Country Profiles

Brazil

Country Profiles

Brazil

Complementary pensions (Voluntary)

Updated: 31 December 2017
2012: Law Nº 12.618 establishes for federal civil servants Pension Funds for each power: Judicial, Executive and Legislative.

2007: Law No. 1992 introduces the pension regime for government workers/civil servants.

2004: Law No. 11053 (with amendments); regulates taxation of plans.

2001: Law No. 109 provides for the establishment of closed and open pension plans, regulates the administration and operation of managing entities and introduces requirements concerning preservation and transferability.

2001: Law No. 108 regulates closed pension plans established by public institutions.

The Ministry of Finance (Ministério da Fazenda- MF), the National Board of Complementary Pensions ( Conselho Nacional da Previdência Complementar - CNPC), The National Superintendence for Pension Funds (Superitendência Nacional da Previdência Complementar - PREVIC) and the National Monetary Council (Conselho Monetário Nacional - CMN) issue secondary regulations concerning complementary pension plans.

Plan sponsors

Employers, singly or as a group, may, on a voluntary basis, establish a complementary closed pension plan for their employees.

The federal government, the states, the federal district, municipalities and public enterprises may on a voluntary basis, establish a complementary closed pension plan for their employees. Federal government has stablished two closed pension entities since 2012, which manage defined contribution pension plans for federal civil servants. The affiliation is on voluntary basis. Although automatic federal law has set up automatic enrollment for all federal civil servants since 2013. Those employees may opt-out.

Trade unions and their respective federations and confederations, councils of professionals to which affiliation is mandatory for the exercise of the profession, cooperatives, and other associations duly authorized may, on a voluntary basis, establish a complementary closed pension plan for their associates or members. Trade unions and councils of professionals must have as minimum 1000 members to set up a pension plan and been duly registered as such for three years.

Open pension entities or life insurance companies may establish complementary open pension plans and offer them to:

- Employers who may, on a voluntary basis, affiliate their employees to the plan;
- Individual employees, the self-employed and the non-employed who may voluntarily join the plan on a personal basis.

Types of plans

Closed plans: Complementary pension plans may be defined benefit, defined contribution or variable contribution (hybrid). Pension plans established by trade unions and their respective federations and confederations, councils of professionals to which affiliation is mandatory for the exercise of the profession, cooperatives, and other associations duly authorized must be defined contribution.

Closed plans must have at least 50 members if established by trade unions and their respective federations and confederations, councils of professionals to which affiliation is mandatory for the exercise of the profession, cooperatives, and other associations duly authorized.

The establishment of a closed plan is subject to the approval of the National Superintendence for Pension Funds (PREVIC). All changes to plan rules must also be approved by PREVIC.

Open plans: Limited liability companies and insurance companies may establish open pension plans. Employers, singly or as a group, may affiliate their employees to an open pension plan through a group contract. Individual employees, the self-employed and the non-employed may also join open pension plans on a personal basis.

The establishment of an open plan is subject to the approval of the Superintendence of Private Insurance (SUSEP). All changes to plan rules must also be approved by the SUSEP.

All plans: All plans must regulate admission requirements, contributions and benefit structure.
Participation in the plan is voluntary for covered employees and they may participate in various plans at the same time. The plan rules must be attached to any membership offer made to them.

Closed plans: Closed pension entities must be established as non-profit-making legal entities with the single business aim of establishing and managing closed pension plans.

Closed pension entities manage the contribution and benefit administration.

Closed pension entities must be governed by:
- A governing board responsible for setting the management policy for the entity and the plan;
- A supervisory board responsible for the entity's internal controls; and
- An executive directorate responsible for the entity's administration.

The members of these bodies must comply with certain requirements concerning fitness and propriety. The members of the executive directorate must also have a level of higher education.

Closed pension entities sponsored by state-owned enterprises or the government are subject to stricter rules than those sponsored by private companies or associations. The governing board can be composed up to 6 members and supervisory board composed up to 4 members according to Law nº 108. At least one third of governing board and supervisory board must be representatives of active members, retirees and sponsors.

