IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction interprets the limit on a defined benefit asset, minimum funding requirements and their interaction.
Last Updated – October, 2026
IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
A clear, practical guide to the IAS 19 asset ceiling and minimum funding requirements: scope, the three issues, worked examples and the questions practitioners ask most.
- Defined benefit asset ceiling
- Effective 1 January 2008
- Amended November 2009
- Links to IAS 19
What Is IFRIC 14?
IFRIC 14, formally IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, is an IFRS Interpretation developed by the IFRS Interpretations Committee and issued by the IASB in July 2007 (see the official IFRIC 14 standard page on the IFRS Foundation website). It applies to post-employment defined benefit plans and other long-term employee defined benefit plans accounted for under IAS 19.
IAS 19 caps the net defined benefit asset at the lower of the plan surplus and the asset ceiling (paragraph 64). The ceiling is the present value of economic benefits the entity can obtain as refunds or as lower future contributions. IFRIC 14 explains how to judge whether those benefits are genuinely available, and how a statutory or contractual minimum funding requirement (MFR) changes the answer.
Key takeaways
- A surplus on the IAS 19 balance sheet is not automatically an asset. You may recognise only what you can recover.
- Recoverable value comes from two routes: a refund of surplus, or a reduction in future contributions.
- An MFR can reduce the benefit available from future contribution holidays.
- If paid-in MFR contributions will be trapped in the plan, you may need to recognise an additional liability now.
Why Was IFRIC 14 Issued?
Before IFRIC 14, entities in the same jurisdiction applied the asset ceiling in different ways. Some treated every surplus as recoverable. Others ignored legal funding rules entirely, even when the rules would obstruct a refund or force large cash payments into an already well-funded plan. The Interpretation was written to bring consistency to three recurring questions and to prevent surpluses from being overstated.
It matters most where regulators or trust deeds demand a minimum level of cash funding, which is common in many jurisdictions with funded pension schemes. In those settings, IFRIC 14 can swing a reported pension surplus into a liability, with direct consequences for equity, gearing and covenants.
IFRIC 14 Scope and Key Definitions
IFRIC 14 deals with the measurement of the net defined benefit asset or liability when a plan has a surplus or when funding rules are present. It does not change how the defined benefit obligation or plan assets are measured under IAS 19.
- Asset ceiling
- The present value of any economic benefits available as refunds from the plan or reductions in future contributions. It limits the net defined benefit asset on the balance sheet.
- Minimum funding requirement (MFR)
- Any statutory, regulatory or contractual requirement to fund a post-employment or other long-term defined benefit plan.
- Surplus
- The excess of the fair value of plan assets over the present value of the defined benefit obligation.
- Refund
- A repayment of surplus to the entity, either during the life of the plan, as the plan is gradually settled, or when it is wound up.
- Reduction in future contributions
- The benefit from paying less cash into the plan in future, measured as the present value of future service cost less any MFR contributions for future service.
Three Key Issues Addressed by IFRIC 14
The Interpretation is organised around three questions. Together they decide how big the balance sheet figure is.
When is a benefit available?
When should a refund or a reduction in future contributions count as an economic benefit available to the entity?
How does an MFR interact?
How does a minimum funding requirement affect the benefit available as a reduction in future contributions?
When is an MFR onerous?
When might an MFR create a liability, over and above the one already recognised under IAS 19?
IAS 19 Asset Ceiling – When Are Economic Benefits Available?
An economic benefit is available if the entity can realise it at some point during the life of the plan, or when the plan liabilities are settled. It does not need to be realisable immediately at the reporting date.
Benefit as a refund
A refund counts only when the entity has an unconditional right to it (paragraph 11). That right can exist during the life of the plan without the liabilities having to be settled, assuming gradual settlement of the liabilities over time, or assuming full settlement in a single event such as a plan wind-up. If the right depends on uncertain future events that are not wholly within the entity’s control, for example a trustee’s consent, the entity does not have an unconditional right and no refund benefit is available (paragraph 12).
The refund is measured as the surplus the entity has a right to receive, less any associated costs, and net of any tax other than income tax that applies to the refund (paragraph 13).
Benefit as a reduction in future contributions
The entity may also benefit by paying less into the plan in future. Where there is no MFR for future service, the benefit is the present value of the future service cost, excluding any part borne by employees, over the shorter of the expected life of the plan and the expected life of the entity (paragraph 16). Where an MFR applies to future service, the benefit is the present value of that service cost less the MFR contributions required for the future accrual of benefits (paragraph 20), and the total can never be less than nil (paragraph 22).
