Brazil: New automatic enrollment and taxation options in supplemental retirement plans

Employer Action Code: Act

New pension regulations in Brazil allow — but do not require — employer sponsors of supplemental retirement plans administered by so-called closed pension entities (similar to trusteed funds in the U.S. and U.K.) to establish procedures for automatically enrolling new employees into the plan. Separate new tax legislation gives participants in supplemental retirement plans more flexibility in selecting the tax treatment of their retirement benefits.

Key details

Resolution CNPC 60/24, approved on February 7, 2024, by the National Complementary Pension Council (CNPC), states that employers may elect to automatically enroll new employees into the company’s closed retirement plan upon starting work, provided employer contributions equal at least 20% of the value of employee contributions. The resolution is effective March 1, 2024; if the employer elects automatic enrollment, plan rules must be amended accordingly.

The resolution also states that:

• Automatically registered participants must receive the registration certificate, entity statute and benefit plan regulations from the pension entity within 60 days of enrollment.
• Employees who have been automatically enrolled must be notified about their right to withdraw from the plan; withdrawal is possible within 120 days of the date of enrollment. In case of withdrawal, the amount contributed between the date of automatic enrollment and the date of withdrawal must be returned to the employee within 60 days. The employer’s contributions revert to the employer in the same period.
• Participants, whether enrolled conventionally (i.e., on an opt-in basis) or automatically, can request to opt out of participation in the supplemental retirement plan at a later date, prior to retirement.

Amendments to law No. 11,053/2004, enacted on January 11, 2024, give participants in supplemental account-based pension plans more flexibility by allowing them to select one of two options for the treatment of their retirement benefits for tax purposes up to the date of first receipt of the benefits. Under the previous rules, participants had to make a choice at the time of enrollment (by the last business day of the month following entry in the plan). The change applies to accumulated entitlements in plans administered by private pension funds, insurance companies or individual retirement funds (Brazilian FAPIs).

More specifically:

• Participants can choose between a regressive tax regime with rates that vary by the duration of time that investments were held in the plan and a progressive tax regime where the rate is determined by the amount of earnings received, aggregated with other types of income.
• Participants who already made an election at enrollment under the old law may change that prior election, but otherwise the selection of tax treatment is irreversible once made.
• If participants have not expressed their preference, the choice can be made by their dependents, beneficiaries or legal representatives on their behalf.

Employer implications

Around half of companies surveyed by WTW provide supplemental retirement benefits to employees. Companies with retirement plans set up via closed entities (54% of surveyed plans) should review the new regulations and consider whether they want to amend their plan rules to allow for automatic enrollment. While the new legislation concerning the choice of tax regime for retirement benefits does not impact employers directly, the change may result in higher after-tax pension benefits for some participants, and companies should ensure their employees are informed about the new rule.