In the case of pension plans sponsored by private companies or associations, the requirements for the composition of the boards and the executive directorate must be regulated in the plan rules. At least one-third of the members of the governing and supervisory boards must be representatives of members and beneficiaries.

Open plans: Open pension entities must be established as limited liability companies with the single business aim of establishing and managing open pension plans. Insurance companies may also become open pension entities.

Open pension entities manage the contribution and benefit administration.

Open pension entities follow governance rules of S.A corporations.

The appointment of directors and members of the governing bodies must be notified to the Superintendence of Private Insurance (SUSEP).

All plans:
Pension plans must have plan rules that must, at least, include:
- The types of benefits provided;
- The benefit qualifying conditions;
- The waiting period and vesting rules;
- The membership conditions;
- The benefit calculation and adjustment;
- The preservation and portability regulations.

All amendments to the plan rules must be approved by the National Superintendence for Pension Funds (PREVIC) - if it is a closed plan - or the Superintendence of Private Insurance (if it is an open plan).

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All plans: Private and public sector employees.

There are no legal rules concerning discrimination. Most plans define maximum age and/or minimum service requirements for joining the plan. Most plans cover all full-time employees of the sponsoring employer(s).

Anyone may join an open pension plan on a personal basis.

Sources of funds

Employee contributions

All plans: No legal rules.

The contribution rate depends on plan rules and actuarial calculations. Plans rules set the rate of contributions from employees. The majority of them have contributions from employees.

Pension plans implemented by trade unions and their respective federations and confederations, councils of professionals to which affiliation is mandatory for the exercise of the profession, cooperatives, and other associations duly authorized are contributory. Contribution rates depend on plan rules and also finance the plans' administration costs.

Employer contributions

All plans: No legal rules.

In pension plans implemented by the federal government, the states, the federal district, municipalities and public enterprises, the sponsor's contribution cannot exceed the member's contribution.

The contribution rate depends on plan rules and actuarial calculations.

Other sources of funds

All plans: None.

Methods of financing

All plans: Funded.

Defined benefit plans must use the current unit credit method in calculating their funding levels.

Asset management

Closed plans: Closed pension entities may manage the assets in-house or contract out the asset management to an asset manager.

Pension plans implemented by trade unions and their respective federations and confederations, councils of professionals to which affiliation is mandatory for the exercise of the profession, cooperatives, and other associations duly authorized must outsource the asset management to a company authorized by the Central Bank.

Of total assets invested managed by closed pension entities, a maximum of:

- 100% may be in fixed income assets;
- 70% may be in variable income assets;
- 8% in real estate;
- 15% in loans and mortgages offered to members.

Quantitative restrictions on fixed income assets vary according to the credit risk level of the asset. Limits for investment in equities issued by companies differ according to whether they adopt governance standards.

Open plans: Open pension entities manage the assets in-house.

Of total assets invested managed by open pension entities, a maximum of:

- 100% may be in fixed income assets;
- 75% may be in variable income assets;
- 50% in real estate;
- 25% may be in investments subject to exchange rate variation.

Acquisition and maintenance of rights

Waiting period

All plans: No legal rules.

Waiting periods must be defined in plan rules.

Vesting rules

All plans: No legal rules.

Vesting depends on plan rules.

Upon termination of employment before fulfilling the benefit qualifying conditions, members are entitled to a lump sum refund of their own adjusted contributions plus interest.

In case of plans sponsored by trade unions and their respective federations and confederations, councils of professionals to which affiliation is mandatory for the exercise of the profession, cooperatives, and other associations duly authorized, there is a waiting period until contributions may be refunded that ranges from six months to two years.

The plan rules will establish if all or just part of the employer's contributions are included in the lump sum refund.

Preservation, portability, transferability

Closed plans: Upon termination of employment before retirement, members may choose between:

- Transferring the cash value of their accrued rights or accumulated capital to the plan of the new employer;

- Preserving their accrued rights or accumulated capital in the plan and receiving a deferred pension from the plan at retirement age;

- Continuing accruing rights or accumulating capital, in which case they must pay both employer and employee contributions;

- Receiving a refund of their own adjusted contributions plus interest.

