15. Post-employment Benefits
Certain companies in the Group have collective bargaining contracts which include defined benefit pension plans and other retirement benefits for substantially all of their employees. Additionally, the Group has defined benefit pension plans for certain eligible executives and employees. All pension benefits are based on salary and years of service rendered.
Under the provisions of the Mexican labor law, seniority premiums are payable based on salary and years of service to employees who resign or are terminated prior to reaching retirement age. Some companies in the Group have seniority premium benefits which are greater than the legal requirement. After retirement age employees are no longer eligible for seniority premiums.
Post-employment benefits are actuarially determined by using nominal assumptions and attributing the present value of all future expected benefits proportionately over each year from date of hire to age 65.
The Group used actuarial assumptions to determine the present value of defined benefit obligations, as follows:
|
|
|
2017 |
|
2016 |
|
|
Discount rate |
|
7.6 |
% |
6.7 |
% |
|
Salary scale |
|
5 |
% |
5 |
% |
|
Inflation rate |
|
3.5 |
% |
3.5 |
% |
Had the discount rate of 7.6% used by the Group in 2017 been decreased by 50 basis points, the impact on defined benefit obligation would have been an increase of Ps.2,552,709 as of December 31, 2017.
Had the discount rate of 6.7% used by the Group in 2016 been decreased by 50 basis points, the impact on defined benefit obligation would have been an increase of Ps.2,630,659 as of December 31, 2016.
The reconciliation between defined benefit obligations and post-employment benefit liability (asset) in the consolidated statements of financial position as of December 31, 2017 and 2016, is presented as follows:
|
|
Pensions |
|
Seniority |
|
2017 |
|
||||
|
Vested benefit obligations |
|
Ps. |
394,788 |
|
Ps. |
324,400 |
|
Ps. |
719,188 |
|
|
Unvested benefit obligations |
|
1,579,238 |
|
120,727 |
|
1,699,965 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Defined benefit obligations |
|
1,974,026 |
|
445,127 |
|
2,419,153 |
|
|||
|
Fair value of plan assets |
|
1,240,732 |
|
462,326 |
|
1,703,058 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Underfunded (overfunded) status of the plan assets |
|
733,294 |
|
(17,199 |
) |
716,095 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Post-employment benefit liability (asset) |
|
Ps. |
733,294 |
|
Ps. |
(17,199 |
) |
Ps. |
716,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions |
|
Seniority |
|
2016 |
|
|||
|
Vested benefit obligations |
|
Ps. |
332,024 |
|
Ps. |
321,391 |
|
Ps. |
653,415 |
|
|
Unvested benefit obligations |
|
1,734,605 |
|
126,215 |
|
1,860,820 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Defined benefit obligations |
|
2,066,629 |
|
447,606 |
|
2,514,235 |
|
|||
|
Fair value of plan assets |
|
1,381,896 |
|
611,866 |
|
1,993,762 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Underfunded (overfunded) status of the plan assets |
|
684,733 |
|
(164,260 |
) |
520,473 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Post-employment benefit liability (asset) |
|
Ps. |
684,733 |
|
Ps. |
(164,260 |
) |
Ps. |
520,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic pensions and seniority premiums cost for the years ended December 31, consisted of the following:
|
|
|
2017 |
|
2016 |
|
||
|
Service cost |
|
Ps. |
132,055 |
|
Ps. |
125,952 |
|
|
Interest cost |
|
149,100 |
|
144,465 |
|
||
|
Prior service cost for plan amendments |
|
2,405 |
|
(195,396 |
) |
||
|
Interest of assets |
|
(124,655 |
) |
(128,365 |
) |
||
|
|
|
|
|
|
|
||
|
Net cost |
|
Ps. |
158,905 |
|
Ps. |
(53,344 |
) |
|
|
|
|
|
|
|
|
|
The Group’s defined benefit obligations, plan assets, funded status and balances in the consolidated statements of financial position as of December 31, 2017 and 2016, associated with post-employment benefits are presented as follows:
|
|
|
Pensions |
|
Seniority |
|
2017 |
|
2016 |
|
|||||
|
Defined benefit obligations: |
|
|
|
|
|
|
|
|
|
|||||
|
Beginning of year |
|
Ps. |
