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POST-EMPLOYMENT OBLIGATIONS
 12 Months Ended
Dec. 31, 2021
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 to a health plan and a dental plan for the active employees, retired employees and dependents, administered by Cemig Saúde.

 

Life insurance

 

Until the end of the Collective Agreement in effect until October 2021, the Company made available coverage of 50% of the life insurance policy cost, with certain specific characteristics for retirees.

 

However, as a result of the amendment in the Collective Work Agreement for 2021-2023, in relation to offer and payment of life insurance for the employees and former employees, the Company understood that the post-retirement benefit in question had been canceled in its entirety, and as a result wrote off the balance of the obligation, remeasured using the revised actuarial assumptions, recognized in the income statement and Shareholders’ equity, in the amounts of R$415, and R$60.

 

On February 2, 2022 the Association of Retired Energy Workers and Pension Holders of Cemig and its Subsidiaries (‘Associação dos Eletricitários Aposentados e Pensionistas da Cemig e Subsidiárias – AEA/MG’) filed an injunction ordering the Company to comply with and maintain in full the same terms relating to coverage of the life insurance premium as were previously practiced. However, on February 11, 2022, the Regional Employment Law Appeal Court of the 3rd Region refused this application, on the grounds that this had been validly decided in the collective agreement.

 

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, 2021.

 

 

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$385 on December 31, 2021 (R$473 on December 31, 2020). 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, 2021 the total amount payable by Cemig and its subsidiaries as a result of the Plan A deficits is R$539 (R$540 on December 31, 2020, 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$353, and up to 2033 for the 2017 deficit, in the amount of R$186. 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.

 

The Company recognized the legal obligation in relation to the deficit of Plan A corresponding to 50% of the minimum amount, and, thus, obeying the contribution parity rule, made payments of R$7 in consignment, corresponding from April to December 2021, to remain at the disposal of Forluz to be redeemed at an account with an official bank. Due to the refusal by Forluz to receive this amount, on May 26, 2021 the Company proposed an Action of Consignment in Payment, which is in its initial pleading phase.

 

Due to the Debt Assumption Instrument not being signed for coverage of the minimum amount proposed in the plan for solution of the Plan A actuarial deficit for 2019, and the refusal of the payments in consignment made by the Company, on April 27, 2021 Forluz filed legal action against the Company, applying for approval and confirmation of the request to ensure compliance with the contracting of the debt for coverage of the deficit of Plan A, in the amount of R$160, for the 2019 business year. The chances of loss have been assessed as ‘possible’, due to the action still being at the instruction phase, and there being no decisions on the merit. Also, the application by Forluz for emergency writ was refused.

 

 

Actuarial information

 

2021  Pension plans and retirement supplement plans  Health plan  Dental plan  Life insurance  Total
Present value of obligations   12,026    3,469    66    —      15,561 
Fair value of plan assets   (9,378)   —      —      —      (9,378)
Initial net liabilities   2,648    3,469    66    —      6,183 
Adjustment to asset ceiling   22    —      —      —      22 
Net liabilities in the statement of financial position   2,670    3,469    66    —      6,205 

 

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 

 

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, 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 
 Due to changes and adjustments   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 
 Due to changes and adjustments   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 
Cost of current service   2    21    1    3    27 
Past service cost (1)   —      —      —      (415)   (415)
Interest on actuarial obligation   883    232    5    39    1,159 
Actuarial losses (gains):                         
Due to changes in demographic assumptions   378    122    1    (15)   486 
Due to changes in financial assumptions   (2,393)   (252)   (5)   (127)   (2,777)
Due to adjustments based on experience   828    200    3    (26)   1,005 
 Due to changes and adjustments   (1,187)   70    (1)   (168)   (1,286)
Benefits paid   (980)   (173)   (3)   (10)   (1,166)
Defined-benefit obligation at December 31, 2021   12,026    3,469    66    —      15,561 
(1)Due to the alterations made in the Collective Work Agreement for 2021–23, for offer and payment of life insurance for the employees and former employees, the Company understood that the post-retirement benefit in question had been entirely canceled, and as a result wrote down the balance of the obligation, remeasured using the revised actuarial assumptions.

