27. POST-RETIREMENT BENEFITS
a) Defined contribution
The Company and certain subsidiaries sponsor a defined contribution pension plan for their employees, in which participation is optional. The plan was managed by a Brazilian pension fund controlled by Banco do Brasil S.A., a related party, and is currently managed by EMBRAER PREV – Sociedade de Previdência Complementar. Contributions by the Company's to the plan the years ended December 31, 2010 and 2009 were US$22.8 and US$16.0, respectively.
b) Post-retirement healthcare benefits provided by the Parent company
The Company maintains a post employment healthcare plan for retired employees in accordance with established rules. The Company recorded a provision of US$9.6 million for this plan in profit or loss for the period, obtained by actuarial calculation taking the following main premises into account:
| |
% Annual percentage (in nominal terms) |
| Financial discount rate |
12 |
| Increase in medical expenses (reducing 0.5 % a year) |
11 to 5.5 |
| Inflation |
5.5 |
| General mortability table |
AT 1983 |
c) Post-retirement healthcare benefits provided by subsidiaries
EAH (a wholly-owned subsidiary of the Company) used to sponsor a pension and post-retirement medical care for the benefited employees and their dependents were accrued based on actuarial valuations.
The change in the post-retirement benefits for the years ended December 31, 2010 and 2009 is summarized as follows:
| |
12.31.2010 |
12.31.2009 |
| Benefits Obligations – beginning of the year |
4.2 |
4.1 |
| Interest cost |
0.3 |
0.2 |
| Actuarial loss |
0.3 |
0.1 |
| Benefits paid to participants |
(0.2) |
(0.2) |
| Benefits Obligations – end of year |
4.6 |
4.2 |
The changes in plan assets for the years ended, was as follows:
| |
12.31.2010 |
12.31.2009 |
01.01.2009 |
| Fair value of plan assets – beginning of the year |
1.4 |
1.4 |
1.9 |
| Actual return on plan assets |
0.1 |
0.2 |
(0.3) |
| Benefits paid to participants |
(0.2) |
(0.2) |
(0.2) |
| Fair value of plan assets – end of year |
1.3 |
1.4 |
1.4 |
The fair value of the plan assets is measured based on Level 1 inputs in accordance with the accounting standard for fair value measurements. There has been no change since the prior year in the valuation techniques and level of inputs. The net prepaid (accrued) benefit cost as of December 31, 2010, 2009 and January 1st, 2009 is included in other provisions and its components are summarized as follows:
| |
12.31.2010 |
12.31.2009 |
01.01.2009 |
| Accrued cost – Funded status |
(3.3) |
(2.9) |
(2.8) |
| |
(3.3) |
(2.9) |
(2.8) |
The principal actuarial assumptions utilized at December 31, 2010, 2009 and January 1st, 2009 was as follows:
| |
% |
| 12.31.2010 |
12.31.2009 |
| Average discount rate |
5.75 |
6.25 |
| Net periodic benefit cost |
5.25 |
5.75 |
| Expected return on plan assets |
7.75 |
7.75 |
| Rate of compensation increase |
5.50 |
5.50 |
The components of net periodic benefit cost were as follows:
| |
% |
| 12.31.2010 |
12.31.2009 |
| Service cost |
(0.1) |
- |
| Interest cost |
(0.2) |
(0.2) |
| Expected return on plan assets |
0.1 |
0.1 |
| Amortization of prior service cost |
0.2 |
0.2 |
| Amortization of loss |
(0.1) |
(0.1) |
| Net periodic benefit cost (benefit) |
(0.1) |
- |
| Net cost (benefit) |
(0.1) |
- |
The net benefit cost (benefit) is included in selling expenses and in administrative expenses.
The composition of plan assets at December 31, 2010, 2009 and January 1st, 2009 were as follows:
| |
12.31.2010 |
12.31.2009 |
01.01.2009 |
| Mutual funds invested primarily in stocks |
60% |
74% |
59% |
| Mutual funds invested primarily in bonds |
37% |
23% |
38% |
| Other – cash |
3% |
3% |
3% |
| |
100% |
100% |
100% |
The following benefit payments, which reflect expected future service, are expected to be paid to participants under the post-retirement medical plan:
| Year |
| 2011 |
0,3 |
| 2012 |
0,3 |
| 2013 |
0,3 |
| 2014 |
0,3 |
| 2015 |
0,3 |
| 2016 – 2020 |
1,4 |
| |
2,9 |
For measurement purposes, an annual rate of increase in the per capita cost of covered health and dental care benefits of 7%, 7% and 8%, was assumed for the year ended December 31, 2010, 2009 and January 1st, 2009, respectively. The rate is expected to decrease gradually to 5% by 2012. Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plan. A one percentage point change in assumed health care cost trend rates would not have material effects on the post-retirement benefit.
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