2,066,629 |
|
Ps. |
447,606 |
|
Ps. |
2,514,235 |
|
Ps. |
2,471,725 |
|
|
|
Service cost |
|
83,246 |
|
48,809 |
|
132,055 |
|
125,952 |
|
|||||
|
Interest cost |
|
120,737 |
|
28,363 |
|
149,100 |
|
144,465 |
|
|||||
|
Benefits paid |
|
(307,645 |
) |
(261,845 |
) |
(569,490 |
) |
(244,560 |
) |
|||||
|
Remeasurement of post-employment benefit obligations |
|
11,059 |
|
179,789 |
|
190,848 |
|
212,049 |
|
|||||
|
Past service cost |
|
— |
|
2,405 |
|
2,405 |
|
(195,396 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
End of year |
|
1,974,026 |
|
445,127 |
|
2,419,153 |
|
2,514,235 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|||||
|
Beginning of year |
|
1,381,896 |
|
611,866 |
|
1,993,762 |
|
2,064,546 |
|
|||||
|
Remeasurement return on plan assets |
|
85,430 |
|
39,225 |
|
124,655 |
|
128,365 |
|
|||||
|
Remeasurement of post-employment benefit obligations |
|
(73,870 |
) |
(19,939 |
) |
(93,809 |
) |
(70,471 |
) |
|||||
|
Benefits paid |
|
(152,724 |
) |
(168,826 |
) |
(321,550 |
) |
(128,678 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
End of year |
|
1,240,732 |
|
462,326 |
|
1,703,058 |
|
1,993,762 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Unfunded (overfunded) status of the plan assets |
|
Ps. |
733,294 |
|
Ps. |
(17,199 |
) |
Ps. |
716,095 |
|
Ps. |
520,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in the net post-employment liability (asset) in the consolidated statements of financial position as of December 31, 2017 and 2016, are as follows:
|
|
Pensions |
|
Seniority |
|
2017 |
|
2016 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Beginning of net post-employment liability (asset) |
|
Ps. |
684,733 |
|
Ps. |
(164,260 |
) |
Ps. |
520,473 |
|
Ps. |
407,179 |
|
|
Net periodic cost |
|
118,553 |
|
40,352 |
|
158,905 |
|
(53,344 |
) |
||||
|
Remeasurement of post-employment benefits |
|
84,929 |
|
199,728 |
|
284,657 |
|
282,520 |
|
||||
|
Benefits paid |
|
(154,921 |
) |
(93,019 |
) |
(247,940 |
) |
(115,882 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Ending net post-employment liability (asset) |
|
Ps. |
733,294 |
|
Ps. |
(17,199 |
) |
Ps. |
716,095 |
|
Ps. |
520,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The post-employment benefits as of December 31, 2017 and 2016 and remeasurements adjustments for the years ended December 31, 2017 and 2016, are summarized as follows:
|
|
|
2017 |
|
2016 |
|
||
|
Pensions: |
|
|
|
|
|
||
|
Defined benefit obligations |
|
Ps. |
1,974,026 |
|
Ps. |
2,066,629 |
|
|
Plan assets |
|
1,240,732 |
|
1,381,896 |
|
||
|
Unfunded status of plans |
|
733,294 |
|
684,733 |
|
||
|
Remeasurements adjustments(1) |
|
84,929 |
|
181,161 |
|
||
|
|
|
|
|
|
|
||
|
Seniority premiums: |
|
|
|
|
|
||
|
Defined benefit obligations |
|
Ps. |
445,127 |
|
Ps. |
447,606 |
|
|
Plan assets |
|
462,326 |
|
611,866 |
|
||
|
Unfunded status of plans |
|
(17,199 |
) |
(164,260 |
) |
||
|
Remeasurements adjustments(1) |
|
199,728 |
|
101,359 |
|
||
|
(1) |
On defined benefit obligations and plan assets. |
Pensions and Seniority Premiums Plan Assets
The plan assets are invested according to specific investment guidelines determined by the technical committees of the pension plan and seniority premiums trusts and in accordance with actuarial computations of funding requirements. These investment guidelines require a minimum investment of 30% of the plan assets in fixed rate instruments, or mutual funds comprised of fixed rate instruments. The plan assets that are invested in mutual funds are all rated “AA” or “AAA” by at least one of the main rating agencies. These mutual funds vary in liquidity characteristics ranging from one day to one month. The investment goals of the plan assets are to preserve principal, diversify the portfolio, maintain a high degree of liquidity and credit quality, and deliver competitive returns subject to prevailing market conditions. Currently, the plan assets do not engage in the use of financial derivative instruments. The Group’s target allocation in the foreseeable future is to maintain approximately 20% in equity securities and 80% in fixed rate instruments.