Open plans: Upon termination of employment before retirement, members may choose between:

- Transferring the cash value of their accrued rights or accumulated capital to the plan of the new employer;

- Receiving a refund of their own and their employer's contributions;

- Preserving their accrued rights or accumulated capital in the plan if the plan rules provide for this option.

Retirement benefits

Benefit qualifying conditions

All plans: No legal rules.

Benefit qualifying conditions depend on plan rules. Plans may require a minimum membership period as a condition for benefit eligibility. Plans may provide for early and/or deferred retirement.

Benefit structure / formula

All plans: No legal rules.

Defined benefit, defined contribution or variable contribution plans.

Benefits may be paid as lump sums or pensions according to plan rules.

Complementary pension plans are not integrated with the federal, provincial or municipal social security schemes.

Benefit adjustment

All plans: No legal rules.

Benefits are adjusted according to plan rules.

Survivors

All plans: No legal rules.

The provision of survivorship benefits is voluntary. Benefit qualifying conditions and benefit structure depend on plan rules.

In defined contribution plans, survivor benefits may be covered by a policy with an insurance company.

Disability

All plans: No legal rules.

The provision of disability benefits is voluntary. Benefit qualifying conditions and benefit structure depend on plan rules.

In defined contribution plans, disability benefits may be covered by a policy with an insurance company.

Protection of Assets

All plans: Open and closed pension entities must hold plan assets separate from their own assets and the assets of the sponsor.

Financial and Technical Requirements / Reporting

All plans: Open and closed pension entities must have an actuarial valuation of each pension plan carried out by an actuary at least once a year.

Through the actuarial valuation, the actuary will check if the calculation assumptions for the technical provisions are adequate, according to the biometric tables and interest rates guaranteed in the plan. In the case of provisions being insufficient, additional provisions must be constituted.

The rate of return taken into account for actuarial calculations must be based on solvency ratio of the pension plan.

Pension entities must submit to the National Superintendence for Pension Funds (PREVIC) in the case of closed plans, and to the Superintendence of Private Insurance (SUSEP) in the case of open plans, the following:

- Investment policy (annually);
- Consolidated accounting statements with the opinion from the actuary, independent auditor, supervisory board and governing board (annually);
- Statement of the result of the actuarial assessment result (annually);
- Internal control reports, bi-annually;
- Report on members, beneficiaries and benefits (monthly);
- Balance sheets (monthly);
- Investment statements (monthly);
- Statements containing daily stocks and negotiations of public bonds (monthly).

If a plan is under-funded, the responsible supervisory authority may appoint a supervising director to the pension entity for a fixed period in order to restore a sound financial position.

Whistleblowing

All plans: No legal rules.

Standards for service providers

All plans: Auditors must be registered with the Regional Council of Accounting. Actuaries must be registered with the Brazilian Institute of Actuaries. Custodians, investment managers, and consultants that provide services to pension plans must be registered with the Securities Commission.

Fees

Closed plans: A pension plan must choose one of the two types of fees to be charged:

a) The management fee: a charge levied by closed pension fund on returns for managing the investments of the pension plan. There is no limit for management fee for closed pension entities sponsored by private companies and associations. Although management fee must not exceed 1% of assets in case of closed pension entities sponsored by state-owned enterprises or the government.

b) The load fee: a charge levied by closed pension fund on contributions to pay its operation costs. There is no limit for load fee for closed pension entities sponsored by private companies and associations. However, management fee must not exceed 9 % of contributions and benefits of pension plan of closed pension entities sponsored by state-owned enterprises or the government.

Open plans: There is no limit for management fee and load fee.

Winding up / Merger and acquisition

All plans: The winding up of closed and open pension plans and entities is supervised by the National Superintendence for Pension Funds (PREVIC) and the Superintendence of Private Insurance (SUSEP) respectively.

The responsible supervisory authority can order the winding up of a pension entity in certain legally specified circumstances.