 

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

 

   Pension plans and retirement supplement plans
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 
Return on investments   (298)
Contributions from employer   236 
Benefits paid   (980)
Fair value of the plan assets at December 31, 2021   9,378 

 

 

The amounts recognized in 2021, 2020 and 2019 statement of income are as follows:

 

2021  Pension plans and retirement supplement plans  Health plan  Dental plan  Life insurance  Total
Current service cost   2    21    1    3    27 
Past service cost (1)   —      —      —      (415)   (415)
Interest on the actuarial obligation   883    232    5    39    1,159 
Expected return on the assets of the Plan   (685)   —      —      —      (685)

Expense in 2021 according to actuarial calculation

   200    253    6    (373)   86 

 

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 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 in 2019 according to actuarial calculation

   197    222    5    40    464 

 

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, 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 
                          
Expense recognized in Statement of income   200    253    6    42    501 
Past service cost (1)   —      —      —      (415)   (415)
Contributions paid   (236)   (173)   (3)   (10)   (422)
Actuarial gains (losses)   (203)   70    (1)   (168)   (302)
Net liabilities at December 31, 2021   2,670    3,469    66    —      6,205 
                   2021    2020 
Current liabilities                  347    305 
Non-current liabilities                  5,858    6,538 

 

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, that include the past service cost arising from the cancellation of the post-retirement life insurance obligation, totaling R$16 in 2021 (R$438 in 2020 and R$408 in 2019), plus the finance expenses and monetary updating on the debt with Forluz, in the amounts of R$70 in 2021 (R$53 in 2020 and R$56 in 2019).

 

The independent actuary’s estimation for the expense to be recognized for 2022 is as follows:

 

   Pension plans and retirement supplement plans  Health plan  Dental plan  Life insurance  Total
Current service cost   2    16    —      —      18 
Interest on the actuarial obligation   1,224    363    7    —      1,594 
Expected return on the assets of the Plan   (941)   —      —      —      (941)
Estimated total expense in 2022 as per actuarial report   285    379    7    —      671 

 

The expectation for payment of benefits for 2022 is as follows:

 

   Pension plans and retirement supplement plans – Forluz  Health plan  Dental plan  Life insurance  Total
Estimated payment of benefits   1,064    208    4    —      1,276 

 

The Company have expectation of making contributions to the pension plan in 2022 of R$246 for amortization of the deficit of Plan A, and R$86 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 
 10.04   12.86    14.44    15.47    —   

 

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

 

   2021  2020
Shares   7.77%   9.25%
Fixed income securities   73.95%   72.17%
Real estate property   5.04%   3.71%
Others   13.24%   14.87%
Total   100.00%   100.00%

 

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

 

   2021  2020
Non-convertible debentures issued by the Company   302    338 
Shares issued by the Company   277    4 
Real estate properties of the Foundation, occupied by the Company   —      285 
    579    627 

 

 

This table provides the main actuarial assumptions:

 

                     2021
    Pension plans and retirement supplement plans    Health plan and Dental plan    Life insurance 
Annual discount rate for present value of the actuarial obligation   10.60%   10.75%   10.73%
Annual expected return on plan assets   10.60%   Not applicable    Not applicable 
Long-term annual inflation rate   5.03%   5.03%   5.03%
Estimated future annual salary increases   5.03%   Not applicable    6.29%
General mortality table   AT-2000 S10% by sex    AT-2000 M&F S10% D20%    AT-2000 M&F S10% D20% 
Disability table   Not applicable    Tasa 1927 100%    Tasa 1927 100% 
Disabled mortality table   AT-83 IAM Male    MI-85 Female    MI-85 Female 
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.

 

                 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.

 

The sensitivity analysis of the effects of changes in the main actuarial assumptions used to determine the defined-benefit obligation at December 31, 2021 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   264    59    (1)   —      322 
Increase of one year in the mortality table   (269)   (60)   1    —      (328)
Reduction of 1% in the discount rate   1,120    476    9    —      1,605 

 

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, 2021 and 2020.