Brazil: New Rules For Investments Of Brazilian Pension Plans

Brazilian Pension Plans are occupational pension plans, organized as closed entities, used to finance private pension benefits, structured in the form of pension funds and sponsored by corporations. This type of Pension Plan in Portuguese is denominated "Entidade Fechada de Previdência Complementar- EFPC" (Closed Entity of Complementary Security). They can offer defined contribution (DC) pension benefits or defined benefit (BF) type pension benefits. These Pension Plans are not-for-profit organizations by definition and are ruled by a special Government Agency, the Secretariat of Complementary Security ("Secretaria da Previdência Complementar – SPC") under the Ministry of Social Security.

The rules, thresholds and restrictions applied to the investment of the proceeds of these Pension Plans are issued, amended and consolidated from time to time by the Brazilian Monetary Council (Conselho Monetário Nacional – CMN).

On September 24, 2009 the CMN approved new regulations which are attached to CMN Resolution 3792, of the same date, authorizing the Pension Plans to invest more aggressively in variable income instruments, structured investments and investments abroad. The main provisions are commented herein.

According to these new regulations, the investments are classified in the following categories: (i) fixed income; (ii) variable income; (iii) structured investments; (iv) offshore investments (i.e. investments abroad/outside Brazil); (v) real estate; and (vi) transactions with participants.

Fixed income investments are: Federal, State or Municipal government bonds; fixed income instruments and securities issued or with the co-obligation guarantee of financial institutions or similar entities duly authorized to operate by the Central Bank of Brazil (Banco Central do Brasil – Bacen); saving deposits at entities duly authorized to operate by Bacen; fixed income instruments and securities issued by publicly-held corporations, including Export Credit Notes (Nota de Crédito à Exportação – NTC) and Export Credit Certificates (Cédula de Crédito à Exportação – CCE); bonds of multilateral agencies issued in Brazil; receivables certificates issued by securitization companies; and units (cotas, also referred to in Portuguese as quotas) of credit rights investment funds (fundo de investimento em direitos creditórios – FIDC) or of credit funds which invest in such credit rights investment funds (fundo de investimento em cotas de fundos de investimento em direitos creditórios – FICFIDC).

Instruments or securities of other issuers which are not listed in the previous paragraph may only be acquired by Pension Plans if the following conditions are met: (a) there is a co-obligation of an entity duly authorized to operate by Bacen; (b) there is an insurance coverage that does not exclude acts of God or force majeure events and secures payment of the indemnity no longer than 15 days after the maturity date; (c) there is also a guarantee in rem in an amount equivalent at least to the agreed value of the debt, in the case of a real estate credit certificate (cédula de crédito imobiliário); or (d) if the securities are issued by a certified warehouse, in the case of agribusiness warrants (Warrant Agropecuário – WA).

Variable income investments are: shares issued by publicly-held corporations and their corresponding subscription bonuses, subscription receipts and certificates of deposits; units of index funds based on a basket of shares of publicly-held corporations traded at the stock exchange; instruments and securities issued by special purpose companies (Sociedade de Propósito Específico – SPE); debentures with profit participation rights; potential additional construction certificates (Certificado de Potencial Adicional de Construção – CEPAC), with the onerous grant and the transfer of the right to build; Certified Emission Reductions certificates or CERs (Reduções Certificadas de Emissão – RCE) or carbon credits of the voluntary market, traded at the stock, commodities and futures exchange or organized over-the-counter market, or registered in a registry, custody or financial liquidation clearing and settlement system duly authorized by Bacen or CVM, as the case may be; and gold certificates negotiated at an accepted standard at the commodities and futures exchange.

The SPE must be formed to finance new projects, for a fixed term of duration, and shall have its activities restricted to those provided for in the corporate purpose, as established and defined at the time of the incorporation.

