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26. POST-EMPLOYMENT OBLIGATIONS
 12 Months Ended
Dec. 31, 2019
Disclosure of defined benefit plans [abstract]  
POST-EMPLOYMENT OBLIGATIONS

26. POST-EMPLOYMENT OBLIGATIONS

 

Forluz Pension plan (a Supplementary retirement pension plan)

 

Company and its subsidiaries are sponsors of Forluz – Forluminas Social Security Foundation, a non-profit legal entity whose object is to provide its associates and participants and their dependents with a finance income to complement retirement and pension, in accordance with the pension plan that they are subscribed in.

 

Forluz provides the following supplementary pension benefit plans available to its participants:

 

Mixed Benefit Plan (‘Plan B’):  This plan operates as a defined-contribution plan in the fund accumulation phase for retirement benefits for normal time of service, and as a defined-benefit plan for disability or death of participants still in active employment, and for receipt of benefits for time of contribution. The Sponsors match the basic monthly contributions of the participants. This is the only plan open for joining by new participants. The actuarial risks related to Plan B occur only as from the option for the lifetime benefit at the moment of the participant’s retirement. In this specific case the responsibility for the risk of insufficiency of reserves for coverage of the benefits (deficits) is in parity between sponsors and participants.

 

Funded Benefit Plan (‘Plan A’):  This plan includes all currently employed and assisted participants who opted to migrate from the Company’s previously sponsored defined benefit plan, and are entitled to a benefit proportional to those balances. For participants who are still working, this benefit has been deferred to the retirement date. The benefit balances of Plan A have the characteristic of lifetime payment, and the responsibility for the risk of insufficiency of reserves to cover the benefits (deficits) is exclusively of the sponsor.

 

Company and its subsidiaries also maintain, independently of the plans made available by Forluz, payments of part of the life insurance premium for the retirees, and contribute to a health plan and a dental plan for the active employees, retired employees and dependents, administered by Cemig Saúde.

 

Actuarial obligations and recognition in the financial statements

 

On this Note the Company discloses its obligations and expenses incurred for purposes of the Retirement Plan, Health Plan, Dental Plan and the Life Insurance Plan in accordance with the terms of IAS 19 - Employee Benefits, and the independent actuarial opinion issued as of December 31, 2019.

 

Debt with the pension fund (Forluz)

 

The Company has recognized an obligation for past actuarial deficits relating to the pension fund in the amount of R$566 on December 31, 2019 (R$652 on December 31, 2018). This amount has been recognized as an obligation payable by Cemig and its subsidiaries, and will be amortized until June of 2024, through monthly installments calculated by the system of constant installments (known as the ‘Price’ table), and adjusted by the IPCA (Expanded National Customer Price) inflation index (published by the Brazilian Geography and Statistics Institute – IBGE) plus 6% per year. The Company is required to pay this debt even if Forluz has a surplus, thus, the Company maintain recorded the debt in full, and record the effects of monetary updating and interest in finance income (expenses) in the statement of income.

 

Agreement to cover the deficit on Forluz Pension Plan ‘A’

 

Forluz and the company have signed a Debt Assumption Instrument to cover the deficit of Plan A for the years of 2015 2016 and 2017. On December 31, 2019 the total amount payable by Cemig and its subsidiaries as a result of the Plan deficit is R$550 (R$378 on December 31, 2018, referring to the Plan A deficits of 2015 and 2016). The contracts were entered into in May 2017, March 2018 and April 2019, for the deficits, respectively, of 2015, 2016 and 2017.  The monthly amortizations, calculated by the constant installments system (Price Table), will be paid up to 2031 for the 2015 and 2016 deficits, and up to 2033 for the 2017 deficit.

 

Remuneratory interest applicable to the outstanding balance is 6% p.a., plus the effect of the IPCA. If the plan reaches actuarial surplus before the full period of amortization of the debt, also Company will not be required to pay the remaining installments and the contract will be extinguished.

