FRC Amendment to FRS 102 re Multi-Employer Defined Benefit Plans

On 24 May 2019, the Financial Reporting Council (FRC) issued Amendments to FRS 102 – Multi-Employer Defined Benefit Plans. 

The FRC’s press release and a link to the document can be reached here 

These are narrow-scope amendments to FRS 102 with an effective date of accounting periods commencing on or after 1 January 2020, although earlier adoption is permitted. 

Under FRS 102, where an entity which is a member of a multi-employer defined benefit pension scheme is unable to obtain sufficient information about its share of the arrangement to use defined benefit accounting, it is required to account for it as though it were a defined contribution arrangement, by recognising contributions as an expense as they fall due. 

If such an entity has entered into an agreement which determines how it would contribute to the funding of any deficit in the scheme, then it recognises a liability in its accounts for the amount which it has agreed to contribute. 

If, subsequently, sufficient information becomes available for the entity to start accounting for its share of the scheme as a defined benefit arrangement, then it must do so. 

However, FRS 102 has hitherto been silent on how the transition from defined contribution accounting to defined benefit accounting should be handled.  In particular, the question arises of how the difference between any liability arising from an agreement to fund a deficit in the scheme under defined contribution accounting, and the net defined benefit liability which will be recognised under defined benefit accounting, should be treated. 

The background to this is that the FRC has become aware that a number of employers which are members of multi-employer schemes have been taking steps to obtain sufficient information to enable them to start applying defined benefit accounting.  There is a danger that a range of different accounting treatments of the transition could emerge, which would not aid comparability between sets of accounts. 

The amendments to FRS 102 make explicit that the difference between any liability for the contributions payable arising from an agreement to fund a deficit and the net defined benefit liability arising when applying defined benefit accounting should be recognised in Other Comprehensive Income.

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