IFRIC 14
Published
IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
Addresses how a minimum funding requirement may affect the availability of economic benefits from a defined benefit plan surplus, and when it creates an additional liability.
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Conceptual Framework Linkage
Why IFRIC 14 exists as a bridge interpretation
IAS 19 introduced an "asset ceiling" rule – the present value of any economic benefits available through a defined benefit plan surplus cannot exceed the present value of those economic benefits. IFRIC 14 clarifies what "available" means, specifically addressing how a minimum funding requirement (MFR) imposed by a national regulator affects whether a surplus's economic benefits are genuinely available to the entity.
Without IFRIC 14, the asset ceiling would be calculated inconsistently across jurisdictions – entities in countries with statutory MFRs could end up with materially different balance sheets than those without, despite identical plan economics.
Two potential sources of economic benefit from a surplus
A defined benefit plan surplus can generate economic benefits in TWO ways: (1) a REFUND of surplus assets by the plan, or (2) a REDUCTION in FUTURE CONTRIBUTIONS. IFRIC 14 examines each pathway separately, because the MFR may block one pathway while leaving the other genuinely available.
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Scope & Definitions
What IFRIC 14 covers
IFRIC 14 applies to ALL defined benefit plans where the entity's right to a refund or a reduction in future contributions is SUBJECT to a minimum funding requirement (MFR) imposed by a national statute, regulator, or similar authority. It applies whether the surplus is measured under the projected unit credit method or any other actuarial method.
TYPICAL FACT PATTERNS
Pension plans in jurisdictions with statutory MFRs (e.g. UK, US, EU member states) Post-employment medical benefit plans subject to funding rules Multi-employer plans where individual employers face an MFR
Key definitions
Asset ceiling
The present value of any economic benefits available through a defined benefit plan surplus, as calculated under IAS 19.
Minimum funding requirement (MFR)
A requirement, imposed by a national statute, regulator, or similar authority, that an employer contribute or maintain a minimum level of assets in a defined benefit plan to fund benefits.
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The Asset Ceiling Recap
IAS 19's fundamental constraint
IAS 19 restricts the carrying amount of a net defined benefit ASSET to the PRESENT VALUE OF ECONOMIC BENEFITS AVAILABLE – the so-called "asset ceiling." If the actuarial present value of the plan surplus exceeds the present value of economic benefits available through refunds or reduced contributions, the net asset is written down to the ceiling. IFRIC 14 clarifies HOW to determine those economic benefits when an MFR exists.
ASSET CEILING FORMULA
Net defined benefit asset recognised = MINIMUM of (Actuarial present value of surplus, Present value of economic benefits available)
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Economic Benefits Available as a Refund
The refund pathway
A refund is available when the plan permits the entity to receive a CASH DISTRIBUTION of the surplus. The present value of this economic benefit is the PV of the refund, CALCULATED USING THE SAME DISCOUNT RATE as the defined benefit obligation.
THE MFR BLOCKS A REFUND ONLY IF
The MFR requires the entity to MAINTAIN a minimum funding level that exceeds the surplus This means a refund would directly REDUCE the plan assets below the MFR
When the MFR does NOT block the refund
If the MFR can be satisfied WITHOUT reducing plan assets below the required level – for example, because the surplus exceeds the MFR by enough to allow a partial refund – then the portion of the surplus that can be refunded IS an economic benefit available, and the asset ceiling is calculated accordingly.
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Economic Benefits Available as a Reduction in Contributions
The contribution-reduction pathway
If a refund is NOT available because the MFR blocks it, the entity must assess whether a REDUCTION IN FUTURE CONTRIBUTIONS is available. This pathway exists where the entity's required contributions in future periods are LESS than the contributions that would otherwise be required for the plan's ongoing operations.