 

Actuarial information

 

2019    Pension plans
and retirement
supplement plans		        Health plan        Dental plan       Life insurance        Total  
Present value of obligations    13,285          3,102           61          574           17,022    
Fair value of plan assets    (10,366 )     –         –         –         (10,366 )
Initial net liabilities    2,919       3,102       61       574       6,656  
Adjustment to asset ceiling    53       –         –         –         53  
Net liabilities in the statement of financial position    2,972       3,102       61       574       6,709  

 

2018    Pension plans
and retirement
supplement plans		          Health plan           Dental plan            Life insurance           Total     
Present value of obligations    11,073       2,344       48       427       13,892  
Fair value of plan assets    (9,062 )     –         –         –         (9,062 )
Initial net liabilities    2,011       2,344       48       427       4,830  
Adjustment to asset ceiling    159       –         –         –         159  
Net liabilities in the statement of financial position    2,170       2,344       48       427       4,989  

 

The asset ceiling is the present value of any economic benefits available in the form of restitutions coming from the plan or reductions in future contributions to the plan.

 

The present value of the liabilities of the pension plan is adjusted to the asset ceiling, which corresponds to the surplus result of Plan B, which has a specific destination allocation under the regulations of the National Private Pension Plans Council (CNPC).

 

The changes in the present value of the defined benefit obligation are as follows:

 

    Pension plans
and retirement
supplement plans		       Health plan        Dental plan        Life insurance        Total   
Defined-benefit obligation at December 31, 2016    9,743       1,711       38       814       12,306  
Cost of current service    5          11           –              3           19   
Interest on actuarial obligation    980       178       3       85       1,246  
Actuarial losses (gains):                                       
Due to changes in demographic assumptions    191       –         –         –         191  
Due to changes in financial assumptions    414       66       2       55       537  
Due to adjustments based on experience    53       (44 )     (2 )     (60 )     (53 )
    658       22       –         (5 )     675  
Plan amendment – Past service    –         –         –         (619 )     (619 )
Benefits paid    (841 )     (113 )     (2 )     (8 )     (964 )
Defined-benefit obligation at December 31, 2017    10,545       1,809       39       270       12,663  
Cost of current service    3       10       –         2       15  
Interest on actuarial obligation    959       173       4       25       1,161  
Actuarial losses (gains):                                       
Due to changes in demographic assumptions                                       
Due to changes in financial assumptions    467       402       8       26       903  
Due to adjustments based on experience    (20 )     68       –         113       161  
    447       470       8       139       1,064  
Benefits paid    (881 )     (118 )     (3 )     (9 )     (1,011 )
Defined-benefit obligation at December 31, 2018    11,073       2,344       48       427       13,892  
Cost of current service    1       14       –         3       18  
Interest on actuarial obligation    963       208       4       38       1,213  
Actuarial losses (gains):                                       
Due to changes in demographic assumptions    6       –         –         –         6  
Due to changes in financial assumptions    2,058       576       11       130       2,775  
Due to adjustments based on experience    83       91       –         (14 )     160  
    2,147       667       11       116       2,941  
Benefits paid    (899 )     (131 )     (2 )     (10 )     (1,042 )
Defined-benefit obligation at December 31, 2019    13,285       3,102       61       574       17,022  

 

On 2017, the Company changed its life insurance policy, resulting in reduction of the retirees’ capital insured by 20% at each 5-year interval, from aged 60, down to a minimum of 20%. These changes resulted in a reduction of R$ 619 in the post-employment obligations reported on December 31, 2017, with counterpart in the Statement of income in 2017.

