newsletter nov-dec 2009

8/14/2019 Newsletter Nov-Dec 2009

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PENSIONS & BENEFITS - BRAZIL

NKL2is a Brazilian firm providing companies with

benefits consulting and insurance brokerage

services. We are specialized in retirement plans,

health programs and group life insurance. Our

target clients are mid-sized multinational

companies, with a workforce ranging from 100 to

1,000 employees in Brazil.

We have world-class quality services and vast

expertise aiding multinational companies to

better understand the local environment, market

practices and the main challenges posted to

human resources and benefits management.

Pensions & Benefits Brazil is a newsletterintended to bring to you, every other month,

information and news about whats happening inthe benefits arena in the country.

Who, what, when?

Lower pensions benefits?

Its market practice in Brazil for employers to pay

for the total administrative costs of private

retirement programs offered to its employees.

Companies usually credit a specific monthlycontribution to the plan intended to provide for

the administrative costs. Administrative costs

include services such as recordkeeping, benefits,

payroll administration, toll free numbers and

Internet services. The specific contribution paid by

the sponsor company for administrative services

comes out of the companys cash flow.

INSIDE THIS ISSUEWho, what, when? 1

Lower pensions benefits? 1

Corporate health plans 2

Insured Plans Fees and Returns 2

What is this picture of? 3

Pension fund costs to increase in 2010 3

Economic Insight 5

Our main goal is to help your company to obtain and

maintain profitable operations in Brazil. If you are

reading this first issue, you will be following our step

from the very beginning. We hope you enjoy our styl

and we are confident that our articles will be valuable

to you.

Your insights, suggestions, comments and opinions a

welcome. Thanks for the privilege of having you as areader.

The editor.

Asset management fees are usually deducted from

the returns on investments. On defined

contribution programs, offsetting fees directly

from investment returns means, in the long run,

lower benefits for employees.

According to recent regulations pension funds,

which in Brazil are known as Closed Private

Pension Entitiesand are similar to US trustee

funds, will be allowed to pay not only the asset

management services through deductions from

November 2, 2009

Volume 1, Issue 1

Please see pensions benefits?on page 4

By Eder Costa e Silva


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Page 2 Pensions & Benefits - Brazil

Its reasonably common in Brazil for small and

sometimes even for mid-sized companies to hireits top executives and high management as third

party contractors as opposed to having them on

the payroll as regular employees. This practice

poses labor risks to employers, but many

companies consider the greater profitability worth

the risk. A recent regulation brings new challenges

to such companies. According to Article 5th of

Normative Resolution # 195/09 published last July

by the Brazilian National Supplementary Health

Agency(ANS-Agncia Nacional de SadeSupmementar) only regular employees and

Corporate health plans

The two main financial vehicles administering employer-sponsored retirement plans in Brazil are the

Closed Private Pension Entities- similar to the US trustee funds - and the Open Private Pensions

Entities- insurance companies specialized in administering retirement products. Most small and

medium-sized companies use Open Entitiesto manage their corporate pension programs. This section

ofPensions & Benefits Brazil will be dedicated to track the investment returns and asset

management fees of the main funds offered by insured plans in Brazil.

ASSET MANAGEMENT FEES (1)

PRIVATE RETIREMENT FUNDS Min. Max. Mean Total Market (2)

Fixed Income (3) 0.10% 5.00% 1.71% 0.93%

Fixed Income DI Reference (4) 0.36% 5.00% 1.68% 0.97%

MultimarketIncluding Variable Income (5) 0.20% 5.00% 1.64% 1.46%

Multimarket-Balanced (6) 0.24% 4.00% 2.09% 2.22%

Insured Plans Fees and Returns

Medical symbol

Brazilian Currency

Returns on investments are

dropping very fast in Brazil due

to the historically low interest

rates while asset management

fees are still high, unable to

recognize the new

environment

statutory directors are entitled to participate in

the companys health program. In other words,

the health plan will no longer be extended to

contractors. Together with Normative

Resolution # 200/09, as of August 31, 2009,

the new rule is expected to increase the cost of

company-provided health plans, specially forsmall and mid-sized employers.

Please see Fees and Returnson page 5




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Page 3Pensions & Benefits - Brazil

Picture of the Guaran fruit

from the Amazon jungle

What is this picture of?

