26. The actuarial present value of promised retirement benefits based on current salaries is disclosed in the report of a plan to indicate the obligation for benefits earned to the date of the report. The actuarial present value of promised retirement benefits based on projected salaries is disclosed to indicate the magnitude of the potential obligation on a going concern basis which is generally the basis for funding. In addition to disclosure of the actuarial present value of promised retirement benefits, sufficient explanation may need to be given so as to indicate clearly the context in which the actuarial present value of promised retirement benefits should be read. Such explanation may be in the form of information about the adequacy of the planned future funding and of the funding policy based on salary projections. This may be included in the financial information or in the actuary's report.
Frequency of Actuarial Valuations

25. Reasons given for adopting a projected salary approach include:
(a) financial information should be prepared on a going concern basis, irrespective of the assumptions and estimates that must be made;
(b) under final pay plans, benefits are determined by reference to salaries at or near retirement date; hence salaries, contribution levels and rates of return must be projected; and
(c) failure to incorporate salary projections, when most funding is based on salary projections, may result in the reporting of an apparent overfunding when the plan is not overfunded, or in reporting adequate funding when the plan is underfunded.

Actuarial Present Value of Promised Retirement Benefits
23. The present value of the expected payments by a retirement benefit plan may be calculated and reported using current salary levels or projected salary levels up to the time of retirement of participants.
24. The reasons given for adopting a current salary approach include:
(a) the actuarial present value of promised retirement benefits, being the sum of the amounts presently attributable to each participant in the plan, can be calculated more objectively than with projected salary levels because it involves fewer assumptions;
(b) increases in benefits attributable to a salary increase become an obligation of the plan at the time of the salary increase; and
(c) the amount of the actuarial present value of promised retirement benefits using current salary levels is generally more closely related to the amount payable in the event of termination or discontinuance of the plan.

20. Under a defined benefit plan, the payment of promised retirement benefits depends on the financial position of the plan and the ability of contributors to make future contributions to the plan as well as the investment performance and operating efficiency of the plan.
21 A defined benefit plan needs the periodic advice of an actuary to assess the financial condition of the plan, review the assumptions and recommend future contribution levels.
22. The objective of reporting by a defined benefit plan is periodically to provide information about the financial resources and activities of the plan that is useful in assessing the relationships between the accumulation of resources and plan benefits over time. This objective is usually achieved by providing a report including the following:
(a) a description of significant activities for the period and the effect of any changes relating to the plan, and its membership and terms and conditions;
(b) statements reporting on the transactions and investment performance for the period and the financial position of the plan at the end of the period;
(c) actuarial information either as part of the statements or by way of a separate report; and
(d) a description of the investment policies.

18. For the purposes of paragraph 17, the actuarial present value of promised retirement benefits should be based on the benefits promised under the terms of the plan on service rendered to date using either current salary levels or projected salary levels with disclosure of the basis used. The effect of any changes in actuarial assumptions that have had a significant effect on the actuarial present value of promised retirement benefits should also be disclosed.
19. The report should explain the relationship between the actuarial present value of promised retirement benefits and the net assets available for benefits, and the policy for the funding of promised benefits.

Defined Benefit Plans
17. The report of a defined benefit plan should contain either:
(a) a statement that shows:
(i) the net assets available for benefits;
(ii) the actuarial present value of promised retirement benefits, distinguishing between vested benefits and non-vested benefits; and
(iii) the resulting excess or deficit; or
(b) a statement of net assets available for benefits including either:
(i) a note disclosing the actuarial present value of promised retirement benefits, distinguishing between vested benefits and non-vested benefits; or
(ii) a reference to this information in an accompanying actuarial report.
If an actuarial valuation has not been prepared at the date of the report, the most recent valuation should be used as a base and the date of the valuation disclosed.

15. The participants are interested in the activities of the plan because they directly affect the level of their future benefits. Participants are interested in knowing whether contributions have been received and proper control has been exercised to protect the rights of beneficiaries. An employer is interested in the efficient and fair operation of the plan.
16. The objective of reporting by a defined contribution plan is periodically to provide information about the plan and the performance of its investments. That objective is usually achieved by providing a report including the following:
(a) a description of significant activities for the period and the effect of any changes relating to the plan, and its membership and terms and conditions;
(b) statements reporting on the transactions and investment performance for the period and the financial position of the plan at the end of the period; and
(c) a description of the investment policies.

12. Retirement benefit plans are normally described as either defined contribution plans or defined benefit plans, each having their own distinctive characteristics. Occasionally plans exist that contain characteristics of both. Such hybrid plans are considered to be defined benefit plans for the purposes of this Standard.
Defined Contribution Plans
13. The report of a defined contribution plan should contain a statement of net assets available for benefits and a description of the funding policy.
14. Under a defined contribution plan, the amount of a participant's future benefits is determined by the contributions paid by the employer, the participant, or both, and the operating efficiency and investment earnings of the fund. An employer's obligation is usually discharged by contributions to the fund. An actuary's advice is not normally required although such advice is sometimes used to estimate future benefits that may be achievable based on present contributions and varying levels of future contributions and investment earnings.

9. Some retirement benefit plans have sponsors other than employers; this Standard also applies to the reports of such plans.
10. Most retirement benefit plans are based on formal agreements. Some plans are informal but have acquired a degree of obligation as a result of employers' established practices. While some plans permit employers to limit their obligations under the plans, it is usually difficult for an employer to cancel a plan if employees are to be retained. The same basis of accounting and reporting applies to an informal plan as to a formal plan.
11. Many retirement benefit plans provide for the establishment of separate funds into which contributions are made and out of which benefits are paid. Such funds may be administered by parties who act independently in managing fund assets. Those parties are called trustees in some countries. The term trustee is used in this Standard to describe such parties regardless of whether a trust has been formed.

Definitions
8. The following terms are used in this Standard with the meanings specified:
Retirement benefit plans are arrangements whereby an enterprise provides benefits for its employees on or after termination of service (either in the form of an annual income or as a lump sum) when such benefits, or the employer's contributions towards them, can be determined or estimated in advance of retirement from the provisions of a document or from the enterprise's practices.
Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon.
Defined benefit plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by reference to a formula usually based on employees' earnings and/or years of service.
Funding is the transfer of assets to an entity (the fund) separate from the employer's enterprise to meet future obligations for the payment of retirement benefits.
For the purposes of this Standard the following terms are also used:
Participants are the members of a retirement benefit plan and others who are entitled to benefits under the plan.
Net assets available for benefits are the assets of a plan less liabilities other than the actuarial present value of promised retirement benefits.
Actuarial present value of promised retirement benefits is the present value of the expected payments by a retirement benefit plan to existing and past employees, attributable to the service already rendered.
Vested benefits are benefits, the rights to which, under the conditions of a retirement benefit plan, are not conditional on continued employment.