SUSEP opens Public Consultations on drafts of Resolution & Circular to establish rules and criteria for the operation of survival coverage offered in open supplementary pension plans

On December 9th, the Superintendence of Private Insurance (SUSEP) published Public Consultation Notices No. 26/2022/SUSEP and 27/2022/SUSEP which invited all interested parties to submit comments and suggestions on the draft Resolution (Public Consultation No. 26/2022/SUSEP) and Circular (Public Consultation No. 27/2022/SUSEP) within 30 (thirty) days. These publications concern the operating rules and criteria of survival coverage offered in open supplementary pension plans.

In its explanatory memorandum, the SUSEP justifies the need for a Resolution and a Circular to consolidate and update the specific regulation of survivor coverage and the communicability institute. According to the SUSEP, the drafts bring changes that aim to promote the growth of the annuities market and modernization of products.

CNSP Resolution Draft – Public Consultation No. 26/2022/SUSEP

Below are the main changes and innovations:

Definitions: Compared to CNSP Resolution No. 349/2017, the draft brings new definitions as well as more precise concepts.

(i)        Income certificate: Document intended for the beneficiary, issued by EAPC, which formalizes the granting of income and the aspects related to the income cycle(s), such as type(s) of income, term(s), parameters used to calculate the income value

(ii)       Survival coverage: Coverage that guarantees the payment of the insured capital, for the participant’s survival of the contracted deferral period, or the date of commencement of the contracted income by joining the annuity offer, or by purchasing upon a single payment, immediate income

(iii)      Communicability: This allows the use of PMBaC resources and refers to survival coverage for the cost of risk coverage(s) including the amount of taxes and loading when applicable

(iv)      Offer of income: Document issued by any means that can be proven, physical or remote, under the terms of specific regulations, in which EAPC offers a benefit in the form of income.

• Types of cover for survival: Programmed PGBL provided for in CNSP Resolution No. 349/2017 is excluded from the types of cover.
• Term structure of the interest rate: In case of impossibility of using the term structure, the interest rate limit of 6% (six percent) per year may no longer be used according to CNSP Resolution no. 349/2017. In this case, the draft Circular of Public Consultation No. 27/2022/SUSEP, establishes that the last term structure published should be used by the EAPC.
• Biometric tables: The Draft Resolution establishes that the biometric table defined in the plan submitted for approval by SUSEP should be used to calculate income with no provision regarding the duty to comply with the maximum mortality rate limit of the AT-2000 Male table.
• Automatic adhesion of employees or directors: In the collective contracts of plan established by the employer, it is allowable to establish a clause of automatic adhesion of its employees or directors – without charge to the participant in the initial period defined in the regulation – respecting the deadlines defined in specific regulation.
• Taxable event: In addition to providing the provision that the event generating the benefit will be the participant’s survival of the contractually provided deferral period, the draft clarifies that, in deferred income, the taxable event will be the participant’s survival at the start date of perception of contracted income.
• EAPC deadline for commenting on the proposal: While CNSP Resolution No. 349/2017 provided that the absence of an EAPC statement on the proposal, within 15 (fifteen) days would imply automatic acceptance, the draft Resolution (Public Consultation no. 26/2022/SUSEP), establishes that the deadline that the EAPC has to express its opinion on the proposal must be included in the regulation.

Draft Circular – Public Consultation No. 27/2022/SUSEP

In addition to the draft CNSP Resolution, the draft circular establishes the following innovations and changes:

• Reversal of financial results: There is an express provision regarding the inapplicability of the reversal of financial results to the benefits that are used to calculate the income factor term structure of interest rate.
• Contributions: The regulation must provide for the forms and criteria for funding the plan and the possible periodicity of payment of contributions by the participants and/or by the founders. However, there is no provision regarding the duty to enable payment in at least two ways as established in SUSEP Circular No. 563/2017.
• Multi-funds: The draft Circular uses the term ‘multi-funds’ to refer to plans with more than one linked FIE. This establishes the possibility of closing with contributions from a given fund if decided by a manager. This could be done to enable a certain investment strategy or if the fund has reached its capacity but only when: (i) it offers similar funds (ii) maintains a minimum number of 10 (ten) funds open for contributions, in the multi-fund plan (iii) the closing of the fund does not make the plan discretionary as it must be closed to any type of contribution regardless of the origin.
• Fund closure: In the case of fund closure, the percentages referring to the closed fund must be allocated to a similar fund and immediately communicated to the participant.
• Similar Fund: Is one that has the same investment strategy criteria, investment percentages by asset class, allocation percentages based on the risk of the assets and management fee equal to or less than the closed-end fund.
• Loading: For cases involving advance charging of loading. For purposes of compliance with tax regulations, the EAPC must maintain control (participant by participant) of the amounts paid by way of loading whose corresponding amount of contributions has not been redeemed by portability, programmed financial payment or benefit payment.
• Interest rate term structure (ETTJ): The EAPCs may indicate in the plan for calculating the income factor, the interest rate term structure prepared and updated by ANBIMA, during the accumulation period. In the event that this cannot be used, the term structure of the indicated interest rate reiterates the forecast contained in the draft CNSP Resolution – Public Consultation No. 26/2022/SUSEP – on EAPC’s duty to use the latest published interest rate term structure.

