## Discussion Note: 2.23 Employee benefits – defined-benefit schemes

## Source details

**Canonical URL:** [Discussion Note: 2.23 Employee benefits – defined-benefit schemes](https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/gfsm-discussion-note-223-employee-benefits-defined-benefit-schemes.pdf)

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### Summary and purpose
- Task Team Responsible: GFS Compilation Task Team (TT1).
- Authors of Discussion Note: João Carlos Fonseca; Abdullah Alhaji Alghali.
- The Discussion Note considers whether the existing Government Finance Statistics Manual 2014 (GFSM 2014) guidance on employment-related defined-benefit pension schemes is sufficient and proposes adding measurement guidance on actuarial methods and assumptions.
- The measurement requirements proposed are to be drawn from IPSAS 39, Employee Benefits (IPSASB, 2016).

### Key background and issues
- GFSM 2014 distinguishes between pension and nonpension employment-related defined-benefit schemes (see GFSM 2014, Figure A2.2) and treats:
  - For pension schemes: contributions as an incurrence of a liability of government as employer and an equal financial asset for the employee (pension entitlements); benefit payments reduce that liability and financial asset (GFSM 2014 paragraphs 7.189–7.198 and Appendix 2).
  - For nonpension benefit schemes: social benefits are reported as expenses and contributions (actual or imputed) as compensation of employees and social contributions (GFSM 2014, paragraphs A2.64–A2.66 and Table A2.4).
- GFSM 2014 includes only legal (or contractual) obligations in liability measurement and does not include constructive obligations.
- GFSM 2014 indicates the pension entitlement is the present value of promised benefits (paragraphs 7.191, 7.197) but states that “the calculation of imputed contributions and net present value of future benefits requires advanced actuarial techniques, beyond the responsibility of GFS compilers” (paragraph A2.54).
- IPSAS 39 (2016) covers both pension and nonpension employee benefits, treats legal and constructive obligations equally, and provides detailed recording and measurement guidance (including actuarial assumptions such as discount rates, mortality, salary growth, and benefit indexation).
- Chapter 24 (paragraphs 24.157–24.183) of the 2025 SNA provides additional guidance but not to the same level of measurement detail as IPSAS 39 for employer-employee defined-benefit schemes.
- Differences in actuarial assumptions and valuation methods (discount rates, attribution of benefits to service periods, mortality assumptions, salary growth, etc.) can materially affect comparability of GFS stocks and flows.

### Options considered
- Option 1: Keep the status quo (no additional guidance in the GFSM update).
  - Advantages:
    - Maintains harmonization with other statistical standards (2025 SNA) where measurement guidance is limited.
    - Gives flexibility to compilers to use accounting data available in their national context.
  - Disadvantages:
    - May impair comparability of stocks and flows across governments due to differing measurement practices.
    - May impair understandability and decision-making where jurisdictions apply IPSAS 39 in financial statements but lack GFSM measurement guidance.
    - Possible increased compilation costs due to differing measurement requirements.
- Option 2: Add guidance in the GFSM update (core text, appendix, and/or separate compilation guidance) on measurement of defined-benefit schemes drawn from IPSAS 39, while excluding constructive obligations as defined in IPSAS 39 (since GFSM 2014 does not recognize constructive obligations).
  - Advantages:
    - Meets user needs for improved measurement guidance to support fiscal reporting and analysis.
    - Enhances comparability of stocks and flows between governments.
    - Improves understandability and decision-making in jurisdictions applying IPSAS 39-based financial statements.
    - May reduce compilation costs where IPSAS 39-based accounting data are available for use as statistical source data.
  - Disadvantages:
    - Less flexibility for jurisdictions with differing capacity or that apply accounting standards other than IPSAS.
    - Potential lack of technical capacity of statisticians to interpret actuarial calculations.
    - Risk of guidance becoming outdated if tightly linked to external standards that change.
    - Practical difficulties applying guidance due to data limitations and differing legal frameworks.
- Note: GFSM Update DN 2.21 (Social Security Schemes) addresses recognition of constructive obligations; if constructive obligations were recognized, Option 2 would need to be amended to include them.

