IAS 19 employee benefits and defined benefit plans

Pensions are among the largest and most volatile liabilities on many balance sheets, and their accounting rests on long-term assumptions about interest rates, salaries and how long people live. IAS 19 sets out how they and other employee benefits are measured and presented. This guide explains the four kinds of employee benefit, the difference between defined contribution and defined benefit plans, works through a defined benefit plan for a year, and covers the asset ceiling, plan changes and how IAS 19 compares with ASC 715.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 4 minute read.

Short answer

IAS 19 Employee Benefits covers everything a company gives employees in exchange for their service, except share-based payments: short-term benefits such as wages, paid leave and bonuses; post-employment benefits such as pensions and retiree medical cover; other long-term benefits; and termination benefits. Short-term benefits are expensed as the service is rendered. For a defined contribution plan, the company pays fixed contributions and expenses them; it has no further obligation. For a defined benefit plan, the company promises a level of benefit, so it bears the actuarial and investment risk: it measures the defined benefit obligation using the projected unit credit method and a discount rate based on high quality corporate bond yields, deducts plan assets at fair value, and recognises the net deficit as a liability, or a surplus as an asset limited by the asset ceiling. Service cost and net interest on the net liability go to profit or loss; remeasurements, such as actuarial gains and losses and the return on plan assets above interest income, go to other comprehensive income and are never reclassified. In this guide's example, a plan's deficit rises from CU 2,000 thousand to CU 2,180.0 thousand in a year.

At a glance

Covers
Wages to pensions
Defined contribution
Expense contributions
Defined benefit
Net liability or asset
Discount rate
Corporate bond yields
Profit or loss
Service cost, interest
OCI
Remeasurements
IAS 19 employee benefits and defined benefit plansCovers: Wages to pensions; Defined contribution: Expense contributions; Defined benefit: Net liability or asset; Discount rate: Corporate bond yields; Profit or loss: Service cost, interest; OCI: Remeasurements.KEY FACTS AT A GLANCEIAS 19 employee benefits and defined benefit plansCoversWages to pensionsDefined contributionExpense contributionsDefined benefitNet liability or assetDiscount rateCorporate bond yieldsProfit or lossService cost, interestOCIRemeasurementsTax BakersIAS 19 employee benefits and defined benefit plansCovers: Wages to pensions; Defined contribution: Expense contributions; Defined benefit: Net liability or asset; Discount rate: Corporate bond yields; Profit or loss: Service cost, interest; OCI: Remeasurements.KEY FACTS AT A GLANCEIAS 19 employee benefits anddefined benefit plansCoversWages to pensionsDefined contributionExpense contributionsDefined benefitNet liability or assetDiscount rateCorporate bond yieldsProfit or lossService cost, interestOCIRemeasurementsTax Bakers
Key facts at a glance, as set out in this guide.

What does IAS 19 cover?

  • Short-term benefits, payable within twelve months of the year end: wages, social security, paid annual and sick leave, profit-sharing and bonuses.
  • Post-employment benefits: pensions, lump sums on retirement, and post-retirement medical and life cover.
  • Other long-term benefits, such as long-service leave and long-term disability benefits.
  • Termination benefits, paid because employment ends early, whether by the company's decision or an employee accepting an offer.

Share-based payments are covered by IFRS 2 instead; see IFRS 2 share-based payment. Benefits paid to key management personnel are also disclosed by category under IAS 24.

What is the difference between defined contribution and defined benefit plans?

In a defined contribution plan, the company pays fixed contributions into a fund and has no obligation to pay more if the fund cannot pay the benefits; the contributions are its expense. In a defined benefit plan, the company promises a benefit, often based on salary and years of service, so if investments underperform or members live longer, it must make up the difference. That risk is why defined benefit plans need actuarial measurement. Multi-employer and state plans are classified by the same test.

How is a defined benefit obligation measured?

