CVM Resolution 110: Approval of Consolidated Technical Pronouncement CPC 33 (R1) on Employee Benefits

Approves the Consolidation of Technical Pronouncement CPC 33 (R1) of the Accounting Pronouncements Committee – CPC, which deals with employee benefits.

THE PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM makes it known that the Board, in a meeting held on April 14, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6,404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6,385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10,139, of November 28, 2019,

APPROVED the following Resolution:

Art. 1. It is made mandatory for publicly-held companies the Technical Pronouncement CPC 33 (R1), which deals with employee benefits, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. Deliberation 695, of December 13, 2012, is hereby revoked, from the effective date of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Electronically signed by
Marcelo Barbosa
President

ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL PRONOUNCEMENT CPC 33 (R1)
EMPLOYEE BENEFITS
Correlation to International Accounting Standards – IAS 19 (IASB - BV 2012)

Summary Item
OBJECTIVE 1
SCOPE 2 – 7
DEFINITIONS 8
SHORT-TERM EMPLOYEE BENEFITS 9 – 25
Recognition and measurement 11 – 24
All short-term employee benefits 11 – 12
Short-term compensated absences 13 – 18
Profit-sharing and bonus plans 19 – 24
Disclosure 25
POST-EMPLOYMENT BENEFITS: DISTINCTION BETWEEN DEFINED CONTRIBUTION PLANS AND DEFINED BENEFIT PLANS 26 – 49 Multi-employer plans 32 – 39 Defined benefit plans that share risks between various entities under common control 40 – 42 Social security plans (public plans) 43 – 45 Benefit Insurance 46 – 49 POST-EMPLOYMENT BENEFITS: DEFINED CONTRIBUTION PLANS 50 – 54 Recognition and measurement 51 – 52 Disclosure 53 – 54 POST-EMPLOYMENT BENEFITS: DEFINED BENEFIT PLANS 55 – 152 Recognition and measurement 56 – 60 Accounting for the constructive obligation 61 – 62

SECURITY AND EXCHANGE COMMISSION OF BRAZIL (CVM) 7 de Setembro Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 Balance sheet 63 – 65 Recognition and measurement: present value of defined benefit obligation and current service cost 66 – 98 Actuarial valuation method 67 – 69 Attribution of benefit to service periods 70 – 74 Actuarial assumptions 75 – 80 Actuarial assumptions: mortality 81 – 82 Actuarial assumptions: discount rate 83 – 86 Actuarial assumptions: salaries, benefits and medical costs 87 – 98 Past service cost and gains and losses on settlement 99 – 112 Past service cost 102 – 108 Gains and losses on settlement 109 – 112 Recognition and measurement: plan assets 113 – 119 Fair value of plan assets 113 – 115 Reimbursements 116 – 119 Components of defined benefit cost 120 – 130 Net interest on the net defined benefit liability (asset) 123 – 126 Remeasurements of the net defined benefit liability (asset) 127 – 130 Presentation 131 – 134 Offsetting 131 – 132 Distinction between current and non-current 133 Financial component of defined benefit cost 134 Disclosure 135 – 152 Characteristics of defined benefit plans and associated risks 139 Explanation of amounts in financial statements 140 – 144 Amount, timing and uncertainty of future cash flows 145 – 147 Multi-employer plans 148 Defined benefit plans that share risks between various entities under common control 149 – 150 Disclosure requirements in other Pronouncements 151 – 152

Objective

The objective of this Pronouncement is to establish the accounting and disclosure of benefits provided to employees. To this end, this Pronouncement requires that the entity recognize:
(a) a liability when the employee has rendered service in exchange for benefits to be paid in the future; and (b) an expense when the entity consumes the economic benefit received from the service rendered by the employee in exchange for benefits to that employee.

Scope
2. This Pronouncement shall be applied by the employer/sponsor entity in the accounting for all benefits provided to employees, except those to which Technical Pronouncement CPC 10 – Share-based Payment applies.
3. This Pronouncement does not deal with the financial statements prepared by employee benefit plans or pension funds and similar entities.
4. The employee benefits to which this Pronouncement applies include those provided:
(a) by formal plans or agreements between the entity and individual employees, groups of employees or their representatives; (b) by legal provisions, or through sectoral agreements, which require entities to contribute to national, state, sectoral or other plans; or (c) by informal practices that give rise to a constructive obligation (or unformalized obligation, as per Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets). Informal practices give rise to a constructive obligation when the entity has no realistic alternative but to pay the benefits. An example of a constructive obligation may be cited, the situation in which a change in the entity's informal practices causes unacceptable damage to its relationship with employees.
5. Employee benefits include:
(a) short-term employee benefits, such as the following, provided they are expected to be settled in full within twelve months after the period to which the financial statements in which the employees rendered their respective services relate:
(i) salaries, wages and social security contributions; (ii) paid annual leave and paid sick leave; (iii) profit-sharing and bonuses; and (iv) non-monetary benefits (such as medical assistance, housing, cars and free or subsidized goods or services) for current employees; (b) post-employment benefits, such as the following:
(i) retirement benefits (for example, pensions and lump-sum payments upon retirement); and (ii) other post-employment benefits, such as post-employment life insurance and medical assistance; (c) other long-term employee benefits, such as:
(i) long-term paid absences, such as service leave or sabbaticals; (ii) jubilee or other service-related benefits; and (iii) long-term disability benefits; (d) termination benefits.
6. Employee benefits include benefits offered to both employees and their dependents and which can be settled by payments (or provision of goods and services) made directly to employees, their spouses, children or other dependents or by third parties, such as insurance entities.
7. The employee may render services to an entity on a full-time, part-time, permanent, casual or temporary basis. For the purposes of this Pronouncement, the definition of employee also includes directors and other managers.

Definitions
8. The following terms are used in this Pronouncement with the following meanings:

Definition of employee benefits
Employee benefits are all forms of consideration provided by the entity in exchange for services rendered by its employees or for the termination of the employment contract.
Short-term employee benefits are benefits (except termination benefits) that are expected to be settled in full within twelve months after the period to which the financial statements in which the employees rendered their respective services relate.
Post-employment benefits are employee benefits (except termination benefits and short-term employee benefits) that will be paid after the employment period.
Other long-term employee benefits are all employee benefits that are not short-term employee benefits, post-employment benefits and termination benefits.
Termination benefits are employee benefits provided by the termination of the employment contract of an employee as a result of:
(a) the entity's decision to terminate the employee's employment relationship before the normal retirement date; or (b) the employee's decision to accept an offer of benefits in exchange for the termination of the employment contract.

Definitions relating to plan classification
Post-employment benefit plans are formal or informal agreements under which the entity commits to provide post-employment benefits to one or more employees.
Defined contribution plans are post-employment benefit plans in which the sponsoring entity pays fixed contributions to a separate entity (fund), having no legal or constructive obligation to pay further contributions if the fund does not have sufficient assets to pay all employee benefits relating to their services in the current and prior periods. Defined benefit plans are post-employment benefit plans that are not defined contribution plans. Multi-employer plans are defined contribution plans (except social security plans) or defined benefit plans (except social security plans) that:
(a) have assets formed by contributions from various sponsoring entities that are not under the same shareholding control; and

Definitions relating to the net defined benefit liability (asset) Net defined benefit liability (asset) is the deficit or surplus, adjusted to reflect any effect of the limitation of the net defined benefit asset to the asset ceiling for recognition.
Deficit or surplus is:
(a) the present value of the defined benefit obligation; less (b) the fair value of the plan assets (if any).
Asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
Present value of defined benefit obligation is the present value, without deduction of any plan assets, of the future payments expected to be necessary to settle the obligation resulting from employee service in the current and past periods.
Plan assets comprise:
(a) assets held by long-term employee benefit funds; and (b) eligible insurance policies.
Assets held by long-term employee benefit funds are assets (except non-transferable financial instruments issued by the sponsoring entity) that:
(a) are held by an entity (fund) legally separate from the sponsoring entity and that exist exclusively to pay or fund benefits to employees; and (b) are available to be used only to pay or fund benefits to employees, are not available to the creditors of the sponsoring entity (even in the event of bankruptcy or judicial reorganization) and cannot be returned to the sponsoring entity, unless:
(i) the fund's assets are sufficient to meet all employee benefit obligations of the plan or the sponsoring entity; or (ii) the assets are returned to the sponsoring entity with the intent to reimburse it for benefits already paid to employees.

Eligible insurance policy is the insurance policy 1 issued by an insurance company that is not a related party (as defined in Technical Pronouncement CPC 05 – Related Party Disclosures) of the sponsoring entity, if the policy proceeds:
(a) can only be used to pay or fund benefits to employees, under a defined benefit plan; and (b) are not available to the creditors of the sponsoring entity itself (even in the event of bankruptcy) and cannot be paid to it, unless:
(i) the proceeds represent excess assets that are not necessary for the policy to cover all its respective employee benefit obligations; or (ii) the proceeds are returned to the sponsoring entity to reimburse it for employee benefits already paid.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Definitions relating to defined benefit cost
Service cost comprises:
(a) current service cost, which is the increase in the present value of the defined benefit obligation resulting from service rendered by the employee in the current period; (b) past service cost, which is the change in the present value of the defined benefit obligation for service rendered by employees in prior periods, resulting from a plan amendment (introduction, changes or cancellation of a defined benefit plan) or curtailment (a significant reduction, by the entity, in the number of employees covered by a plan); and (c) any gain or loss on settlement. Net interest on the net defined benefit liability (asset) is the change, during the period, in the net defined benefit liability (asset) resulting from the passage of time. Remeasurements of the net defined benefit liability (asset) comprise:
(a) actuarial gains and losses;
(b) return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and (c) any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

1 An eligible insurance policy is not necessarily an insurance contract, as defined in Technical Pronouncement CPC 11 – Insurance Contracts.

SECURITY AND EXCHANGE COMMISSION OF BRAZIL (CVM) 7 de Setembro Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 Actuarial gains and losses are changes in the present value of the defined benefit obligation resulting from:
(a) experience adjustments (effects of differences between the actuarial assumptions adopted and what actually occurred); and (b) effects of changes in actuarial assumptions.
Return on plan assets consists of interest, dividends and other income derived from the plan assets, together with realized and unrealized gains or losses on the plan assets, less:
(a) any costs of administering the plan assets; and (b) any tax due by the plan, except taxes included in the actuarial assumptions used to measure the present value of the defined benefit obligation.
Settlement is a transaction that eliminates all future legal or constructive obligations in respect of all or part of the benefits offered by a defined benefit plan, except the payment of benefits to employees or on their behalf that is defined in the terms of the plan and included in the actuarial assumptions.

