November 2, 2009

Volume 1, Issue 1

P ENSIONS & B ENEFITS - B RAZIL

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Who, what, when? I NSIDE T HIS I SSUE

Who, what, when? 1
NKL2 is a Brazilian firm providing companies with Lower pensions benefits? 1

benefits consulting and insurance brokerage Corporate health plans 2

Insured Plans – Fees and Returns 2
services. We are specialized in retirement plans,
What is this picture of? 3
health programs and group life insurance. Our
Pension fund costs to increase in 2010 3
target clients are mid-sized multinational
Economic Insight 5
companies, with a workforce ranging from 100 to
1,000 employees in Brazil.

We have world-class quality services and vast
expertise aiding multinational companies to
better understand the local environment, market
practices and the main challenges posted to
human resources and benefits management.
Pensions & Benefits – Brazil is a newsletter
intended to bring to you, every other month,
information and news about what’s happening in
the benefits arena in the country.
Our main goal is to help your company to obtain and
maintain profitable operations in Brazil. If you are
reading this first issue, you will be following our steps
from the very beginning. We hope you enjoy our style
and we are confident that our articles will be valuable
to you.
Your insights, suggestions, comments and opinions are
welcome. Thanks for the privilege of having you as a
reader.

The editor.

Lower pensions benefits?

By Eder Costa e Silva
Asset management fees are usually deducted from
It’s market practice in Brazil for employers to pay
the returns on investments. On defined
for the total administrative costs of private
contribution programs, offsetting fees directly
retirement programs offered to its employees.
from investment returns means, in the long run,
Companies usually credit a specific monthly
lower benefits for employees.
contribution to the plan intended to provide for
the administrative costs. Administrative costs
According to recent regulations pension funds,
include services such as recordkeeping, benefits,
which in Brazil are known as Closed Private
payroll administration, toll free numbers and
Pension Entities and are similar to US’ trustee
Internet services. The specific contribution paid by
funds, will be allowed to pay not only the asset
the sponsor company for administrative services
management services through deductions from
comes out of the company’s cash flow.
Please see …pensions benefits? on page 4
Page 2 Pensions & Benefits - Brazil

Corporate health plans

By Eder Costa e Silva
It’s reasonably common in Brazil for small and
sometimes even for mid-sized companies to hire
its top executives and high management as third
party contractors as opposed to having them on
the payroll as regular employees. This practice
poses labor risks to employers, but many
companies consider the greater profitability worth
the risk. A recent regulation brings new challenges
to such companies. According to Article 5th
Normative Resolution # 195/09 published last July
by the Brazilian National Supplementary Health
Agency (ANS-“Agência Nacional de Saúde
Supmementar”) only regular employees and
Medical symbol
statutory directors are entitled to participate in
the company’s health program. In other words,
the health plan will no longer be extended to
of contractors. Together with Normative
Resolution # 200/09, as of August 31, 2009,
the new rule is expected to increase the cost of
company-provided health plans, specially for
small and mid-sized employers.

Insured Plans – Fees and Returns

By Eder Costa e Silva
The two main financial vehicles administering employer-sponsored retirement plans in Brazil are the
Closed Private Pension Entities - similar to the US’ trustee funds - and the Open Private Pensions
Entities - insurance companies specialized in administering retirement products. Most small and
medium-sized companies use Open Entities to manage their corporate pension programs. This section
of Pensions & Benefits – Brazil will be dedicated to track the investment returns and asset
management fees of the main funds offered by insured plans in Brazil.

ASSET MANAGEMENT FEES (1)

PRIVATE RETIREMENT FUNDS Min. Max. Mean Total Market (2)

Fixed Income (3)

0.10% 5.00% 1.71% 0.93%
Fixed Income – DI Reference (4)
0.36% 5.00% 1.68% 0.97%
Multimarket–Including Variable Income (5)
0.20% 5.00% 1.64% 1.46%
Multimarket-Balanced (6)
0.24% 4.00% 2.09% 2.22%
Please see Fees and Returns on page 5