KEY RULE
If BOTH pathways are blocked by the MFR, the net defined benefit asset is ZERO – the asset ceiling constraint reduces the carrying amount to nil If at least one pathway is genuinely available, the asset ceiling is the PV of the available benefits through that pathway
Interaction with the plan's future service period
The entity's right to reduce future contributions extends ONLY over the periods in which it would otherwise have been required to make contributions. If the entity's obligation to contribute extends indefinitely, the PV of the reduction is calculated over a longer horizon – materially affecting the asset ceiling.
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Minimum Funding Requirements Explained
The full picture of how MFRs interact with surplus availability
AspectIFRIC 14 guidance
Definition of MFRAny requirement imposed by statute, regulator, or similar authority to contribute or maintain minimum plan assets – including through a plan's own rules that operate like a statutory requirement
What the MFR restrictsThe entity's ability to receive a REFUND or reduce future contributions – it does NOT affect the amount of the net defined benefit asset under IAS 19 before applying the asset ceiling
Calculating availabilityThe entity must calculate the present value of the MAXIMUM refund or contribution reduction permitted WITHOUT violating the MFR
⚠️ An MFR that requires the entity to MAINTAIN a minimum asset level in the plan DOES restrict the economic benefits available – even if the plan's own assets exceed the MFR, the entity may not be able to access the surplus without breaching the requirement.
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When an MFR Creates an Additional Liability
The additional liability concept
IFRIC 14 goes further than just capping the net asset at zero. In some circumstances, the MFR may create an ADDITIONAL LIABILITY on the balance sheet – beyond the defined benefit obligation itself. This arises where the entity is REQUIRED to make EXTRA contributions to restore the plan to the MFR level, and those contributions are not available for refund or as a reduction in future contributions.
When the additional liability arises
ConditionOutcome
Plan assets below MFR, entity must fund the deficit to restore MFRAdditional liability equals the present value of the required contributions
Plan assets above MFR, but MFR still restricts refundsNo additional liability – only the asset ceiling may limit the net asset
MFR expires before the plan obligationAfter expiry, the additional liability is adjusted – the entity regains access to plan assets
The additional liability is measured at the PRESENT VALUE of the required contributions, discounted using the SAME DISCOUNT RATE as the defined benefit obligation.
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Worked Example – MFR Triggering a Liability
Example: MFR blocking refund access
A UK pension plan has a present value of obligation of £50m, plan assets of £65m, giving a surplus of £15m. The plan's MFR requires minimum assets of £60m. The entity expects to contribute £3m/year for the next 3 years, then the MFR expires. The IAS 19 discount rate is 4.5%.
Step 1 – Refund availability: £65m assets - £60m MFR = £5m maximum refund, but MFR prevents any refund while it applies.
Step 2 – Contribution reduction: With MFR applying, the entity cannot reduce contributions – they must maintain the £60m floor.
Step 3 – Additional liability: Required contributions = £3m/year × 3 years, discounted at 4.5% = £8.3m. Recognised as an additional liability.
Step 4 – Asset ceiling: Since both refund and contribution reduction are blocked by the MFR, the net defined benefit asset is capped at ZERO.
Balance sheet impact: DBO £50m (liability), Additional liability £8.3m (liability), Net asset £0.
Step 2 – Contribution reduction: With MFR applying, the entity cannot reduce contributions – they must maintain the £60m floor.
Step 3 – Additional liability: Required contributions = £3m/year × 3 years, discounted at 4.5% = £8.3m. Recognised as an additional liability.
Step 4 – Asset ceiling: Since both refund and contribution reduction are blocked by the MFR, the net defined benefit asset is capped at ZERO.
Balance sheet impact: DBO £50m (liability), Additional liability £8.3m (liability), Net asset £0.