Short-term employee benefits
9. Short-term employee benefits include items such as the following, provided they are expected to be settled in full within twelve months after the period to which the financial statements in which the employees rendered their respective services relate:
(a) salaries, wages and social security contributions; (b) paid annual leave and paid sick leave; (c) profit-sharing and bonuses; and (d) non-monetary benefits (such as medical assistance, housing, cars and free or subsidized goods or services) for current employees.
10. The entity does not need to reclassify short-term employee benefits if the entity's expectations regarding the time of settlement change temporarily. However, if the characteristics of the benefit change (such as, for example, the change from a non-cumulative benefit to a cumulative benefit) or if the change in expectations regarding the time of settlement is not temporary, the entity must then consider whether the benefit still meets the definition of short-term employee benefit.

Recognition and measurement
All short-term employee benefits
11. When the employee has rendered services to the entity during the accounting period, the entity shall recognize the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service:
(a) as a liability (accrued expense), after deducting any amount already paid. If the amount already paid exceeds the undiscounted value of the benefits, the entity shall recognize the excess as an asset (prepaid expense), provided that the prepaid expense leads, for example, to a reduction in future payments or to a cash refund; (b) as an expense, unless another Technical Pronouncement requires or permits the inclusion of the benefits in the cost of an asset (see, for example, Technical Pronouncements CPC 16 – Inventories and CPC 27 – Property, Plant and Equipment).
12. Items 13, 16 and 19 explain how the entity shall apply item 11 to short-term employee benefits, in the form of paid absences and profit-sharing and bonus plans.

Short-term compensated absences
13. The entity shall recognize the expected cost of short-term employee benefits in the form of paid absences, following item 11, as follows:
(a) in the case of cumulative paid absences, when the service rendered by the employees increases their right to future paid absences; (b) in the case of non-cumulative paid absences, when the absences occur.
14. The entity may remunerate employees for absence for various reasons, including: holidays, illness and short-term disability, maternity or paternity, court services and military service. The right to paid leave can be classified into two categories:
(a) cumulative; and
(b) non-cumulative.
15. Cumulative paid absences are those that can be carried forward and used in the future, if the right acquired in the current period was not fully used. Cumulative paid absences may be vested (i.e., employees have the right to cash payment for unused absences at the time they leave the entity) or non-vested (when employees do not have the right to cash payment for unused absences upon leaving the entity). The obligation arises as employees render services that increase their right to future paid absences. The obligation exists and must be recognized, even if the paid absences are non-vested, although the

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COMMISSION OF SECURITIES AND EXCHANGE
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 the ability of employees to leave before using the accrued right without acquired rights affects the measurement of this obligation.
16. The entity must measure the expected cost of cumulative paid absences as the additional amount that the entity expects to pay, as a result of the unused right that has accumulated at the date to which the financial statements relate.
17. The method specified in the previous item measures the obligation by the amount of additional payments that are expected to occur exclusively due to the accumulation of benefits. In many cases, the entity may not need to make detailed calculations to estimate that there is no relevant obligation regarding unused paid absences. For example, a sick leave obligation will likely be relevant only if there is an understanding, formal or informal, that unused paid sick leave can be considered as paid vacation.
Illustrative example of items 16 and 17
The entity has 100 employees, each of whom is entitled to five days of paid sick leave each year. Unused sick leave can be extended for one calendar year. Sick leave is excluded first from the current year's right and then from the previous year's balance (FIFO basis). On December 31, 20X1, the average unused right is two days per employee. The entity expects, based on past experience, that this expectation will continue, and that 92 employees will not take more than five days of paid sick leave in 20X2, and that the remaining eight employees will take an average of six and a half days each. The entity expects to pay an additional 12 days of sick leave allowance as a result of the unused right that has accumulated on December 31, 20X1 (one and a half days each, for eight employees). Therefore, the entity recognizes a liability equal to 12 days of sick leave allowance.
18. Non-cumulative paid absences are not extended to the next fiscal year: they expire if the right is not fully used in the current period, and do not give employees the right to cash payment for unused rights at the time they leave the entity.
This is commonly the case for sick leave (insofar as the past unused right does not increase the future right), maternity or paternity leave, or paid leave for service in courts or military service. The entity does not recognize a liability or expense until the time of absence, because the employee's service does not increase the value of the benefit.

COMMISSION OF SECURITIES AND EXCHANGE
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 Profit-sharing and bonus plans
19. The entity must recognize the expected cost of profit-sharing and bonus payments in accordance with item 11, when and only when:
(a) the entity has a legal or constructive obligation to make such payments as a result of past events; and (b) the obligation can be estimated reliably. There is a present obligation when and only when, the entity has no realistic alternative but to make the payments.
20. In some profit-sharing plans, employees receive a share of the profit only if they remain with the entity during a certain period. Such plans create a constructive obligation as employees provide service that increases the amount to be paid, if they remain with the entity until the end of the specified period. The measurement of such constructive obligations must reflect the possibility that some employees may leave and not receive the profit share.
Illustrative example of item 20
A profit-sharing plan requires the entity to pay a specific share of the net profit of the year to employees who worked the entire year. If none of the employees leave during the year, the total profit-sharing payments will be 3% of net profit. The entity estimates that staff turnover will reduce payments to 2.5% of net profit. The entity must recognize a liability and an expense of 2.5% of net profit.
21. The entity may not have a legal obligation to pay bonuses. However, in some cases, the entity adopts this practice. In such cases, the entity has a constructive obligation because the entity has no realistic alternative but to pay the bonus. The measurement of the constructive obligation must reflect the possibility that some employees may leave without the right to receive the bonus.
22. The entity can make a reliable estimate of its legal or constructive obligation in accordance with the profit-sharing or bonus plan, when and only when:
(a) the formal terms of the plan provide for a formula to determine the value of the benefit; (b) the entity determines the amounts to be paid before the approval of the issuance of the financial statements; or (c) past practice provides clear evidence of the amount of the entity's constructive obligation.
23. An obligation, in accordance with profit-sharing and bonus plans, results from the service provided by the employee and not from a transaction with the entity's partners. Therefore, the entity must recognize the cost of profit-sharing and bonus plans not as a distribution of profit, but as an expense.

COMMISSION OF SECURITIES AND EXCHANGE
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000
24. If the obligations for profit-sharing and bonus payments are not fully settled within twelve months after the end of the period in which the employees provided the respective service, these payments shall be considered long-term employee benefits (see items 153 to 158).
Disclosure
25. Although this Pronouncement does not require specific disclosures regarding short-term employee benefits, other Pronouncements may require them. For example, Technical Pronouncement CPC 05 - Disclosure on Related Parties requires disclosure regarding benefits granted to the entity's administrators. Technical Pronouncement CPC 26 - Presentation of Financial Statements requires the disclosure of expenses with employee benefits.
Post-employment benefits: distinction between defined contribution plans and defined benefit plans
26. Post-employment benefits include items such as, for example, the following:
(a) retirement benefits (for example, pensions and lump-sum payments upon retirement); and (b) other post-employment benefits, such as post-employment life insurance and health care.
The agreements by which the entity provides post-employment benefits are called post-employment benefit plans. The entity must apply this Pronouncement to all agreements, whether or not involving the establishment of a separate open or closed pension entity to receive contributions and pay benefits.
27. Post-employment benefit plans are classified as defined contribution or defined benefit plans, depending on the economic essence of the plan resulting from its main terms and conditions.
28. In defined contribution plans, the entity's legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Thus, the value of the post-employment benefit received by the employee must be determined by the amount of contributions paid by the sponsoring entity (and, in some cases, also by the employee) to a post-employment benefit plan or to a separate entity, together with the return on investments from the contributions. Consequently, actuarial risk (risk that benefits will be lower than expected) and investment risk (risk that invested assets will be insufficient to cover expected benefits) fall on the employee.
29. Examples of cases where the entity's obligation is not limited to the amount it agrees to contribute to the pension fund are those when the entity has a legal or constructive obligation through:

COMMISSION OF SECURITIES AND EXCHANGE
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 (a) a plan benefit formula that is not exclusively linked to the value of contributions and requires the entity to provide additional contributions if assets are insufficient to cover the benefits of the plan benefit formula; (b) a specified return guarantee on contributions, whether directly or indirectly linked to the plan; or (c) informal practices that give rise to a constructive obligation. For example, a constructive obligation may arise when the entity has a history of increasing benefits for employees to compensate for inflation, even when there is no legal obligation to do so.
30. In accordance with defined benefit plans:
(a) the sponsoring entity's obligation is to provide the agreed benefits to current and former employees; and (b) actuarial risk (that benefits will cost more than expected) and investment risk fall, substantially, on the entity. If actuarial or investment experience is worse than expected, the entity's obligation may increase.
31. Items 32 to 49 explain the distinction between defined contribution and defined benefit plans, in the context of multiemployer plans, defined benefit plans that share risks among entities under common control, social security plans, and insured benefits.
Multiemployer plans
32. The entity must classify a multiemployer plan as a defined contribution plan or a defined benefit plan, in accordance with the terms of the plan (including any constructive obligation that goes beyond the formal terms).
33. If the entity participates in a multiemployer defined benefit plan, unless item 34 is applicable, the entity must:
(a) account proportionally for its share of the defined benefit obligation, plan assets, and cost associated with the plan, in the same way as any other defined benefit plan; and (b) disclose the information required by items 135 to 148 (excluding item 148(d)).
34. When there is not enough information available to adopt defined benefit accounting for a multiemployer defined benefit plan, the entity must:
(a) account for the plan in accordance with items 51 and 52 as if it were a defined contribution plan; (b) disclose the information required by item 148.
35. An example of a multiemployer defined benefit plan is one in which:

COMMISSION OF SECURITIES AND EXCHANGE
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 (a) the plan is financed on a simple pay-as-you-go basis, such that: contributions are defined at a level expected to be sufficient to pay benefits that mature in the same period; and future benefits acquired during the current period will be paid with future contributions; and (b) employee benefits are determined by length of service and participating entities cannot withdraw from the plan without paying a contribution for benefits acquired by employees up to the date of their withdrawal. This plan represents actuarial risks for the entity: if the final cost of benefits already acquired at the date to which the financial statements relate is greater than expected, the entity will have to increase its contributions or persuade employees to accept a reduction in benefits. Therefore, such a plan is a defined benefit plan.
36. When sufficient information is available about a multiemployer defined benefit plan, the entity must account proportionally for its share of the defined benefit obligation, plan assets, and post-employment cost associated with the plan, in the same way as for any other defined benefit plan. However, the entity may not be able to identify its part in the underlying financial position and performance of the plan with sufficient reliability for accounting purposes. This may occur if:
(a) the plan exposes participating entities to actuarial risks associated with employees, current and former, of other entities, resulting in the lack of a consistent and reliable basis to allocate the obligation, plan assets, and cost individually to the entities participating in the plan; (b) the entity does not have access to relevant plan information that satisfies the requirements of this Pronouncement. In these cases, the entity must account for the plan as if it were a defined contribution plan and disclose the information required by item 148.
37. There may be a contractual agreement between the multiemployer plan and its participants that determines how the plan surplus will be distributed to participants (or how the deficit will be funded). The participating sponsoring entity in the multiemployer plan, with such an agreement and that accounts for the plan as a defined contribution plan, in accordance with item 34, must recognize the asset or liability resulting from the contractual agreement and the revenue or expense in the result.

