Employee benefits

12 Months Ended

Dec. 31, 2023

Employee benefits

Pension and postretirement benefits

Note 30 – Employee benefits

Certain employees of BPPR are covered by three non-contributory defined benefit pension plans, the Banco Popular de Puerto Rico

Retirement Plan and two Restoration Plans (the “Pension Plans”). Pension benefits are based on age, years of credited service,

and final average compensation.

The Pension Plans are currently closed to new hires and the accrual of benefits are frozen to all participants. The Pension Plans’

benefit formula is based on a percentage of average final compensation and years of service as of the plan freeze date. Normal

retirement age under the retirement plan is age 65 with 5 years of service. Pension costs are funded in accordance with minimum

funding standards under the Employee Retirement Income Security Act of 1974 (“ERISA”). Benefits under the Pension Plans are

subject to the U.S. and Puerto Rico Internal Revenue Code limits on compensation and benefits. Benefits under restoration plans

restore benefits to selected employees that are limited under the Banco Popular de Puerto Rico Retirement Plan due to U.S. and

Puerto Rico Internal Revenue Code limits and a compensation definition that excludes amounts deferred pursuant to nonqualified

arrangements. 

In addition to providing pension benefits, BPPR provides certain health care benefits for certain retired employees (the “OPEB

Plan”). Regular employees of BPPR, hired before February 1, 2000, may become eligible for health care benefits, provided they

reach retirement age while working for BPPR.

The Corporation’s funding policy is to make annual contributions to the Pension Plans, when necessary, in amounts which fully

provide for all benefits as they become due under the plans. 

The Corporation’s pension fund investment strategy is to invest in a prudent manner for the exclusive purpose of providing benefits

to participants. A well defined internal structure has been established to develop and implement a risk-controlled investment strategy

that is targeted to produce a total return that, when combined with BPPR contributions to the fund, will maintain the fund’s ability to

meet all required benefit obligations. Risk is controlled through diversification of asset types, such as investments in domestic and

international equities and fixed income.

Equity investments include various types of stock and index funds. Also, this category includes Popular, Inc.’s common stock. Fixed

income investments include U.S. Government securities and other U.S. agencies’ obligations, corporate bonds, mortgage loans,

mortgage-backed securities and index funds, among others. A designated committee periodically reviews the performance of the

pension plans’ investments and assets allocation. The Trustee and the money managers are allowed to exercise investment

discretion, subject to limitations established by the pension plans’ investment policies. The plans forbid money managers to enter

into derivative transactions, unless approved by the Trustee. 

The overall expected long-term rate-of-return-on-assets assumption reflects the average rate of earnings expected on the funds

invested or to be invested to provide for the benefits included in the benefit obligation. The assumption has been determined by

reflecting expectations regarding future rates of return for the plan assets, with consideration given to the distribution of the

investments by asset class and historical rates of return for each individual asset class. This process is reevaluated at least on an

annual basis and if market, actuarial and economic conditions change, adjustments to the rate of return may come into place.

The Pension Plans weighted average asset allocation as of December 31, 2023 and 2022 and the approved asset allocation

ranges, by asset category, are summarized in the table below.

Minimum allotment

Maximum allotment

2023

2022

Equity

0

%

70

%

22

%

27

%

Debt securities

0

%

100

%

74

%

69

%

Popular related securities

0

%

5

%

2

%

2

%

Cash and cash equivalents

0

%

100

%

2

%

2

%

The following table sets forth by level, within the fair value hierarchy, the Pension Plans’ assets at fair value at December 31, 2023

and 2022. Investments measured at net asset value per share (“NAV”) as a practical expedient have not been classified in the fair

value hierarchy, but are presented in order to permit reconciliation of the plans’ assets.

2023

2022

(In thousands)

Level 1

Level 2

Level 3

Measured

at NAV

Total 

Level 1

Level 2

Level 3

Measured

at NAV

Total 

Obligations of the U.S.

