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24. POST-EMPLOYMENT OBLIGATIONS
 12 Months Ended
Dec. 31, 2020
Disclosure of defined benefit plans [abstract]  
POST-EMPLOYMENT OBLIGATIONS
24. 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 sponsors.

 

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, 2020.

 

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$473 on December 31, 2020 (R$566 on December 31, 2019). 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, 2020 the total amount payable by Cemig and its subsidiaries as a result of the Plan A deficits is R$540 (R$550 on December 31, 2019, referring to the Plan A deficits of 2015 and 2016). The monthly amortizations, calculated by the constant installments system (Price Table), will be paid until 2031 for the 2015 and 2016 deficits, in the amount of R$363, and up to 2033 for the 2017 deficit, in the amount of R$177. 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.

 

In December, 2020, in accordance with the applicable legislation, Forluz proposed to Cemig a new Debt Assumption Instrument to be signed, if approved, by Forluz, Cemig, Cemig GT and Cemig D, in accordance with the plan to cover the deficit of Plan A, that occurred in 2019. The total amount to be paid by the Company to cover the deficit is R$160, through 166 monthly installments. The remuneration interest rate over the outstanding balance is 6% per year, plus the effect of the IPCA. If the plan reaches actuarial balance before the full period of amortization of the debt, the Company will not be required to pay the remaining installments and the contract will be extinguished.

 

Actuarial information

 

2020   Pension plans and retirement supplement plans   Health plan   Dental plan   Life insurance   Total
Present value of obligations     13,308       3,319       64       551       17,242  
Fair value of plan assets     (10,420 )     —         —         —         (10,420 )
Initial net liabilities     2,888       3,319       64       551       6,822  
Adjustment to asset ceiling     21       —         —         —         21  
Net liabilities in the statement of financial position     2,909       3,319       64       551       6,843  

 

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  

 

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, 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  
Cost of current service     1       21       1       3       26  
Interest on actuarial obligation     887       215       4       41       1,147  
Actuarial losses (gains):                                        
Due to changes in demographic assumptions     135       395       4       —         534  
Due to changes in financial assumptions     (375 )     (152 )     (4 )     (34 )     (565 )
Due to adjustments based on experience     289       (119 )     1       (23 )     148  
      49       124       1       (57 )     117  
Benefits paid     (914 )     (143 )     (3 )     (10 )     (1,070 )
Defined-benefit obligation at December 31, 2020     13,308       3,319       64       551       17,242  

 

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, 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  
Return on investments     757  
Contributions from employer     211  
Benefits paid     (914 )
Fair value of the plan assets at December 31, 2020     10,420  

 

The amounts recognized in 2020, 2019 and 2018 statement of income are as follows:

 

2020   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 )

Expense (recovery of expense) in 2020

according to actuarial calculation

 

     206       236       5       44       491  

 

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  

 

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, 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 gains (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 gains (losses)     805       667       10       117       1,599  
Net liabilities at December 31, 2019     2,972       3,102       61       574       6,709  
                                         
Expense recognized in Statement of income     206       236       5       44       491  
Contributions paid     (211 )     (143 )     (3 )     (10 )     (367 )
Actuarial gains (losses)     (58 )     124       1       (57 )     10  
Net liabilities at December 31, 2020     2,909       3,319       64       551       6,843  
                                         
                              2020       2019  
Current liabilities                             305       288  
Non-current liabilities                             6,538       6,421  

 

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$438 in 2020 (R$408 in 2019 and R$337 in 2018), plus the finance expenses and monetary updating on the debt with Forluz, in the amounts of R$53 in 2020 (R$56 in 2019 and R$68 in 2018).

 

The independent actuary’s estimation for the expense to be recognized for 2021 is as follows:

 

    Pension plans and retirement supplement plans   Health plan   Dental plan   Life insurance   Total
Current service cost     2       21       1       3       27  
Interest on the actuarial obligation     884       231       5       39       1,159  
Expected return on the assets of the Plan     (685 )     —         —         —         (685 )
Estimated total expense in 2020 as per actuarial report     201       252       6       42       501  

 

 

The expectation for payment of benefits for 2021 is as follows:

 

    Pension plans and retirement supplement plans – Forluz   Health plan   Dental plan   Life insurance   Total
Estimated payment of benefits     928       172       3       18       1,121  

 

The Company have expectation of making contributions to the pension plan in 2021 of R$221 for amortization of the deficit of Plan A, and R$81 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   Health plan   Dental plan   Life insurance
Plan A   Plan B  
11.58     12.81       13.8       15.01       18.66  

 

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

 

    2020   2019
Shares     9.25 %     9.51 %
Fixed income securities     72.17 %     72.28 %
Real estate property     3.71 %     3.79 %
Others     14.87 %     14.42 %
Total     100.00 %     100.00 %

 

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

 

    2020   2019
Non-convertible debentures issued by the Company     338       398  
Shares issued by the Company     4       24  
Real estate properties of the Foundation, occupied by the Company     285       503  
      627       925  

 

This table provides the main actuarial assumptions:

 

    2020
    Pension plans and retirement supplement plans   Health plan and Dental plan   Life insurance
Annual discount rate for present value of the actuarial obligation     6.83%     7.14%     7.25%  
Annual expected return on plan assets     6.83%     Not applicable     Not applicable  
Long-term annual inflation rate     3.32%     3.32%     3.32%  
Estimated future annual salary increases     3.32%     Not applicable     4.56%  
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)     —       1%     —    
  (1) Starting in 2018, Company adopted the assumption of real growth of the contributions above inflation at the rate of 1% p.a.

 

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

 

    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.

 

The sensitivity analysis of the effects of changes in the main actuarial assumptions used to determine the defined-benefit obligation at December 31, 2020 is shown below:

 

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     336       79       1       (15 )     401  
Increase of one year in the mortality table     (338 )     (80 )     (1 )     16       (403 )
Reduction of 1% in the discount rate     1,513       483       10       111       2,117  

 

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, 2020 and 2019.