16.1 Definition

The term pension plans is not specifically used in IAS 19 (CPA Canada, 2016). Instead it refers to “post-employment benefit plans,” which are simply arrangements by which employers offer benefits to employees after the completion of their employment. However, as the term pension plan is widely used and understood, this chapter will use it to distinguish such plans from other types of post-employment benefits.

A key element in the definition of employee benefits in IAS 19 is that the benefits are payable in exchange for service by the employee. This is generally how most employees understand the concept of a pension plan: each year of employment entitles the employee to a future payment that will be received after the employee retires from the job. The pension plan is designed to encourage a sense of loyalty in the employee by providing a benefit that cannot be realized until the employee has spent often many years in the job. The plan also provides a sense of security to the employee, which is provided in exchange for the employee’s service to the company. From an accounting perspective, the important questions are: Who pays for the plan? How will the plan’s activities be measured? How will the plan be reported?