COMMISSION OF SECURITIES AND EXCHANGE
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 Illustrative example of item 37 The entity participates in a multiemployer defined benefit plan and does not prepare plan valuations based on this Pronouncement. Therefore, it accounts for the plan as if it were a defined contribution plan. The valuation not based on this Pronouncement shows a deficit of $ 100 million in the plan. The plan made a contractual agreement on a contribution schedule with the participating employer plan that will eliminate the deficit in the next five years. The entity's total contributions, according to the contract, are $ 8 million. The entity must recognize the liability for contributions adjusted for the time value of money and the expense in the result.
38. Multiemployer plans are distinct from group-administered plans. The group-administered plan is merely the aggregation of individually sponsored plans combined to allow employers to pool their assets for investment purposes, in order to reduce management and administration costs, but the claims of different employers are segregated for the exclusive benefit of their own employees. Group-administered plans do not present specific accounting problems because the information is readily available, being treated in the same way as any other individually sponsored plan and because such plans do not expose participating entities to actuarial risks, associated with current and former employees of other entities. The definitions of this Pronouncement require the entity to classify a group-administered plan as a defined contribution plan or as a defined benefit plan in accordance with the terms of the plan (including any constructive obligation, that goes beyond the formal terms).
39. To determine when to recognize and how to measure a liability related to the closure of a multiemployer defined benefit plan or to the entity's exit from a defined benefit plan, the entity must apply Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets.
Defined benefit plans that share risks among several entities under common control
40. Defined benefit plans that share risks among entities under common control, for example, a parent company and its subsidiaries, are not multiemployer plans.
41. The entity that sponsors plans of this type must obtain information about the plan as a whole, measured in accordance with this Pronouncement, using assumptions that apply to the plan as a whole. If there is a contractual agreement or express policy to attribute the net expense of defined benefits of the plan, measured in accordance with this Pronouncement, to the entities of the economic group, then the entity must, in its separate or individual financial statements, recognize the net expense corresponding to defined benefits for itself. If there is no such agreement or policy, the net defined benefit expense must be recognized in the separate or

COMMISSION OF SECURITIES AND EXCHANGE
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 individual financial statements of the entity that is legally the sponsor of the plan. The other entities belonging to the group must recognize, in their separate or individual financial statements, an expense equal to the contributions due in the period.
42. Participation in this plan is a transaction with related parties, individually for each entity in the group. The entity must, therefore, in its separate or individual financial statements, disclose the information required by item 149.
Social security plans (public plans)
43. The entity must account for its participation in a social security plan (public plans) in the same way it accounts for its participation in a multiemployer plan (see items 32 to 39).
44. Social security plans are established by legislation and available to all entities (or to all entities of a particular category, for example, a specific sector) and are operated by the government or by another body (for example, an autonomous agency created specifically for such purpose), therefore, outside the control or influence of the reporting entity. Some plans established by an entity may, according to legislation, come to offer not only mandatory benefits, which may replace benefits that would otherwise be covered by a government social security plan, but also additional voluntary benefits. These plans are not government social security plans.
45. Social security plans must be classified as defined benefit or defined contribution plans depending on the entity's obligation regarding the plan. Many government social security plans, such as the Brazilian one, are financed on a simple pay-as-you-go basis: contributions are fixed at a level expected to be sufficient to cover the benefits granted that mature in the same period; future benefits obtained during the current period will be paid with future contributions. However, in most social security plans, the entity has no legal or constructive obligation to pay these future benefits, its only obligation being to pay the contributions as they fall due and, if the entity ceases to employ members of the social security plan, it will not have the obligation to pay the benefits accrued by its employees in previous years. For this reason, social security plans are usually defined contribution plans. However, when a social security plan is to be classified as a defined benefit plan, the entity must apply the treatment provided for in items 32 to 39.
Insured benefits
46. The entity may pay insurance premiums to fund a post-employment benefit plan. The entity must treat the plan as a defined contribution plan, unless the entity has (directly or indirectly through the plan) a legal or constructive obligation to:
(a) pay employee benefits directly when they mature; or

(b) pay additional contributions if the insurer does not cover all future benefits of the employee relating to services rendered in the current period and in previous periods.
If the entity has a legal or constructive obligation, the plan must be treated as a defined benefit plan.

Benefits insured by an insurance policy do not need to have a direct or automatic relationship with the entity's obligation regarding employee benefits. Post-employment benefit plans involving insurance policies are subject to the same distinction between accounting and funding applicable to other funded plans.
When the entity funds a post-employment benefit obligation by contributing to an insurance policy by which the entity (directly or indirectly through the plan, using a mechanism for setting future premiums or through a relationship with the insurer) maintains the legal or constructive obligation, the payment of premiums does not correspond to a defined contribution agreement. As a consequence, the entity:
(a) must account for the eligible insurance policy as a plan asset (see item 8); and (b) must recognize other insurance policies as reimbursement rights (if the policies meet the criteria of item 116).
When the insurance policy is in the name of a specific plan participant or group of participants and the entity has no legal or constructive obligation to cover any loss on the policy, the entity has no obligation to pay benefits to employees, and the insurer has exclusive responsibility for paying these benefits. The payment of fixed premiums under such contracts is, in fact, the settlement of the benefit obligation to the employee, and not an investment to cover the obligation. Consequently, the entity no longer possesses an asset or a liability. Therefore, the entity treats such payments as contributions to a defined contribution plan.

Post-employment benefits: defined contribution plan

The accounting for defined contribution plans is straightforward because the entity's sponsoring obligation for each period is determined by the amounts to be contributed in the period. Consequently, no actuarial assumptions are needed to measure the obligation or the expense, and there is no possibility of any actuarial gain or loss. Furthermore, obligations are measured on a non-discounted basis, except when they are not fully settled within twelve months after the end of the period in which employees render the respective service.

Recognition and measurement

When the employee has rendered services to the entity during a period, the entity must recognize the contribution due to the defined contribution plan in exchange for those services:
(a) as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due relating to the service rendered before the accounting period to which the financial statements refer, the entity must recognize this excess as an asset (prepaid expense), to the extent that the prepayments will lead, for example, to a reduction in future payments or to a cash refund; and (b) as an expense, unless another Pronouncement requires or allows the inclusion of the contribution in the cost of an asset (see, for example, Technical Pronouncements CPC 16 - Inventories and CPC 27 – Property, Plant and Equipment).
When contributions to the defined contribution plan are not fully settled within twelve months after the end of the employee's service period, they must be discounted, using the discount rate specified in item 83.

Disclosure

The entity must disclose the amount recognized as expense for defined contribution plans.
Whenever required by Technical Pronouncement CPC 05 – Disclosure of Related Party Transactions, the entity discloses information regarding contributions to defined contribution plans relating to the entity's administrators.

Post-employment benefits: defined benefit plan

The accounting for defined benefit plans is complex because actuarial assumptions are necessary to measure the plan's obligation and expense, and there is a possibility of actuarial gains and losses. Furthermore, obligations are measured at their present value, because they may be settled many years after employees render the services.

Recognition and measurement

Defined benefit plans may not have a constituted fund or may be totally or partially covered by contributions from the entity and, sometimes, from its employees, to an entity or fund legally separate from the sponsoring entity, from which benefits to employees are paid. The payment of granted benefits depends not only on the financial situation and investment performance of the fund, but also on the capacity and interest of the entity to cover any insufficiency in the fund's assets. Therefore, the entity assumes, in essence, the actuarial and investment risks associated with the plan. Consequently, the recognized plan expense for a defined benefit plan is not necessarily the amount of contribution due for the period.
The accounting for defined benefit plans by the entity involves the following steps:
(a) determine the deficit or surplus. This involves:
(i) using an actuarial technique, the projected unit credit method, to reliably estimate the final cost to the entity of the benefit obtained by employees in exchange for services rendered in current and previous periods (see items 67 to 69). This requires the entity to determine how much of the benefit should be attributable to current and previous periods (see items 70 to 74) and to make estimates (actuarial assumptions) regarding demographic variables (such as employee turnover and mortality) and financial variables (such as future increases in salaries and medical costs), which will affect the cost of the benefit (see items 75 to 98); (ii) discount this benefit to determine the present value of the defined benefit obligation and the current service cost (see items 67 to 69 and 83 to 86); (iii) deduct the fair value of any plan assets (see items 113 to 115) from the present value of the defined benefit obligation; (b) determine the net defined benefit liability (asset) value as the value of the deficit or surplus determined in (a), adjusted by any effect of limiting the net defined benefit asset to the asset ceiling (see item 64); (c) determine the values to be recognized in profit or loss:
(i) current service cost (see items 70 to 74 and 122A); (ii) any past service cost and gain or loss on settlement (see items 99 to 112); (iii) net interest on the net defined benefit liability (asset) (see items 123 to 126); (d) determine the remeasurements of the net defined benefit liability (asset), to be recognized in other comprehensive income, comprising:
(i) actuarial gains and losses (see items 128 and 129); (ii) return on plan assets, excluding amounts considered in the net interest on the net defined benefit liability (asset) (see item 130); and (iii) any change in the effect of the asset ceiling (see item 64), excluding amounts considered in the net interest on the net defined benefit liability (asset). When the entity has more than one defined benefit plan, it must apply these procedures separately for each relevant plan.

