Pension funds may need new extra charges to cover deficit

Active workers, retirees and pensioners linked to pension funds may be required to pay extraordinary contributions later this year to cover the account deficit in 2021.

This Wednesday (29), the government only partially accepted the request for postponement presented by Abrapp (Brazilian Association of Closed Pension Entities) to the CNPC (National Council for Supplementary Pensions).

The entities that manage funds wanted to postpone the compensation of the consolidated deficit last year to 2023, but managed to postpone only the loss generated by investments in public bonds.

According to Abrapp, 75.8% of investments by entities that manage funds are in fixed income, of which 17.2% are government bonds. Luís Ricardo Martins, president of the sector association, says that the government’s decision was conservative.

“Each entity has its investment profile. Those who still have properties suffered a lot in the pandemic, but now they are recovering. It is not the decision that civil society wanted”, he says.

At least 136 plans expect to need balancing plans to cover R$20.4 billion accumulated in 2021. With this Wednesday’s decision, each will need to calculate how much of last year’s negative balance comes from investments in government bonds.

A 2018 resolution obliges supplementary pension entities to initiate plans to cover deficits in the following year. Abrapp argues that the deficit accumulated by most funds is only conjunctural and occurs as a result of the two years of the pandemic, during which stock market fluctuations and price rises accumulated.

The longer term would allow, according to Abrapp, that the administrators recover, this year, the losses. Days before approval, fund managers already took for granted a delay, given the possible political repercussions of new discounts, but the forecast was not confirmed.

Abrapp represents 244 entities, 83 of which manage pension plans for public or state-owned companies, such as Postalis, from Correios, Previ, from Banco do Brasil, Petros, from Petrobas, and Funcef, from Caixa Econômica Federal.

​With the exception of Previ, the largest in terms of people and assets invested (with R$242.1 billion and 422,189 workers, retirees and pensioners), the others already charge extraordinary payments from their participants, who have monthly discounts to cover gaps in the past. .

At Postalis, current payments try to cover deficits from 2012 and 2014, which totaled around R$6 billion. The current management of the fund is also rushing to approve a new balancing plan that should consolidate all recent loss-making results (in addition to 2012 and 2014, also 2015 and 2020) and make extraordinary contributions for life.

At Funcef, those assisted by the more mature plans currently pay around 20% of the benefit in extra fees to cover shortfalls in the period between 2014 and 2016. The results for 2021, however, will not require an equation.

At Petros, the extra charge for solving the deficit for 2015 and 2018 varies from 10.56% to 13.59% depending on the type of plan and the situation of each participant at the end of 2019. At the end of 2021, the result negative investment portfolio left a deficit of R$ 7.745 billion. Of this total, R$ 3.774 billion need to be included in a balancing plan.

These extraordinary payments have already generated dozens of lawsuits initiated by beneficiary associations, which are trying to stop the collections. The argument of the groups that represent employees of state-owned companies and public companies is that it is up to the sponsors to solve the deficits.

In January of this year, pension funds had BRL 1.123 trillion in assets, equivalent to 13% of GDP (Gross Domestic Product) calculated by the IBGE in 2021.

The deficit-equation plan does not always demand extraordinary collection. The entities that manage the funds can sell assets and move their investments to generate cash and cover the negative balance or temporarily reduce the amount of benefits to be granted.