### Draft recommendation
- The task team favors Option 2: expand GFSM 2014 and/or supplementary guidance to provide more measurement guidance on defined-benefit pension schemes to ensure comparability and support fiscal reporting and analysis.
- Because of potential implementation issues and the risk of linkage to evolving external guidance, detailed measurement guidance should be provided outside of the GFSM as supplementary guidance.
- The final GFSM text should allow for differences in national accounting frameworks, data availability, and actuarial capacity.

### Proposed additional guidance topics (to be drawn from IPSAS 39)
- Clarify definitions of defined-benefit pension schemes using supplementary information from IPSAS 39.
- Actuarial valuation method.
- Attributing benefit to periods of service.
- Actuarial assumptions — General principles.
- Actuarial assumptions — Mortality.
- Actuarial assumptions — Discount rate.
- Actuarial assumptions — Salaries, benefits and medical costs.

### Annex — Illustrative summary of proposed measurement principles (drawn from IPSAS 39)
- Objective: support statisticians and actuaries working together to measure liabilities related to employer–employee post-employment benefits. The principles below address measurement of the present value of a defined-benefit obligation.
- Definitions:
  - The present value of a defined-benefit obligation is the present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods (IPSAS 39 paragraph 8). Proposal: No change to GFSM definitions.
- Actuarial valuation method:
  - Projected unit credit method (IPSAS 39 paragraphs 69–70).
  - Eurostat: Projected benefit obligation (PBO) approach where the underlying benefit includes a factor for wage increases; Accrued benefits obligation (ABO) where such a factor is not present.
  - Proposal: Include as compilation guidance in GFSM.
- Attributing benefit to periods of service:
  - Attribute benefit to periods of service under the plan's benefit formula (IPSAS 39 paragraphs 72–76).
  - Proposal: Include as compilation guidance in GFSM.
- Actuarial assumptions — General principles:
  - Unbiased and mutually compatible (IPSAS 39 paragraphs 77–82).
  - Proposal: Include as high-level principles in GFSM.
- Actuarial assumptions — Mortality:
  - Use best estimate of mortality of plan members both during and after employment (IPSAS 39 paragraphs 83–84).
  - Eurostat: Based on scheme data and mortality tables.
  - Proposal: Include as compilation guidance in GFSM.
- Actuarial assumptions — Discount rate:
  - Reflect the time value of money consistent with the currency and estimated term of the post-employment benefit obligations (IPSAS 39 paragraphs 85–88).
  - Eurostat: Risk-free rate based on long-term maturity.
  - Proposal: Include as compilation guidance in GFSM.
- Actuarial assumptions — Salaries, benefits and medical costs:
  - Measure defined-benefit obligations reflecting:
    a. The benefits set out in the terms of the plan (or resulting from any constructive obligation that goes beyond those terms) at the end of the reporting period;
    b. Any estimated future salary increases that affect the benefits payable;
    c. The effect of any limit on the employer’s share of the cost of the future benefits;
    d. Contributions from employees or third parties that reduce the ultimate cost to the entity of those benefits; and
    e. Estimated future changes in the level of any state benefits that affect the benefits payable under a defined-benefit plan, if, and only if, either:
       (i) Those changes were enacted before the end of the reporting period; or
       (ii) Historical data, or other reliable evidence, indicate that those state benefits will change in some predictable manner, for example, in line with future changes in general price levels or general salary levels (IPSAS 39 paragraphs 89–100).
  - Eurostat: Consider future development of wages.
  - Proposal: Include as compilation guidance in GFSM.

### Questions posed for global consultation
1. Which option do you prefer (Option 1; Option 2)? Provide reasons and any alternative options.
2. Do you agree that the main principles of IPSAS 39 should be analyzed to assess their suitability to be included as guidelines in the updated GFSM and associated supplementary guidance?

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_Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/gfsm-discussion-note-223-employee-benefits-defined-benefit-schemes.pdf_