The entity must determine the net defined benefit liability (asset) value with sufficient regularity so that the amounts recognized in the financial statements do not differ significantly from the values that would be determined at the end of the period.
This Pronouncement encourages, but does not require, the entity to involve a qualified actuary in the measurement of all relevant post-employment benefit obligations. For practical reasons, the entity may request a qualified actuary to perform a detailed evaluation of the obligation before the end of the accounting period to which the financial statements refer. However, the results of this evaluation must be updated based on relevant transactions and other significant changes in circumstances (including changes in market values and interest rates) until the end of the accounting period to which the financial statements refer.
In some cases, estimates, averages, and calculation simplifications may provide a reliable approximation of the detailed calculations illustrated in this Pronouncement.

Accounting for the constructive obligation

The entity must account not only for its legal obligation according to the formal terms of the defined benefit plan, but also for any constructive obligation arising from the entity's informal practices. Informal practices give rise to a constructive obligation when the entity has no realistic alternative but to pay benefits to employees. An example of a constructive obligation is when a change in the entity's informal practices would cause unacceptable damage to its relationship with employees.
The formal terms of the defined benefit plan may allow the entity to terminate its obligation with the plan. Nevertheless, it is normally difficult for the entity to terminate its obligation with the plan (without payment) if employees are to be retained. Therefore, in the absence of evidence to the contrary, the accounting for post-employment benefits assumes that the entity promising these benefits will continue to do so during the employees' remaining working time.

Balance Sheet

The entity must recognize the net defined benefit liability (asset) value in the financial statement.
When the entity obtains a surplus in the defined benefit plan, it must measure the net defined benefit asset value as the lesser of:
(a) the surplus in the defined benefit plan; and (b) the asset ceiling, determined by applying the discount rate specified in item 83.

The net defined benefit asset value may arise when a defined benefit plan has received excess contributions or when actuarial gains occur. The entity must recognize the net defined benefit asset value in these cases because:
(a) the entity controls a resource, which is the ability to use the surplus to generate future benefits; (b) this control is the result of past events (contributions paid by the entity and services rendered by the employee); and (c) future economic benefits are available to the entity in the form of reduced future contributions or cash refunds, either directly to the sponsoring entity or indirectly to another deficit plan. The asset ceiling is the present value of these future benefits.

Recognition and measurement: present value of defined benefit obligation and current service cost

The final cost of a defined benefit plan can be influenced by many variables, such as salaries at the date of benefit grant, turnover and mortality, employee contributions, and medical cost trends. The final cost of the plan is uncertain and it is likely that this uncertainty will remain for a long period of time. In order to measure the present value of post-employment benefit obligations and the respective current service cost, it is necessary to:
(a) apply an actuarial valuation method (see items 67 to 69); (b) attribute benefits to service periods (see items 70 to 74); and (c) adopt actuarial assumptions (see items 75 to 98).

Actuarial valuation method

The entity must use the Projected Unit Credit Method to determine the present value of defined benefit obligations and the respective current service cost and, when applicable, the past service cost.
The Projected Unit Credit Method (also known as the accrued benefit method pro-rata on service or as the benefit/years of service method) considers each period of service as giving rise to an additional unit of right to benefit (see items 70 to 74) and measures each unit separately to build the final obligation (see items 75 to 98).

Illustrative example of item 68

A single payment benefit to be settled at the end of the working period corresponds to 1% of the final salary for each year of service. The salary in year 1 is $10,000 and it is assumed to have an annual growth of 7% (compounded) for each year. The discount rate used is 10% per year. The table below demonstrates how the obligation is calculated for an employee whose expected departure is at the end of year 5, assuming there will be no changes in actuarial assumptions. For simplification purposes, this example does not consider the additional adjustment necessary to reflect the probability of the employee leaving the entity earlier or later.

Year 1 2 3 4 5
Benefit attributed to:
– previous years $ 0 $ 131 $ 262 $ 393 $ 524
– current year (1% of final salary) $ 131 $ 131 $ 131 $ 131 $ 131 – current year and previous years $ 131 $ 262 $ 393 $ 524 $ 655 Obligation Initial - $ 89 $ 196 $ 324 $ 476 Interest of 10% - $ 9 $ 20 $ 33 $ 48 Current service cost $ 89 $ 98 $ 108 $ 119 $ 131 Final obligation $ 89 $ 196 $ 324 $ 476 $ 655 Notes:
1. The initial obligation is the present value of the benefit attributed to previous years.
2. The current service cost is the present value of the benefit attributed to the current year.
The final obligation is the present value of the benefit attributed to current and previous years.

69. The entity must discount the total post-employment benefit obligation to present value, even if part of the obligation matures within twelve months after the date of the financial statements.

Attribution of benefit to service periods

In determining the present value of defined benefit obligations and the respective current service cost and, when applicable, the past service cost, the entity must attribute benefits to service periods according to the plan's benefit formula. However, if the employee's service in the last years leads to a significantly higher benefit than in previous periods, the entity must attribute benefits on a straight-line basis, from:
(a) the date when the employee's service first leads to benefits provided for in the plan (whether the benefits are, or are not, conditional on future service); until (b) the date when the employee's future service will not lead to a material amount of additional benefits according to the plan, except in cases arising from new salary increases.
The Projected Unit Credit Method requires the entity to attribute benefit to the current period (in order to determine the current service cost) and to current and previous periods (in order to determine the present value of defined benefit obligations). The entity must attribute benefits to the periods in which the obligation to provide post-employment benefits arises. This obligation arises as employees render services in exchange for post-employment benefits and that the entity expects to pay in future periods. Actuarial techniques allow the entity to measure this obligation with sufficient reliability to justify the recognition of the liability.

Illustrative examples of item 71

1 A defined benefit plan provides for a single payment benefit of $100 due upon retirement, for each year of service rendered.
$100 benefit is attributed to each year. The current service cost is the present value of $100. The present value of the defined benefit obligation is the present value of $100, multiplied by the number of years of service on the date to which the financial statements refer. If the benefit is due immediately when the employee leaves the entity, the current service cost and the present value of the defined benefit obligation reflect the date when the employee is expected to leave. Thus, due to the effect of discounting to present value, they are lower than the amounts that would be determined if the employee left at the end of the period to which the financial statements refer.

2 A plan provides for a monthly pension of 0.2% of final salary for each year of service. The pension is due from age 65.
A benefit equal to the present value, at the expected retirement date, of the monthly pension of 0.2% of the estimated final salary, due from the expected retirement date to the estimated date of death, is attributed to each year of service. The current service cost is the present value of this benefit. The present value of the defined benefit obligation is the present value of the monthly pension payments of 0.2% of final salary, multiplied by the number of years of service until the end of the period to which the financial statements refer. The current service cost and the present value of the defined benefit obligation

The service rendered by the employee gives rise to an obligation in accordance with the defined benefit plan, even if the benefits are conditional on maintaining employment status (in other words, even when the benefits have not yet been vested). The employee's service, before the vesting date, gives rise to a constructive obligation because, at the end of each fiscal year-end, the value of future service that the employee must render until vesting in the benefit decreases. When measuring the defined benefit obligation, the entity must consider the probability that some employees may not meet the vesting requirements. Similarly, although certain post-employment benefits, for example, post-employment medical benefits, only become due if a specific event occurs, when the employee has already retired, an obligation must be recognized as the employee renders service that will provide the right to the benefit. The probability that the specific event will occur affects the measurement of the obligation, but does not determine whether the obligation exists or not.

Illustrative examples of item 72

1 A plan pays a benefit of $100 for each year of service. Vesting in the benefits will occur after ten years of service.
The $100 benefit is attributed to each year. In each of the first ten years, the current service cost and the present value of the obligation reflect the probability that the employee may not complete ten years of service.

2 A plan pays a benefit of $100 for each year of service rendered, excluding service before the age of 25. Vesting in the benefits occurs immediately.
No benefit should be attributed to service rendered before the age of 25, because service before this date does not lead to benefits (conditional or unconditional). The $100 benefit is attributed to each subsequent year.

The obligation increases until the date when subsequent service rendered by the employee no longer gives rise to material amounts of future benefits. Therefore, all benefit is attributed to periods ending on or before this date. Benefit is attributed to individual accounting periods according to the plan's benefit formula. However, if the employee's service in additional years leads to a significantly higher level of benefit than in previous years, the entity must attribute the benefit on a straight-line basis until the date when the employee's subsequent service leads to an immaterial amount of additional benefits. This is because the employee's service will ultimately lead to a benefit at a higher level.

Illustrative Examples for Item 73

1 A plan pays a single payment benefit of $1,000, the right to which is acquired after ten years of service. The plan does not provide additional benefit for subsequent service.

The benefit of $100 ($1,000 divided by ten) is attributed to each of the first ten years.

The current service cost in each of the first ten years reflects the probability that the employee will not complete ten years of service. No benefit is attributed to subsequent years.

2 A plan pays a single payment retirement benefit of $2,000 to all employees who are still working at age 55 after having provided twenty years of service, or who are still employed at age 65, regardless of their length of service.

For employees who are hired before age 35, benefits are attributed only when they reach age 35 (the employee may leave the entity at age 30 and return to service at age 33, with no effect on the amount or timing of benefits). These benefits are conditional on future service. In addition, service provided by employees after age 55 will not result in significant future benefits. For these employees, the entity attributes a benefit of $100 ($2,000 divided by 20) for each year from age 35 to age 55.

For employees hired at ages between 35 and 45, service provided after 20 years will not result in additional significant benefits. For these employees, the entity attributes a benefit of $100 ($2,000 divided by 20) for each of the first 20 years.

For the employee hired at age 55, service provided after 10 years will not lead to a significant amount of benefits. For this employee, the entity attributes a benefit of $200 ($2,000 divided by 10) for each of the first 10 years.

For all employees, the current service cost and the present value of the obligation must reflect the probability that the employee will not complete the necessary period of service.

3 A post-employment medical plan reimburses 40% of medical costs if the employee leaves the entity after having provided service between 10 and 20 years, or the reimbursement will be 50% of costs if the employee leaves the entity after 20 or more years of service.

According to the plan's benefit formula, the entity attributes 4% of the present value of expected medical costs (40% divided by ten) to each of the first 10 years and 1% (10% divided by 10) to each of the subsequent 10 years. The current service cost in each year must reflect the probability that the employee will not complete the service period necessary to obtain partial or full benefit.

For employees whom the entity expects to leave within 10 years, no benefit should be attributed.

4 A post-employment medical plan reimburses 10% of costs if the employee leaves the entity after having provided service between 10 and 20 years, or the reimbursement will be 50% of costs if the employee leaves the entity after 20 or more years of service.

Service in later years leads to a significantly higher level of benefits than current years.