Government, its agencies,

states and political

subdivisions

$

-

$

3,711

$

-

$

154,459

$

158,170

$

-

$

8,113

$

-

$

130,397

$

138,510

Corporate bonds and

debentures

-

295,141

-

7,042

302,183

-

268,641

-

6,291

274,932

Equity securities - Common

Stock

34,334

-

-

-

34,334

32,906

-

-

-

32,906

Equity securities - ETF's

42,798

17,173

-

-

59,971

51,836

20,276

-

-

72,112

Foreign commingled trust

funds

-

-

-

51,392

51,392

-

-

-

64,630

64,630

Mutual fund

-

1,610

-

22,642

24,252

-

3,471

-

22,106

25,577

Mortgage-backed securities

-

9,289

-

-

9,289

-

-

-

-

-

Cash and cash equivalents

8,908

-

-

-

8,908

7,637

-

-

-

7,637

Accrued investment income 

-

-

3,927

-

3,927

-

-

3,581

-

3,581

Total assets 

$

86,040

$

326,924

$

3,927

$

235,535

$

652,426

$

92,379

$

300,501

$

3,581

$

223,424

$

619,885

The closing prices reported in the active markets in which the securities are traded are used to value the investments. 

Following is a description of the valuation methodologies used for investments measured at fair value:

●

 Obligations of U.S. Government, its agencies, states and political subdivisions - The fair value of Obligations of U.S.

Government and its agencies obligations are based on an active exchange market and on quoted market prices for similar

securities. U.S. agency structured notes are priced based on a bond’s theoretical value from similar bonds defined by

credit quality and market sector and for which the fair value incorporates an option adjusted spread in deriving their fair

value. The fair value of municipal bonds are based on trade data on these instruments reported on Municipal Securities

Rulemaking Board (“MSRB”) transaction reporting system or comparable bonds from the same issuer and credit quality. 

These securities are classified as Level 2, except for the governmental index funds that are measured at NAV.

●

 Corporate bonds and debentures - Corporate bonds and debentures are valued at fair value at the closing price reported

in the active market in which the bond is traded. These securities are classified as Level 2, except for the

c

orporate bond

funds that are measured at NAV.

●

 Equity securities – common stock - Equity securities with quoted market prices obtained from an active exchange market

and high liquidity are classified as Level 1.

●

 Equity securities – ETF’s – Exchange Traded Funds shares with quoted market prices obtained from an active exchange

market. Highly liquid ETF’s are classified as Level 1 while less liquid ETF’s are classified as Level 2. 

●

 Foreign commingled trust fund- Collective investment funds are valued at the NAV of shares held by the plan at year end. 

●

 Mutual funds – Mutual funds are valued at the NAV of shares held by the plan at year end. Mutual funds are classified as

Level 2.

●

 Cash and cash equivalents - The carrying amount of cash and cash equivalents is a reasonable estimate of the fair value

since it is available on demand or due to their short-term maturity. Cash and cash equivalents are classified as Level 1.

●

 Accrued investment income – Given the short-term nature of these assets, their carrying amount approximates fair value.

Since there is a lack of observable inputs related to instrument specific attributes, these are reported as Level 3.

The preceding valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective

of future fair values. Furthermore, although the plan believes its valuation methods are appropriate and consistent with other market

participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could

result in a different fair value measurement at the reporting date.

The following table presents the change in Level 3 assets measured at fair value.

(In thousands)

2023

2022

Balance at beginning of year

$

3,581

$

4,566

Purchases, sales, issuance and settlements (net)

346

(985)

Balance at end of year

$

3,927

$

3,581

There were

no

 transfers in and/or out of Level 3 for financial instruments measured at fair value on a recurring basis during the

years ended December 31, 2023 and 2022. There were

no

 transfers in and/or out of Level 1 and Level 2 during the years ended

December 31, 2023 and 2022.

Information on the shares of common stock held by the pension plans is provided in the table that follows.

(In thousands, except number of shares information)

2023

2022

Shares of Popular, Inc. common stock

178,611

171,931

Fair value of shares of Popular, Inc. common stock

$

14,659

$

11,402

Dividends paid on shares of Popular, Inc. common stock held by the plan

$

384

$

355

The following table presents the components of net periodic benefit cost for the years ended December 31, 2023, 2022 and 2021.

Pension Plans

OPEB Plan

(In thousands)

2023

2022

2021

2023

2022

2021

(in thousands)

Service cost

$

-

$

-

$

-

$

191

$

485

$

642

Other operating expenses:

Interest cost

31,548

19,199

15,993

6,082

3,931

3,573

Expected return on plan assets

(34,365)

(35,388)

(38,679)

-

-

-

Recognized net actuarial loss

21,465

15,644

18,876

(2,212)

-

1,873

Net periodic cost (benefit)

$

18,648

$

(545)

$

(3,810)

$

4,061

$

4,416

$

6,088

Other Adjustments

-

-

-

-

60

-

Total cost (benefit) 

$

18,648

$

(545)

$

(3,810)

$

4,061

$

4,476

$

6,088

The following table sets forth the aggregate status of the plans and the amounts recognized in the consolidated financial statements

at December 31, 2023 and 2022.

