The federal government enacted legislation to enhance Canada Pension Plan (CPP) benefits and increase contribution rates
On December 15, 2016, the federal government enacted legislation to enhance Canada Pension Plan (CPP) benefits and increase contribution rates. These changes, contained in Bill C-26, may impact the measurement of an entity’s defined benefit obligation (DBO) immediately.
Certain defined benefit plans have CPP components integrated into their benefit and contribution formulas and may be automatically impacted by this legislation. Other sponsors may choose to amend their plans to incorporate these changes. When measuring the DBO, IAS 19 Employee benefits paragraph 87(e)(i) requires plan sponsors to include the impact of changes to state benefits once those changes have been enacted (i.e., December 2016). Therefore, plan sponsors will need to assess the impact of these changes when measuring their obligations this year-end.
For those plans impacted, the changes will be accounted for as either:
a) a plan amendment; or
b) an actuarial gain or loss.
The impact of a plan amendment is recorded through profit or loss, while an actuarial gain or loss is recorded through other comprehensive income. Making this distinction can be difficult. Where a plan is automatically impacted by the CPP enhancement and the agreement between the sponsor and employee has not changed, this may indicate the change should be treated as an actuarial gain or loss. Each plan will have a unique plan agreement and will require a separate assessment.
For more details on the changes to CPP refer to the Department of Finance Canada.