Mexican Oil Producer Switches to DC

Petróleos Mexicanos (Pemex), Mexico’s state-owned oil company, is to close its defined benefit pension to new employees as it grapples with $90 billion of liabilities.

The company announced late last week it had struck a deal with unions to establish a defined contribution (DC) fund for new employees and raise its retirement age to 60.

It marks a significant step in Mexico’s shift away from defined benefit (DB) pensions, as Pemex is one of the country’s biggest employers.

Credit rating agency Moody’s said the move could pave the way for other state-owned entities and local authority pensions to bring in DC pensions. DC providers, known in Mexico as afores, are expected to capture 1 billion pesos ($60 million) a year in the coming years as a result of the shift, Moody’s said.

“These measures will enable us to achieve an important reduction of the company’s pension liabilities,” Pemex said in a statement.

The company said the savings from the agreement could go straight to Mexico’s Ministry of Finance, although Pemex’s actuaries have yet to calculate how much would be saved from closing the DB fund.

The retirement age for Pemex employees was raised from 55 to 60 as part of the arrangement, the first time this has been adjusted since the 1940s.

“These changes are part of the steps taken to update public sector pension schemes in Mexico, which have yielded positive results for those institutions that have implemented them,” Pemex said.

Mexico’s government previously considered taking responsibility for $53 billion of liabilities from Pemex and electricity provider CFE to free up capital for investment.

Related: Where Is the Most Difficult Place in the World to Be a CIO?