Guaranis an Amazon fruit used to make a pleasant

and sweet commercial soda. It is a very popular drinkin the Amazon. The origin of this fruit is explained in

this folk tale: An Indian couple, belonging to the

Maus tribe, lived together for many years, always

wishing that they could have a child. One day they

asked their God, Tup, to give them a child as a

present to complete their happiness. Tup, the king

of the gods, knowing that the couple had good

hearts, fulfilled their wish, bringing to them a

beautiful boy. Time passed by quickly and the boy

grew up handsome, generous and kind. However,Jurupar, the God of Darkness, felt an extreme envy

of the boy and the peace and happiness that he

transmitted, and decided to end that blooming life.

One day the boy went to gather fruits in the forest

andJurupardecided that his vengeance time had

arrived. He transformed himself into a serpent and

Pension fund costs to increase in 2010

The Senate Committee on Economic Issues

approved last October a new law bill submitted by

the Brazilian government creating the National

Supervisory Agency for Private Pensions dubbed

PREVIC, which will report to the Social Security

Ministry. The new agency role will be to oversee

the activities of pension funds that are known in

Brazil as Closed Private Pension Entities and are

similar to the US Trustee Funds. Currently the

SPC-Secretaria de Previdncia Complementar, a

structure under the Social Security Ministry, has

the responsibility to supervise these funds.

The main revenue source of the new agency will be

a supervisory tax to be charged from pension

funds the so called TAFIC Taxa de Fiscalizao

e Controle da Previdncia Complementar.

bit the boy, killing him instantly. The sad news

spread quickly. At that moment, thunder echoed

and a lightening bolt fell near the Indian longhouse.

The mother, who was crying in despair, understoodthat the thunder was a message from Tup,

explaining that she should plant the child's eyes and

that from them a new plant would grow, yielding

tasty fruits. The Indians obeyed the mother's voice

and planted the boy's eyes. In that spot grew the

Guarantree, whose seeds are black, each with a

The TAFICis expected to be quarterly according to

17 value brackets, ranging from R$ 15 to R$ 2.2

million (US$ 8 to US$ 1.2 million), depending on

the total assets managed by each retirement plan.

The minimum R$ 15 tax will apply for retirement

plans whose assets total R$ 5 million (US$ 2.6

million) while plans holding assets over R$ 60

million (US$ 31.5 million) will have to pay the

maximum R$ 2.2 million tax. The agencys annual

budget, of R$ 29 million (US$ 15.2 million), will

count on other revenue sources such as money

coming from fines applied over non-compliant

pension funds, federal budget, and third parties

agreements.

Over the years, the supervision of pension funds

has experienced an increase in complexity and

Please see funds costson page 4

Please see What is this page 4

By Rosa Clement



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Page 4 Pensions & Benefits - Brazil

investment returns but also administrative

expenses. The recent regulations we referred to

above are Resolutions CGPC # 28 and # 29 issued,respectively on Jan/26/2009 and Aug/31/2009.

The governments Secretaria de Previdncia

Complementar was responsible for publishing

both. Many sponsor companies, pressured to

reduce costs, will opt to deduct from the

investments returns all administrative expenses of

their retirement plan. That shall happen in the

2010 fiscal year and companies need to be aware

sophistication, requiring a wider, more

professional and, consequently, more expensive

structure. The cost of all that structure is to fall

on the sponsor companies shoulders since it is a

market practice in Brazil for private companies to

fully pay the administrative costs of their

retirement plans. As a result, some small and

medium-sized pension funds have been

terminated and their retirement plans transferred

to less costly financial vehicles such as the Multi-Sponsored Pension Funds, that work as

Some small and medium-

sized pension funds have

been terminated and their

retirement plans transferred

to less costly financial

vehicles.

that returns on investments are dropping very fast in

Brazil due to the historically low interest rates, and that

asset management fees are still high unable torecognize the new environment. Transparency from

retirement plans administrators will be necessary along

with adopting that practice to avoid future claims

coming from participants.

We will return to this subject at a later date.

comingled funds and are sponsored by banks, and

Open Private Pension Entities, which are insurance

companies specialized in administering retiremen

products. Two Senate committees still need to analyze

the project before it becomes law. Experts seem to

have no doubt that the project will pass and turn into

law before year-end.