Therefore, for employees expected to leave after 20 or more years, the entity attributes benefit on a straight-line basis, as per item 71. Service provided after 20 years will not lead to a significant amount of future benefits. Therefore, the benefit attributed to each of the first 20 years is 2.5% of the present value of expected medical costs (50% divided by twenty).

For employees whose expected departure is between 10 and 20 years, the benefit attributed to each of the first 10 years is 1% of the present value of expected medical costs. For these employees, no benefit is attributed to service between the end of the tenth year and the estimated exit date.

For employees expected to leave within ten years, no benefit should be attributed.

When the benefit amount is a constant proportion of final salary for each year of service rendered, future salary increases will affect the amount necessary to settle the obligation for service rendered before the period to which the financial statements relate, but do not create an additional obligation. Therefore:
(a) for the purpose of item 70(b), salary increases do not lead to additional benefits, even if the value of benefits depends on final salary; and

(b) the amount of benefit attributed to each period is a constant proportion of the salary to which the benefit is linked.

Illustrative Example for Item 74

Employees are entitled to a benefit of 3% of final salary for each year of service rendered, before completing age 55.

The benefit of 3% of estimated final salary is attributed to each year until age 55 is reached. This is the date at which subsequent service by the employee will not lead to a significant amount of future benefits according to the plan. No benefit is attributed to service after this age.

Actuarial Assumptions

Actuarial assumptions must be unbiased (unbiased) and must be mutually compatible.
Actuarial assumptions must be the entity's best estimates of the variables that will determine the final cost of providing post-employment benefits. Actuarial assumptions comprise:
(a) demographic assumptions regarding the future characteristics of current and former employees (and their dependents) who are eligible for benefits. Demographic assumptions deal with topics such as:
(i) mortality (see items 81 and 82);
(ii) employee turnover rates, disability and early retirement; (iii) the proportion of plan participants with dependents who will be eligible for benefits; (iv) the proportion of plan participants who will choose each available payment option according to the terms of the plan; and (v) medical plan claim rates; (b) financial assumptions addressing topics such as:
(i) discount rate (see items 83 to 86);
(ii) benefit levels, excluding any cost of benefits that should be borne by employees, and future salary (see items 87 to 95); (iii) in the case of medical benefits, future medical costs, including claim administration costs (i.e., the costs that will be incurred in processing and settling claims, including legal fees and regulatory fees) (see items 96 to 98); and (iv) taxes payable by the plan on contributions relating to services prior to the date of the financial statements or on benefits arising from those services.
Actuarial assumptions must be unbiased (unbiased) if they are not imprudent nor excessively conservative.
Actuarial assumptions must be mutually compatible if they reflect the economic relationships between factors, such as inflation, salary growth rates and discount rate. For example, all assumptions that depend on a certain level of inflation (such as assumptions on interest rates, salary increases and benefits) for any future period must assume the same level of inflation.
The entity must determine the discount rate and other financial assumptions in nominal terms (inflation rate included), unless real estimates (net of the inflation rate) are more reliable, for example, in a hyperinflationary economy or when the benefit is indexed and there is a structured market for debt securities indexed in the same currency and term.
Financial assumptions must be based on market expectations at the date to which the financial statements relate, relative to the period over which the obligations will be settled.

Actuarial Assumptions: Mortality

The entity must determine its mortality assumptions with reference to its best estimate of mortality of plan participants both during and after employment.
In order to estimate the final cost of the benefit, the entity must consider expected changes in the mortality rate, for example, by adjusting standard mortality tables with estimates of mortality improvements.

Actuarial Assumptions: Discount Rate

The rate used to discount the present value of post-employment benefit obligations (both funded and unfunded) must be determined based on market yields, ascertained at the date to which the financial statements relate, for high-quality corporate bonds or obligations. For currencies for which there is no active market for these high-quality corporate bonds, market yields (at the date to which the financial statements relate) relating to National Treasury bonds in that currency must be used. The currency and term of these financial instruments must be consistent with the currency and estimated term of the post-employment benefit obligations.
An actuarial assumption that has a significant effect is the discount rate. The discount rate must reflect the time value of money, but not actuarial or investment risk. Furthermore, the discount rate must not reflect the specific credit risk of the entity borne by its creditors, nor reflect the risk that future experience may differ from actuarial assumptions.
The discount rate must reflect the estimated terms of benefit payments. In practice, the entity often achieves this by applying a single weighted average discount rate that reflects the estimated terms and amount of benefit payments and the currency in which the benefits will be paid.
In some cases, there may be no active market for debt securities with maturities long enough to correspond to the estimated maturity of all benefit payments. In these cases, the entity uses current market rates, with the appropriate term, to discount payments for shorter terms and estimates the discount rate for longer maturities, extrapolating current market rates along the yield curve. It is unlikely that the total present value of the defined benefit obligation will be particularly sensitive to the discount rate applied to the portion of benefits due after the final maturity of available corporate bonds or National Treasury bonds.

Actuarial Assumptions: Salaries, Benefits and Medical Costs

The entity must measure its defined benefit obligations on a basis that reflects:
(a) the benefits established under the terms of the plan (or resulting from any constructive obligation that goes beyond these terms), at the end of the period to which the financial statements relate; (b) any estimated future salary increases that affect benefits due; (c) the effect of any limit on the employer's portion of the cost of future benefits; (d) employee or third-party contributions that reduce the final cost of these benefits to the entity; and (e) estimated future changes in the level of social security benefits that affect benefits due under a defined benefit plan, if, and only if:
(i) these changes have been decreed before the accounting period to which the financial statements relate; or (ii) historical data or other reliable evidence indicate that these social security benefits will change in some predictable way, for example, in accordance with future changes in general price levels or general salary levels.
Actuarial assumptions must reflect changes in future benefits that are established in the formal terms of the plan (or constructive obligation that goes beyond these terms) at the end of the period to which the financial statements relate. This is the case when, for example:
(a) the entity has a history of increasing benefits, for example, to mitigate the effects of inflation and there is no indication that this practice will change in the future; (b) the entity is obliged, whether by the formal terms of the plan (or constructive obligation that goes beyond these terms) or by legislation, to use any surpluses of this plan for the benefit of plan participants (see item 108(c)); or

(c) benefits vary in response to a performance target or other criteria. For example, the terms of the plan may provide that there will be a reduction in the value of benefits or require additional employee contributions if the plan assets are insufficient. The measurement of the obligation must reflect the best estimate of the effect of the performance target or other criteria.

Actuarial assumptions do not reflect changes in future benefits that are not established in the formal terms of the plan (or constructive obligation) at the date to which the financial statements relate. Such changes will result in:
(a) past service cost, to the extent that they alter benefits relating to service rendered before the change; and (b) current service cost relating to periods subsequent to the change, to the extent that they modify benefits relating to services subsequent to the change.
Estimates of future salary increases must take into account inflation, experience, promotions and other relevant factors, such as supply and demand in the labor market.
Some defined benefit plans limit the contributions that the entity is obliged to pay. The final cost of benefits considers the effect of the limit on contributions. The effect of the limit on contributions is determined by whichever is shorter of:
(a) the estimated life of the entity; and
(b) the estimated life of the plan.
Some defined benefit plans require employees or third parties to contribute to the cost of the plan. Employee contributions reduce the cost of benefits for the entity. The entity considers whether third-party contributions reduce the cost of benefits for the entity or constitute a right to reimbursement, as described in item 116. Employee or third-party contributions are established in the formal terms of the plan (or result from a constructive obligation that goes beyond these terms) or are discretionary. Discretionary contributions by employees or third parties reduce service cost upon payment of these contributions to the plan.
Employee or third-party contributions established in the formal terms of the plan reduce service cost (if linked to service) or affect the remeasurement of the net defined benefit liability (asset) (if not linked to service). An example of contributions that are not linked to service is when contributions are required to reduce a deficit arising from losses on plan assets or actuarial losses. If employee or third-party contributions linked to service, these contributions reduce service cost as follows:
(a) if the amount of contributions depends on the number of years of service, the entity must attribute contributions to service periods, using the same attribution method required by item 70 for the gross benefit (i.e., using the plan's contribution formula or the straight-line method); or (b) if the amount of contributions is independent of the number of years of service, the entity is authorized to recognize such contributions as a reduction in service cost in the period in which the related service is rendered. Examples of contributions that are independent of the number of years of service include those that are a fixed percentage of the employee's salary, a fixed value throughout the service period or depend on the employee's age.

Item A1 provides guidance for their application.

For employee or third-party contributions that are attributed to service periods in accordance with item 93(a), changes in contributions result in:
(a) current and past service cost (if these changes are not established in the formal terms of the plan and do not result from a constructive obligation); or (b) actuarial gains and losses (if these changes are established in the formal terms of the plan or result from a constructive obligation).
Some post-employment benefits are linked to variables, such as the level of social security benefits or government medical assistance. The measurement of such benefits must reflect the best estimate of these variables, based on historical data and other reliable evidence.
Assumptions regarding medical costs must take into account estimates of future changes in the cost of medical services resulting not only from inflation but also from specific changes in medical costs.
The measurement of post-employment medical benefits requires the use of assumptions regarding the level and frequency of future claims and the cost to cover these claims. The entity must estimate future medical costs based on historical data on the entity's own experience, added whenever necessary by historical data from other entities, insurance companies, medical service providers or other sources. Estimates of future medical costs must consider the effect of technological advances, changes in the use of medical assistance or models of providing this assistance, and changes in the health conditions of plan participants.
The level and frequency of claims are particularly sensitive to the age, health conditions and sex of employees (and their dependents) and may be sensitive to other factors, such as geographic location. Therefore, historical data must be adjusted to the extent that the demographic composition of the population differs from that used as the data base. These data must also be adjusted whenever there is reliable evidence that historical trends will change.

Past Service Cost and Settlement Gains and Losses

When determining past service cost or gain or loss on settlement, the entity must remeasure the net defined benefit liability (asset), using the fair value of plan assets and current actuarial assumptions (including market interest rates and other current market prices) that reflect:
(a) the benefits offered in accordance with the plan and plan assets before the amendment, reduction (curtailment) or settlement of the plan; and (b) the benefits offered in accordance with the plan and plan assets after the amendment, reduction or settlement of the plan.
The entity does not need to distinguish between past service cost resulting from amendment, past service cost resulting from reduction (curtailment) and gain or loss on settlement of the plan, if these transactions occur at the same time. In some cases, the amendment to the plan occurs before the settlement, for example, when the entity changes the benefits arising from the plan and subsequently settles the altered benefits. In these cases, the entity must recognize past service cost before any gain or loss on settlement.
Settlement occurs at the same time as an amendment and reduction (curtailment) in the plan if the plan is terminated with the effect that the obligation is settled and the plan ceases to exist. However, the termination of the plan is not a settlement if the plan is replaced by a new plan that offers benefits that are, in essence, the same.

