Occupational pension schemes in Brazil

Occupational pension schemes

What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

Pension plans may be managed by open or closed-end private pension plan entities. Open-end private pension entities are usually managed by joint stock companies operated for profit, usually insurance companies or banks, that offer individual or collective plans. These can be accessed by anyone.

Closed-end private pension entities offer social security benefits to organised groups (such as employees of a sponsor employer or member associations representing certain worker’s categories or sectors), through an employment bond or association.

The main types of private pensions and retirement plans are as follows:

• Defined benefit: the planned benefit value or level is established, and the cost is actuarially determined to guarantee its granting and maintenance.
• Defined contribution: the planned benefit value is permanently adjusted to balance the account in favour of the participants, taking the net result of the receipt of benefits and amounts allocated into account.
• Variable contribution: the planned benefit combines the features of defined benefit and defined contribution plans.

What restrictions or prohibitions limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans?

Decree No. 3,048 of 5 March 1999 expressly determines that companies will not pay social security contributions on amounts paid to employees resulting from an open or closed-end private pension fund, provided that such plan is available for all employees and senior managers of the company.

Also, Supplementary Law No. 109 of 29 May 2001, which provides for the open-end or closed-end private pension regime, establishes that the Private Pension System is operated by private pension entities, the primary purpose of which is to institute and handle pension plans in addition to the General Social Security System.

Within this context, private pension plans must, effectively, be intended as a savings mechanism targeted at the accumulation of resources for payment of future benefits, especially in furtherance of the participants’ retirement pay.

A private pension plan is allowed to impose non-discriminatory conditions for admission and dismissal of employees from it.

Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

Based on article 202 of the Federal Constitution, a private pension plan has a contractual nature. The contractual nature allows the parties (sponsors, principals, participants or beneficiaries, and the pension funds), according to their interests, to freely design the characteristics of the plan. However, pension plans in Brazil must operate in a non-discriminatory manner towards employees; thus, if some employees are excluded from the pension plans or if there is a limitation of participation of any kind, employees or authorities may challenge these rules.

Pension plans usually require that employees work for a minimum period to receive pension benefits.

What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

There are two arrangements related to individuals working abroad:

Maintainance of the employment contract

The employment contract in Brazil continues for the duration of the employee’s time working abroad.

The employee continues to contribute to the Brazilian public pension system and usually remains in the private pension plan.

Termination of the employment contract

The employment contract is terminated under Brazilian laws, with all severance pay owed being settled.

The employee ceases contributing to the Brazilian public pension system and is usually no longer part of a private pension plan.

This arrangement is only advisable when the employee is not expected to return to Brazil to work for the company.

Do employer and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

The benefit plan must set out that the benefits should be funded by contributions made by sponsors and participants, individually or jointly, according to each plan’s regulation.

The funds remain under administration of the private pension entity, and under the regulation and supervision of the public authorities.

What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

According to article 22 of Supplementary Law No. 109, at the end of each fiscal year (which coincides with the calendar year) closed-end private pension entities must draw up accounting statements and actuarial valuations of each benefit plan (defined benefit, defined contribution and variable contribution), per legal entity or legally qualified professional, and the outcome should be forwarded to the regulatory and overseeing body, participants and beneficiaries.

Based on the actuarial valuation, it is possible to assess the actuarial condition of the benefit plan and the regular and additional contributions that should be made by the employer.

What are customary levels of benefits provided to employees participating in private plans?

The levels of benefits are widely variable according to the type of plan previously described, such as defined benefit, defined contribution and variable contribution. The customary benefits are:

• normal retirement;
• early retirement;
• deferred retirement;
• postponed benefit due to termination of employment relationship;
• disability retirement;
• survivor’s pension;
• quittance;
• minimum benefit; and
• annual bonus.

Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions?

Pension plans are subject to periodic actuarial valuations to check whether there are sufficient reserves for payment of benefits, in which the benefits that are being paid and those to be paid are taken into account.