The entity measures the maximum benefit available. Its intentions for the surplus do not matter, but it cannot combine refund and contribution-reduction assumptions that are mutually exclusive (paragraph 9).
Practical test
Ask: “Could we actually get this money back, or stop paying in, under the plan rules and the law?” If the honest answer is no, that part of the surplus sits outside the asset ceiling.
Minimum Funding Requirements
An MFR is usually calculated on a basis different from IAS 19, for example using different discount rates or mortality tables. Because of that, a plan can look comfortably funded under IAS 19 yet still need cash under the MFR. IFRIC 14 splits MFR contributions into those covering an existing shortfall for service already received and those covering the future accrual of benefits (paragraph 18). Only the second kind reduces the benefit from lower future contributions; the first kind can create a liability, covered in the next section.
| Situation | Benefit available |
|---|---|
| No MFR for future service | Present value of the full future service cost |
| MFR for future service is less than service cost | Present value of the service cost less the MFR contributions |
| MFR for future service exceeds service cost in a given year | The excess reduces the benefit, but the total benefit can never fall below nil |
In short, an MFR for future service can only reduce the available benefit. The one exception is a prepayment of MFR contributions, covered below.
Onerous Minimum Funding Requirements and Additional Liability Recognition
The most consequential part of IFRIC 14 concerns an obligation to pay contributions that cover an existing shortfall on the minimum funding basis for service already received. The entity asks whether, once paid into the plan, those contributions will be available as a refund or as a reduction in future contributions (paragraph 23). To the extent they will not be, the contributions are onerous.
In that case the entity recognises a liability when the obligation arises. It reduces the net defined benefit asset or increases the net defined benefit liability, so that no gain or loss is expected when the contributions are eventually paid (paragraph 24). The liability and any later remeasurement are recognised immediately in other comprehensive income, in the same way as other changes in the effect of the asset ceiling.
Watch out
The extra liability does not reflect a new obligation to members. It reflects cash you must hand over that you will not be able to get back or offset. That is why it can turn a reported pension deficit into a larger one overnight.
IFRIC 14 Worked Examples
The figures below are simplified, illustrative numbers designed to show the mechanics. They are not taken from the Interpretation.
Surplus capped by a reduction in future contributions
A plan has assets of 1,300 and a defined benefit obligation of 1,200, a surplus of 100. The entity has no right to a refund. The present value of future service cost is 90, and the present value of MFR contributions for future service is 30. Assume there is no shortfall to be funded for past service.
| Item | Amount |
|---|---|
| Plan surplus under IAS 19 | 100 |
| PV of future service cost | 90 |
| Less: PV of MFR contributions for future service | (30) |
| Asset ceiling (benefit from reduced contributions) | 60 |
| Net defined benefit asset recognised (lower of 100 and 60) | 60 |
| Effect of the asset ceiling, recognised in OCI | 40 |
The entity records an asset of 60, not 100. The remaining 40 is excluded because it cannot be recovered. In later years, interest on the effect of the ceiling forms part of net interest, and other changes go through OCI.
Onerous MFR creating an additional liability
A plan has assets of 1,000 and an obligation of 1,100, a deficit of 100. The MFR requires the entity to pay in 250 for past service. After that payment the plan would show a surplus of 150, but the entity could recover only 60 of it through a refund or lower future contributions.
| Item | Amount |
|---|---|
| IAS 19 deficit before payment | (100) |
| MFR contribution to be paid | 250 |
| Surplus after payment | 150 |
| Asset available after payment (ceiling) | 60 |
| Additional liability to recognise: surplus after payment less ceiling (150 − 60) | 90 |
| Net defined benefit liability recognised | (190) |
Proof: paying 250 into the plan moves the position from a liability of 190 to an asset of 60, so no further loss arises on payment. The 90 additional liability goes through OCI.
Prepayments of Minimum Funding Requirements – 2009 Amendment
In November 2009 the IASB issued Prepayments of a Minimum Funding Requirement, an amendment to IFRIC 14 effective for annual periods beginning on or after 1 January 2011. It fixed an unintended outcome: in some cases an entity that voluntarily paid contributions early to meet a future MFR was not permitted to recognise those prepayments as an asset.