101A. When an amendment, reduction or settlement of the plan occurs, the entity must recognize and measure past service cost, or gain or loss on settlement, in accordance with items 99 to 101 and 102 to 112. In doing so, the entity must not consider the effect of the asset ceiling. The entity must then determine the effect of the asset ceiling after the amendment, reduction or settlement of the plan and must recognize any change in this effect, in accordance with item 57(d).

Past Service Cost

Past service cost is the change in the present value of the defined benefit obligation, resulting from amendment or reduction (curtailment) of the plan.
The entity must recognize past service cost as an expense on the date that occurs first between the following options:
(a) when the amendment or reduction (curtailment) of the plan occurs; and (b) when the entity recognizes the corresponding restructuring costs (see Technical Pronouncement CPC 25 - Provisions, Contingent Liabilities and Contingent Assets) or termination benefits (see item 165).
An amendment to the plan occurs when the entity introduces or cancels a defined benefit plan or alters the benefits payable under an existing defined benefit plan.
A reduction (curtailment) occurs when the entity significantly reduces the number of employees covered by the plan. The reduction (curtailment) may result from an isolated event, such as the closure of a factory, the discontinuation of an operation, or the termination or suspension of the plan.
Past service cost may be positive (when benefits are introduced or modified such that the present value of the defined benefit obligation increases) or negative (when benefits are cancelled or modified such that the present value of the defined benefit obligation decreases).
When the entity reduces certain benefits payable under an existing defined benefit plan and, at the same time, increases other benefits payable under the plan for the same employees, the entity must treat the change as a net change.
Past service cost excludes:
(a) the effect of differences between actual salary increases and those previously assumed on the obligation to pay benefits for services rendered in prior years (there is no past service cost, because actuarial assumptions include salary projections); (b) estimates, whether higher or lower, in granting discretionary benefit increases, when the entity has a constructive obligation to grant such increases (there is no past service cost, because actuarial assumptions allow for these increases); (c) estimates of benefit improvements resulting from actuarial gains or the return on plan assets that have been recognized in the financial statements, if the entity is required, either by the formal terms of the plan (or a constructive obligation that goes beyond these terms) or by legislation, to use any surplus of the plan for the benefit of plan participants, even if the benefit increase has not yet been formally granted (there is no past service cost, because the increase resulting from the obligation is an actuarial loss; see item 88); and (d) the increase in vested benefits (i.e., benefits that do not depend on future employment; see item 72) when, in the absence of new or improved benefits, employees meet the vesting requirements (there is no past service cost, because the entity recognized the estimated cost of benefits as current service cost as the service was rendered).

Gains and losses on settlement

The gain or loss on settlement is the difference between:
(a) the present value of the defined benefit obligation being settled, as determined at the settlement date; and (b) the settlement price, including any plan assets transferred and any payments made directly by the entity in respect of the settlement.
The entity must recognize the gain or loss on the settlement of a defined benefit plan when the settlement occurs.
Settlement occurs when the entity enters into a transaction that eliminates all remaining legal or constructive obligations in respect of all or part of the benefits offered by the defined benefit plan (except for the payment of benefits to employees, or on their behalf, in accordance with the terms of the plan and considered in the actuarial assumptions). For example, the non-recurring transfer of significant employer obligations under the plan to an insurance company through the purchase of an insurance policy is a settlement; a lump-sum cash payment, in accordance with the terms of the plan, to plan participants in exchange for their right to receive specific post-employment benefits is not a settlement.
In some cases, the entity acquires an insurance policy to fund part or all of the benefits to employees, in respect of service rendered in current and prior periods. The acquisition of such a policy is not a settlement if the entity retains the legal or constructive obligation (see item 46) to pay additional amounts, if the insurer does not pay the benefits to employees as established in the insurance policy. Items 116 to 119 establish the recognition and measurement of rights to reimbursements under insurance policies that are not plan assets.

Recognition and measurement: plan assets

Fair value of plan assets

The fair value of any plan assets must be deducted from the present value of the defined benefit obligation in determining the deficit or surplus.
Plan assets must exclude unpaid contributions, due from the sponsoring entity to the pension fund, as well as any non-transferable financial instruments, issued by the entity and held by the fund. Plan assets must be reduced by any liabilities of the fund that are not related to employee benefits, for example, accounts payable and other payables and liabilities arising from derivative financial instruments.
When plan assets include eligible insurance policies, which correspond exactly to the amount and timing of parts or all of the benefits payable under the plan, the fair value of these insurance policies must be considered as the present value of the respective obligations (subject to any reduction necessary if the amounts receivable under the insurance policies are not fully recoverable).

Reimbursements

When, and only when, it is virtually certain that another party will reimburse all or part of the expenditure necessary to settle a defined benefit obligation, the entity must:
(a) recognize its right to reimbursement as a separate asset. The entity must measure the asset at fair value; (b) separate and recognize changes in the fair value of its right to reimbursement in the same manner as for changes in the fair value of plan assets (see items 124 and 125). The components of defined benefit cost recognized in accordance with item 120 may be recognized net of amounts relating to changes in the carrying amount of the right to reimbursement.
Sometimes, the entity is in a position to seek another party, such as an insurer, to pay part or all of the expenditure necessary to settle a defined benefit obligation. Eligible insurance policies, as defined in item 8, are plan assets. The entity must account for eligible insurance policies in the same manner as other plan assets and must not apply item 116 (see items 46 to 49 and 115).
When the insurance policy held by the entity is not an eligible insurance policy, that insurance policy will not be a plan asset. Item 116 is relevant for such cases: the entity recognizes its right to reimbursement, under the insurance policy, as a separate asset and not as a deduction, in determining the deficit or surplus of the defined benefit. Item 140(b) requires the entity to disclose a brief description of the link between the right to reimbursement and the respective obligation.
If the right to reimbursement arises from an insurance policy that corresponds exactly to the amount and timing of part or all of the benefits payable, under the defined benefit plan, the fair value of the right to reimbursement is considered to be the present value of the respective obligation (subject to any reduction necessary if the reimbursement is not fully recoverable).

Components of defined benefit cost

The entity must recognize the components of defined benefit cost, except to the extent that another pronouncement requires or allows their inclusion in the cost of the asset, as follows:
(a) service cost (see items 66 to 112 and 122A) in profit or loss; (b) net interest on the net defined benefit liability (asset) (see items 123 to 126) in profit or loss; and (c) remeasurements of the net defined benefit liability (asset) (see items 127 to 130) in other comprehensive income.
Other CPC Pronouncements require the inclusion of some employee benefit costs as costs of assets, such as inventories and property, plant and equipment (see CPC 16 and CPC 27). Any post-employment benefit costs included in the cost of these assets must consider the appropriate proportion of the components listed in item 120.
Remeasurements of the net defined benefit liability (asset) recognized in other comprehensive income shall not be reclassified to profit or loss in the subsequent period. However, the entity may transfer these amounts recognized in other comprehensive income within equity.

122A. The entity must determine current service cost using the actuarial assumptions determined at the beginning of the annual reporting period. However, if the entity remeasures the net defined benefit liability (asset), in accordance with item 99, it must determine current service cost for the remainder of the annual reporting period after the amendment, reduction or settlement of the plan, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) in accordance with item 99(b).

Net interest on the net defined benefit liability (asset)

The entity must determine the net interest on the net defined benefit liability (asset) by multiplying the net defined benefit liability (asset) by the discount rate specified in item 83.

123A. To determine net interest in accordance with item 123, the entity must use the net defined benefit liability (asset) and the discount rate determined at the beginning of the annual reporting period. However, if the entity remeasures the net defined benefit liability (asset), in accordance with item 99, the entity must determine net interest for the remainder of the annual reporting period after the amendment, reduction or settlement of the plan, using:
(a) the net defined benefit liability (asset) determined, in accordance with item 99(b); and (b) the discount rate used to remeasure the net defined benefit liability (asset), in accordance with item 99(b).
In applying item 123A, the entity must also take into account any changes in the net defined benefit liability (asset) during the period resulting from contributions or benefit payments.

Net interest on the net defined benefit liability (asset) can be viewed as comprising interest income on plan assets, interest cost on the defined benefit obligation and interest on the asset ceiling effect mentioned in item 64.
Interest income on plan assets is the component of return on plan assets and must be determined by multiplying the fair value of plan assets by the discount rate specified in item 123A. The entity must determine the fair value of plan assets at the beginning of the annual reporting period. However, if the entity remeasures the net defined benefit liability (asset), in accordance with item 99, the entity must determine interest income for the remainder of the annual reporting period after the amendment, reduction or settlement of the plan, considering the plan assets used to remeasure the net defined benefit liability (asset), in accordance with item 99(b). In applying item 125, the entity must also take into account any changes in the plan assets held during the period resulting from contributions or benefit payments. The difference between interest income on plan assets and the return on plan assets must be included in the remeasurement of the net defined benefit liability (asset).
Interest on the asset ceiling effect is part of the total change in the asset ceiling effect and must be determined by multiplying the asset ceiling effect by the discount rate specified in item 123A. The entity must determine the asset ceiling effect at the beginning of the annual reporting period. However, if the entity remeasures the net defined benefit liability (asset), in accordance with item 99, the entity must determine interest on the asset ceiling effect for the remainder of the annual reporting period after the amendment, reduction or settlement of the plan, taking into account any change in the asset ceiling effect, determined in accordance with item 101A. The difference between interest on the asset ceiling effect and the total change in the asset ceiling effect must be included in the remeasurement of the net defined benefit liability (asset).

Remeasurements of the net defined benefit liability (asset)

Remeasurements of the net defined benefit liability (asset) comprise:
(a) actuarial gains and losses (see items 128 and 129); (b) the return on plan assets (see item 130), excluding amounts included in net interest on the net defined benefit liability (asset) (see item 125); and (c) any change in the asset ceiling effect excluding amounts included in net interest on the net defined benefit liability (asset) (see item 126).
Actuarial gains and losses result from increases or decreases in the present value of the defined benefit obligation due to changes in actuarial assumptions and adjustments for experience. Causes of actuarial gains and losses include, for example:
(a) unexpected increases and decreases in mortality and employee turnover rates, early retirement or increases in salaries, benefits (if the formal or constructive terms of the plan provide for inflationary benefit increases) or medical costs; (b) the effect of changes in assumptions regarding benefit payment options; (c) the effect of changes in estimates of future employee turnover, early retirement or mortality, or of increases in salaries, benefits (if the formal or constructive terms of the plan provide for inflationary benefit increases) or medical costs; and (d) the effect of changes in the discount rate.
Actuarial gains and losses shall not include changes in the present value of the defined benefit obligation occurring due to the introduction, amendment, reduction (curtailment) or settlement of the defined benefit plan or changes in benefits payable under the defined benefit plan. Such changes result in past service cost or in gains or losses on settlement.
In determining the return on plan assets, the entity must deduct the management costs of plan assets and any taxes payable by the plan itself, except taxes included in the actuarial assumptions used to measure the defined benefit obligation (item 76). Other administrative costs shall not be deducted from the return on plan assets.

