A buy-in annuity contract is entered into when a pension plan purchases an annuity from a third party that allows the cash inflows from the third party to match the cashflows of the outgoing benefit payment that is paid by the pension plan.
The proposals clarify that the investment should be measured at a value equal to the benefit obligation, assuming the annuity contract is fully collectible. Any gain or loss from the purchase of the annuity contract is recognized in the year that the annuity is purchased.
A buy-out annuity contract is entered into when a pension plan purchases an annuity contract from a third party and the third party takes over the pension obligation and related benefit payments of the pension plan.
The proposals clarify that the investment asset and pension obligation are derecognized when the third party takes on the risk. One of the considerations in the derecognition process is whether the pension plan's regulator provides a discharge of the pension obligation to the pension plan.
The exposure draft also requires disclosure of relevant factors pertaining to the contract for the period of time that the pension plan is subject to the annuity contract.