In closed-end private pension plans, in the event of an actuarial deficiency, the entity will be required to make an immediate adjustment as follows:

• an increase of the contribution amount;
• the creation of an additional contribution; or
• a reduction in the amount of benefits to be paid.

What pre-retirement death benefits are customarily provided to employees’ beneficiaries and are there any mandatory rules with respect to death benefits?

Depending on the provisions of the regulation of the benefit plan, the following situations are possible:

• If the contract provides for a monthly annuity for life, the amount will be paid exclusively to the annuitant during his or her lifetime. That is, if the annuitant dies, neither the beneficiary nor the heirs will receive private pension investments.
• If the contract provides for a temporary monthly annuity, the benefit is paid exclusively to the annuitant for a contracted period of time and ceases upon the annuitant’s death or upon the expiration of the contracted period (whichever occurs first).
• In the case of a monthly annuity for life with a minimum guaranteed period, if the annuitant dies before the expiration of such minimum guaranteed period, the beneficiaries will be entitled to the benefit for the remaining guaranteed period. If no beneficiaries are appointed, or if those appointed have died before the annuitant, the benefit will be paid to the lawful heirs of the annuitant for the remaining minimum period. On the other hand, if the annuitant dies after the minimum period, the entity will no longer be required to pay the benefits.
• If there is a monthly annuity benefit for life, reversible to an appointed beneficiary, in which the payment is made to the annuitant while he or she is alive. Should the annuitant die, the percentage of the amount established will revert to the appointed beneficiary. If the beneficiary dies before the annuitant or during the payout period, the reverted benefit will end.

When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

Each statute of the pension plan regulates the conditions that must be in place for retirement and payment of the plan benefits, including the calculation applicable for situations when early retirement occurs.

Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

As a general rule, loans and distributions are not allowed by the pension plan in favour of the beneficiaries, although there are exceptions. Payments are usually made when the beneficiary is eligible for any of the benefits established in the pension plan statute.

Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

When moving to a new job, or simply leaving a current one, a beneficiary is allowed to transfer the amount accrued to a new pension plan (portability), once certain requirements are met. The rules of the new pension plan will become applicable.

Alternatively, they may continue in the same pension plan as a self-sponsor, which will guarantee the maintenance of the same benefits. How the benefits are affected depends on the decision made by the beneficiary and the rules of the new pension plan in the case of portability.

In what circumstances may members transfer their benefits to another pension scheme?

Whenever the employment relationship is terminated, the beneficiary is eligible for transference of the accrued amounts to a new pension plan, according to the portability rules.

Who is responsible for the investment of plan funds and the sufficiency of investment returns?

Private pension plans’ funds are generally managed by a bank or insurer in open-ended pension plans (those available for any person) and by a specialised manager hired by the company in closed-end pension plans, which normally submit relevant decisions to a group of selected employees of the company (which are part of the deliberative and fiscal council).

At least one-third of the selected employees have to be participants in the pension plan. These members of the group must have previous experience in certain areas, such as finance, business, accounting, law, management or auditing, and unblemished reputations.

Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?

Not applicable.

Are non-broad-based (eg, executive-only) plans permitted and what types of benefits do they typically provide?

Pension plans not offered to all employees of a company (non-broad based) could lead to the disregarding of tax, labour and social security exemptions granted by the law in Brazil. Thus, they are usually not recommended.

How do the legal requirements for non-broad-based plans differ from the requirements that apply to broad-based plans?

Not applicable.

How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

In Brazil, all employees, regardless of being in a trade union or not, are represented by a trade union and a collective bargaining agreement. Consequently, unless the trade union has an optional private pension plan that can be offered to its members, there are no differences in relation to the retirement benefits.

Although it is not mandatory, the trade union could provide an associated pension plan to the employees it represents, the rules of which are established in law, such as the mandatory use of the definite contribution system. In that case, the assets of the pension plan must be segregated from those pertaining to the trade union itself and a specialised professional should be hired to manage the funds.

How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broad-based arrangements?

Not applicable.