| a. | ULTRAPREV- Associaçăo de Previdência Complementar |
In February 2001, the Company’s Board of Directors approved the adoption of a defined contribution pension plan to be sponsored by the Company and each of its subsidiaries. Participating employees have been contributing to this plan, managed by Ultraprev - Associação de Previdência Complementar (“Ultraprev”), since August 2001. Under the terms of the plan, every year each participating employee chooses his or her basic contribution to the plan. Each sponsoring company provides a matching contribution in an amount equivalent to each basic contribution, up to a limit of 11% of the employee’s reference salary, according to the rules of the plan. As participating employees retire, they may choose to receive either (i) a monthly sum ranging between 0.5% and 1.0% of their respective accumulated fund in Ultraprev or (ii) a fixed monthly amount which will exhaust their respective accumulated fund over a period of 5 to 25 years. The sponsoring company does not take responsibility for guaranteeing amounts or the duration of the benefits received by the retired employee. In 2017, the subsidiaries contributed R$ 24,819 (R$ 23,261 in 2016 and R$ 22,216 in 2015) to Ultraprev, which is recognized as expense in the income statement. The total number of participating employees in 2017 was 8,322 active participants and 245 retired participants. In addition, Ultraprev had 27 former employees receiving benefits under the rules of a previous plan whose reserves are fully constituted.
| b. | Post-employment Benefits |
The subsidiaries recognized a provision for post-employment benefits mainly related to seniority bonus, payment of Government Severance Indemnity Fund (“FGTS”), and health, dental care, and life insurance plan for eligible retirees.
The amounts related to such benefits were determined based on a valuation conducted by an independent actuary and reviewed by management as of December 31, 2017 and are recognized in the financial statements in accordance with IAS 19 R2011.
| 2017 | 2016 | ||
| Health and dental care plan (1) | 99,767 | 32,826 | |
| FGTS Penalty | 81,831 | 64,654 | |
| Bonus | 40,254 | 32,815 | |
| Life insurance (1) | 15,671 | 14,456 | |
| Total | 237,523 | 144,751 | |
| Current | 30,059 | 24,940 | |
| Non-current | 207,464 | 119,811 |
| (1) | Only Ipiranga and, in 2017, also to CBLSA. |
Changes in the present value of the provision for post-employment benefits are as follows:
| 2017 | 2016 | ||
| Opening balance | 144,751 | 126,595 | |
| Current service cost | 7,664 | 3,636 | |
| Interest cost | 15,754 | 14,538 | |
| Actuarial (gains) losses from changes in actuarial assumptions | 36,120 | 11,818 | |
| Benefits paid directly by Company and its subsidiaries | (11,368) | (10,971) | |
| Opening balance CBL S.A. (see Note 3.c) | 44,478 | - | |
| Exchange rate from foreign subsidiaries | 124 | (865) | |
| Ending balance | 237,523 | 144,751 |
The expense of the year is presented below:
| 2017 | 2016 | 2015 | |||
| Health and dental care plan | 164 | 3,065 | 3,291 | ||
| FGTS Penalty | 14,828 | 9,068 | 10,445 | ||
| Bonus | 6,883 | 4,455 | 4,352 | ||
| Life insurance | 1,543 | 1,586 | 1,683 | ||
| Total | 23,418 | 18,174 | 19,771 |
Significant actuarial assumptions adopted include:
|
Economic factors
|
2017 |
2016 | |
| % p.a. | % p.a. | ||
| Discount rate for the actuarial obligation at present value | 9.51 | 11.46 | |
| Average projected salary growth rate | 8.38 | 8.90 | |
| Inflation rate (long term) | 4.50 | 5.00 | |
| Growth rate of medical services | 8.68 | 9.20 |
Demographic factors
• Mortality Table for the life insurance benefit – CSO-80
• Mortality Table for other benefits - AT 2000 Basic decreased by 10%
• Disabled Mortality Table - RRB 1983
• Disability Table - RRB 1944 modified
Sensitivity analysis
The significant actuarial assumptions to determine the provision for post-employment benefits are: discount rate, wage and medical costs increases. The following sensitivity analyses on December 31, 2017 were determined based on reasonably possible changes of assumptions occurring at the reporting date of the financial statements, keeping all other assumptions constant.
| Assumption | Change in assumptions | Decrease in liability | Change in assumptions | Increase in liability | |||
| Discount rate | increase by 1.0 p.p | 10,237 | decrease by 1.0 p.p | 11,690 | |||
| Wage growth rate | decrease by 1.0 p.p | 2,807 | increase by 1.0 p.p | 3,103 | |||
| Medical services growth rate | decrease by 1.0 p.p | 3,837 | increase by 1.0 p.p | 4,413 | |||
The sensitivity analysis presented may not represent the real change in the post-employment benefits obligation, since it is unlikely that changes occur in just one assumption alone, considering that some of these assumptions may be correlated.
Inherent risks related to post-employment benefits
Interest rate risk: a long-term interest rate is used to calculate the present value of post-employment liabilities. A reduction in this interest rate will increase the corresponding liability.
Wage growth risk: the present value of the liability is calculated using as reference the wages of the plan participants, projected with the average nominal wage growth rate. An increase in the real wages of plan participants will increase the corresponding liability.
Medical costs growth risk: the present value of the liability is calculated using as reference the medical cost by age based on actual healthcare costs, projected based on the growth rate of medical services costs. An increase in the real medical costs will increase the corresponding liability.