Banco do Brasil Faces Pension Payments as Fund Reserves Dwindle

Banco do Brasil SA, Latin America’s largest bank by assets, may have to resume contributing to worker pensions after a six-year hiatus as inflation and falling investment returns erode retiree-fund reserve levels.

Reserves in the lender’s pension fund, known as Previ, have fallen to about 25 percent of projected payments, Previ insurance director Marcel Barros said in an interview. Brazilian law requires pension funds to keep reserves of at least 25 percent. In 2007, as an investment surplus swelled, Previ allowed the bank to stop making contributions on behalf of workers hired in 1997 or before, and special payouts were made to the bank and pensioners starting in 2010.

There is a “big chance” that Previ will halt its special payouts in early 2014 and that contributions will resume for the pre-1998 workers, Barros said in a phone interview from Rio de Janeiro, where the fund is based. “We must obey the rules.” Previ is managed by an independent board.

A press official for the Brasilia-based bank declined to comment. Banco do Brasil shares rose 2.1 percent to 28.35 reais at the close in Sao Paulo.

Previ will know by December when the benefits will be cut, according to Barros. The special payouts were scheduled to last through 2014.

Previ’s special payouts since 2010 were based on an inflation projection of 4.5 percent, Barros said. Brazil’s 12-month consumer inflation accelerated to 5.86 percent in September from 5.28 percent a year earlier.

The fund has also suffered from a drop in stock dividends from its holdings, he said.

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