The draft Circular also establishes that the methodology for calculating the income factor based on the ETTJ and the respective actuarial table must be presented in the product’s actuarial technical note.

As for the income offer, it was established that the most up-to-date ETTJ must be used to determine the calculation factor – if this is a parameter of the type of benefit – as well as the percentage to be applied by EAPC to the applicant. on the ETTJ to calculate the income factor.

• Deadline for reversal of the balance of provisions in the event of non-compliance with vesting clauses: The forecast already exists in SUSEP Circular nº. 563/2017, in the sense that collective agreements must contain clauses that provide for the criteria and terms that will be adopted for the distribution of the balance of provisions arising from contributions paid by the settlor. They also refer to participants who have not complied with the clause of vesting as well as criteria and term for distribution of the said balance in the event of extinction of the plan or of the founder.

In the absence of the aforementioned provisions, the balance of provisions arising from contributions paid by the settlor (referring to participants who have not complied with the vesting clause) must be reversed in favor of existing participants in proportion to the balance of the total provision of each participant.

The new area discussed in the draft Circular is the setting of the deadline for reversal, which should occur a maximum of 2 (two) years, or when the plan or the founder is terminated on the date of said termination.

• Acknowledgment of the triggering event: the EAPC must carry out the acknowledgment of the triggering event within a maximum period of 15 (fifteen) days starting from the delivery of the basic documents mentioned in the plan’s regulation.

Such period will be suspended in the case of a justified request for other documents.

If the EAPC concludes that the redemption is not due, it must formally notify the participant or beneficiary and present the justifications for the conclusion within a period of 15 (fifteen) days.

• Redemption payment deadline and form: The redemption payment deadline regardless of the type (partial, total, or due to disability or death of the participant in the accumulation period) is now from (i) to 2 (two) business days after the FIE redemption quote date where the resource is applied (ii) no later than the 36th (thirty-sixth) calendar day subsequent to the recognition of the taxable event and the filing of the redemption request made by the participant in the EAPC, or the date scheduled by the EAPC for the redemption. This must be carried out by means of transfer to a deposit or savings account, or prepaid payment account owned by the participant.

In the case of redemption of funds with different quote dates in multi-fund plans, the draft Circular gives the participant the option of receiving the redemption in installments (according to the fund quote dates) or in a single payment after redemption settlement of the last FIE.

• Portability: With regard to portability, the draft Circular expressly states that resources related to survivorship coverage can only be transferred to PMBaCs related to survivorship coverage and can only occur for a supplementary pension plan in which the participant is enrolled.

With regard to the deadline, the EAPC transferring the resources must observe the same limit that applies to redemption payments.

Total or partial portability must be carried out based on the value of the PMBaC and PEF calculated in accordance with the regulations up to the 2nd (second) business day prior to the date of transfer of funds. For cases of partial portability, the value of the resources corresponding to the percentage of portability requested by the participant the portion corresponding to the balance of the PEF must be added. This is calculated up to the 2nd (second) business day prior to the date of transfer of the resources, and no longer in the 3 (three) business days previously provided for in SUSEP Circulars n. 563/2017 and 564/2017, as amended by SUSEP Circular 585/2019.

• Offer of income: The EAPC may offer the participant a conversion into income. An offer of deferred income is allowed providing that the period between the date of contracting and the date of receipt of the income is limited to 4 (four) days.

To this end, the participant and the beneficiary, must receive the information and support necessary for decision-making at least 90 (ninety) days before the end of the accumulation period or the end of each income cycle, and the validity period of the offer must be 5 (five) days. Different offers cannot be made on the same day to different participants. That is, offers must provide for the same type of income and technical parameters with due regard for individual peculiarities such as age and sex inherent to actuarial income. The draft Circular also establishes the elements and information that must be included in the offer.

It should be noted that for income offers structured by the ETTJ, an equivalent real interest rate is linked. This is defined as the constant interest rate considering all other fixed parameters would result in the same calculation factor.

If the offer is accepted, the EAPC must immediately issue an income certificate and a new participant certificate containing information on income cycles and all contracted income certificates.

• Income cycles: The participant can choose to define the number of income cycles, the type of income referring to each cycle, the percentage of the total provision that he/she wants to convert in each cycle. They can also change the respective duration periods at any time and hire more than one income for the same cycle.

With each definition or change of the participant in the income cycle, the EAPC must issue a new income certificate in the manner established in the draft Circular.

In addition, at least 90 (ninety) days in advance of the beginning of each cycle, the EAPC may offer income considering the planning of income cycles defined by the participant. The conversion into income programmed in the income cycle depends on effective adherence of the participant to the offer.

• Financial income: the EAPC may define financial income calculated based on quotas or a percentage of the PMBC balance provided that the conditions and parameters established in the plan’s technical note are observed.

