Designing lives

The media spotlight has focused on private pension plans in recent years. Shoring up
social security systems is a major concern in the modern world, including Brazil

Keenly aware of this, (Odeprev) has been offering Odebrecht Group members safe ways to save for the future for 11 years. One of the biggest challenges facing the Group’s private pension fund was developing a flexible pension plan – an outstanding product that meets the needs of thousands of participants. This required an in-depth knowledge of their needs, and the background of Paulo Tolentino, the officer Responsible for Odeprev, was a key part of that process. He has worked at Odebrecht for over 30 years and helped create Odeprev.

“In the 15 years or so that I’ve been involved with the supplementary pension market, I’ve never seen such a flexible company-sponsored plan. Each participant can ’design’ their own asset accumulation program. This reflects the way the Odebrecht Group expects its members to build up their careers: offering partnership and support but avoiding any kind of paternalism.”

Odebrecht Informa – How is Odeprev keeping pace with the debate on social security and pension issues and the changes taking place in that sector in Brazil?
Paulo Tolentino – Brazil’s basic social security system, which is provided by the government, is obligatory. For some time now, it has been showing signs that it needs a profound change. It operates on the system of distributing the cash in hand. Instead of having the capital needed to meet its present and future obligations, it uses each year’s revenue to pay out benefits. It spends more each year than it collects in revenues. This phenomenon is called a cash deficit, and it is growing on an annual basis. This gap is covered by the National Treasury at the expense of other sources of revenue, including taxes. The use of these financial resources for the wrong ends creates a deficit in other parts of the government budget, so, to prevent that, the social security system should be financed by contributions from its direct and indirect beneficiaries. We at Odeprev are aware of this phenomenon and are therefore offering Odebrecht members an independent and voluntary alternative that is not dependent on the outcome of any future reform of the government pension system. Without a doubt, it is a solid way of saving for the future; for that time in life when our natural capacity for production tends to decline or change direction – that is what we call the “post-career” phase in the language of the Odebrecht Entrepreneurial Technology (TEO).

OI – What sort of plans does Odeprev offer its participants? What distinguishes them from other private pension plans available on the market?
Paulo – This is where the main distinguishing feature of Odeprev comes in. We officially work for all participants with one plan, called the Odeprev Planned Income Plan. However, according to our bylaws, there are so many clauses that flexibilize it to individual tastes that we can safely say that each of our participants, whom we view as true clients, can “design” their own long-term asset accumulation program according to their own plans for their post-career lives.

“There are so many clauses in our bylaws that flexibilize the pension plan to individual tastes that we can safely say that each of our participants, whom we view as true clients, can ’design’ their own long-term asset accumulation programs”

OI – How did the plan develop? What has changed since Odeprev got started 11 years ago?
Paulo – Initially, our plan allowed participants to contribute up to 10% of their monthly earnings, and the company only contributed to the pension fund in the years when it made a profit. It was a fixed share that was distributed among all participants. The company also paid for the life insurance program, which it still does, but that is now directly managed by OCS (the Group’s captive insurance company). The maximum contribution has been expanded and can vary from 1% to 12%, if the participant so chooses. The companies are making significant contributions that are not dependent on their profits, and sporadic contributions have been encouraged and are well received by the participants.

OI – Have any other changes been made?
Paulo – The retirement age is now flexible, to suit individual tastes. In this regard, the companies’ contributions are designed so that participants who contribute at least 8% of their salaries during their active lives – about 35 years – can build up enough assets to receive an income that is about 60 to 70% of their last monthly salary for at least 20 years. To achieve this, financial and actuarial projections were done and a three-part system of company contributions was conceived: a “direct” contribution, corresponding to 10% of the participant’s contribution, a second one that we call “actuarial,” which varies according to the participant’s age, time worked at Odebrecht subsidiaries, and salary; and a third that we call “partnership.” This one corresponds to the annual profits of the company where the participant works. On average, in recent years, the company’s total contributions have reached about 70% of participants’ contributions. In some cases, that figure is as high as 90%.

OI – How many people have joined Odeprev, including active, inactive and retired participants?
Paulo – By December 2006, we had 4,550 people contributing to the fund, 80 receiving a monthly pension income and approximately 460 who neither contribute nor withdraw funds, but have a balance available that they prefer to entrust to us until they decide what to do with it.

OI – Is Odeprev’s investment policy conservative, moderate or aggressive?
Paulo – Our investment policy has been conservative by choice. However, for some time now, we have been considering the possibility of giving participants the option of investing some or all of their assets in a high risk/return portfolio. We know that before making a change like that we need to organize an informational campaign to ensure that participants have a clear idea of the degree of risk involved for their assets, in exchange for the chance of getting a higher return on their investment.

OI – How are risks managed?
Paulo – Since Odeprev’s inception, all investments in money and stock markets have been handled by firms that are specialized in asset management and are always associated with major domestic and international banks, some of which are more focused on fixed-income investments and others on variable income (equity). Furthermore, we have a specialized risk consultant on our team who analyzes our portfolio on a monthly basis to assess the planned and actual amounts of risk and returns on the basis of our investment policy and specific pension fund regulations.

OI – Could you give a detailed breakdown of the portfolio? For example, what percentages are fixed-income and equity investments?
Paulo – According to our investment policy, we invest a maximum of 10% in stocks or stock funds; a maximum of 10% in multi-market funds (these two types of investments total 15%), and at least 85% in equity.