Structured investments are: units of private equity funds (fundo de investimento em participações - FIP) and of funds which invest in units of private equity funds; units of emerging companies investment funds (fundo de investimento em empresas emergentes- FIEE); units of real estate investment funds; and units of investment funds and of funds which invest in such investment funds classified as multimarket (multimercado). The regulations of these investment funds must comply with the CVM rules, and obey the limits, requirements and conditions established for non-qualified investors1.

Offshore investments are: assets issued abroad which belong to portfolios of funds incorporated in Brazil in accordance with the CVM regulations; units of investment funds and of funds which invest in investment funds classified as foreign indebtedness (dívida externa); units of funds of index abroad trade at the Brazilian stock exchange; certificates of deposit of securities linked to shares issued by closely-held corporations or similar entities with head office abroad, the so-called Brazilian Depositary Receipts (BDR), in accordance with the CVM regulations; and shares issued by foreign companies headquartered in the countries located at the MERCOSUR region (Mercado Comum do Sul – MERCOSUL).

Real estate investments are: development projects (empreendimento imobiliário); real estate for lease or rental; and any other types of real estate.

Transactions with participants are the cash loans granted or real estate finance made with financial resources of the pension benefits by the Pension Plan to its own participants and their beneficiaries, as well as the securities linked to receivables originated directly or indirectly of these transactions. The agreements shall contain a clause of savings reserve deposit (consignação da reserve de poupança) and the real estate finance contracts shall have clauses of trust receipt (alienação fiduciária) of the financed asset of contracting insurance policy with coverage in cases of death or permanent disability of the borrower and physical damage of the real estate.

The current thresholds for allocation of the investments by the Pension Plans in each of the different above-mentioned categories, in relation to each plan, are set forth in the subsequent paragraphs.

For fixed income investments:

  1. up to 100% in Federal government bonds;
  2. up to 80% in the aggregated assets classified as fixed income, other than Federal government bonds or any of the modalities listed in (c) below;
  3. up to 20% of each of the following modalities: banking credit bonds (cédula de crédito bancário – CCB), banking credit certificates (certificado de cédula de crédito bancário – CCCB) and promissory notes (nota promissória – NP); NCE and CCE; units of FIDC and FICFIDC; real estate receivables certificates (certificado de recebíveis imobiliários – CRI); real estate credit certificates (cédula de crédito imobiliário – CCI); rural product certificates (cédula de produto rural – CPR), agribusiness credit rights certificates (certificado de direitos creditórios do agronegócio – CDCA) agribusiness receivables certificates (certificado de recebíveis do agronegócio – CRA) and WPA; or the aggregated other modalities of instruments and securities issued by publicly-held corporations other than debentures, or by the securitization companies.

For variable income investments, the maximum limit is 60% in shares issued by publicly-held corporations, provided, however, that this ceiling is maintained or decreased as follows:

  1. up to 60% when the shares are listed in the New Market (Novo Mercado) of BM&FBovespa;
  2. up to 60% when the shares are listed in Level 2 (Nível 2) of BM&FBovespa;
  3. up to 50% when the shares are listed in Bovespa Plus (Bovespa Mais) of BM&FBovespa;
  4. up to 45% when the shares are listed in Level 1 (Nível 1) of BM&FBovespa;
  5. up to 35% in the case of shares which are not listed in (a) to (d) above, as well as in the case of units of index funds based on shares traded at the stock exchange;
  6. up to 20% in instruments and securities issued by SPE; and
  7. up to 3% in any other type of variable income investment.

For structured investments, the maximum limit is 20%, but it is reduced to 10%, in the case of units of real estate funds, and the same percentage (10%) is applicable to units of investment funds which in turn invest in units of multimarket funds.

For offshore investments, the limit is 10%.

For real estate investments, the limit is 8%.

For transactions with participants, the limit is 15%.