Pension Plans

OPEB Plan

(In thousands)

2023

2022

2023

2022

Change in benefit obligation:

Benefit obligation at beginning of year

$

628,175

$

851,471

$

118,336

$

159,958

Service cost 

-

-

191

485

Interest cost 

31,548

19,199

6,082

3,931

Actuarial (gain)/loss

[1]

16,861

(194,473)

(1,180)

(39,479)

Benefits paid

(40,790)

(48,022)

(6,384)

(6,619)

Other adjustments

-

-

-

60

Benefit obligation at end of year

$

635,794

$

628,175

$

117,045

$

118,336

Change in fair value of plan assets:

Fair value of plan assets at beginning of year

$

619,885

$

860,484

$

-

$

-

Actual return on plan assets

73,101

(192,807)

-

-

Employer contributions

230

230

6,384

6,619

Benefits paid

(40,790)

(48,022)

(6,384)

(6,619)

Fair value of plan assets at end of year

$

652,426

$

619,885

$

-

$

-

Funded status of the plan:

Benefit obligation at end of year

$

(635,794)

$

(628,175)

$

(117,045)

$

(118,336)

Fair value of plan assets at end of year

652,426

619,885

-

-

Funded status at year end

$

16,632

$

(8,290)

$

(117,045)

$

(118,336)

Amounts recognized in accumulated other comprehensive loss:

Net loss/(gain)

200,094

243,434

(25,454)

(26,486)

Accumulated other comprehensive loss (AOCL)

$

200,094

$

243,434

$

(25,454)

$

(26,486)

Reconciliation of net (liabilities) assets:

Net liabilities at beginning of year

$

(8,290)

$

9,013

$

(118,336)

$

(159,958)

Amount recognized in AOCL at beginning of year, pre-tax

243,434

225,356

(26,486)

12,993

Amount prepaid (liability) at beginning of year

235,144

234,369

(144,822)

(146,965)

Total benefit cost

(18,648)

545

(4,061)

(4,476)

Contributions

230

230

6,384

6,619

Amount prepaid (liability) at end of year

216,726

235,144

(142,499)

(144,822)

Amount recognized in AOCL

(200,094)

(243,434)

25,454

26,486

Net asset/(liabilities) at end of year

$

16,632

$

(8,290)

$

(117,045)

$

(118,336)

[1]

For 2023, the significant component of the Pension Plans actuarial gain were mainly related to a higher return on the fair value of plan assets partially

offset by an increase in the obligation due to a decrease in the single weighted-average discount rates. For OPEB plans, significant components of

the actuarial gain that changed the benefit obligation were mainly related to the per capita assumption at year end that improved the funded position

and the gain associated with census data updates and plan experience better than expected offset by the decrease in discount rates. For 2022,

significant components of the Pension Plans actuarial gain that changed the benefit obligation were mainly related to an increase in the single

weighted-average discount rates partially offset by a lower return on the fair value of plan assets. For OPEB Plans significant components of the

actuarial gain that change the benefit obligation were mainly related to an increase in discount rates and the per capita claim assumption at year-end

which was lower than expected partially offset by the health care cost trend assumption which was updated to reflect inflationary pressures in the

health care industry.

The following table presents the change in accumulated other comprehensive loss (“AOCL”), pre-tax, for the years ended December

31, 2023 and 2022.

(In thousands)

Pension Plans

OPEB Plan

2023

2022

2023

2022

Accumulated other comprehensive loss at beginning of year

$

243,434

$

225,356

$

(26,486)

$

12,993

Increase (decrease) in AOCL:

Recognized during the year:

Amortization of actuarial losses

(21,465)

(15,644)

2,212

-

Occurring during the year:

Net actuarial (gains)/losses

(21,875)

33,722

(1,180)

(39,479)

Total (decrease) increase in AOCL

(43,340)

18,078

1,032

(39,479)

Accumulated other comprehensive loss at end of year

$

200,094

$

243,434

$

(25,454)

$

(26,486)

The Corporation estimates the service and interest cost components utilizing a full yield curve approach in the estimation of these

components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their

underlying projected cash flows. 

