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Post-employment Benefits | 12 Months Ended
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Dec. 31, 2020
Post-employment Benefits |
Post-employment Benefits | 16.Post-employment Benefits Certain companies in the Group have collective bargaining contracts which include defined benefit pension plans and other retirement benefits for substantially all of their employees. Additionally, the Group has defined benefit pension plans for certain eligible executives and employees. All pension benefits are based on salary and years of service rendered. Under the provisions of the Mexican Labor Law, seniority premiums are payable based on salary and years of service to employees who resign or are terminated prior to reaching retirement age. Some companies in the Group have seniority premium benefits which are greater than the legal requirement. After retirement age employees are no longer eligible for seniority premiums. Post-employment benefits are actuarially determined by using nominal assumptions and attributing the present value of all future expected benefits proportionately over each year from date of hire to age 65. The Group used actuarial assumptions to determine the present value of defined benefit obligations, as follows:
|  | 2020 |  | 2019 |
Discount rate |  | 6.6 | % | 7.0 | %
Salary increase |  | 5.0 | % | 5.0 | %
Inflation rate |  | 3.5 | % | 3.5 | %
Had the discount rate of 6.6% used by the Group in 2020 been decreased by 50 basis points, the impact on defined benefit obligation would have been an increase to Ps.3,382,711 as of December 31, 2020. Had the discount rate of 7.0% used by the Group in 2019 been decreased by 50 basis points, the impact on defined benefit obligation would have been an increase to Ps.3,037,398 as of December 31, 2019. The reconciliation between defined benefit obligations and post-employment benefit liability (asset) in the consolidated statements of financial position as of December 31, 2020 and 2019, is presented as follows:
|  |  |  |  | Seniority |  |  |
|  | Pensions |  | Premiums |  | 2020
Vested benefit obligations |  | Ps. | 556,619 |  | Ps. | 376,122 |  | Ps. | 932,741
Unvested benefit obligations |  |  | 2,077,506 |  |  | 266,153 |  |  | 2,343,659
Defined benefit obligations |  |  | 2,634,125 |  |  | 642,275 |  |  | 3,276,400
Fair value of plan assets |  |  | 909,324 |  |  | 286,425 |  |  | 1,195,749
Underfunded status of the plan assets |  |  | 1,724,801 |  |  | 355,850 |  |  | 2,080,651
Post-employment benefit liability |  | Ps. | 1,724,801 |  | Ps. | 355,850 |  | Ps. | 2,080,651
|  |  |  |  | Seniority |  |  |
|  | Pensions |  | Premiums |  | 2019
Vested benefit obligations |  | Ps. | 449,752 |  | Ps. | 338,962 |  | Ps. | 788,714
Unvested benefit obligations |  |  | 1,890,108 |  |  | 168,786 |  |  | 2,058,894
Defined benefit obligations |  |  | 2,339,860 |  |  | 507,748 |  |  | 2,847,608
Fair value of plan assets |  |  | 1,051,076 |  |  | 328,420 |  |  | 1,379,496
Underfunded status of the plan assets |  |  | 1,288,784 |  |  | 179,328 |  |  | 1,468,112
Post-employment benefit liability |  | Ps. | 1,288,784 |  | Ps. | 179,328 |  | Ps. | 1,468,112
The components of net periodic pensions and seniority premiums cost for the years ended December 31, consisted of the following:
|  | 2020 |  | 2019
Service cost |  | Ps. | 148,987 |  | Ps. | 131,662
Interest cost |  |  | 187,470 |  |  | 193,344