“Returns on investments are

dropping very fast in Brazil due
to the historically low interest
rates while asset management
fees are still high, unable to
recognize the new
environment” Brazilian Currency
 Pensions & Benefits - Brazil
What is this picture of?
By Rosa Clement
Guaraná is an Amazon fruit used to make a pleasant
and sweet commercial soda. It is a very popular drink
in the Amazon. The origin of this fruit is explained in
this folk tale: An Indian couple, belonging to the
Maués tribe, lived together for many years, always
wishing that they could have a child. One day they
asked their God, Tupã, to give them a child as a
present to complete their happiness. Tupã, the king
of the gods, knowing that the couple had good
hearts, fulfilled their wish, bringing to them a
beautiful boy. Time passed by quickly and the boy
grew up handsome, generous and kind. However,
Juruparí, the God of Darkness, felt an extreme envy
of the boy and the peace and happiness that he
transmitted, and decided to end that blooming life.
One day the boy went to gather fruits in the forest
and Juruparí decided that his vengeance time had
arrived. He transformed himself into a serpent and
Pension fund costs to increase in 2010
By Eder Costa e Silva
The Senate Committee on Economic Issues
approved last October a new law bill submitted by
the Brazilian government creating the National
Supervisory Agency for Private Pensions dubbed
PREVIC, which will report to the Social Security
Ministry. The new agency role will be to oversee
the activities of pension funds that are known in
Brazil as Closed Private Pension Entities and are
similar to the US’ Trustee Funds. Currently the
SPC-Secretaria de Previdência Complementar, a
structure under the Social Security Ministry, has
the responsibility to supervise these funds.
The main revenue source of the new agency will be
a supervisory tax to be charged from pension
funds – the so called TAFIC – “Taxa de Fiscalização
e Controle da Previdência Complementar”.
Page 3
Picture of the Guaraná fruit
from the Amazon jungle
bit the boy, killing him instantly. The sad news
spread quickly. At that moment, thunder echoed
and a lightening bolt fell near the Indian longhouse.
The mother, who was crying in despair, understood
that the thunder was a message from Tupã,
explaining that she should plant the child's eyes and
that from them a new plant would grow, yielding
tasty fruits. The Indians obeyed the mother's voice
and planted the boy's eyes. In that spot grew the
Guaraná tree, whose seeds are black, each with a
Please see What is this… page 4
The TAFIC is expected to be quarterly according to
17 value brackets, ranging from R$ 15 to R$ 2.2
million (US$ 8 to US$ 1.2 million), depending on
the total assets managed by each retirement plan.
The minimum R$ 15 tax will apply for retirement
plans whose assets total R$ 5 million (US$ 2.6
million) while plans holding assets over R$ 60
million (US$ 31.5 million) will have to pay the
maximum R$ 2.2 million tax. The agency’s annual
budget, of R$ 29 million (US$ 15.2 million), will
count on other revenue sources such as money
coming from fines applied over non-compliant
pension funds, federal budget, and third parties
agreements.
Over the years, the supervision of pension funds
has experienced an increase in complexity and
Please see … funds’ costs on page 4
Page 4
.…pensions benefits? from page 1
investment returns but also administrative
expenses. The recent regulations we referred to
above are Resolutions CGPC # 28 and # 29 issued,
respectively on Jan/26/2009 and Aug/31/2009.
The government’s “Secretaria de Previdência
Complementar” was responsible for publishing
both. Many sponsor companies, pressured to
reduce costs, will opt to deduct from the
investments returns all administrative expenses of
their retirement plan. That shall happen in the
2010 fiscal year and companies need to be aware
…funds costs from page 3
sophistication, requiring a wider, more
professional and, consequently, more expensive
structure. The cost of all that structure is to fall
on the sponsor companies’ shoulders since it is a
market practice in Brazil for private companies to
fully pay the administrative costs of their
retirement plans. As a result, some small and
medium-sized pension funds have been
terminated and their retirement plans transferred
to less costly financial vehicles such as the Multi-
Sponsored Pension Funds, that work as
“Some small and medium-
sized pension funds have
been terminated and their
retirement plans transferred
to less costly financial
vehicles.”
Pensions & Benefits - Brazil
that returns on investments are dropping very fast in
Brazil due to the historically low interest rates, and that
asset management fees are still high unable to
recognize the new environment. Transparency from
retirement plans administrators will be necessary along
with adopting that practice to avoid future claims
coming from participants.
We will return to this subject at a later date.
comingled funds and are sponsored by banks, and
Open Private Pension Entities, which are insurance
companies specialized in administering retirement
products. Two Senate committees still need to analyze
the project before it becomes law. Experts seem to
have no doubt that the project will pass and turn into
law before year-end.
If that really occurs, pension plans administered by
Closed Entities will increase at the end of 2009 and for
the full 2010 fiscal year.
What is this… from page 3
white aril around it that reminds one of a human eye.
Guara = human being na = similar, alike. It is easy to
find the basis for this myth. The fruit of the Guaraná
looks very much like an eyeball with a small dark seed
surrounded by white orbit. You can notice that in the
picture. Guaraná is most commonly encountered in a
popular Brazilian soft drink.
Guaraná Antarctica in can
Pensions & Benefits - Brazil Page 5