OI – How does Odeprev communicate with its participants? What channels of communication does it use?
Paulo – Communication is our top priority. We use every means available, such as including our phone numbers and email and website addresses on our letterhead, statements, etc. We always give prompt, personal responses to requests for information and comments we receive from participants. We send all members of the sponsor companies at least three e-mail bulletins per month: one to inform them of the appreciation of the quota, another to announce the availability of individual statements on the website, and another to let them know that the report for the previous month has been completed and furnish a summary. On paper, we send participants quarterly statements, including observations and comparisons, and other official reports as required by law.

“Our investment policy has been conservative by choice. However, for some time now, we have been considering the possibility of giving participants the option of investing some or all of their assets in a high risk/return portfolio”

OI – Odeprev has representatives at all the Group’s subsidiaries. How is their work coordinated among themselves and overall?
Paulo – Each officer responsible for Organization and People at each of Odeprev’s sponsor companies is, among many other responsibilities, “credentialed” to represent Odeprev. They are our true communication multipliers and we view them as Odeprev’s “ambassadors” wherever our participants are working or might work in the future. When Odeprev starts working with a new subsidiary or the officers responsible for the pension fund spot opportunities to organize campaigns to get more members to sign up, it is these representatives who mobilize us and lead the campaigns at their workplaces. Every change we make in our regulations and practices is tested in advance, and once they are made, they are discussed during our periodic meetings. After all, we depend on these ambassadors to represent us in over 120 different workplaces in Brazil and other countries, with consistently high-quality communication. Keeping in touch with them through intense, good-quality contacts is part of our day-to-day routine.

OI – Who should members talk to in order to set up their plan?
Paulo – The Odeprev representative at their workplace can play that role. However, we Odeprev team members are always very happy to help anyone who seeks us out.

OI – Does Odeprev organize systematic campaigns to encourage Group members to join the pension plan?
Paulo – All of the general emails addressed to participants are also sent to other members to keep them in the loop. We also conduct periodic surveys of people who have not yet joined the plan and invite them to sign up. Our campaigns are focused on a specific target group. That way we can concentrate the use of resources.

“Each officer responsible for Organization and People at each of Odeprev’s sponsor companies is, among many other responsibilities, ’credentialed’ to represent Odeprev”

OI – What are Odeprev’s total assets, and how has its profitability developed?
Paulo – In December, we reached a total of BRL 306 million in reserve assets administered. I am personally a bit leery of calling them “Odeprev’s assets” because the fact is that they are the sum total of the personal resources of its participants, which they have entrusted to us to administer. As for profitability, in view of the conservative risk involved, it is following the Selic (Special Settlement and Custody System) rate of return (close to the CDI, or money market interest), evolving almost on a par with it, with a modestly positive difference in long-term profitability. In 2006, our investments yielded a net gain of 16.35%.

OI – Can you describe Odeprev’s growth strategy and goals?
Paulo – As an Odebrecht Group support entity that focuses on people whose post-career plans are based in Brazil, our strategy is to keep pace with the development and growth of these people and their needs in order to provide them safe and reliable private social-security coverage. Naturally, as Odebrecht grows and the average age and social-security awareness of its members matures, Odeprev will raise the bar in terms of growth standards, both quantitatively and, above all, qualitatively. In the past 11 years, we have built up considerable experience in this area, and have proven ourselves capable of helping the line officers responsible for the Group’s businesses to select the most suitable forms of similar protection for people working outside Brazil with a focus on their post-career lives in other countries, while respecting their laws and cultures.

“As an Odebrecht Group support entity that focuses on people whose post-career plans are based in Brazil, our strategy is to keep pace with the development
and growth of these people and their needs”

OI – How has your experience at Odebrecht helped you helm Odeprev?
Paulo – I joined the Group in 1975, and started out working on administrative and finance programs at construction sites. After that, I worked as a member of the Planning and Development Director’s team at Odebrecht S.A. when it was created and became the holding company for the Odebrecht Group. Then I had the opportunity of working at CPC (Companhia Petroquímica Camaçari), which was later consolidated under what is now Braskem. For briefer periods, I worked in businesses that Odebrecht has since divested, like mining and pulp manufacturing. It has been a tremendous pleasure to have the opportunity to learn so much and develop such a varied background. It makes me feel better qualified to interpret the needs of fellow Odebrecht members, making Odeprev flexible enough to suit different backgrounds, environments and workplaces.

OI – Which of the principles of the Odebrecht Entrepreneurial Technology are applied in Odeprev’s day-to-day operations?
Paulo – The basic concept we have sought to follow when designing and operating the plan is having confidence in people and their ability to produce results through work. It is basically through the fruits of their work that each individual will use Odeprev to build up their assets as the basis for the future income they’ll receive during their post-career lives. This sense of confidence and trust is also reflected by the certainty that each and every one of us is capable of choosing our plans for our personal lives, careers and post-career phase, and deciding when to go one from one stage to the next. We also decide our retirement age and plan how much income we will need to maintain our standard of living. Odeprev reflects this through full disclosure and transparency about the plan, providing up-to-date information and using a future income simulator that gives each participant a clear idea of how his or her assets and income will evolve. Another point of convergence with TEO is the emphasis on direct communication between people as the best way of ensuring that we share the same knowledge and aims. Furthermore, we must not forget that we are a “support entity” in the Odebrecht Group’s decentralized organizational macrostructure. Therefore, we adapt and develop our methods and practices to ensure that they are relevant to the entire Group. We outsource our operations as much as possible, working directly with a team of five highly motivated people who satisfy each client’s needs. That is a very small number for an organization of this size.

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