Prior service cost for plan amendments |  |  | 40,542 |  |  | 46,846
Interest on plan assets |  |  | (84,973) |  |  | (112,788)
Net periodic cost |  | Ps. | 292,026 |  | Ps. | 259,064
The Group’s defined benefit obligations, plan assets, funded status and balances in the consolidated statements of financial position as of December 31, 2020 and 2019, associated with post-employment benefits, are presented as follows:
|  |  |  |  | Seniority |  |  |  |  |  |
|  | Pensions |  | Premiums |  | 2020 |  | 2019
Defined benefit obligations: |  |  |  |  |  |  |  |  |  |  |  |
Beginning of year |  | Ps. | 2,339,860 |  | Ps. | 507,748 |  | Ps. | 2,847,608 |  | Ps. | 2,477,527
Service cost |  |  | 90,045 |  |  | 58,942 |  |  | 148,987 |  |  | 131,662
Interest cost |  |  | 150,253 |  |  | 37,217 |  |  | 187,470 |  |  | 193,344
Benefits paid |  |  | (154,542) |  |  | (66,642) |  |  | (221,184) |  |  | (215,474)
Remeasurement of post-employment benefit obligations |  |  | 198,995 |  |  | 73,982 |  |  | 272,977 |  |  | 213,703
Past service cost |  |  | 9,514 |  |  | 31,028 |  |  | 40,542 |  |  | 46,846
End of year |  |  | 2,634,125 |  |  | 642,275 |  |  | 3,276,400 |  |  | 2,847,608
Fair value of plan assets: |  |  |  |  |  |  |  |  |  |  |  |
Beginning of year |  |  | 1,051,076 |  |  | 328,420 |  |  | 1,379,496 |  |  | 1,515,030
Return on plan assets |  |  | 63,478 |  |  | 21,495 |  |  | 84,973 |  |  | 112,788
Contributions |  |  | 600 |  |  | — |  |  | 600 |  |  | —
Remeasurement on plan assets |  |  | (51,288) |  |  | (20,048) |  |  | (71,336) |  |  | (33,389)
Benefits paid |  |  | (154,542) |  |  | (43,442) |  |  | (197,984) |  |  | (214,933)
End of year |  |  | 909,324 |  |  | 286,425 |  |  | 1,195,749 |  |  | 1,379,496
Unfunded status by the plan assets |  | Ps. | 1,724,801 |  | Ps. | 355,850 |  | Ps. | 2,080,651 |  | Ps. | 1,468,112
The changes in the net post-employment liability (asset) in the consolidated statements of financial position as of December 31, 2020 and 2019, are as follows:
|  |  |  |  | Seniority |  |  |  |  |  |
|  | Pensions |  | Premiums |  | 2020 |  | 2019
Beginning of net post-employment liability (asset) |  | Ps. | 1,288,784 |  | Ps. | 179,328 |  | Ps. | 1,468,112 |  | Ps. | 962,497
Net periodic cost |  |  | 186,334 |  |  | 105,692 |  |  | 292,026 |  |  | 259,064
Contributions |  |  | (600) |  |  | — |  |  | (600) |  |  | —
Remeasurement of post-employment benefits |  |  | 250,283 |  |  | 94,030 |  |  | 344,313 |  |  | 247,092
Benefits paid |  |  | — |  |  | (23,200) |  |  | (23,200) |  |  | (541)
Ending net post-employment liability |  | Ps. | 1,724,801 |  | Ps. | 355,850 |  | Ps. | 2,080,651 |  | Ps. | 1,468,112
The post-employment benefits as of December 31, 2020 and 2019 and remeasurements adjustments for the years ended December 31, 2020 and 2019, are summarized as follows:
|  | 2020 |  | 2019
Pensions: |  |  |  |  |  |
Defined benefit obligations |  | Ps. | 2,634,125 |  | Ps. | 2,339,860
Plan assets |  |  | 909,324 |  |  | 1,051,076
Unfunded status of plans |  |  | 1,724,801 |  |  | 1,288,784
Remeasurements adjustments (1) |  |  | 250,283 |  |  | 183,002
Seniority premiums: |  |  |  |  |  |
Defined benefit obligations |  | Ps. | 642,275 |  | Ps. | 507,748
Plan assets |  |  | 286,425 |  |  | 328,420
Unfunded status of plans |  |  | 355,850 |  |  | 179,328
Remeasurements adjustments (1) |  |  | 94,030 |  |  | 64,090
| (1) |  | On defined benefit obligations and plan assets.