Fees and Returns from page 2

RETURNS ON INVESTMENTS – SEPTEMBER/2009

PRIVATE RETIREMENT FUNDS Min. Max. Median Mean

Fixed Income (3)
0.2737% 3.1225% 0.6045% 0.6498%
Fixed Income – DI Reference (4)
0.2833% 0.6910% 0.6060% 0.5866%
Multimarket–Including Variable Income (5)
0.1967% 9.5328% 2.0423% 2.3322%
Multimarket - Balanced (6)
0.6772% 5.7614% 2.1325% 2.4487%
Source: ANBID (only funds with assets over R$ 1 Million around US$ 575,000)

RETURNS ON INVESTMENTS – 12 MONTHS (SEP/2008 TO SEP/2009)

PRIVATE RETIREMENT FUNDS Min. Max. Median Mean

Fixed Income (3)
3.3151% 21.1117% 7.1472% 7.4144%
Fixed Income – DI Reference (4)
3.8572% 7.6756% 6.7648% 6.6102%
Multimarket–Including Variable Income (5)
3.5832% 56.0892% 16.6514% 18.8154%
Multimarket – Balanced (6)
6.1523% 32.6939% 16.4530% 17.9402%

Source: ANBID (only funds with assets over R$ 1 million = US$ 575,000)
Notes:
(1) Disregarded funds with zero fees and those with flat rates established in reais (R$). Considered only fees charged as a
% of invested assets.
(2) Considers all industry of funds, including the private retirement funds as the PGBL, VGBL and FAPI.
(3) 80% min. asset allocation benchmarking federal government bonds or low credit risk investments. Leverage admitted.
(4) 95% min. allocation benchmarking the interest rate (SELIC) or the Interbank Certificates of Deposit (CDI)
(5) Asset allocation benchmark not disclosed. Admits fixed income investments, stocks etc. and can considered 100%
allocation in only one asset class. Leverage not allowed.
(6) Similar to the Multimarket – Including Variable Income type fund but has to disclose the asset allocation benchmark
and concentration in only one asset class is not allowed.

Economic Insight
EXCHANGE RATE

Last day Last Month Last year

US Dollar (US$) R$ 1.74 R$ 1.74 R$ 2.33
“The Brazilian
Euro (€R) R$ 2.56 R$ 2.56 R$ 3.23
Source: Central Bank (as of the last working day of the month\year) Central Bank
estimates a 0.1%
INFLATION
GDP growth for
Last month Year to date Last year 2009 and 4.8% for
IPCA Index 0,24% 3.21% 5.90% 2010”
Source: IBGE

MINIMUM WAGE

Last Month Last year Two years

Brazilian Real R$ 465.00 R$ 415.00 R$ 380.00
US Dollar US$ 267.24 US$ 178.11 US$ 214.69
Euros €R 181.64 €R 128.48 €R 146.15
Please see Economic… on page 6

Source: IBGE (variation are due to the exchange rate)

Page 6 Pensions & Benefits - Brazil

NKL2 Soluções
Economic… from page 5
Atuariais
Rua Porto Feliz 89
INTEREST RATE
Cajamar, SP - Brazil
07750-000 Last day Last year Two years
SELIC (annual) 8.75% 13.75% 11.18%
Phone: Source: Central Bank
+55 11 9624-0952

Fax: MACRO ECONOMICS

+55 11 4407-6062
Year to date Last year 12 months
E-Mail: GDP Growth -1.5% 5.08% 1.3%
Eder@nkl2.com.br Unemployment rate 8.4% 7.9% -0.2%

Your independent Source: Central Bank and IBGE

information source

Disclosures: The information in the sections Economic Insight and Insured

Retirement Plans – Fees and Returns has been derived from sources believed to
be accurate as of November 2009. It contains general information only on

Soon on the Web! economic matters and investments should not be considered as a comprehensive
statement on any matter and should not be relied upon as such. The information
You will visit us at:
it contains does not take account of any investor’s investment objectives,
www.nkl2.com.br
particular needs or financial situation and should not be relied upon as a
significant basis for an investment decision.

Note: The columns “Last Month” and “Year to date” on the Inflation and Macro
Economics’ tables were accrued until September/2009 (the most recent data
available).