Effect of AASB 119 ‘Employee Benefits’ on Defined Benefit Superannuation Costs Recognized by Sponsoring Employers

A comprehensive financial and superannuation projection model is developed to investigate the impact of the introduction of AASB 119 on employer sponsors of defined benefit superannuation funds. A model Plan is projected forward 25 to 30 years. It is found that closing a plan to new entrants can lead to surpluses greater than the value of future benefits, which in turn leads to distortion of the AASB 119 outcomes through aggregation of actuarial losses relative to the balance sheet asset, when these losses are recognized in retained earnings. If the plan is open to new entrants, expense items under AASB 119 have lower volatility than employer contributions, as long as the minimum actuarial losses and gains are recognized as expenses and revenues or if all actuarial losses and gains are recognized in retained earnings. It is also found that funding methods and salary inflation assumptions have a significant impact on results