Beneficiaries and plan members have priority in the distribution of assets if a pension entity is being wound up.
Mergers or other transformations of pension entities are subject to the authorization of the responsible supervisory authority.

Bankruptcy: Insolvency Insurance / Compensation Fund

All plans: There are no requirements to insure against financial loss and no compensation fund exists.

Pension entities may, on a voluntary basis, reinsure liabilities with an insurance company. The responsible supervisory authority may order reinsurance under certain circumstances.

Disclosure of information / Individual action

All plans: Members must be provided with an annual report containing:

- Consolidated accounting balances and legal opinions on them;
- Investment policies and statements;
- Details of general assemblies;
- Statement of the result of the actuarial assessment.

Members may complain to the responsible supervisory authority about the actions of a closed or open pension entity. The supervisory authorities attempt to settle complaints by means of simplified administrative procedures and on-site supervision.

Other measures

All plans: None.

Taxation of employee contributions

All plans: Tax-exempt up to a limit of 12 per cent of salary.

Taxation of employer contributions

All plans: Tax-exempt up to a limit of 20 per cent of payroll.

Taxation of investment income

All plans: Tax-exempt.

Taxation of benefits

All plans: Taxed as income.

The income tax rate is:
0 per cent up to BRL 1,999.18;
7.5 per cent from BRL 1,999.18 up to BRL 2,967.98;
15 per cent from BRL 2,967.98 up to BRL3,938.60;
22.5 per cent from BRL 3,938.60 up to BRL 4,897.91;
27.5 per cent above BRL 4,897.92.

For members of defined contribution or variable contribution pension plans who opted for the regressive mechanism after 2004, the income tax ranges according to the accumulation period as follows:

- 35 per cent up to two years;
- 30 per cent from two to four years;
- 25 per cent from four to six years;
- 20 per cent from six to eight years;
- 15 per cent from eight to ten years;
- 10 per cent above ten years.
Secretariat of Social Security, subordinated to the Ministry of Finance, is responsible to provide to Minister public policies for pension system (all tree pillars, except open private pension plans).

National Board of Complementary Pensions (CNPC), subordinated to the Ministry of Finances, is responsible for the regulation of the closed pension system and composed by government officials (Planning and Finance Ministries) and market agent's representatives (sponsors, members, beneficiaries and "instituidores").

Esplanada dos Ministérios
Bloco F - 6 andar Gabinete CEP 70059-900
Brasilia
Brazil
Tel: (+55) 61 3317 5364
Fax: (+55) 61 3322 8858
Internet: http://www.previdencia.gov.br

Superintendence of Private Insurance (SUSEP):
authorises and supervises open plans, open pension entities and life insurance companies. The SUSEP also oversees non-life insurance companies and capitalization entities.

The SUSEP reports to the Minister of Finance.

Superintendência de Seguros Privados
Setor Bancário Sul, Quadra 1 - BL.K - 13º andar
Ed. Seguradora CEP 70093-900
Brasilia
Brazil
Tel.: (+55) 61 3322-8995
Fax: (+55) 61 3223-1129
Internet: http://www.susep.gov.br

The National Superintendence for Pension Funds (PREVIC):
Has with respect to supervised entities the powers to:

- Authorizes and supervises closed pension plans and entities;
- Supervise their activities and give instructions necessary to protect the rights of plan members;
- Approve actuarial rules for defined benefit plans and control compliance with these rules;
- Establish rules for their administration;
- Order and/or supervise their winding up.
- Ensure compliance with plan rules;
- Remove and/or transfer plan sponsorship;
- Impose administrative sanctions and fines;

Supervised entities must provide officers of the responsible supervisory authority with free access to all books and technical notes.
The PREVIC reports to the Minister of Finance.

Superintendência Nacional de Previdência Complementar
Ed. Venâncio 3000 - Asa Norte SCN Quadra 06 - Conjunto A, 7º andar
Brasília/DF, CEP 70716-900.
Tel: +55 61 2021-2000
Internet: http://www.previc.gov.br/

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