After the amendment, a prepayment of future MFR contributions can be treated as an economic benefit, because it reduces the contributions the entity will have to pay later. This is especially relevant for entities that top up funding ahead of a statutory deadline.
| Date | Development |
|---|---|
| July 2007 | IFRIC 14 issued, effective for annual periods beginning on or after 1 January 2008 |
| November 2009 | Amended by Prepayments of a Minimum Funding Requirement, effective 1 January 2011 |
| Later years | Minor consequential amendments made by other standards |
How to Apply IFRIC 14 (Step-by-Step Guide)
- Measure the IAS 19 position. Calculate the defined benefit obligation and the fair value of plan assets to find the surplus or deficit.
- Identify the MFR. Collect the statutory, regulatory and contractual funding rules, including the schedule of contributions for past and future service.
- Test for a refund right. Read the trust deed and the law. Is the refund unconditional, or can a trustee or third party block it?
- Test for future contribution reductions. Compare the present value of future service cost with MFR contributions for future service.
- Apply the asset ceiling. Recognise the lower of the surplus and the total available benefit.
- Test whether the MFR is onerous. If paid-in contributions will not be fully recoverable, recognise the additional liability.
- Record and disclose. Take changes in the ceiling effect and the additional liability to OCI and complete the related disclosures.
Common IFRIC 14 Accounting Mistakes
- Assuming that an IAS 19 surplus is always recognisable in full, without reading the plan rules.
- Ignoring trustee powers that can block a refund or direct how surplus is used.
- Estimating future MFR contributions on IAS 19 assumptions instead of the minimum funding basis, or anticipating funding changes that are not yet enacted or contractually agreed (paragraph 21).
- Forgetting that the MFR liability must be reassessed at each reporting date as the schedule of contributions changes.
- Treating the additional liability as profit or loss rather than other comprehensive income.
- Overlooking taxes and other costs that reduce the value of a refund.
IFRIC 14 Presentation and Disclosure Requirements
IFRIC 14 does not add a separate disclosure list, but its outcomes flow into the IAS 19 and IAS 1 disclosures. Users of the accounts typically expect to see:
- A reconciliation of the net defined benefit asset or liability, including the effect of the asset ceiling.
- The nature of any minimum funding requirement and how it affects future contributions.
- Judgements made on whether a refund is available, which may be a significant judgement under IAS 1.
- Key sources of estimation uncertainty that could materially adjust the asset or liability (paragraph 10).
- Expected contributions to the plan in the next annual period.
Frequently Asked Questions
What does IFRIC 14 deal with?
It clarifies the IAS 19 limit on a defined benefit asset and explains how minimum funding requirements interact with that limit, including when they create an extra liability.
When did IFRIC 14 become effective?
It was issued in July 2007 and is effective for annual periods beginning on or after 1 January 2008. The 2009 amendment on prepayments applies from 1 January 2011.
What is the asset ceiling?
It is the present value of economic benefits available to the entity as refunds from the plan or reductions in future contributions. The net defined benefit asset cannot exceed it.
What counts as a minimum funding requirement?
Any statutory, regulatory or contractual requirement to fund a post-employment or other long-term defined benefit plan.
When does an MFR create an additional liability?
When contributions the entity is required to pay for past service will not be fully available to it as a refund or lower future contributions once they are in the plan.
Where is the additional liability recognised?
In other comprehensive income, consistent with the treatment of remeasurements and the asset ceiling effect under IAS 19.
Can a trustee’s power stop us recognising a surplus?
Yes. If a trustee or another party can prevent the refund, the entity does not have an unconditional right and the refund route is not available.
Does IFRIC 14 change how plan assets and obligations are measured?
No. Those measurements stay under IAS 19. IFRIC 14 only affects how much of a surplus is recognised and whether an additional liability is needed.
Sources and Editorial Standards
The technical content of this guide was checked against the text of IFRIC 14 and IAS 19 and cross-referenced with the technical sources below. Paragraph references are to IFRIC 14. Read the full standard for the reporting period you are dealing with, as requirements and effective dates can differ between periods and jurisdictions.
- IFRS Foundation: IFRIC 14 standard page
- IAS Plus: IFRIC 14 summary and history
- ICAEW: IFRIC 14 technical guidance
This article is a general educational overview and not accounting, actuarial or legal advice. Always read the full text of IFRIC 14 and IAS 19 and consult your auditor or actuary before applying them to a specific plan.
(Qualified) Chartered Accountant – ICAP
Master of Commerce – HEC, Pakistan
Bachelor of Accounting (Honours) – AeU, Malaysia