The obligation is the present value of the benefits employees have earned so far, attributed to periods of service using the projected unit credit method. The assumptions cover salary growth, staff turnover, mortality and medical costs, and the discount rate is set by reference to market yields on high quality corporate bonds of matching currency and term, or government bonds where there is no deep market in such corporate bonds. Plan assets are measured at fair value. The net defined benefit liability is the obligation less the assets; a surplus is recognised as an asset only up to the asset ceiling. See IFRS 13 fair value.

IAS 19 in practice: a defined benefit plan for one year

A company's plan starts the year with an obligation of CU 10,000 thousand and assets of CU 8,000 thousand, a deficit of CU 2,000 thousand. The discount rate is 4%. All figures are in CU thousand.

Defined benefit obligation for the year (CU thousand)Defined benefit obligation for the year (CU thousand)10,000Opening+600Servicecost+400Interestcost-500Benefitspaid+300Actuarialloss10,800Closing
Service cost and interest build the obligation; benefits paid reduce it.
ObligationPlan assetsNet liability
Opening10,0008,0002,000
Current service cost600600
Interest at 4%40032080
Contributions paid in700(700)
Benefits paid out(500)(500)0
Remeasurements300 loss100 gain200
Closing10,8008,6202,180

Profit or loss is charged with CU 680 thousand: the service cost of 600 plus net interest of 80, the discount rate applied to the opening deficit. The actuarial loss of 300, from a lower discount rate, less the 100 by which asset returns beat interest income, gives a remeasurement loss of CU 200 thousand in other comprehensive income. Benefits paid reduce both the obligation and the assets, so they do not change the deficit.

What goes to profit or loss and what to OCI?

Service cost, which includes current service cost, past service cost and gains or losses on settlements, and net interest on the net liability or asset go to profit or loss. Remeasurements go to other comprehensive income and are never reclassified to profit or loss. Under IFRS 18, from 2027, interest on a pension liability is generally classified in the financing category of the income statement. See IFRS 18 income statement categories.

What is the asset ceiling?

When plan assets exceed the obligation, the surplus is recognised only to the extent the company can benefit from it, through refunds or reductions in future contributions. IFRIC 14 explains how minimum funding requirements affect that amount. Changes in the effect of the ceiling, other than interest, are remeasurements in other comprehensive income.

What about plan amendments, curtailments and settlements?

When a plan is amended or curtailed, the company remeasures the obligation and assets using current assumptions and recognises past service cost in profit or loss immediately. A settlement, such as a buy-out of pension obligations with an insurer, gives a gain or loss in profit or loss. Termination benefits are recognised at the earlier of when the company can no longer withdraw the offer and when it recognises related restructuring costs under IAS 37; see IAS 37 restructuring provisions.

How does IAS 19 compare with ASC 715?

US GAAP pension cost uses an expected return on plan assets rather than interest at the discount rate, and amortises prior service cost and actuarial gains and losses from accumulated other comprehensive income into profit, typically using a corridor approach, so remeasurements are recycled over time. Since ASU 2017-07, only service cost may be presented in operating income. IFRS remeasurements stay in other comprehensive income permanently. See IFRS vs US GAAP key differences.

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Questions people ask

What is the difference between defined contribution and defined benefit plans under IAS 19?

In a defined contribution plan the company pays fixed contributions and has no further obligation; in a defined benefit plan it promises a level of benefit and bears the actuarial and investment risk.

What discount rate does IAS 19 use?

Market yields on high quality corporate bonds of matching currency and term, or government bonds where there is no deep market in such corporate bonds.

Where do actuarial gains and losses go under IAS 19?

To other comprehensive income, as remeasurements, and they are never reclassified to profit or loss.

What is net interest under IAS 19?

The discount rate applied to the net defined benefit liability or asset at the start of the period, adjusted for contributions and benefit payments.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 19 Employee Benefits
  2. Financial Accounting Standards Board: Accounting Standards Codification

Rules and fees change. If you are reading this long after October 21, 2026, confirm the figures with the source before you rely on them.

IAS 37IAS 37 provisions explainedIFRS 2IFRS 2 share-based payment: equity-settled and cash-settledAccounting standardsIFRS vs US GAAP: the key differences in one guide

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This guide is general information. It is not tax or legal advice for your situation.