If that really occurs, pension plans administered by

Closed Entitieswill increase at the end of 2009 and fo

the full 2010 fiscal year.

white aril around it that reminds one of a human eye.

Guara= human being na= similar, alike. It is easy to

find the basis for this myth. The fruit of the Guaran

looks very much like an eyeball with a small dark seed

surrounded by white orbit. You can notice that in the

picture. Guaranis most commonly encountered in a

popular Brazilian soft drink.

.pensions benefits? from page 1

funds costsfrom page 3

What is this from page 3

Guaran Antarctica in can


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Page 5Pensions & Benefits - Brazil

RETURNS ON INVESTMENTS SEPTEMBER/2009

PRIVATE RETIREMENT FUNDS Min. Max. Median Mean

Fixed Income (3) 0.2737% 3.1225% 0.6045% 0.6498%Fixed Income DI Reference (4) 0.2833% 0.6910% 0.6060% 0.5866%


Multimarket - Balanced (6) 0.6772% 5.7614% 2.1325% 2.4487%

Source: ANBID (only funds with assets over R$ 1 Million around US$ 575,000)

RETURNS ON INVESTMENTS 12 MONTHS (SEP/2008 TO SEP/2009)

PRIVATE RETIREMENT FUNDS Min. Max. Median Mean

Fixed Income (3) 3.3151% 21.1117% 7.1472% 7.4144%

Fixed Income DI Reference (4) 3.8572% 7.6756% 6.7648% 6.6102%


Multimarket Balanced (6) 6.1523% 32.6939% 16.4530% 17.9402%

Source: ANBID (only funds with assets over R$ 1 million = US$ 575,000)Notes:(1) Disregarded funds with zero fees and those with flat rates established in reais (R$). Considered only fees charged as a% of invested assets.(2) Considers all industry of funds, including the private retirement funds as the PGBL, VGBL and FAPI.(3) 80% min. asset allocation benchmarking federal government bonds or low credit risk investments. Leverage admitted.(4) 95% min. allocation benchmarking the interest rate (SELIC) or the Interbank Certificates of Deposit (CDI)(5) Asset allocation benchmark not disclosed. Admits fixed income investments, stocks etc. and can considered 100%allocation in only one asset class. Leverage not allowed.(6) Similar to the Multimarket Including Variable Income type fund but has to disclose the asset allocation benchmarkand concentration in only one asset class is not allowed.

EXCHANGE RATE

Last day Last Month Last year

US Dollar (US$) R$ 1.74 R$ 1.74 R$ 2.33

Euro (R) R$ 2.56 R$ 2.56 R$ 3.23

Source: Central Bank (as of the last working day of the month\year)

INFLATION

Last month Year to date Last year

IPCA Index 0,24% 3.21% 5.90%

Source: IBGE

MINIMUM WAGE

Last Month Last year Two years

Brazilian Real R$ 465.00 R$ 415.00 R$ 380.00

US Dollar US$ 267.24 US$ 178.11 US$ 214.69

Euros R 181.64 R 128.48 R 146.15

Economic Insight

The Brazilian

Central Bank

estimates a 0.1%

GDP growth for

2009 and 4.8% for2010

Fees and Returnsfrom page 2

Please see Economic on page 6


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Page 6 Pensions & Benefits - Braz

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INTEREST RATE

Last day Last year Two years

SELIC (annual) 8.75% 13.75% 11.18%

Source: Central Bank

MACRO ECONOMICS

Year to date Last year 12 months

GDP Growth -1.5% 5.08% 1.3%

Unemployment rate 8.4% 7.9% -0.2%

Source: Central Bank and IBGE

Disclosures: The information in the sections Economic Insightand Insured

Retirement Plans Fees and Returnshas been derived from sources believed to

be accurate as of November 2009. It contains general information only on

economic matters and investments should not be considered as a comprehens

statement on any matter and should not be relied upon as such. The informatio

it contains does not take account of any investors investment objectives,

particular needs or financial situation and should not be relied upon as a

significant basis for an investment decision.

Note: The columns Last Month and Year to date on the Inflation and Macro

Economics tables were accrued until September/2009 (the most recent data

available).

Economic from page 5

newsletter nov-dec 2009

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