such change is recognized in OCI.	Recognition — A curtailment gain is recognized in net income when the related employees are terminated or the entity adopts the related plan amendment, while a curtailment loss is recognized in net income when the loss is probable and estimable. Measurement — A curtailment gain or loss is made up of a portion of unamortized net prior service cost or credit, any remaining net transition obligation, and the change in the benefit obligation exceeding any offsetting unamortized actuarial gain or loss.
Accounting for defined benefit plan settlements	Recognition — A settlement gain or loss is recognized in net income when the settlement occurs. Measurement — A settlement gain or loss is calculated as the difference between the settlement price and the present value (i.e., actuarial valuation) of the settled obligation (ignoring the effect of the asset ceiling if the defined plan is in a surplus position). If the plan settlement results in a change in the effect of the asset ceiling, such change is recognized in OCI.	Recognition — A settlement gain or loss is recognized in net income when the event that relieves the pension benefit obligation occurs. Measurement — A settlement gain or loss is calculated as the net gain or loss remaining in accumulated other comprehensive income (AOCI).
Multiemployer plans	Multiemployer plans may be classified as either defined contribution or defined benefit plans depending on the economic substance of the plans’ terms. However, if defined benefit accounting is not possible, the plans are treated as defined contribution plans with additional disclosures.	Multiemployer plans are classified as defined contribution plans.
Subsidiary whose employees participate in a parent entity’s pension plans	A subsidiary whose employees participate in a parent entity’s defined benefit pension plan would account for the defined benefit cost in the subsidiary’s separate financial statements on the basis of (1) the contractual arrangement with the parent or (2) the contribution payable if no arrangement is in place.	A subsidiary whose employees participate in a parent entity’s pension plan usually would account for the plan as a multiemployer plan (i.e., a defined contribution plan) in the subsidiary’s separate financial statements.
Discount rate for defined benefit obligation	The selected discount rate should be determined at the end of the reporting period on the basis of market yields on high-quality corporate bonds (e.g., those rated AA or AAA). When there is no deep market in such bonds, government bonds are used. High-quality corporate bonds are selected on an unbiased and systematic basis.	The selected discount rate should reflect the rates at which the benefits can be effectively settled. One acceptable method of deriving the discount rate is to use high-quality bonds (e.g., those rated AA or AAA). Under U.S. GAAP, no specific guidance addresses instances in which there is no deep market in high-quality corporate bonds. An entity is allowed to construct a hypothetical portfolio of high-quality instruments with maturities that mirror the benefit obligation (also referred to as bond matching).
Actuarial valuation method for deferred compensation plans	An entity uses the unit credit method.	An entityʼs method depends on the characteristics of a plan’s benefit formula.