In the current paper we show that the immediate recognition of the volatility of pension surpluses and deficits in the profit and loss accounts of the sponsor may lead pension funds to shed risky assets. This proposal gives pension funds no incentives to manage risk properly; instead, by suggesting that pension assets and liabilities can be considered held for trading, pension funds are given incentives to shed these liabilities. We firmly warn the IASB against the temptation to suppress the corridor approach, as this would lead to a significant reduction of holdings of risky assets in pension funds. In addition, we support smoothing market yields as a way to filter out market noise. We also support the amortisation of pension surpluses and deficits, in a manner consistent with the general treatment of long-term assets and liabilities. Finally, we recommend that pension funds use the projected benefit obligation to compute pension cost but that they report the accrued benefit as the pension liability in their balance sheet, a measure that would then be consistent with the prudential measure of pension liabilities.

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 IAS 19: Penalising changes ahead