23	Employee benefits

Expense for employee benefits

The expenses recognized for employee benefits are:

	2020		2019		2018
Salaries, benefits and inherent	$	317,776	$	320,827	$	347,403
Pensions – defined benefit plans		23,623		22,873		21,211
	$	341,399	$	343,700	$	368,614

The long-term liabilities recognized for pensions and other employee remunerations in the consolidated statement of financial position are comprised as follows:

	2020		2019
Long-term:
Pensions and seniority premium	$	136,832	$	141,014
Termination of employment		13,365		10,467
	$	150,197	$	151,481

The short-term liabilities for employee benefits, are included in the line ‘Accounts payable and accrued liabilities’ in the consolidated statements of financial position, which at December 31, 2020 and 2019, amount to $924 and $3,256, respectively.

Remunerations on the termination of employment

The seniority premiums and the retirement plan (‘pensions’) obligations are based on actuarial calculations using the projected unit credit method. Pension benefits are based mainly on years of service, age, and salary level upon retirement.

The amounts charged to operations include the amortization of the cost of past services over the average time of service remaining. The Company continues with its policy of recognizing actuarial losses and gains for seniority premiums and pensions in the consolidated statement of operations, the actuarial (loss) gain net of taxes for 2020 and 2019 was $7,667 and $1,648, respectively.

The plan exposes Grupo TMM to such risks as interest rate, investment, mortality, and inflation.

Interest rate risk

The present value of the defined benefits obligation is calculated using a discount rate making reference to the market performance of high-quality corporate bonds.

The estimated term for the bonds is consistent with the estimated term for the defined benefits obligation and is denominated in pesos. A decrease in the market performance of high-quality corporate bonds will increase the defined benefits obligation of the Company, although this is expected to be partially compensated by an increase in the fair value of certain of the plan’s assets.

Investment risk

The plan assets are predominantly capital and debt instruments traded on the Mexican Stock Exchange which are considered low risk.

Mortality risk

The Company provides benefits for life to those who are covered by the defined benefits liability. An increase in the life expectancy of such persons will increase the defined benefits liability.

Inflation risk

A significant proportion of the defined benefits obligation is linked to inflation. An increase in the inflation rate will increase the Company’s obligation.

The details of the net cost for the period for seniority premiums and termination of employment, and also the basic actuarial estimates for the calculation of these labor obligations is shown as follows:

	2020				2019
	Pensions and seniority premiums		Termination of employment		Pensions and seniority premiums		Termination of employment
Current service cost	$	4,541	$	1,727	$	4,709	$	2,178
Interest cost		11,892		867		13,643		2,343
Net cost for the period	$	16,433	$	2,594	$	18,352	$	4,521

At December 31, 2020 and 2019, the reserve for pensions and seniority premiums, and also for the termination of employment, is comprised as follows:

	2020					2019
	Pensions and seniority premiums			Termination of employment		Pensions and seniority premiums			Termination of employment
Defined benefit obligations	$	139,763		$	13,365	$	144,044		$	10,467
Plan assets		(2,931	)		-		(3,030	)		-
Total reserve	$	136,832		$	13,365	$	141,014		$	10,467

As of December 31, 2020, and 2019, the defined benefit obligations (DBO) for pensions and seniority premiums, and also for the reserve for termination of employment, are comprised as follows:

	2020						2019
	Pensions and seniority premiums			Termination of employment			Pensions and seniority premiums			Termination of employment
DBO at beginning of period	$	144,044		$	10,467		$	154,128		$	25,604
Current service cost		4,541			1,727			4,709			2,178
Interest cost		11,892			867			13,643			2,343
Benefits paid		(2,072	)		(70	)		(338	)		-
Benefits paid from plan assets		(7,315	)		-			(7,617	)		-
Miscellaneous		-			-			(304	)		-
Past service cost		-			-			(16,822	)		(21,365	)
Actuarial gain or losses		(11,327	)		374			(3,355	)		1,707
DBO at end of period	$	139,763		$	13,365		$	144,044		$	10,467

The plan assets as of December 31, 2020 and 2019 are comprised as follows:

	2020			2019
Value of the fund at beginning of year	$	3,030		$	3,126
Expected return on assets		(356	)		310
Plan contributions		7,315			7,617
Benefits paid		(7,315	)		(7,617	)
Interests on plan assets		257			208
Miscellaneous		-			(614	)
Found value at end of the year	$	2,931		$	3,030

The changes in the pension plan, seniority premium, and termination of employment plan as of December 31, 2020 and 2019 are as follows:

	2020			2019
Reserve for obligations at the beginning of the period	$	151,481		$	176,606
Cost for the period		19,027			22,873
Interest income		(257	)		(208	)
Contributions to the plan		(7,315	)		(7,617	)
Benefits paid on pension plan		(2,142	)		(338	)
Miscellaneous		356			-
Actuarial gain or losses		(10,953	)		(1,648	)
Past service cost		-			(38,187	)
Reserve for obligations at the end of the period	$	150,197		$	151,481

The significant actuarial assumptions used for the valuation are:

	2020			2019
Discount rate		7.50	%		8.50	%
Salary increase rate		4.00	%		4.00	%
Inflation rate		3.50	%		3.50	%
Average working life expectancy		16.10			18.30

These assumptions were prepared by Management with the assistance of independent actuaries. The discount factors are determined near the end of each year making reference to the market performance of high-quality corporate bonds denominated in the currency in which the benefits will be paid and which have similar maturities to the terms for the pension obligation corresponding. Other assumptions are based on actual reference parameters and Management’s historical experience.

On December 31, 2020 and 2019, approximately 12% and 18% of the Company’s employees work under collective work contracts that are subject to annual salary reviews and biannually for other compensations. As of December 31, 2020, and 2019, Grupo TMM has 934 and 1,099 employees, respectively.

The significant actuarial assumptions to determine the defined benefits obligation are the discount rate, the salary increase rate, and the average life expectancy. The calculation of the defined benefits obligation is sensitive to these assumptions.

The following table summarizes the effects of changes to these actuarial assumptions on the defined benefits obligations at December 31, 2020:

	1.0% increase			1.0% decrease
Discount rate
(Decrease) increase in the defined benefits obligation	$	(54	)	$	6,958

Salary increase rate
Increase (decrease) in the defined benefits obligation	$	5,711		$	(678	)

	One year Increase		One year Decrease
Average life expectancies
Increase (decrease) in the defined benefits obligation	$	3,426	$	(3,940	)

The present value of the defined benefits obligation and also the defined benefits obligation recognized in the consolidated statement of financial position are calculated using the same method (projected unit credit). The sensitivity analyses are based on a change in one assumption without changing the others. This sensitivity analysis may not be representative of the real variance in the defined benefits obligation, as it is unlikely that the change to the assumptions would occur on its own, as some of the assumptions may be correlated.