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Post-Employment and Other Non-current Employee Benefits | 12 Months Ended
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Dec. 31, 2020
Disclosure of defined benefit plans [abstract] |
Post-Employment and Other Non-current Employee Benefits | Note 17. Post-Employment and Other Non-current Employee Benefits The Company has various labor liabilities for employee benefits in connection with pension and retirement plans, seniority premiums and other post-employment benefits. Benefits vary depending upon the country where the individual employees are located. Presented below is a discussion of the Company’s labor liabilities in Mexico, which comprise the substantial majority of those, recorded in the consolidated financial statements. 17.1 Assumptions The Company annually evaluates the reasonableness of the assumptions used in its labor liability for post-employment and other non-current employee benefits computations. In Mexico, actuarial calculations for pension and retirement plans and seniority premiums, as well as the associated cost for the period, were determined using the following long-term assumptions:
Mexico | 2020 | 2019 | 2018
Financial: |  |  |
Discount rate used to calculate the defined benefit obligation and the net interest on de net defined benefit liability (asset) | 7.2 | % | 7.5 | % | 9.4 | %
Salary increase: (Non-Union/Union) | 4.5 | % | 4.5 | % | 4.6 | %
Future pension increase | 3.5 | % | 3.5 | % | 3.6 | %
Biometric: |  |  |
Mortality | EMSSA 2009 (1) | EMSSA 2009 (1) | EMSSA 2009 (1)
Disability | IMSS 97 (2) | IMSS-97 (2) | IMSS-97 (2)
Normal retirement age | 60 years | 60 years | 60 years
Rest of employee turnover | BMAR2007 (3) | BMAR2007 (3) | BMAR2007 (3)
(1) EMSSA. Mexican Experience of Social Security (for its initials in Spanish) (2) IMSS. Mexican Experience of Instituto Mexicano del Seguro Social (for its initials in Spanish) (3) BMAR. Actuary experience In Mexico the methodology used to determine the discount rate was the yield or Internal Rate of Return (“IRR”) which involves a yield curve. In this case, the expected rates of each period were taken from a yield curve of the Mexican Federal Government Treasury Bond (known as CETES in Mexico) because there is no deep market in high quality corporate obligations in Mexico. In Mexico upon retirement, the Company purchases an annuity for senior executives, which will be paid according to the option chosen by the employee. Based on these assumptions, the amounts of benefits expected to be paid out in the following years are as follows:
| Pension and Retirement Plans | Seniority Premiums
2021 | Ps. 305 | Ps. 66
2022 | 173 | 59
2023 | 226 | 61
2024 | 247 | 63
2025 | 289 | 67
2026 to 2030 | 1,854 | 176
17.2 Balances of the liabilities for post-employment and other non-current employee benefits
| 2020 | 2019
Pension and Retirement Plans: |  |
Vested benefit obligation | Ps. 996 | Ps. 627
Non-vested benefit obligation | 1,644 | 1,421
Accumulated benefit obligation | 2,640 | 2,048
Excess of projected defined benefit obligation over accumulated benefit obligation | 1,671 | 1,864
Defined benefit obligation | 4,311 | 3,912
Pension plan funds at fair value | (1,201) | (1,122)
Net defined benefit liability | Ps. 3,110 | Ps. 2,790
Seniority Premiums: |  |
Vested benefit obligation | Ps. 307 | Ps. 214
Non-vested benefit obligation | 224 | 133
Accumulated benefit obligation | 531 | 347
Excess of projected defined benefit obligation over accumulated benefit obligation | 334 | 283
Defined benefit obligation | 865 | 630
Seniority premium plan funds at fair value | (137) | (127)
Net defined benefit liability | Ps. 728 | Ps. 503
Total post-employment and other non-current employee benefits | Ps. 3,838 | Ps. 3,293
17.3 Trust assets Trust assets consist of fixed and variable return financial instruments recorded at market value, which are invested as follows:
Type of instrument | 2020 | 2019
Fixed return: |  |
Traded securities | 18 | % | 18 | %
Life annuities | 18 | % | 20 | %
Bank instruments | 17 | % | 9 | %
Federal government instruments | 27 | % | 35 | %
Variable return: |  |
Publicly traded shares | 20 | % | 18 | %
| 100 | % | 100 | %
