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The International Accounting Standards Board (IASB) has come
under fire from critics who say its rules unfairly inflate
pension deficits in defined benefit schemes because liabilities
are measured according to bond yields, which have fallen to
record lows for a prolonged period.
The sheer size of deficits in some company-defined benefit
schemes has become a stumbling block in mergers and company
rescues.
"With interest rates being so low for so long, some are
reopening an old debate about the measurement of the pension
liability," IASB Chairman Hans Hoogervorst said in a speech in
the Netherlands on Thursday.
IASB accounting standards are used in over 100 countries,
including the European Union, but not the United States.
Critics of the IASB rules say many pension funds invest in
shares, which historically have given higher returns than bonds
and therefore fewer assets should be needed to cover
liabilities.
Hoogervorst said that while its accounting rules for pension
schemes were a "bit out of date" and are being looked at by the
board, there are no grounds for radical changes.
Accounting rules provide information for investors in companies
and must therefore include risks, he said. Booking a profit from
investments in shares before they are earned would not be
prudent.
"For these reasons the IASB rejects calls to fundamentally
change pension accounting to eliminate or reduce pension
deficits," Hoogervorst said.
It is looking at how its rules could cater better for the
increased use of "hybrid" schemes which define pension
liabilities more flexibly.
Many defined benefit schemes have been closed to employees
joining a company and replaced with schemes which pay out
according to how investments perform in financial markets,
rather than based on a commitment to pay a certain amount.
(Reporting by Huw Jones; Editing by Susan Fenton)
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