| (20) | Employee benefits |
The Company has a defined benefit plan which requires contributions to be made to separately administered funds. The Company has also agreed to provide post–employment benefits to its retirees that consist primarily of medical benefit plans as well as certain other benefits, including scholarships, tickets, seniority and retirement. These other benefits are unfunded.
Accounting
for pensions and other post–employment benefits involves estimating the benefit cost to be provided well into the future
and attributing that cost over the time period in which each employee works for the Company. This requires the use of extensive
estimates and assumptions about inflation, investment returns, mortality rates, turnover rates, medical cost trends and discount
rates, among other information. The Company has two distinct pension plans, one for pilots and the other for ground personnel.
Both plans have been closed to new participants, and therefore there are a fixed number of beneficiaries covered under these plans
as of December 31, 2017 and 2016.
| December 31, 2017 |
December 31, 2016 |
|||||||
| Fair value of plan assets | $ | (189,697 | ) | $ | (165,740 | ) | ||
| Present value of the obligation | 364,043 | 320,890 | ||||||
| Total employee benefit liability | $ | 174,346 | $ | 155,150 | ||||
The following table summarizes the components of net benefit expense recognized in the Consolidated Statement of Comprehensive Income and the funded status and amounts recognized in the Consolidated Statement of Financial Position for the respective plans:
Net benefit expense – year ended December 31, 2017 (recognized in Salaries, wages and benefits) |
Defined benefit plan |
Other benefits | ||||||
| Current service cost | $ | 1,207 | $ | 1.982 | ||||
| Interest cost on net benefit obligation | 18,490 | 3,984 | ||||||
| Total employee benefit liability | $ | 19,697 | $ | 5,966 | ||||
Net benefit expense – year ended December 31, 2016 (recognized in Salaries, wages and benefits) |
Defined benefit plan |
Other benefits | ||||||
| Current service cost | $ | 566 | $ | 2,241 | ||||
| Interest cost on net benefit obligation | 17,484 | 5,275 | ||||||
| Total employee benefit liability | $ | 18,050 | $ | 7,516 | ||||
Changes
in the present value of defined benefit obligation as of December 31, 2017 are as follows:
| Defined benefit Obligation |
Other benefits | Total | ||||||||||
| Benefit obligation as of December 31, 2016 | $ | 265,928 | $ | 54,962 | $ | 320,890 | ||||||
| Period cost | 19,697 | 5,966 | 25,663 | |||||||||
| Benefits paid by employer | (20,058 | ) | (2,398 | ) | (22,456 | ) | ||||||
| Actuarial (gains) losses recognized in other comprehensive income | 34,848 | 4,572 | 39,420 | |||||||||
| Exchange differences | (1,215 | ) | — | (1,215 | ) | |||||||
| Others | 1,573 | 168 | 1,741 | |||||||||
| Benefit obligation as of December 31, 2017 | 300,773 | 63,270 | 364,043 | |||||||||
| Fair value of plan assets | (189,697 | ) | — | (189,697 | ) | |||||||
| Total employee benefit liability | $ | 111,076 | $ | 63,270 | $ | 174,346 | ||||||
| Current | $ | 34,141 | $ | 4,565 | $ | 38,706 | ||||||
| Non–current | 76,935 | 58,705 | 135,640 | |||||||||
| Total | $ | 111,076 | $ | 63,270 | $ | 174,346 | ||||||
Changes in the fair value of plan assets are as follows:
| Defined benefit plan |
||||
| Fair value of assets at December 31, 2016 | $ | 165,740 | ||
| Interest income on plan assets | 12,615 | |||
| Return on plan assets greater/(less) than discount | 6,568 | |||
| Employer contributions | 23,522 | |||
| Benefits paid | (17,460 | ) | ||
| Investment expenses paid | (1,896 | ) | ||
| Exchange differences | 608 | |||
| Fair value of plan assets at December 31, 2017 | $ | 189,697 | ||
Changes
in the present value of defined benefit obligation as of December 31, 2016 are as follows:
| Defined benefit Obligation |
Other benefits | Total | ||||||||||
| Benefit obligation as of December 31, 2015 | $ | 232,749 | $ | 68,364 | $ | 301,113 | ||||||
| Period cost | 18,050 | 7,516 | 25,566 | |||||||||
| Benefits paid by employer | (16,884 | ) | (2,546 | ) | (19,430 | ) | ||||||
| Actuarial (gains) losses recognized in other comprehensive income | 17,918 | (20,301 | ) | (2,383 | ) | |||||||
| Exchange differences | 14,095 | 1,929 | 16,024 | |||||||||
| Benefit obligation as of December 31, 2016 | 265,928 | 54,962 | 320,890 | |||||||||
| Fair value of plan assets | (165,740 | ) | — | (165,740 | ) | |||||||
| Total employee benefit liability | $ | 100,188 | $ | 54,962 | $ | 155,150 | ||||||
| Current | $ | 35,272 | $ | 4,309 | $ | 39,581 | ||||||
| Non–current | 64,916 | 50,653 | 115,569 | |||||||||
| Total | $ | 100,188 | $ | 54,962 | $ | 155,150 | ||||||
Changes in the fair value of plan assets are as follows:
| Defined benefit plan |
||||
| Fair value of assets at December 31, 2015 | $ | 140,517 | ||
| Interest income on plan assets | 11,268 | |||
| Return on plan assets greater/(less) than discount | 2,657 | |||
| Employer contributions | 21,597 | |||
| Benefits paid | (16,069 | ) | ||
| Adjustment in plan asset performance | (946 | ) | ||
| Exchange differences | 6,716 | |||
| Fair value of assets at December 31, 2016 | $ | 165,740 | ||
For
the year ended December 31, 2017 and 2016, actuarial gains of $33,385 and $4,094 respectively were recognized in other comprehensive
income.