In Mexico, the regulatory framework for pension plans is established in the Income Tax Law and its Regulations, the Federal Labor Law and the Mexican Social Security Institute Law. None of these laws establish minimum funding levels or a minimum required level of contributions. In Mexico, the Income Tax Law requires that, in the case of private plans, certain notifications must be submitted to the authorities and a certain level of instruments must be invested in Federal Government instruments, among others. The Company’s various pension plans have a technical committee that is responsible for verifying the correct operation of the plan with regard to the payment of benefits, actuarial valuations of the plan, and the monitoring and supervision of the benefit trust. The committee is responsible for determining the investment portfolio and the types of instruments the fund will be invested in. This technical committee is also responsible for verifying the correct operation of the plan in all of the countries in which the Company has these benefits. The risks related to the Company’s employee benefit plans are primarily attributable to the plan assets. The Company’s plan assets are invested in a diversified portfolio, which considers the term of the plan so as to invest in assets whose expected return coincides with the estimated future payments. Since the Mexican Tax Law limits the plan’s asset investment in related parties, to 10% this risk is not considered to be significant for purposes of the Company’s Mexican subsidiaries. In Mexico, the Company’s policy is to invest at least 30% of the fund assets in Mexican Federal Government instruments. Guidelines for the target portfolio have been established for the remaining percentage and investment decisions are made to comply with these guidelines insofar as the market conditions and available funds allow. In Mexico, the amounts and types of securities of the Company and related parties included in portfolio fund are as follows:
| 2020 | 2019
Mexico |  |
Portfolio: |  |
Debt: |  |
Grupo Industrial Bimbo, S.A.B. de C. V. | Ps. 28 | Ps. 26
Grupo Financiero Banorte, S.A.B. de C.V. | 9 | 8
Capital: |  |
Fomento Económico Mexicano, S.A.B. de C.V. | 3 | 2
El Puerto de Liverpool, S.A.B. de C.V. | — | 2
Alfa, S.A.B. de C.V. | — | 3
During the years ended December 31, 2020, 2019 and 2018, the Company did not make significant contributions to the plan assets and does not expect to make material contributions to the plan assets during 2021. 17.4 Amounts recognized in the consolidated income statements and the consolidated statements of equity
| Income statement | Accumulated OCI
2020 | Current Service Cost | Past Service Cost | (Gain) or Loss on Settlement or curtailment | Net Interest on the Net Defined Benefit Liability | Remeasurements of the Net Defined Benefit Liability net of taxes
Pension and retirement plans | Ps. 229 | Ps. 71 | Ps. — | Ps. 188 | Ps. 934
Seniority premiums | 68 | — | — | 43 | 239
Total | Ps. 297 | Ps. 71 | Ps. — | Ps. 231 | Ps. 1,173
| Income statement | Accumulated OCI
2019 | Current Service Cost | Past Service Cost | (Gain) or Loss on Settlement or curtailment | Net Interest on the Net Defined Benefit Liability | Remeasurements of the Net Defined Benefit Liability net of taxes
Pension and retirement plans | Ps. 170 | Ps. (44) | Ps. 2 | Ps. 176 | Ps. 790
Seniority premiums | 35 | 76 | — | 24 | 65
Total | Ps. 205 | Ps. 32 | Ps. 2 | Ps. 200 | Ps. 855
| Income statement | Accumulated OCI
2018 | Current Service Cost | Past Service Cost | (Gain) or Loss on Settlement or curtailment | Net Interest on the Net Defined Benefit Liability | Remeasurements of the Net Defined Benefit Liability net of taxes
Pension and retirement plans | Ps. 195 | Ps. — | Ps. (5) | Ps. 265 | Ps. 370
Seniority premiums | 42 | — | — | 34 | (26)
Total | Ps. 237 | Ps. — | Ps. (5) | Ps. 299 | Ps. 344
Remeasurements of the net defined benefit liability recognized in other comprehensive income are as follows (amounts are net of tax):
| 2020 | 2019 | 2018
Amount accumulated in other comprehensive income as of the beginning of the periods | Ps. 855 | Ps. 344 | Ps. 567
Recognized during the year (obligation liability and plan assets) | 213 | 98 | 100
Actuarial gains and losses arising from changes in financial assumptions | (76) | 456 | (357)
Actuarial gains and losses arising from changes in demographic assumptions | 184 | — | —
Acquisitions | — | — | (83)
Foreign exchange rate valuation (gain) | (3) | (43) | (66)
Philippines disposal | — | — | 183
Amount accumulated in other comprehensive income as of the end of the period, net of tax | Ps. 1,173 | Ps. 855 | Ps. 344
Remeasurements of the net defined benefit liability include the following: • The return on plan assets, excluding amounts included in net interest expense. • Actuarial gains and losses arising from changes in demographic assumptions. • Actuarial gains and losses arising from changes in financial assumptions. 17.5 Changes in the balance of the defined benefit obligation for post-employment and other non-current employee benefits