Pensions and Seniority Premiums Plan Assets The plan assets are invested according to specific investment guidelines determined by the technical committees of the pension plan and seniority premiums trusts and in accordance with actuarial computations of funding requirements. These investment guidelines require a minimum investment of 30% of the plan assets in fixed rate instruments, or mutual funds comprised of fixed rate instruments. The plan assets that are invested in mutual funds are all rated “AA” or “AAA” by at least one of the main rating agencies. These mutual funds vary in liquidity characteristics ranging from one day to one month. The investment goals of the plan assets are to preserve principal, diversify the portfolio, maintain a high degree of liquidity and credit quality, and deliver competitive returns subject to prevailing market conditions. Currently, the plan assets do not engage in the use of financial derivative instruments. The Group’s target allocation in the foreseeable future is to maintain approximately 20% in equity securities and 80% in fixed rate instruments. The weighted average asset allocation by asset category as of December 31, 2020 and 2019, was as follows:
|  | 2020 |  | 2019 |
Equity securities (1) |  | 28.8 | % | 28.6 | %
Fixed rate instruments |  | 71.2 | % | 71.4 | %
Total |  | 100.0 | % | 100.0 | %
| (1) |  | Included within plan assets at December 31, 2020 and 2019, are shares of the Company held by the trust with a fair value of Ps.101,690 and Ps.136,963, respectively.
The weighted average expected long-term rate of return of plan assets of 6.59% and 7.02% were used in determining net periodic pension cost in 2020 and 2019, respectively. The rate used reflected an estimate of long-term future returns for the plan assets. This estimate was primarily a function of the asset classes (equities versus fixed income) in which the plan assets were invested and the analysis of past performance of these asset classes over a long period of time. This analysis included expected long-term inflation and the risk premiums associated with equity investments and fixed income investments. The following table summarizes the Group’s plan assets measured at fair value on a recurring basis as of December 31, 2020 and 2019:
|  |  |  |  | Quoted Prices in |  | Internal Models |  | Internal Models
|  | Balance as of |  | Active Markets |  | with Significant |  | with Significant
|  | December 31, |  | for Identical |  | Observable |  | Unobservable
|  | 2020 |  | Assets (Level 1) |  | Inputs (Level 2) |  | Inputs (Level 3)
Common Stocks (1) |  | Ps. | 101,690 |  | Ps. | 101,690 |  | Ps. | — |  | Ps. | —
Mutual funds (fixed rate instruments) (2) |  |  | 231,837 |  |  | 231,837 |  |  | — |  |  | —
Money market securities (3) |  |  | 607,658 |  |  | 607,658 |  |  | — |  |  | —
Other equity securities |  |  | 254,564 |  |  | 254,564 |  |  | — |  |  | —
Total investment assets |  | Ps. | 1,195,749 |  | Ps. | 1,195,749 |  | Ps. | — |  | Ps. | —
|  |  |  |  | Quoted Prices in |  | Internal Models |  | Internal Models
|  | Balance as of |  | Active Markets |  | with Significant |  | with Significant
|  | December 31, |  | for Identical |  | Observable |  | Unobservable
|  | 2019 |  | Assets (Level 1) |  | Inputs (Level 2) |  | Inputs (Level 3)
Common Stocks (1) |  | Ps. | 136,963 |  | Ps. | 136,963 |  | Ps. | — |  | Ps. | —
Mutual funds (fixed rate instruments) (2) |  |  | 218,269 |  |  | 218,269 |  |  | — |  |  | —
Money market securities (3) |  |  | 766,181 |  |  | 766,181 |  |  | — |  |  | —
Other equity securities |  |  | 258,083 |  |  | 258,083 |  |  | — |  |  | —
Total investment assets |  | Ps. | 1,379,496 |  | Ps. | 1,379,496 |  | Ps. | — |  | Ps. | —
| (1) |  | Common stocks are valued at the closing price reported on the active market on which the individual securities are traded. All common stock included in this line item relate to the Company’s CPOs.
| (2) |  | Mutual funds consist of fixed rate instruments. These are valued at the net asset value provided by the administrator of the fund.
| (3) |  | Money market securities consist of government debt securities, which are valued based on observable prices from the new issue market, benchmark quotes, secondary trading and dealer quotes.
The Group did not make significant contributions to its plan assets in 2020 and 2019, and does not expect to make significant contributions to its plan assets in 2021. The weighted average durations of the defined benefit plans as of December 31, 2020 and 2019, were as follows:
|  | 2020 |  | 2019 |
Seniority Premiums |  | 8.6 years |  | 8.2 years |
Pensions |  | 5.7 years |  | 7.0 years |

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