The Brazilian Pension Funds Authority (PREVIC) set out, in a Valor Econômico article by senior officials, a proposal to overhaul Brazil’s pension fund solvency framework, with the final decision to be taken by the National Supplementary Pension Council (CNPC) as it starts discussions in March. The proposal would update the current rules, which the authors argue rely mainly on liability duration, and responds to recurring annual deficits that can trigger repeated deficit funding plans and very large extraordinary contributions for members and sponsors. It introduces a solvency framework based on an internationally used Solvency Index (IS) with a target, floor and ceiling and symmetric tolerance bands to determine when deficits must be funded or surpluses distributed. The approach would distinguish structural from cyclical deficits, including a three-year tolerance period to accommodate temporary economic, financial, demographic and actuarial volatility and avoid potentially unnecessary deficit funding plans. Other elements flagged for change include revisiting the off-balance sheet “pricing adjustment” mechanism linked to differences between actuarial rates and yields on certain inflation-linked federal bonds, creating a model to set minimum and maximum actuarial interest rates based on portfolio composition, the next five years’ investment policy and macroeconomic scenarios, and setting a 35% cap on the combined normal and extraordinary contributions as a share of salaries or benefits. CNPC is expected to begin discussing the proposal at its first meeting of the year in March before deliberating on the final text.

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