Presentation

Offsetting

The entity may offset an asset relating to one plan with a liability relating to another plan when, and only when, the entity:
(a) has the legal right to use the surplus of the plan to settle obligations of another plan; and (b) intends to settle the obligations on a net basis or intends to settle the surplus of the plan against the obligation of another plan simultaneously.
The offsetting criteria are similar to those established for financial instruments in Technical Pronouncement CPC 39 - Financial Instruments: Presentation.

Distinction between current and non-current

Entities normally distinguish current assets and liabilities from non-current assets and liabilities. This pronouncement does not specify whether the entity must distinguish the current and non-current portion of assets and liabilities arising from post-employment benefits.

Financial component of defined benefit cost

Item 120 requires the entity to recognize service cost and net interest on the net defined benefit liability (asset) in profit or loss. This Pronouncement does not specify how the entity must present service cost and net interest on the net defined benefit liability (asset). The entity must present these components in accordance with the provisions of Pronouncement CPC 26 – Presentation of Financial Statements.

Disclosure

The entity must disclose information that:
(a) explains the characteristics of its defined benefit plans and the risks associated with them (see item 139); (b) identifies and explains the amounts in its financial statements arising from its defined benefit plans (see items 140 to 144); and (c) describes how its defined benefit plans may affect the amount, timing and uncertainty of the entity's future cash flows (see items 145 to 147).
To achieve the purposes of item 135, the entity must consider all of the following items:
(a) the level of detail necessary to meet the disclosure requirements; (b) the amount of emphasis to be given to each of the various requirements; (c) the amount of aggregation or disaggregation to be effected; and (d) whether users of the financial statements require additional information to assess the quantitative information disclosed.
If the disclosures made in accordance with the requirements of this Pronouncement and other CPC Pronouncements are insufficient to achieve the objectives of item 135, the entity must disclose additional information necessary to achieve these objectives. For example, the entity may present an analysis of the present value of the defined benefit obligation that distinguishes the nature, characteristics and risks of said obligation. This disclosure may distinguish:
(a) between amounts due to active participants, inactive participants and pensioners; (b) between vested benefits and accrued but not vested benefits; (c) between conditional benefits, amounts attributable to future salary increases and other benefits.
The entity must assess whether all or part of the disclosures should be disaggregated to distinguish plans or groups of plans with significantly different risks. For example, the entity may make disaggregated disclosures about plans, showing one or more of the following characteristics:
(a) different geographic locations;
(b) different characteristics, such as defined salary pension plans, final salary pension plans or post-employment medical assistance plans; (c) different regulatory environments; (d) different segments; (e) different funding modalities (for example, wholly unfunded, fully or partially funded).

Characteristics of defined benefit plans and risks associated with them

The entity must disclose:
(a) information on the characteristics of its defined benefit plans, including:
(i) nature of the benefits provided by the plan (for example, final salary defined benefit plan or contribution-based plan with guarantee); (ii) description of the regulatory structure in which the plan operates, such as the level of any minimum funding requirements, and any effect of the regulatory structure on the plan, such as the asset ceiling (see item 64); (iii) description of the responsibility of any other entity for the governance of the plan, such as the responsibilities of plan administrators and trustees; (b) description of the risks to which the plan exposes the entity, focused on any unusual, entity-specific or plan-specific risks, and any significant risk concentrations. For example, if plan assets are invested primarily in one class of investments, such as real estate, the plan may expose the entity to a concentration of real estate market risk; (c) description of any amendments, reductions (curtailments) and settlements of the plan.

Explanation of financial statement values

The entity must provide a reconciliation between the opening balance and the closing balance for each of the following items, if applicable:
(a) the net defined benefit liability (asset), presenting separate reconciliations for:
(i) plan assets;
(ii) the present value of the defined benefit obligation; (iii) the asset ceiling effect; (b) any rights to reimbursement. The entity must also present the relationship between any right to reimbursement and the corresponding obligation.
Each reconciliation listed in item 140 must present each of the following items, if applicable:
(a) current service cost;
(b) interest income or expense;

(c) remeasurements of the net defined benefit liability (asset), presenting separately:
(i) the return on plan assets, excluding amounts included in (b); (ii) actuarial gains and losses arising from changes in demographic assumptions (see item 76(a)); (iii) actuarial gains and losses arising from changes in financial assumptions (see item 76(b)); (iv) changes in the effect of the defined benefit asset ceiling, excluding amounts included in (b). The entity must also disclose how it determined the maximum economic benefit available, i.e., whether those benefits would be in the form of refunds, reductions in future contributions, or a combination of both; (d) past service cost and gains and losses resulting from settlements. As permitted by item 100, past service cost and gains and losses from settlements need not be highlighted if they occur simultaneously; (e) the effect of changes in exchange rates; (f) contributions made to the plan, presenting separately those made by the employer and by plan participants; (g) payments from the plan, presenting separately the amount paid relating to any settlements; (h) the effects of business combinations and disposals.

The entity must allocate the fair value of plan assets into classes that distinguish the nature and risk of those assets, subdividing each class of plan assets into those that have a quoted market price in an active market (as defined in CPC 46 – Fair Value Measurement) and those that do not. For example, considering the level of disclosure required in item 136, the entity may distinguish between:
(a) cash and cash equivalents;
(b) equity instruments (segregated by sector type, company size, geography, etc.); (c) debt instruments (segregated by issuer type, credit quality, geography, etc.); (d) real estate (segregated by geography, etc.); (e) derivative instruments (segregated by underlying risk type specified in the contract, for example, interest rate contracts, foreign exchange contracts, equity contracts, credit contracts, longevity swaps, etc.); (f) investment funds (segregated by fund type); (g) asset-backed securities; and

The entity must disclose the fair value of its own issued financial instruments held as plan assets and the fair value of plan assets that are owner-occupied real estate or other assets used by the entity.
The entity must disclose the significant actuarial assumptions used to determine the present value of the defined benefit obligation (see item 76). Such disclosure must be in absolute terms (for example, as an absolute percentage, and not merely as a margin between different percentages or other variables). When the entity prepares total disclosures by grouping plans, it must provide these disclosures in the form of weighted averages or in the form of narrow ranges.

Amount, timing and uncertainty of future cash flows

The entity must disclose:
(a) sensitivity analysis for each significant actuarial assumption (disclosed in accordance with item 144) at the end of the period to which the financial statements relate, demonstrating how the defined benefit obligation would have been affected by changes in a relevant actuarial assumption that were reasonably possible at that date; (b) methods and assumptions used in preparing the sensitivity analyses required by (a) and the limitations of those methods; (c) changes, compared to the previous period, in the methods and assumptions used in preparing the sensitivity analyses and the reasons for those changes.
The entity must disclose a description of any asset/liability matching strategies used by the plan or the sponsoring entity, including the use of annuities and other techniques, such as longevity swaps, for risk management.
To provide an indication of the effect of the defined benefit plan on its future cash flows, the entity must disclose:
(a) description of any funding agreements and funding policy that affect future contributions; (b) expected contributions to the plan for the next period following the financial statements; (c) information about the maturity profile of the defined benefit obligation. This includes the weighted average duration of the defined benefit obligation and may include other information about the timing of benefit payments, such as an analysis of the maturity of benefit payments.

If it participates in a multiemployer defined benefit plan, the entity must disclose:
(a) description of funding agreements, including the method used to determine the entity’s contribution rate and any minimum funding requirements; (b) description of the extent to which the entity may be liable to the plan for obligations of other entities, in accordance with the terms and conditions of the multiemployer plan; (c) description of any agreed allocation of deficit or surplus on:
(i) the termination of the plan; or
(ii) the entity’s exit from the plan;
(d) if the entity accounts for this plan as if it were a defined contribution plan in accordance with item 34, the entity must disclose the following, in addition to the information required by (a) to (c), instead of the information required by items 139 to 147:
(i) the fact that the plan is a defined benefit plan; (ii) the reason why sufficient information is not available to allow the entity to account for the plan as a defined benefit plan; (iii) expected contributions to the plan for the next period following the financial statements; (iv) information about any deficit or surplus in the plan that may affect future contribution values, including the basis used to determine the deficit or surplus and the implications, if any, for the entity; (v) an indication of the entity’s level of participation in the plan compared to other participating entities. Examples of measures that may provide this indication include the entity’s proportion of total contributions to the plan or the entity’s proportion of the total number of active participants, retired participants, and former participants with vested benefits, if this information is available.

Defined benefit plans that share risks between several entities under common control

If the entity participates in a defined benefit plan that shares risks between entities under common control, it must disclose:
(a) the contractual agreement or agreed policy for charging the net defined benefit cost or the fact that such policy does not exist; (b) the policy for determining the contribution to be paid by the entity;

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 (c) if the entity accounts for an allocation of the net defined benefit cost, as indicated in item 41, all information about the plan as a whole required by items 135 to 147; (d) if the entity accounts for the contribution payable in the period, as indicated in item 41, the information about the plan as a whole required by items 135 to 137, 139, 142 to 144 and 147(a) and (b).

The information required by item 149(c) and (d) may be disclosed by cross-reference to disclosures in the financial statements of another group entity if:
(a) the financial statements of that group entity identify and disclose separately the information required about the plan; and (b) the financial statements of that group entity are available to users of the financial statements on the same terms as the entity’s financial statements and at the same time, or before, the entity’s financial statements.

Disclosure requirements in other Pronouncements

When required by Pronouncement CPC 05 – Disclosure of Related Party Transactions, the entity must disclose information about:
(a) transactions with related parties regarding post-employment benefit plans; and (b) post-employment benefits for key management personnel.
When required by Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets, the entity must disclose information about contingent liabilities arising from post-employment benefit obligations.