  

Changes in the fair values of the plan assets are as follows:

 

    Pension plans and retirement
supplement plans 		   
Fair value of plan assets at December 31, 2016    8,128  
Return on investments    1,100  
Contributions from employer    159  
Benefits paid    (841 )
Fair value of plan assets at December 31, 2017    8,546  
Return on investments    1,220  
Contributions from employer    178  
Benefits paid    (881 )
Fair value of the plan assets at December 31, 2018    9,063  
Return on investments    2,003  
Contributions from employer    199  
Benefits paid    (899 )
Fair value of the plan assets at December 31, 2019    10,366  

 

The amounts recognized in 2019, 2018 and 2017 statement of income are as follows:

 

2019    Pension plans
and retirement
supplement plans		        Health plan        Dental plan        Life insurance        Total   
Current service cost    1          14          –            2          17   
Interest on the actuarial obligation    963       208       5       38       1,214  
Expected return on the assets of the Plan    (767 )     –         –         –         (767 )
Expense (recovery of expense) in 2019 according to actuarial calculation    197       222       5       40       464  

2018   Pension plans
and retirement
supplement plans		       Health plan       Dental plan       Life insurance       Total  
Current service cost    4          10          0          1         15     
Interest on the actuarial obligation    959       172       4       26       1,161  
Expected return on the assets of the Plan    (771 )     –         –         –         (771 )
Expense (recovery of expense) in 2018 according to actuarial calculation    192       182       4       27       405  

 

2017   Pension plans
and retirement
supplement plans		       Health plan       Dental plan       Life insurance       Total  
Current service cost    5           11          –           3           19      
Interest on the actuarial obligation    980       178       3       85       1,246  
Expected return on the assets of the Plan    (810 )     –         –         –         (810 )
Past service cost    –         –         –         (619 )     (619 )
Expense (recovery of expense) in 2017 according to actuarial calculation    175       189       3       (531 )     (164 )

 

Changes in net liabilities were as follows:

 

    Pension plans
and retirement
supplement plans		       Health plan       Dental plan       Life insurance       Total  
Net liabilities at December 31, 2016    1,679           1,711           38           814           4,242     
Expense recognized in Statement of income    175       189       3       88       455  
Contributions paid    (160 )     (113 )     (2 )     (7 )     (282 )
Plan amendment – Past service    –         –         –         (619 )     (619 )
Actuarial losses (gains)    374       22       (1 )     (5 )     390  
Net liabilities at December 31, 2017    2,068       1,809       38       271       4,186  
Expense recognized in Statement of income    193       183       4       25       405  
Contributions paid    (178 )     (118 )     (2 )     (9 )     (307 )
Actuarial losses    87       470       8       140       705  
Net liabilities at December 31, 2018    2,170       2,344       48       427       4,989  
Expense recognized in Statement of income    197       222       5       40       464  
Contributions paid    (200 )     (131 )     (2 )     (10 )     (343 )
Actuarial losses    805       667       10       117       1,599  
Net liabilities at December 31, 2019    2,972       3,102       61       574       6,709  
                                       
                             2019       2018  
Current liabilities                            288       253  
Non-current liabilities                            6,421       4,736  

 

Amounts recorded as current liabilities refer to contributions to be made by Cemig and its subsidiaries in the next 12 months for the amortization of the actuarial liabilities.

 

The amounts reported as ‘Expense recognized in the Statement of income’ refer to the costs of post-employment obligations, totaling R$408 in 2019 (R$ 337 in 2018 and R$ 391 in 2017), plus the finance expenses and monetary updating on the debt with Forluz, in the amounts of R$56 in 2019 (R$ 68 in 2018 and R$65 in 2017).

 

The independent actuary’s estimation for the expense to be recognized for 2020 is as follows:

 

    Pension plans
and retirement
supplement plans		           Health plan           Dental plan          Life insurance           Total    
Current service cost    1       21       1       3       26  
Interest on the actuarial obligation    887       215       4       41       1,147  
Expected return on the assets of the Plan    (682 )     –         –         –         (682 )
Estimated total expense in 2020 as per actuarial report    206       236       5       44       491  

 

The expectation for payment of benefits for 2020 is as follows:

 

    Pension plans
and retirement
supplement
plans – Forluz		          Health plan          Dental plan          Life insurance           Total   
Estimated payment of benefits    898       141       3       17       1,059  

 

The Company have expectation of making contributions to the pension plan in 2020 of R$286 for amortization of the deficit of Plan A, and R$79 for the Defined Contribution Plan (recorded directly in the Statement of income  for the year).