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Disclosure
What IFRIC 14 requires
Description of the minimum funding requirement and how it restricts the availability of economic benefits from the plan surplus The present value of any additional liability recognised under IFRIC 14 When the additional liability is expected to reverse (e.g. expiry of MFR) The effect of the asset ceiling on the net defined benefit asset (or asset)
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Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether the MFR genuinely restricts access to surplus (e.g. whether a partial refund is permissible) Whether plan rules that operate like an MFR are within the scope of IFRIC 14
SIGNIFICANT ESTIMATES
Timing and amount of future contributions required to restore the plan to the MFR level When the MFR restriction will cease to apply (expiry date)
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IFRIC 14 vs US GAAP
Comparison – IFRIC 14 vs ASC 715 (Compensation – Retirement Benefits)
FeatureIFRIC 14 (IFRS)US GAAP (ASC 715)
Asset ceilingNet asset limited to PV of economic benefits availableSimilar asset limitation concept applies
MFR treatmentIf MFR blocks both refund and contribution reduction, net asset capped at zero; additional liability may ariseMFR restrictions considered in asset ceiling calculation; no explicit additional liability guidance
Additional liabilityPV of required contributions to restore MFR, if MFR blocks surplus accessNot explicitly addressed – practice may differ
DisclosureSpecific IFRIC 14 disclosure requirementsASC 715 disclosure requirements, but no MFR-specific guidance
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Statement Mapping
Where every IFRIC 14 event lands
EventStatement(s) affectedNotes
Asset ceiling reducing net asset to zeroSOPL SOFPRecognised in other comprehensive income under IAS 19
Additional liability recognisedSOFPSeparate liability beyond the defined benefit obligation
Additional liability remeasuredSOPL SOFPChanges in actuarial assumptions affect the PV of required contributions
MFR expires, additional liability reversesSOPL SOFPNet asset ceiling now reflects the full surplus, not restricted by MFR
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Related Standards
Cross-reference map
StandardConnection
IAS 19The parent standard supplying the asset ceiling rule and overall defined benefit accounting model
IAS 37General provision recognition principles inform the assessment of whether an MFR obligation is a present obligation
IFRIC 21Shares the underlying theme of identifying the precise obligating event for statutory payment obligations
Quick-reference glossary
Asset ceiling
The present value of any economic benefits available through a defined benefit plan surplus, as calculated under IAS 19 and clarified by IFRIC 14.
Minimum funding requirement
A statutory or regulatory requirement that an employer maintain a minimum level of assets in a defined benefit plan, potentially restricting access to surplus.
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Glossary
Asset ceiling
The present value of any economic benefits available through a defined benefit plan surplus – the maximum amount that can be recognised as a net defined benefit asset under IAS 19, as clarified by IFRIC 14.
Minimum funding requirement (MFR)
A requirement, imposed by a national statute, regulator, or similar authority, that an employer contribute or maintain a minimum level of assets in a defined benefit plan.
Additional liability
A liability beyond the defined benefit obligation itself, arising under IFRIC 14 when an MFR requires the entity to make extra contributions to restore plan assets to the MFR level.
Refund pathway
One of the two pathways through which a defined benefit plan surplus can generate economic benefits – receiving a cash distribution of surplus assets from the plan.
Contribution-reduction pathway
The alternative pathway through which a surplus provides economic benefits – by reducing the entity's future required contributions to the plan.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Jul-2007
In July 2007 the International Accounting Standards Board issued IFRIC 14 IAS 19-The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. It was developed by the Interpretations Committee.
Nov-2009
In November 2009 IFRIC 14 was amended to address prepayments of future minimum funding requirement contributions.
May-2011
IFRS 13 Fair Value Measurement
Minor consequential amendment to IFRIC 14
Jun-2011
IAS 19 Employee Benefits
Minor consequential amendment to IFRIC 14
Mar-2018
Amendments to References to the Conceptual Framework in IFRS Standards
Minor consequential amendment to IFRIC 14
Apr-2024
IFRS 18 Presentation and Disclosure in Financial Statements and IFRS 19 Subsidiaries without Public Accountability: Disclosures
Minor consequential amendment to IFRIC 14