Other long-term employee benefits

Other long-term employee benefits include items such as the following, if the entity does not expect them to be settled entirely within twelve months after the period to which the financial statements relate in which the employees render the respective services:
(a) long-term paid absences, such as, for example, long-service leave or sabbatical leave; (b) jubilee or other long-service benefits; (c) long-term disability benefits; (d) profit sharing and bonuses; and (e) deferred compensation.

The measurement of other long-term employee benefits is not normally subject to the same degree of uncertainty as the measurement of post-employment benefits. For this reason, this Pronouncement requires a simplified accounting method in the case of other long-term employee benefits. Unlike the accounting required for post-employment benefits, this method must not recognize remeasurements in other comprehensive income.

Recognition and measurement

When recognizing and measuring the surplus or deficit in another long-term employee benefit plan, the entity must apply items 56 to 98 and 113 to 115. The entity must apply items 116 to 119 in the recognition and measurement of any right to reimbursement.
For other long-term employee benefits, the entity must recognize the net amount of the following values in profit or loss, unless another pronouncement requires or allows inclusion in the cost of an asset:
(a) service cost (see items 66 to 112 and 122A); (b) net interest on the net defined benefit liability (asset) (see items 123 to 126); and (c) remeasurements of the net defined benefit liability (asset) (see items 127 to 130).
One form of other long-term employee benefits is long-term disability benefits. If the benefit level depends on length of service, the obligation arises from the rendering of service. The measurement of this obligation reflects the probability that payment will become due and the length of time over which payment is expected to be made. If the benefit level is the same for any disabled employee, regardless of length of service, the expected cost of these benefits is recognized when the event giving rise to the long-term disability benefit occurs.

Disclosure

Although this Pronouncement does not require specific disclosures about other long-term employee benefits, other Pronouncements of the Accounting Pronouncements Committee may require such disclosures. For example, Pronouncement CPC 05 – Disclosure of Related Party Transactions requires disclosures about employee benefits for the entity’s administrators. Pronouncement CPC 26 – Presentation of Financial Statements requires the disclosure of employee benefit expenses.

Termination benefits

This Pronouncement deals with termination benefits separately from other employee benefits, because the event giving rise to the obligation is the termination of the employment contract and not the rendering of service by the employee. Termination benefits result from the entity’s decision to

Termination benefits do not include employee benefits arising from the termination of the employment contract at the employee’s request without an offer from the entity or as a result of compulsory retirement, since these benefits are post-employment benefits. Some entities provide a lower level of benefit for termination of the employment contract at the employee’s request (in essence, a post-employment benefit) than for termination of the employment contract at the entity’s request. The difference between the benefit provided by termination of the employment contract at the employee’s request and the greater benefit provided by termination at the entity’s request constitutes a termination benefit.
The form of the employee benefit does not determine whether it is provided in exchange for service or in exchange for the termination of the employee’s employment contract. Termination benefits are typically single lump-sum payments, but sometimes also include:
(a) improvement of post-employment benefits, either indirectly, through an employee benefit plan, or directly; (b) salary until the end of the specific notice period, if the employee no longer renders services that provide economic benefits to the entity.
Indicators that an employee benefit is provided in exchange for services include the following:
(a) the benefit depends on the rendering of future services (including benefits that increase if additional services are rendered); (b) the benefit is provided in accordance with the terms of an employee benefit plan.
Some termination benefits are provided in accordance with the terms of an existing employee benefit plan. For example, they may be specified by law, by the employment contract or by a collective bargaining agreement, or may be implicit as a result of the entity’s past practice of providing similar benefits. As another example, if the entity makes an offer of benefits for more than a short period, or if there is more than a short period between the offer and the expected date of actual termination, the entity considers whether it has established a new employee benefit plan and, thus, whether the benefits offered as a result of that plan are termination benefits or post-employment benefits. Employee benefits provided in accordance with the terms of an employee benefit plan are termination benefits if they result from the entity’s decision to terminate the employee’s employment contract and do not depend on the rendering of future services.
Some employee benefits are provided regardless of the reason for the employee’s departure. Payment of these benefits is certain (subject to any vesting or minimum service requirements), but the timing of that payment is uncertain. Although these benefits are described, in some countries, as severance pay or dismissal gratuities, they are post-employment benefits, not termination benefits, and the entity must account for them as post-employment benefits.

The entity must recognize a liability and an expense for termination benefits at the earlier of the following dates:
(a) when the entity can no longer cancel the offer of those benefits; and (b) when the entity recognizes costs for a restructuring that is within the scope of Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets and involves the payment of termination benefits.
For termination benefits due as a result of the employee’s decision to accept an offer of benefits in exchange for the termination of the employment contract, the time at which the entity can no longer cancel the offer of those benefits is the earlier of the following options:
(a) when the employee accepts the offer;
(b) when a restriction (for example, a legal, regulatory or contractual requirement or other restriction) on the entity’s ability to cancel the offer comes into effect. This would occur at the time the offer was made, if the restriction existed at the time of the offer.
For termination benefits due as a result of the entity’s decision to terminate the employee’s employment contract, the entity can no longer cancel the offer when it has communicated to the affected employees a termination plan that meets all of the following criteria:
(a) the measures necessary to complete the plan indicate that significant changes to the plan are unlikely to be made; (b) the plan identifies the number of employees whose employment contracts are to be terminated, their job classifications or functions and their locations (but the plan does not need to identify each employee individually) and the expected completion date; (c) the plan establishes the termination benefits that employees will receive, in sufficient detail so that employees can determine the type and amount of benefits they will receive when their employment contracts are terminated.
When the entity recognizes termination benefits, it may also need to account for a change or reduction (curtailment) in other employee benefits (see item 103).

Measurement

The entity must measure termination benefits at initial recognition, measuring and recognizing subsequent changes, according to the nature of the employee benefit, it being evident that if termination benefits are an improvement of post-employment benefits, the entity must apply the requirements for post-employment benefits. Otherwise:
(a) if the entity expects that the termination benefits will be settled entirely within twelve months after the period to which the financial statements relate in which the termination benefit is recognized, it must apply the requirements for short-term employee benefits; (b) if the entity does not expect that the termination benefits will be settled entirely within twelve months after the period to which the financial statements relate, the entity must apply the requirements for other long-term employee benefits.
Given that termination benefits are not provided in exchange for services, items 70 to 74 relating to the attribution of the benefit to service periods are not relevant.

Illustrative example of items 159 to 170

Context

Due to a recent acquisition, the entity plans to close a factory within ten months and, at that time, terminate the employment contracts of all remaining employees of the factory. As it needs the knowledge of the factory employees to fulfill some contracts, the entity announces a termination plan, with the following terms.

Each employee who remains and renders services until the closure of the factory will receive, on the date of departure, a cash payment of $ 30,000. Employees who leave before the closure of the factory will receive $ 10,000.

The factory has 120 employees. At the time of the announcement of the plan, the entity expects that 20 of them will leave before the closure. Therefore, the expected total cash outflows as a result of the plan are $ 3,200,000 (i.e., 20 * $ 10,000 + 100 * $ 30,000). As required by item 160, the entity must account for benefits provided in exchange for the termination of the employment contract as termination benefits, and account for benefits provided in exchange for services as short-term employee benefits.

Termination benefits

The benefit provided in exchange for the termination of the employment contracts is $ 10,000. This is the amount the entity would have to pay to terminate the employment contracts, regardless of whether the employees remain and render services until the closure of the factory or leave before its closure. Although employees may leave before the closure of the factory, the termination of the employment contract of all employees is the result of the entity’s decision to close the factory and dismiss its employees (i.e., all employees will leave employment when the factory is closed). Therefore, the entity recognizes a liability of $ 1,200,000 (i.e., 120 * $ 10,000) for the termination benefits provided in accordance with the employee benefit plan when the termination plan is announced or when the entity recognizes the restructuring costs associated with the closure of the factory, whichever date occurs first.

SECURITIES AND EXCHANGE COMMISSION (CVM)
7 de Setembro Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000

Benefits provided in exchange for services

The additional benefits that employees will receive if they render services throughout the ten-month period are obtained in exchange for services rendered over that period. These benefits must be accounted for by the entity as short-term employee benefits because it is expected to settle them within twelve months after the period to which the financial statements relate. In this example, discounting to present value is not necessary, so the expense of $200,000 (i.e., $2,000,000 ÷ 10) is recognized each month during the ten-month service period, with the corresponding increase in the carrying amount of the liability.

Disclosure

Although this Pronouncement does not require specific disclosures regarding termination benefits, other Pronouncements issued by the CPC may require such disclosures. For example, Pronouncement CPC 05 – Disclosure of Related Party Transactions requires disclosures regarding termination benefits of the entity’s administrators. Pronouncement CPC 26 – Presentation of Financial Statements requires the disclosure of employee benefit expenses.

Transitional Provisions

This Pronouncement replaces Technical Pronouncement CPC 33 – Employee Benefits, approved by the Accounting Pronouncements Committee on September 4, 2009.
The entity must apply this Pronouncement retrospectively, in accordance with Pronouncement CPC 23 – Accounting Policies, Changes in Estimates and Errors, except in the following situations:
(a) the entity does not need to adjust the carrying amount of assets not covered by this Pronouncement due to changes in employee benefit costs that were included in the carrying amount before the initial application date. The initial application date is the beginning of the earliest prior period presented in the first financial statements in which the entity adopts this Pronouncement; (b) in financial statements relating to fiscal years beginning before January 1, 2014, the entity does not need to present comparative information for the disclosures required by item 145 regarding the sensitivity of the defined benefit obligation.

174-176. (Eliminated).

The entity must apply the amendments to this pronouncement from the beginning of the first comparative period presented in the financial statements in which the entity applies these amendments. Any adjustment resulting from the application of the amendments must be recognized in accumulated results at the beginning of that period.

Appendix A – Application Guide

This Appendix is an integral part of the Pronouncement. It describes the application of items 92 and 93 and has the same authority as other parts of the Pronouncement.

A1. The accounting requirements for contributions arising from employees and third parties are illustrated in the diagram below.

Contributions from employees or third parties

Established by the formal terms of the plan (or arise from a constructive obligation that goes beyond these terms) | Discretionary --- | --- Linked to service | Reduction of the cost of service attributed to service periods (item 93 (a)) | Not linked to service (e.g., reduction of deficit) | Depends on the number of years of service Independs on the number of years of service | Reduction of the cost of service in the period in which the service is rendered (item 93 (b)) | Affect new measurements (item 93) Reduction of the cost of service, through the payment of the plan (item 92) |

(1) The dotted arrow means that the entity may opt.
(1)

Lineage: No known changes

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