The weighted average asset allocation by asset category as of December 31, 2017 and 2016, was as follows:
|
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Equity securities(1) |
|
29.6 |
% |
28.2 |
% |
|
Fixed rate instruments |
|
70.4 |
% |
71.8 |
% |
|
|
|
|
|
|
|
|
Total |
|
100.0 |
% |
100.0 |
% |
|
|
|
|
|
|
|
|
(1) |
Included within plan assets at December 31, 2017 and 2016, are shares of the Company held by the trust with a fair value of Ps.227,004 and Ps.265,599, respectively. |
The weighted average expected long-term rate of return of plan assets of 7.6% and 6.7% were used in determining net periodic pension cost in 2017 and 2016, respectively. The rate used reflected an estimate of long-term future returns for the plan assets. This estimate was primarily a function of the asset classes (equities versus fixed income) in which the plan assets were invested and the analysis of past performance of these asset classes over a long period of time.
This analysis included expected long-term inflation and the risk premiums associated with equity investments and fixed income investments.
The following table summarizes the Group’s plan assets measured at fair value on a recurring basis as of December 31, 2017 and 2016:
|
|
|
Balance as of |
|
Quoted Prices in |
|
Internal Models |
|
Internal Models |
|
||||
|
Common Stocks(1) |
|
Ps. |
227,004 |
|
Ps. |
227,004 |
|
Ps. |
— |
|
Ps. |
— |
|
|
Mutual funds (fixed rate instruments)(2) |
|
300,549 |
|
300,549 |
|
— |
|
— |
|
||||
|
Money market securities(3) |
|
912,626 |
|
912,626 |
|
— |
|
— |
|
||||
|
Other equity securities |
|
262,879 |
|
262,879 |
|
— |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total investment assets |
|
Ps. |
1,703,058 |
|
Ps. |
1,703,058 |
|
Ps. |
— |
|
Ps. |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of |
|
Quoted Prices in |
|
Internal Models |
|
Internal Models |
|
||||
|
Common Stocks(1) |
|
Ps. |
265,599 |
|
Ps. |
265,599 |
|
Ps. |
— |
|
Ps. |
— |
|
|
Mutual funds (fixed rate instruments)(2) |
|
434,323 |
|
434,323 |
|
— |
|
— |
|
||||
|
Money market securities(3) |
|
1,013,674 |
|
1,013,674 |
|
— |
|
— |
|
||||
|
Other equity securities |
|
280,166 |
|
280,166 |
|
— |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total investment assets |
|
Ps. |
1,993,762 |
|
Ps. |
1,993,762 |
|
Ps. |
— |
|
Ps. |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Common stocks are valued at the closing price reported on the active market on which the individual securities are traded. All common stock included in this line item relate to the Company’s CPOs. |
|
(2) |
Mutual funds consist of fixed rate instruments. These are valued at the net asset value provided by the administrator of the fund. |
|
(3) |
Money market securities consist of government debt securities, which are valued based on observable prices from the new issue market, benchmark quotes, secondary trading and dealer quotes. |
The Group did not make contributions to its plan assets in 2017 and 2016, and does not expect to make significant contributions to its plan assets in 2018.
The weighted average durations of the defined benefit plans as of December 31, 2017 and 2016, were as follows:
|
|
|
2017 |
|
2016 |
|
|
Seniority Premiums |
|
7.9 years |
|
14.5 years |
|
|
Pensions |
|
9.7 years |
|
12.3 years |
|