| December 31, 2017 |
December 31, 2016 |
December 31, 2015 |
||||||||||
| Actuarial gains recognized in other comprehensive income | $ | (38,205 | ) | $ | 2,383 | $ | 5,019 | |||||
| Return on plan assets adjustment | 4,672 | 1,711 | (4,478 | ) | ||||||||
| Adjustments for translation | 148 | — | — | |||||||||
| Amount recognized in other comprehensive income | $ | (33,385 | ) | $ | 4,094 | $ | 541 | |||||
The Company expects to contribute $39,581 to its defined benefit plan and other benefits in 2018.
Plan assets correspond to net funds transferred to Caxdac, which is responsible for the administration of the pilots’ pension plan. The assets held by Caxdac are segregated into separate accounts corresponding to each contributing Company. Additionally the plan assets included a portion relating to pension plan of ground personnel.
The principal assumptions (inflation–adjusted) that are used in determining pension and post–employment medical benefit obligations for the Company’s plans are shown below:
| December 31, 2017 |
December 31, 2016 |
|||||||
| Discount rate on all plans | 6.75 | % | 7.50 | % | ||||
| Price inflation | 3.09 | % | 3.00 | % | ||||
| Future salary increase | ||||||||
| Pilots | 4.00 | % | 4.00 | % | ||||
| Cabin crew | 4.00 | % | 4.00 | % | ||||
| Other employees | 4.00 | % | 4.00 | % | ||||
| Future pension increase | 3.18 | % | 3.00 | % | ||||
| Healthcare cost increase | 4.50 | % | 4.50 | % | ||||
| Ticket cost increase | 3.00 | % | 3.00 | % | ||||
| Education cost increase | 3.00 | % | 3.00 | % | ||||
The
major categories of plan assets as a percentage of the fair value of the total plan assets are as follows:
| December 31, 2017 |
December 31, 2016 |
|||||||
| Equity securities | 22.04 | % | 24.82 | % | ||||
| Debt securities | 33.73 | % | 15.95 | % | ||||
| Domestic Corporate bonds | 35.30 | % | 28.31 | % | ||||
| Foreign goverment/corporate bonds | 6.61 | % | 18.54 | % | ||||
| Other | 2.30 | % | 12.37 | % | ||||
Equity securities comprise investments in Colombian entities with a credit rating between AAA and BBB. The debt securities include investments in bonds of the Colombian government, in banks and in Colombian public and private entities. Domestic corporate bonds include bonds issued by private companies and Foreign Government Corporate Bonds include Yankes bonds and bonds issued by financial and private entities abroad.
Pension plans for ground personnel
In 2008, the Company entered into a commutation agreement with Compañía Aseguradora de Vida Colseguros S.A. (Insurance Company) in connection with the pension liability of two of the Company’s pension plans.
As of December 31, 2017 and 2016, there are 12 and 18 beneficiaries, respectively, which have not been commuted. Consequently, the Company estimates through an actuarial calculation the pension liability of these beneficiaries.
Pension plans for flight personnel
Due
to local regulations for two of the Company’s pension plans, the Company has to make contributions to a fund which is externally
administrated. The amount of the annual contribution is based on the following:
| • | Basic contribution for the year: equal to the expected annual pension payments. |
| • | Additional contribution for the year (if necessary): equal to the necessary amount to match the actuarial liability under local accounting rules and the plan assets as of year 2023 (determined with an actuarial calculation). |
Sensitivity Analysis
The
calculation of the defined benefit obligation is sensitive to the aforementioned assumptions. The following table summarizes how
the impact on the defined benefit obligation at the end of the reporting period would have increased (decreased) as a result of
a change in the respective assumptions:
| 0.5% increase | 0.5% decrease | |||||||
| Discount rate | (41,091 | ) | 45,309 | |||||
| Pension increase | 8,743 | 5,180 | ||||||
| Mortality table | 5,903 | — | ||||||