 

The average maturity periods of the obligations of the benefit plans, in years, are as follows:

 

Pension plans and retirement supplement plans       
Plan A  Plan B  Health plan Dental plan Life insurance
9.54  11.55  12.82  13.17  16.93 

 

The main categories plan’s assets, as a percentage of total plan’s assets are as follows:

 

    2019           2018      
Shares    9.51 %     7.11 %
Fixed income securities    72.28 %     71.92 %
Real estate property    3.79 %     4.69 %
Others    14.42 %     16.28 %
Total    100.00 %     100.00 %

 

The following assets of the pension plan, measured at fair value, are related to the Company:

 

    2019         2018   
Non-convertible debentures issued by the Company    398       380  
Shares issued by the Company    24       35  
Real estate properties of the Foundation, occupied by the Company    503       662  
    925       1,077  

 

This table provides the main actuarial assumptions:

 

    2019
Pension plans and retirement supplement plans   Health plan and Dental plan   Life insurance
Annual discount rate for present value of the actuarial obligation   6.87%   7.09%   7.19%
Annual expected return on plan assets   6.87%   Not applicable   Not applicable
Long-term annual inflation rate   3.61%   3.61%   3.61%
Estimated future annual salary increases   3.61%   Not applicable   4.85%
General mortality table   AT-2000 M S10% D10%   AT-2000 M S10% D20%   AT-2000 M S10% D20%
Disability table   Not applicable   Álvaro Vindas D30%   Álvaro Vindas D30%
Disabled mortality table   AT-49 M   MI-85 F   MI-85 F
Real growth of contributions above inflation   –     1%   –  

 

    2018
Pension plans and retirement supplement plans   Health plan and Dental plan   Life insurance
Annual discount rate for present value of the actuarial obligation   9.02%   9.60%   9.57%
Annual expected return on plan assets   9.02%   Not applicable   Not applicable
Long-term annual inflation rate   4.01%   4.00%   4.00%
Estimated future annual salary increases   4.01%   Not applicable   6.08%
General mortality table   AT-2000 M S10% D10%   AT-2000 M S10% D20%   AT-2000 M S10% D20%
Disability table   Not applicable   Álvaro Vindas D30%   Álvaro Vindas D30%
Disabled mortality table   AT 49 M   Winklevoss D30%   Winklevoss D30%
Real growth of contributions above inflation (1)   –     1%   –  

 

(1)      Starting in 2018, Company adopted the assumption of real growth of the contributions above inflation at the rate of 1% p.a.

 

    2017
Pension plans and retirement supplement plans   Health and Dental plans   Life insurance
Annual discount rate for present value of the actuarial obligation   9.48%   9.60%   9.57%
Annual expected return on plan assets   9.48%   9.60%   9.57%
Long-term annual inflation rate   4.00%   4.00%   4.00%
Estimated future annual salary increases   4.00%   Not applicable   6.08%
General mortality table   AT-2000 M S10% D10%   AT-2000 M S10% D20%   AT-2000 M S10% D20%
Disability table   Not applicable   Álvaro Vindas D30%   Álvaro Vindas D30%
Disabled mortality table   AT 49 M   Winklevoss D30%   Winklevoss D30%

 

Below is a sensitivity analysis of the effects of changes in the main actuarial assumptions used to determine the defined-benefit obligation at December 31, 2019:

 

 Effects on the defined-benefit obligation   Pension plans and
retirement
supplement plans		         Health plan           Dental plan         Life insurance          Total   
Reduction of one year in the mortality table    335       84       1       (15 )     405  
Increase of one year in the mortality table    (336 )     (61 )     (1 )     16       (382 )
Reduction of 1% in the discount rate    1,583       496       10       122       2,211  

 

In the presentation of the sensitivity analysis, the present value of the defined-benefit obligation was calculated using the Unit Projected Credit method, the same method used to calculate the defined-benefit obligation recognized in the Statement of financial position.

 

The Company has not made changes in the methods used to calculate its post-employment obligations for the years ended December 31, 2019 and 2018.