Defined contribution plan
The employer normally recognises the contribution payable for employee service as an expense and a liability, after deducting amounts paid, unless another standard requires inclusion in an asset. The employee generally bears investment and actuarial risk. Determine whether any additional obligation exists: a plan is not defined contribution merely because payments to a fund are specified.
Worked example
An employer must contribute 5% of employees’ $400,000 annual salaries to a fund and has no further obligation. It recognises $20,000 contribution expense; any unpaid amount is a liability.
Common mistake
Assuming the employer must recognise the present value of promised future pensions when it has no obligation beyond fixed contributions.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |