CVM Resolution 147 Ratifies Technical Interpretation ICPC 20 on Defined Benefit Asset Limit and Minimum Funding Requirements — CVM — BR

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 Ratifies Technical Interpretation ICPC 20 of the Accounting Pronouncements Committee - CPC, which deals with the defined benefit asset limit, minimum funding requirements and their interaction.

The PRESIDENT OF THE SECURITIES COMMISSION - CVM makes it public that the Board, in a meeting held on May 4, 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. The obligation for publicly-held companies to comply with Technical Interpretation ICPC 20, which deals with the defined benefit asset limit, minimum funding requirements and their interaction, issued by the Accounting Pronouncements Committee - CPC, as per Annex “A” to this Resolution, is hereby ratified.

Art. 2. CVM Deliberation No. 731, of November 27, 2014, is 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

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
ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL INTERPRETATION ICPC 20
DEFINED BENEFIT ASSET LIMIT, MINIMUM FUNDING REQUIREMENTS AND THEIR INTERACTION Correlation to International Financial Reporting Interpretations Committee – IFRIC 14 (BV2014)

Summary Item
REFERENCES
CONTEXT 1 – 3A
SCOPE 4 – 5
ISSUES 6
CONSENSUS 7 – 26
Availability of refund or reduction in future contributions 7 – 10 Economic benefit available as refund 11 – 17 Effect of minimum funding requirement on economic benefit available as reduction in future contributions 18 – 22 When a minimum funding requirement may give rise to a liability 23 – 26 ILLUSTRATIVE EXAMPLES

References

CPC 26 – Presentation of Financial Statements
CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors
CPC 33 – Employee Benefits
CPC 25 – Provisions, Contingent Liabilities and Contingent Assets

Paragraph 64 of Technical Pronouncement CPC 33 – Employee Benefits limits the measurement of net defined benefit asset to the lower of the defined benefit plan surplus and the asset ceiling. Paragraph 8 of CPC 33 defines the asset ceiling as “the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan”. Questions have arisen about when refunds or reductions in future contributions may be considered available, particularly when there is a minimum funding requirement.
Minimum funding requirements exist in many countries to improve the security of the post-employment benefit promise made to participants in employee benefit plans. These requirements usually stipulate the minimum value or level of contributions that must be made to the plan during a certain period. Therefore, a minimum funding requirement may limit the entity’s ability to reduce future contributions.
Furthermore, the limit on the measurement of the defined benefit asset may make the minimum funding requirement burdensome. Normally, a requirement to make contributions to the plan would not affect the measurement of the defined benefit asset or liability. This is because contributions, when paid, become plan assets and therefore there is no additional net liability. However, a minimum funding requirement may give rise to a liability if the required contributions are not available to the entity once they have been paid.

3A. The term funding used in this Interpretation has the same meaning as the word financing used in the current version of Pronouncement CPC 33 and the word funding used in the current version of IAS 19 issued by the IASB.

Scope

This Interpretation applies to all post-employment defined benefits and other long-term defined benefits to employees.
For the purposes of this Interpretation, minimum funding requirements are any requirements for funding of a post-employment defined benefit plan or other long-term plan.

Issues

The issues addressed in this Interpretation are:
(a) when refunds or reductions in future contributions should be considered available in accordance with the definition of asset ceiling in paragraph 8 of Technical Pronouncement CPC 33; (b) how a minimum funding requirement may affect the availability of reductions in future contributions;

Consensus

Availability of refund or reduction in future contributions

The entity shall determine the availability of refund or reduction in future contributions in accordance with the terms and conditions of the plan and any statutory requirements in the jurisdiction of the plan.
The economic benefit, in the form of refund or reduction in future contributions, is available if the entity can realize it at some point during the life of the plan or when the plan liabilities are settled. In particular, this economic benefit may be available even if it is not immediately realizable at the end of the reporting period.
The available economic benefit does not depend on how the entity intends to use the surplus. The entity shall determine the maximum economic benefit that will be available from refunds, reductions in future contributions or a combination of both. The entity shall not recognize economic benefits from a combination of refunds and reductions in future contributions based on assumptions that are mutually exclusive.
In accordance with Technical Pronouncement CPC 26 – Presentation of Financial Statements, the entity shall disclose information about the main sources of uncertainty in the estimate at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amount of the net asset or liability recognized in the balance sheet. This could include the disclosure of any restrictions on the current ability to realize the surplus or the disclosure of the basis used to determine the value of the available economic benefit.

Economic benefit available as refund

Right to a refund

A refund is available to the entity only if the entity has an unconditional right to that refund:
(a) during the life of the plan, without assuming that the plan liabilities must be settled to obtain the refund (for example, in some jurisdictions, the entity may have a right to a refund during the life of the plan, regardless of whether the plan liabilities are settled); or (b) assuming the gradual settlement of the plan liabilities over time, until all members have left the plan; or (c) assuming the full settlement of the plan liabilities in a single event (i.e., as plan termination).

An unconditional right to a refund may exist regardless of the level of funding of a plan at the end of the reporting period.

If the entity’s right to a refund of surplus depends on the occurrence or non-occurrence of one or more future uncertain events not wholly within its control, the entity does not have an unconditional right and shall not recognize the asset.

Measurement of economic benefit

The entity shall measure the economic benefit available as refund as the value of the surplus at the end of the reporting period (being the fair value of the plan assets less the present value of the defined benefit obligation) to which the entity is entitled to receive as a refund, less any associated costs. For example, if the refund is subject to a tax other than income tax, the entity shall measure the value of the refund net of tax.
When measuring the value of the refund available upon plan termination (paragraph 11(c)), the entity shall include the costs to the plan of settling the plan liabilities and the refund. For example, the entity shall deduct professional fees if they are paid by the plan instead of being paid by the entity, and the costs of any insurance premiums that may be necessary to secure the liability upon termination.
If the value of the refund is determined as the total value or a proportion of the surplus, rather than a fixed value, the entity shall make no adjustment for the time value of money, even if the refund is realizable only at a future date.

Economic benefit available as reduction in contribution

If there is no minimum funding requirement for contributions relating to future service, the economic benefit available as a reduction in future contributions is the future service cost to the entity for each period over whichever is shorter between the expected life of the plan and the expected life of the entity. The future service cost to the entity does not include amounts that will be assumed by employees.
The entity shall determine future service costs using assumptions consistent with those used to determine the defined benefit obligation and with the situation existing at the end of the reporting period, as determined by Technical Pronouncement CPC 33. Therefore, the entity shall not assume any changes in the benefits to be provided by a plan in the future until the plan is amended and shall assume a stable workforce in the future, unless the entity makes a reduction in the number of employees covered by the plan. In the latter case, the assumption about the future workforce must include the reduction.

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 Effect of minimum funding requirement on economic benefit available as reduction in future contributions

The entity shall analyze any minimum funding requirement at a given date for contributions that are necessary to cover: (a) any existing shortfall based on minimum funding and (b) future service.
Contributions to cover any existing shortfall based on minimum funding for services already received do not affect future contributions for future service. They may give rise to a liability in accordance with paragraphs 23 to 26.
If there is a minimum funding requirement for contributions related to future service, the economic benefit available as a reduction in future contributions is the sum of:
(a) any amount that reduces future minimum funding contributions for future service because the entity has made a prepayment (i.e., paid the amount before being obliged to do so); and (b) the estimated future service cost in each period in accordance with paragraphs 16 and 17, less the estimated minimum funding contributions that would be required for future service in those periods if there were no prepayment, as described in item (a).
The entity shall estimate contributions relating to a minimum funding requirement for future service taking into account the effect of any existing surplus determined, using the minimum funding basis, but excluding the prepayment described in paragraph 20(a). The entity shall use assumptions consistent with the minimum funding basis and, for any factors not specified by that basis, assumptions consistent with those used to determine the defined benefit obligation and with the situation existing at the end of the reporting period, as determined by Technical Pronouncement CPC 33. The estimate must include any changes expected as a result of the entity paying the minimum contributions when they are due. However, the estimate shall not include the effect of expected changes in the terms and conditions of the minimum funding basis that are not substantially enacted or contractually agreed at the end of the reporting period.
When the entity determines the value described in paragraph 20(b), if future contributions relating to a minimum funding requirement for future service exceed the future service cost in accordance with Technical Pronouncement CPC 33 in a given period, this excess shall reduce the value of the economic benefit available as a reduction in future contributions. However, the value described in paragraph 20(b) can never be less than zero.

When a minimum funding requirement may give rise to a liability

If the entity has an obligation under a minimum funding requirement to pay contributions to cover an existing shortfall based on minimum funding for services already received, the entity shall determine whether the payable contributions will be available as a refund or reduction in future contributions after being paid to the plan.
To the extent that the contributions due are not available after being paid to the plan, the entity shall recognize a liability when the obligation arises. The liability shall reduce the net defined benefit asset or increase the net defined benefit liability, so that no gain or loss is expected as a result of the application of paragraph 64 of Technical Pronouncement CPC 33 when the contributions are paid.
(Eliminated).
(Eliminated).

These examples accompany, but do not form part of ICPC 20.

Example 1 – Effect of minimum funding requirement when there is a surplus according to Technical Pronouncement CPC 33 – Employee Benefits and the payable minimum funding contributions are fully refundable to the entity

EI1. An entity has a funding level based on the minimum funding requirement (which is measured differently from that required by Technical Pronouncement CPC 33) of 82% in Plan A. According to the minimum funding requirements, the entity is obliged to increase the funding level to 95% immediately. As a result, the entity has a statutory obligation at the end of the reporting period to contribute $ 200 to Plan A immediately. The plan rules allow the full refund of any surplus to the entity at the end of the plan’s life. The year-end assessments of Plan A are defined below.

Fair value of assets 1,200
Present value of defined benefit obligation according to Technical Pronouncement CPC 33 (1,100) Surplus 100

Application of requirements

EI2. Paragraph 24 of ICPC 20 requires the entity to recognize a liability to the extent that the contributions due are not fully available. The payment of $ 200 contributions will increase the surplus according to Technical Pronouncement CPC 33 from $ 100 to $ 300. According to the plan rules, this amount will be fully refundable to the entity without any associated costs. Therefore, no liability is recognized for the obligation to pay contributions, and the net defined benefit asset is $ 100.

Example 2 – Effect of minimum funding requirement when there is a deficit according to Technical Pronouncement CPC 33 and the payable minimum funding contributions are not fully available

EI3. An entity has a funding level based on the minimum funding requirement (which is measured differently from that required by Technical Pronouncement CPC 33) of 77% in Plan B. According to the minimum funding requirements, the entity must increase the funding level to 100% immediately. As a result, the entity has a statutory obligation at the end of the reporting period to pay additional contributions of $ 300 to Plan B. The plan rules allow a maximum refund of 60% of the surplus, according to Technical Pronouncement CPC 33, to the entity, and the entity is not authorized to reduce its contributions below a specified level that may be equivalent to the service cost, according to Technical Pronouncement CPC 33. The year-end assessments of Plan B are defined below.

Fair value of assets 1,000
Present value of defined benefit obligation according to Technical Pronouncement CPC 33 (1,100) Deficit (100)

Application of requirements

EI4. The payment of $ 300 would change the deficit according to Technical Pronouncement CPC 33 from $ 100 to a surplus of $ 200. Of this $ 200 value, 60% ($ 120) is refundable.

EI5. Therefore, of the $ 300 contributions, $ 100 eliminates the deficit according to Technical Pronouncement CPC 33 and $ 120 (60% of $ 200) is available as economic benefit. The remaining $ 80 (40% of $ 200) of the paid contributions are not available to the entity.

EI6. Paragraph 24 of this Interpretation requires the entity to recognize a liability to the extent that the additional payable contributions are not available to it.

EI7. Therefore, the net defined benefit liability is $ 180, comprising the $ 100 deficit plus the additional $ 80 liability resulting from the requirements of paragraph 24 of this Interpretation. No other liability is recognized regarding the statutory obligation to pay $ 300 contributions.

Summary

Fair value of assets 1,000
Present value of defined benefit obligation according to Technical Pronouncement CPC 33 (1,100) Deficit (100) Effect of asset ceiling (80) Net defined benefit liability (180)

EI8. When the $ 300 contributions are paid, the net asset recognized in the statement of financial position will be $ 120.

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 Example 3 – Effect of minimum funding requirement when the payable contributions are not fully available and the effect on the economic benefit available as a reduction in future contributions

EI9. An entity has a funding level based on the minimum funding requirement (which is measured differently from that required by Technical Pronouncement CPC 33) of 95% in Plan C. The minimum funding requirements require the entity to pay contributions to increase the funding level to 100% over the next three years. Contributions are required to cover the deficit based on the minimum funding requirement (shortfall) and to cover future service.

EI10. Plan C also has a surplus, according to Technical Pronouncement CPC 33 at the end of the reporting period of $ 50, which cannot be refunded to the entity under any circumstances.

EI11. The nominal values of contributions required to meet the minimum funding requirements regarding the shortfall and future service for the next three years are defined below.

Application of requirements

EI12. The entity’s current obligation regarding services already received includes the contributions necessary to cover the shortfall, but does not include the minimum contributions necessary to cover future service.

EI13. The present value of the entity’s obligation, assuming a discount rate of 6% per year, is approximately $ 300, calculated as follows:
[$ 120/(1.06) + $ 112 /(1.06) 2 + $ 104/(1.06) 3 ].

EI14. When these contributions are paid to the plan, the surplus, according to Technical Pronouncement CPC 33 (i.e., the fair value of assets less the present value of the defined benefit

Year Total contributions for minimum funding requirement Contributions necessary to cover the shortfall Contributions necessary to cover future service 1 135 120 15 2 125 112 13 3 115 104 11

defined), would increase from $50 to $350 ($300 + $50), with the other elements remaining unchanged.

EI15. However, the surplus is not refundable, although an asset may be available as a reduction in future contributions.

EI16. According to paragraph 20 of IAS 19, the economic benefit available as a reduction in future contributions is the sum of:
(a) any amount that reduces the future minimum funding requirement for future service because the entity has made a prepayment (that is, paid the amount before being obliged to do so); and (b) the estimated future service cost in each period in accordance with paragraphs 16 and 17, less the estimated minimum funding contributions that would be required for future service in those periods if there had been no prepayment, as described in paragraph (a).

EI17. In this example, there is no prepayment as described in paragraph 20(a). The amounts available as a reduction in future contributions when applying paragraph 20(b) are defined below.

Year	Service Cost according to Technical Pronouncement CPC 33	Minimum Contributions Required to Cover Future Service	Amount Available as Reduction in Contribution
1	13	15	(2)
2	13	13	0
3	13	11	2
4+	13	9	4

EI18. Assuming a discount rate of 6%, the economic benefit available as a reduction in future contributions is therefore equivalent to:
(2)/(1.06) + 0/(1.06)^2 + 2/(1.06)^3 + 4/(1.06)^4 + … + 4/(1.06)^50 + ... = $56.
Thus, according to paragraph 64 of Technical Pronouncement CPC 33, the present value of the economic benefit available from future contribution reductions is limited to $56.

EI19. Paragraph 24 of IAS 19 requires the entity to recognize a liability to the extent that additional contributions due are not fully available. Therefore, the effect of the asset ceiling is $294 ($50 + $300 - $56).

EI20. The entity must recognize a net defined benefit liability of $244 in the statement of financial position. No other liability is recognized in relation to the obligation to make contributions to cover the minimum funding deficiency.

Summary
Surplus: 50
Net defined benefit asset (before considering the minimum funding requirement): 50 Effect of the asset ceiling: (294) Net defined benefit liability: (244)

EI21. When contributions of $300 are paid to the plan, the net asset recognized in the balance sheet will be $56 ($300 - $244).

Example 4 – Effect of prepayment when a minimum funding requirement exceeds the expected future service charge

EI22. An entity is required to fund Plan D so that no deficit occurs based on the minimum funding. The entity is obliged to pay minimum funding contributions to cover the service cost in each period determined based on the minimum funding.

EI23. Plan D has a surplus, according to Technical Pronouncement CPC 33, of $35 at the beginning of 20X1. This example assumes that the discount rate and the expected return on assets are 0%, and that the plan cannot refund the surplus to the entity under any circumstances, but can use the surplus for reductions in future contributions.

EI24. The minimum contributions required to cover future service are $15 for each of the next five years. The expected service cost, according to Technical Pronouncement CPC 33, is $10 in each year.

EI25. The entity makes a prepayment of $30 at the beginning of 20X1 regarding the years 20X1 and 20X2, increasing its surplus at the beginning of 20X1 to $65. This prepayment reduces the future contributions it expects to make in the next two years, as shown below:

Year	Service Cost according to Technical Pronouncement CPC 33	Minimum Funding Contribution before Prepayment	Minimum Funding Contribution after Prepayment
20X1	10	15	0
20X2	10	15	0
20X3	10	15	15
20X4	10	15	15
20X5	10	15	15
Total	50	75	45

Application of Requirements

EI26. According to paragraphs 20 and 22 of IAS 19, at the beginning of 20X1, the economic benefit available as a reduction in future contributions is the sum of:
(a) $30, being the prepayment of minimum funding contributions; and (b) $zero. The estimated minimum funding contributions required for future service would be $75 if there had been no prepayment. These contributions exceed the estimated future service cost ($50); therefore, the entity cannot use any part of the $35 surplus observed in paragraph EI23 (see paragraph 22).

EI27. Assuming a discount rate of 0%, the present value of the economic benefit available as a reduction in future contributions is equal to $30. Thus, according to paragraph 64 of Technical Pronouncement CPC 33, the entity recognizes a net defined benefit asset of $30 (because this value is lower than the surplus, according to Technical Pronouncement CPC 33, of $65).

Lineage: No known changes