Additionally, the balance of the PMBC must (i) be invested in FIE shares, or (ii) in the event of the beneficiary’s death before the end of the income, be placed at the immediate disposal of the beneficiary. The receipt must be in cash through total redemption, or for payment of income, depending on the participant.

The amount of payment will be defined by the total value of the FIE quota on the base date of obtaining the EAPC resources for payment of the benefit, observing the date established in the income certificate without monetary restatement.

The EAPC is also allowed to define financial income for a certain period based on a percentage of the ETTJ in compliance with the conditions and parameters established in the plan’s technical note. In this case (i) the monetary restatement index provided for in the plan and the ETTJ indexation index must be the same (ii) the possibility of deferring between the date of adherence to the income offer and the beginning of receipt of income must be foreseen (iii) the income determined at the time of joining the offer must be updated by the monetary restatement index provided for in the plan (iv) in the event of the beneficiary’s death before the end of the income the same rules described above apply.

The minimum term for payment of the income must be 5 (five) years either by offering an income, or by the parameters at the time of contracting the plan.

• Actuarial income based on the ETTJ: the EAPC is entitled to define actuarial income calculated based on a percentage of the ETTJ provided that the conditions and parameters established in the plan’s technical note are observed.
• Financial result: Payments of PEF balances must occur according to the frequency agreed in the plan’s regulation. But this cannot exceed 3 (three) consecutive calendar years, and no longer the 5 (five) previously provided for in SUSEP Circular n. 563/2017.
• Information to participants: The draft Circular includes the EAPC obligation to make available to participants, daily information advisable to reduce the risk of investments – especially the percentages in variable income – in the last 5 (five) years prior to the enjoyment of the benefit regarding the preservation of accumulated capital.

In addition, the EAPC may, without prior consent, make ‘amendments that have the purpose of including the possibility of investing in a new product/asset or carrying out certain operations imposed by the CMN, provided that the following are maintained: the classification of the fund according to ANBIMA criteria and CVM; the investment strategy; investment percentages by asset class; and the allocation percentages according to the risk of the assets.’

• Application proposal: The proposal must contain a forecast, if applicable, of the possibility of closing for contributions from the multi-fund plans.

The protocol that identifies the proposal received by the EAPC with the date and time of its receipt, must be provided to the proponent, or its legal representative. The date of the protocol, and the acceptance of the proposal by the EAPC must observe the stipulated deadline.

This deadline must be noted. The draft Resolution of Public Consultation no. 26/2022/SUSEP, establishes that the deadline for the EAPC to express its opinion on the proposal and must be included in the regulation. The draft Circular maintains the provisions of CNSP Resolution no. 349/2017 and SUSEP Circular No. 563/2017 in the sense that the absence of an EAPC statement on the proposal implies automatic acceptance within 15 (fifteen) days.

The provisions of the Draft Resolution and Circular therefore contradict each other regarding the deadline for EAPC’s manifestation regarding the application proposal.

• Participant certificate and plan regulation: The draft Circular introduces the need to include the participant certificate. It also introduces the plan regulation if the plan is multi-fund and foresees the possibility of closing for contributions from one of the funds by decision of the manager, or when the fund reached its capacity.
• Actuarial Technical Note: the EAPC may structure a single benefit payment or increase income linked to the contracted income as a result of death or serious illness.
• Automatic adherence: The Circular draft ratifies the provision made in the Resolution draft regarding the possibility of establishing an automatic adherence clause in the collective plan agreements instituted by the employer.

In this case, the draft Circular establishes that, at the time of automatic adherence, the certificate, regulation, and communication channel must be provided to obtain clarifications about the plan.

In addition, an initial period must be determined in which contributions to fund the plan will be made exclusively by the settlor without any burden on the employee or manager. Such period must be included in the contract and cannot be less than 60 (sixty) days, nor more than 120 (one hundred and twenty) days.

At least 30 (thirty) days before the end of the initial period, information must be sent to the participant that (i) if he/she does not cancel the plan by the end of the initial period, he/she will contribute to the cost of the plan with the employer’s co-payment (ii) deadline for changing the tax regime, which must be until the last business day of the month following the end of the initial period. If there is no manifestation by the participant, the tax regime of progressive IRPF rates will be applied.

If, however, during the initial period, there is a manifestation by the participant requesting the cancellation of the plan, the PMBaC constituted with the employer’s contributions will be made available to him/her after compliance with the vesting clauses.

Repealed rules

To sum up: the CNSP Resolution draft proposes the revocation of the following provisions: CNSP Resolution No. 349, of September 25, 2017; CNSP Resolution No. 78 of August 19, 2002; and CNSP Resolution No. 370, of December 13, 2018.

The draft Circular proposes the revocation of the following Circulars: SUSEP Circular No. 563, of December 24, 2017; SUSEP Circular No. 219, of December 13, 2002; and SUSEP Circular No. 585, of March 19, 2019.

Interested parties should send their comments and suggestions to the draft by 01/09/2022, by email to copep@susep.gov.br, using the specific standardized table available on the SUSEP website. Click here to access the site.

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