To determine benefit obligation at year end, the Corporation used a weighted average of annual spot rates applied to future

expected cash flows for years ended December 31, 2023 and 2022.

The following table presents the discount rate and assumed health care cost trend rates used to determine the benefit obligation

and net periodic benefit cost for the plans:

Pension Plan

OPEB Plan

Weighted average assumptions used to

determine net periodic benefit cost for the

years ended December 31:

2023

2022

2021

2023

2022

2021

Discount rate for benefit obligation

5.34

 -

5.37

%

2.79

 -

2.83

%

2.41

 -

2.48

%

5.42

%

2.94

%

2.65

%

Discount rate for service cost

N/A

N/A

N/A

5.66

%

3.21

%

3.09

%

Discount rate for interest cost

5.23

 -

5.24

%

2.3

0 -

2.33

%

1.76

 -

1.80

%

5.28

%

2.51

%

2.03

%

Expected return on plan assets

5.9

0 -

6.50

%

4.3

0 -

5.40

%

4.6

0 -

5.5

0

%

N/A

N/A

N/A

Initial health care cost trend rate

N/A

N/A

N/A

7.50

%

4.75

%

5.00

%

Ultimate health care cost trend rate

N/A

N/A

N/A

4.50

%

4.50

%

4.50

%

Year that the ultimate trend rate is reached

N/A

N/A

N/A

2035

2023

2023

Pension Plans

OPEB Plan

Weighted average assumptions used to determine benefit obligation at

December 31:

2023

2022

2023

2022

Discount rate for benefit obligation

5.02

-

5.05

%

5.34

-

5.37

%

5.10

%

5.42

%

Initial health care cost trend rate

N/A

N/A

7.25

%

7.50

%

Ultimate health care cost trend rate

N/A

N/A

4.50

%

4.50

%

Year that the ultimate trend rate is reached

N/A

N/A

2035

2035

The following table presents information for plans with a projected benefit obligation and accumulated benefit obligation in excess of

plan assets for the years ended December 31, 2023 and 2022.

Pension Plans

OPEB Plan

(In thousands)

2023

2022

2023

2022

Projected benefit obligation

$

35,965

$

628,175

$

117,045

$

118,336

Accumulated benefit obligation 

36,965

628,175

117,045

118,336

Fair value of plan assets 

29,193

619,885

-

-

The following table presents information for plans with plan assets in excess of its projected benefit obligation and accumulated

benefit obligation for the years ended December 31, 2023 and 2022.

Pension Plans

OPEB Plan

(In thousands)

2023

2022

2023

2022

Projected benefit obligation

$

599,829

$

-

$

-

$

-

Accumulated benefit obligation 

599,829

-

-

-

Fair value of plan assets 

623,233

-

-

-

The Corporation expects to pay the following contributions to the plans during the year ended December 31, 2024.

(In thousands)

2024

Pension Plans

$

228

OPEB Plan

$

5,744

Benefit payments projected to be made from the plans during the next ten years are presented in the table below.

(In thousands)

Pension Plans

OPEB Plan

2024

$

49,072

$

5,744

2025

45,790

6,003

2026

45,906

6,301

2027

45,907

6,582

2028

45,818

6,865

2029 - 2033

223,097

37,503

The table below presents a breakdown of the plans’ assets and liabilities at December 31, 2023 and 2022.

Pension Plans

OPEB Plan

(In thousands)

2023

2022

2023

2022

Non-current assets

$

23,404

$

-

$

-

$

-

Current liabilities 

222

222

5,595

5,779

Non-current liabilities

6,550

8,068

111,451

112,557

Savings plans

The Corporation also provides defined contribution savings plans pursuant to Section 1081.01(d) of the Puerto Rico Internal

Revenue Code and Section 401(k) of the U.S. Internal Revenue Code, as applicable, for substantially all the employees of the

Corporation. Investments in the plans are participant-directed, and employer matching contributions are determined based on the

specific provisions of each plan. Employees are fully vested in the employer’s contribution after five years of service. The cost of

providing these benefits in the year ended December 31, 2023 was $

20.3

 million (2022 - $

18.7

 million, 2021 - $

13.3

 million). 

The plans held

1,253,702

 (2022 –

1,246,519

) shares of common stock of the Corporation with a market value of approximately

$

102.9

 million at December 31, 2023 (2022 - $

82.7

 million).