Pension funds want more time to cover 2020 and 2021 deficit

The strong fluctuation of the stock markets and the soaring of inflation in the two years under the pandemic also affected the results of pension funds, which saw their accounting balances worsen and, now, want from the government a longer term to cover the deficit in the 2020 and 2021 accounts. .

Abrapp (Brazilian Association of Closed Pension Entities) presented the proposal to Previc in December and should return to discuss the matter at a meeting of the CNPC (National Pension Council Complementar) this week.

Luiz Paulo Braizza, vice-president of the association, says that the longer term should give the entities that manage the plans time to recover the losses. “It needs to be very clear that it’s not about insolvency, but a market moment”, he says.

“We had an atypical situation in 2020 and 2021. Making this adjustment plan in 2022 could lead to an unnecessary sale of assets and that would not be good. Our proposal is to discuss in 2023 and 2024, when we expect the situation to have already improved.”

The advance could avoid the need for more aggressive equating plans, such as those that include extraordinary charges on pensions and salaries.

For thousands of retirees and pensioners of the largest plans linked to state-owned companies, the mere prospect of new charges is a source of tension.

Currently, active workers, retirees and pensioners from Postalis, Correios, Petros, Petrobras, and Funcef, Caixa, already have monthly discounts on their benefits and salaries to cover past shortfalls.

The Postalis situation is the most delicate. Fourth largest in Brazil in terms of number of participants, the fund is at risk of running out of money for pensions in 2026. Today, participants pay extra contributions to cover deficits in 2012 and 2014, which totaled around R$6 billion.

In 2015, Postalis closed the year with a new billionaire deficit, which led the fund to undergo intervention by Previc (National Superintendence of Complementary Pensions) in 2017.

Now, the fund awaits approval of a deficit consolidation and an aggressive restructuring plan. The balance of the 2012 and 2014 equations, for which the participants have already paid around R$ 450 million annually, will be added to the 2015 deficit and also to the most recent, of 2020. Everything comes to R$ 8 billion.

Carlos Alberto Zachert, director of pension management at Postalis, expects the plan to go into effect by the end of the semester. The proposal went through the direction of the Post Office and is now going through the state bureaucracy – it is at the State-owned Coordination and Governance Secretariat.

In this plan, the extra contributions will remain practically the same, but will become lifelong – the charges currently made would last, on average, 16 years. Retirees, who currently pay 27.30% of their benefits, will now pay 26.54%. For pensioners, the bite will be 37.22%. Active employees will have a discount of 17.84% (today it is 18.81%). The new plan also ends the annuity, halves the value of pensions for death, and cuts 25% on the 13th.

Postalis’ deficit and low solvency are not the only knots to be untied by the fund’s management. Correios is on the federal government’s list of privatizations and, although there is a risk that the process will not be completed in the Jair Bolsonaro (PL) government, the state-owned company has not had new tenders for years and has promoted programs to encourage layoffs. In 2021 alone, 7,000 new benefits were granted.

At Funcef, the foundation that manages the pension plan for Caixa employees, 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 plans still have around R$2 billion of unbalanced deficits.

The results for 2020 and 2021, even with a deficit, should not lead to a new equation. According to the foundation’s president, Gilson Santana, the deficit must be below the regulatory ceiling that determines the collection of additional fees to cover leaks.

“None of our scenarios indicate that we will have a deficit of a size that needs to be addressed”, he says. “November’s closed balance sheet is already better than October’s, which was worrying.”

The improvement, says the executive, is the result of a greater bet on public bonds, which have profitability linked to the Selic rate, increased successively by Copom to contain inflation. Santana believes that, with the basic interest rate on the rise, results tend to be better in 2022.

This year, the foundation approved changes in the readjustment of one of the mature plans, replacing the index negotiated by active employees by the INPC. According to Santana, the new rule gives more predictability in the management of investments, reducing the margin for future losses.

Funcef resumed internal processes to determine responsibilities for the poorly made investments that contributed to the gaps in the mid-decade, which were stopped during the pandemic. Results of the investigations are being sent to the Federal Public Ministry to help with actions on the subject.

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.

Until December, the investment portfolio of the foundation’s more mature plans had losses between 3% and 3.8%, when the goal would be a gain of 14%. The entity says that the result of a fund must be observed in the long term to eliminate conjunctural issues.

“Petros has a solid and diversified investment portfolio”, which, according to the foundation, provides conditions for recovery. The foundation also claims to have recorded, in 2020, the first surplus after nine consecutive years of deficit in one of its defined benefit plans, “consolidating the restructuring work carried out by the current management.”

Of the state-owned companies that were the target of investigations, Previ, from Banco do Brasil, is the least affected. The fund is the largest in terms of people and assets invested, controls R$232.2 billion and has 544,755 workers, retirees and pensioners.

In 2015, it also recorded a deficit, but the extraordinary contribution was suspended in 2017, thanks to the profitability of investments having been higher than the current target of the previous year.

The 2021 balance sheet of the 618 plans of the 232 entities represented by Abrapp will only be closed at the end of March, but should be negative. Until October, the most recent data, 327 plans from 128 funds were in deficit.

Together, the funds manage R$ 1.125 trillion in assets distributed in various investments. Those who fund these operations are the 7.9 million participants. Every year, around R$70 billion are paid in pensions to 800,000 beneficiaries.

Five questions about state funds

Why do I get a discount on my retirement paid by a pension fund?

Because the plan that pays for your retirement has run a deficit at some point in the last few years. Since 2015, the regulation of closed supplementary pension funds provides for the deficit to be resolved in the following year.

How long will the discount last?

This depends on each equation plan, the name given to operations to eliminate the deficit. Plan participants need to be informed of the duration of charges.

Is there a limit to these discounts?

No. It can reach 50% of the benefit, for example. These extra contributions, however, are approved in plans that need to be discussed with the participants.

Is discounting the only way to pay off the deficit?

No. The entities that administer the plans have the autonomy to take other measures, such as reviewing investments, selling assets and reducing benefits. The deficit-equation plan does not always result in an extraordinary contribution

Can I stop or limit the rebate?

Associations of state employees have several lawsuits to bar extra contributions. There are also lawsuits demanding accountability from managers involved in reckless or fraudulent management. However, there is no guarantee of victory.