Newsletter Nov-dec 2009

P ENSIONS & B ENEFITS - B RAZIL

November 2, 2009 Volume 1, Issue 1

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Who, what, when? NKL2 is 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.

I NSIDE T HIS I SSUE Who, 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

We have world-class quality services and vast

Our main goal is to help your company to obtain and

better understand the local environment, market

reading this first issue, you will be following our steps

human resources and benefits management.

and we are confident that our articles will be valuable

expertise aiding multinational companies to

maintain profitable operations in Brazil. If you are

practices and the main challenges posted to

from the very beginning. We hope you enjoy our style

Pensions & Benefits – Brazil is a newsletter

to you.

intended to bring to you, every other month,

Your insights, suggestions, comments and opinions are

the benefits arena in the country.

reader.

information and news about what’s happening in

welcome. Thanks for the privilege of having you as a

The editor.

Lower pensions benefits? By Eder Costa e Silva It’s 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 monthly

contribution 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 company’s cash flow.

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 Entities and are similar to US’ trustee funds, will be allowed to pay not only the asset management services through deductions from Please see …pensions benefits? on page 4

Page 2

Pensions & Benefits - Brazil

Corporate health plans By Eder Costa e Silva

It’s reasonably common in Brazil for small and

sometimes even for mid-sized companies to hire

Medical symbol

its 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-“Agência Nacional de Saúde Supmementar”) only regular employees and

statutory directors are entitled to participate in

the company’s 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 for small and mid-sized employers.

Insured Plans – Fees and Returns By Eder Costa e Silva

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 Entities to manage their corporate pension programs. This section of Pensions & 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 Fixed Income

(3)

Fixed Income – DI Reference

(4)

Multimarket–Including Variable Income Multimarket-Balanced

(6)

(5)

Min.

Max.

Mean

Total Market

0.10%

5.00%

1.71%

0.93%

0.36%

5.00%

1.68%

0.97%

0.20%

5.00%

1.64%

1.46%

0.24%

4.00%

2.09%

2.22%

(2)

Please see Fees and Returns on page 5

“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”

Brazilian Currency

Pensions & Benefits - Brazil

Page 3

What is this picture of? By Rosa Clement

Guaraná is an Amazon fruit used to make a pleasant and sweet commercial soda. It is a very popular drink in the Amazon. The origin of this fruit is explained in this folk tale: An Indian couple, belonging to the Maués tribe, lived together for many years, always

Picture of the Guaraná fruit from the Amazon jungle

wishing that they could have a child. One day they asked their God, Tupã, to give them a child as a present to complete their happiness. Tupã, the king of the gods, knowing that the couple had good

bit the boy, killing him instantly. The sad news

hearts, fulfilled their wish, bringing to them a

spread quickly. At that moment, thunder echoed

beautiful boy. Time passed by quickly and the boy

and a lightening bolt fell near the Indian longhouse.

grew up handsome, generous and kind. However,

The mother, who was crying in despair, understood

Juruparí, the God of Darkness, felt an extreme envy

that the thunder was a message from Tupã,

of the boy and the peace and happiness that he

explaining that she should plant the child's eyes and

transmitted, and decided to end that blooming life.

that from them a new plant would grow, yielding

One day the boy went to gather fruits in the forest

tasty fruits. The Indians obeyed the mother's voice

and Juruparí decided that his vengeance time had

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

arrived. He transformed himself into a serpent and

Guaraná tree, whose seeds are black, each with a Please see What is this… page 4

Pension fund costs to increase in 2010 By Eder Costa e Silva

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 Previdência 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 Fiscalização e Controle da Previdência Complementar”.

The TAFIC is 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 agency’s 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’ costs on page 4

Page 4

Pensions & Benefits - Brazil

.…pensions benefits? from page 1 investment returns but also administrative

that returns on investments are dropping very fast in

above are Resolutions CGPC # 28 and # 29 issued,

asset management fees are still high unable to

The government’s “Secretaria de Previdência

retirement plans administrators will be necessary along

both. Many sponsor companies, pressured to

coming from participants.

investments returns all administrative expenses of

We will return to this subject at a later date.

expenses. The recent regulations we referred to

Brazil due to the historically low interest rates, and that

respectively on Jan/26/2009 and Aug/31/2009.

recognize the new environment. Transparency from

Complementar” was responsible for publishing

with adopting that practice to avoid future claims

reduce costs, will opt to deduct from the

their retirement plan. That shall happen in the

2010 fiscal year and companies need to be aware

…funds costs from page 3 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 MultiSponsored Pension Funds, that work as

comingled funds and are sponsored by banks, and Open Private Pension Entities, which are insurance companies specialized in administering retirement 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 Entities will increase at the end of 2009 and for the full 2010 fiscal year.

What is this… from page 3

“Some small and mediumsized pension funds have been terminated and their retirement plans transferred to less costly financial vehicles.”

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 Guaraná looks very much like an eyeball with a small dark seed surrounded by white orbit. You can notice that in the picture. Guaraná is most commonly encountered in a popular Brazilian soft drink.

Guaraná Antarctica in can

Pensions & Benefits - Brazil

Page 5

Fees and Returns from page 2 RETURNS ON INVESTMENTS – SEPTEMBER/2009 PRIVATE RETIREMENT FUNDS Fixed Income

(3)

Fixed Income – DI Reference

(4)

Multimarket–Including Variable Income Multimarket - Balanced

(5)

(6)

Min.

Max.

Median

Mean

0.2737%

3.1225%

0.6045%

0.6498%

0.2833%

0.6910%

0.6060%

0.5866%

0.1967%

9.5328%

2.0423%

2.3322%

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 Fixed Income

(3)

Fixed Income – DI Reference

(4)

Multimarket–Including Variable Income Multimarket – Balanced

(5)

(6)

Min.

Max.

3.3151%

21.1117%

Median 7.1472%

7.4144%

Mean

3.8572%

7.6756%

6.7648%

6.6102%

3.5832%

56.0892%

16.6514%

18.8154%

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 benchmark and concentration in only one asset class is not allowed.

Economic Insight 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

IPCA Index

Last month

Year to date

Last year

0,24%

3.21%

5.90%

Last Month

Last year

Two years

“The Brazilian Central Bank estimates a 0.1% GDP growth for 2009 and 4.8% for 2010”

Source: IBGE

MINIMUM WAGE

Brazilian Real US Dollar Euros

R$ 465.00

R$ 415.00

R$ 380.00

US$ 267.24

US$ 178.11

US$ 214.69

€R 181.64

€R 128.48

€R 146.15

Source: IBGE (variation are due to the exchange rate)

Please see Economic… on page 6

Page 6

Pensions & Benefits - Brazil

NKL2 Soluções Atuariais Rua Porto Feliz 89

Economic… from page 5 INTEREST RATE

Cajamar, SP - Brazil 07750-000 Phone: +55 11 9624-0952 Fax:

[email protected] Your independent

Last year

Two years

8.75%

13.75%

11.18%

SELIC (annual) Source: Central Bank

MACRO ECONOMICS

+55 11 4407-6062 E-Mail:

Last day

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

information source Disclosures: The information in the sections Economic Insight and Insured Retirement Plans – Fees and Returns has been derived from sources believed to be accurate as of November 2009. It contains general information only on

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economic matters and investments should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information it contains does not take account of any investor’s 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).