| 2020 | 2019 | 2018
Pension and Retirement Plans: |  |  |
Initial balance | Ps. 3,912 | Ps. 3,388 | Ps. 4,369
Current service cost | 229 | 170 | 195
Effect on curtailment | — | 2 | (5)
Interest expense | 269 | 275 | 265
Actuarial gains or losses | 257 | 585 | (391)
Foreign exchange loss | 28 | (69) | (86)
Benefits paid | (455) | (395) | (265)
Acquisitions | — | — | 417
Philippines disposal | — | — | (1,111)
Past service credit | 71 | (44) | —
| Ps. 4,311 | Ps. 3,912 | Ps. 3,388
Seniority Premiums: |  |  |
Initial balance | Ps. 630 | Ps. 411 | Ps. 461
Current service cost | 68 | 35 | 42
Interest expense | 53 | 37 | 34
Actuarial gains or losses | 187 | 155 | (84)
Benefits paid | (73) | (84) | (42)
Past service cost | — | 76 | —
| Ps. 865 | Ps. 630 | Ps. 411
17.6 Changes in the balance of trust assets
| 2020 | 2019 | 2018
Pension and retirement plans: |  |  |
Balance at beginning of year | Ps. 1,122 | Ps. 1,031 | Ps. 1,692
Actual return on trust assets | 75 | 81 | 30
Foreign exchange gain | 4 | 2 | (2)
Life annuities | — | 8 | 16
Benefits paid | — | — | (1)
Philippines disposal | — | — | (704)
Balance at end of year | Ps. 1,201 | Ps. 1,122 | Ps. 1,031
Seniority premiums |  |  |
Balance at beginning of year | Ps. 127 | Ps. 111 | Ps. 109
Actual return on trust assets | 10 | 16 | 2
Balance at end of year | Ps. 137 | Ps. 127 | Ps. 111
As a result of the Company’s investments in life annuities plans, management does not expect the Company will need to make material contributions to the trust assets in order to meet its future obligations. 17.7 Variation in assumptions The Company decided that the relevant actuarial assumptions that are subject to sensitivity and valuated through the projected unit credit method, are the discount rate and the salary increase rate because they have the most significant impact: • Discount rate: The rate that determines the value of the obligations over time. • Salary increase rate: The rate that considers the salary increase which implies an increase in the benefit payable. The following table presents the impact in absolute terms of a variation of 1.0% in the assumptions on the net defined benefit liability associated with the Company’s defined benefit plans. The sensitivity of this 1.0% on the significant actuarial assumptions is based on projected long-term discount rates for Mexico and a yield curve projections of long-term Mexican government bonds - CETES:
+1.0%: |  |  | Income Statement | Accumulated OCI
Discount rate used to calculate the defined benefit obligation and the net interest on the net defined benefit liability (asset) | Current Service Cost | Past Service Cost | Gain or Loss on Settlement or curtailment | Net Interest on the Net Defined Benefit Liability | Remeasurements of the Net Defined Benefit Liability
Pension and retirement plans | Ps. 195 | Ps. 68 | Ps. — | Ps. 148 | Ps. 1,055
Seniority premiums | 64 | — | — | 36 | 272
Total | Ps. 259 | Ps. 68 | Ps. — | Ps. 184 | Ps. 1,327
Expected salary increase | Current Service Cost | Past Service Cost | Gain or Loss on Settlement or curtailment | Net Interest on the Net Defined Benefit Liability | Remeasurements of the Net Defined Benefit Liability
Pension and retirement plans | Ps. 233 | Ps. 75 | Ps. — | Ps. 205 | Ps. 1,186
Seniority premiums | 69 | — | — | 44 | 324
Total | Ps. 302 | Ps. 75 | Ps. — | Ps. 249 | Ps. 1,510
17.8 Employee benefits expense For the years ended December 31, 2020, 2019 and 2018, employee benefits expenses recognized in the consolidated income statements are as follows:
| 2020 | 2019 | 2018
Included in cost of goods sold: |  |  |
Wages and salaries | Ps. 3,955 | Ps. 4,052 | Ps. 4,295
Social security costs | 1,251 | 1,277 | 1,320
Employee profit sharing | 89 | 79 | 74
Pension and seniority premium costs (Note 17.4) | 69 | 34 | 26
Share-based payment expense (Note 18.2) | 4 | 1 | 3
Included in selling and distribution expenses: |  |  |
Wages and salaries | 15,620 | 16,068 | 16,590
Social security costs | 4,587 | 4,717 | 4,651
Employee profit sharing | 551 | 539 | 496
Pension and seniority premium costs (Note 17.4) | 261 | 185 | 158
Share-based payment expense (Note 18.2) | 20 | 2 | 11
Included in administrative expenses: |  |  |
Wages and salaries | 2,448 | 2,742 | 2,771
Social security costs | 541 | 625 | 557
Employee profit sharing | 33 | 35 | 31
Pension and seniority premium costs (Note 17.4) | 38 | 20 | 46
Post-employment benefits other (Note 17.4) | — | — | 2
Share-based payment expense (Note 18.2) | 166 | 185 | 143
Total employee benefits expense | Ps. 29,633 | Ps. 30,561 | Ps. 31,174

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