There are also allocation limits per issuer, in relation to each plan administrated by the Pension Plan: (i) 100%, if the issuer is the National Treasury; (ii) 20%, if the issuer is a financial institution duly authorized to operate by Bacen, including saving deposits and co-obligations of the responsibility of such financial institution; (iii) 10%, if the issuer is any State or Municipal Treasury, a publicly-held corporation registered with CVM or any similar entity, a multilateral agency, a securitization company, a sponsor of the pension benefits, a FIDC or FICFIDC, an index fund based on a basket of shares of publicly-held corporations, an SPE or an investment fund or a fund that invests in units of a structured fund; and (iv) 5%, if the issuer is not included in items (ii) and (iii). In this regard, all the members of the same economic or financial group or the companies controlled by one State or Municipal Treasury are considered as "one single issuer". However, equity investments made in companies formed with the exclusive purpose of participating directly or indirectly in the capital stock of publicly-held corporations are not computed to calculate these limits. If receivables certificates are issued by the securitization company subject to the fiduciary system (regime fiduciário), each segregated asset is deemed to be one issuer.

The concentration limit per issuer, considering the aggregate sum of the resources administrated by the Pension Plan, is 20% of: (i) the total capital of the same publicly-held corporation or of the same SPE; (ii) of the voting capital of the same publicly-held corporation; (iii) of the net worth value of the same financial institution duly authorized by Bacen; (iv) of the net worth value of the same index fund based on a basket of shares of publicly-held corporations, the same structured fund2, the same fund incorporated in Brazil with a portfolio of offshore investments or the same foreign index fund traded at the stock exchange in Brazil; and (v) of the segregated asset formed in the issuance of receivables certificates subject to the fiduciary system. For the purposes of items (i) and (ii) it is necessary to consider additionally the subscription bonuses, subscription receipts and debentures which may be converted into shares of one single company. To determine compliance with the limit, it is paramount to observe the final investments of the Pension Plan3.

The concentration limit per investment, also considering the aggregate sum of the resources administrated by the Pension Plan, is 25% of: (i) the same series of instruments or securities; (ii) of the same class or same series of units of FIDC; or (iii) of the same development project. However, shares, subscription bonuses, subscription receipts, receivables certificates subject to the fiduciary system and debentures issued by an SPE are excluded from this limit.

Pension Plans can also enter into transactions with derivatives, provided that the following conditions are jointly complied with: (i) previous evaluation of the involved risks; (ii) existence of internal control systems adequate to such operations; (iii) registry of the transaction or trading at the stock or commodities and futures exchange; (iv) participation of a clearing house and service providers acting as the central counterparty responsible for guaranteeing the clearing and settlement of the transaction; (v) a margin deposit limited to 15% of the position in Federal government bonds, instruments and securities issued by financial institution(s) duly authorized to operate by Bacen and Bovespa Index shares of the portfolio of each plan or investment fund; and (vi) the total value of the paid option premiums shall not exceed 5% of the position in the same investments set forth in the previous item (v).

Now that Brazil is facing a scenario of low inflation and reduction of the basic interest rates, these regulations are expected to give to the Pension Plans the possibility and opportunity to search for more attractive investments, which require the assumption of more risks but in exchange will enable them to obtain and offer to their participants a better financial return.


1. According to article 109 of CVM Instruction No. 409, of August 18, 2004, as amended, "qualified investors" are: (i) financial institutions; (ii) insurance companies and capitalization societies; (iii) pension plans and open entities of complimentary security; (iv) individuals or legal entities that hold financial investments in an amount superior to R$ 300 thousand and that additionally attest in writing their qualified investor condition; (v) investment funds directed exclusively to qualified investors; (vi) portfolio administrators and securities consultants authorized by CVM in relation to their own monies; and (vii) own social security regimes instated by the Federal Government, by the States, by the Federal District or by Municipalities. All the other investors are deemed to be non-qualified investors.

2. This limit is not applicable to funds which invest in units of investment funds which already comply with such limit, nor to real estate funds with a portfolio formed exclusively by projects already completed and with license to inhabit (certidão de habite-se).

3. Equity investments made in companies formed with the exclusive purpose of participating directly or indirectly in the capital stock of publicly-held corporations are not computed to calculate this limit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
Adriana Maria Gödel Stuber
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