This weekly compilation of stories from wire services, newspapers and other sources is intended to keep Mercer employees and registered visitors to mercer.com informed of benefits, compensation and HR developments around the world. Facts have not been independently verified, and opinions expressed are those of the editor. Readers are invited to clarify, correct or expand on these items.
Top stories in this issue:
China: 401(k) model eyed
Hungary: Draft Labour Code
Korea: Curbs on early withdrawal of severance pay
Philippines: Yet another delay for PERA
UK: Pension reform consultation results
US: FASB agreement on multiemployer plan disclosure
Retirement scheme legislation
Tax Analysts, The Namibian
Income Tax Amendment Bill cleared Parliament and went into effect on 14 July. It amends the definition of "retirement annuity fund" under income tax law to ensure that these funds do not qualify for tax deductions unless they are registered with the Namibian Financial Institutions Supervisory Authority (NAMFISA), a requirement already in place for pension funds. Pension Funds Amendment Act, 2011, another recently gazetted measure (IH 03/09/11), grants the Finance Ministry power to set rules regarding the minimum and maximum foreign investment levels for pension funds. Incidentally, the Finance Minister noted during an appearance before Parliament last week that her office is working on legislation clarifying the division of pension surpluses.
National Pension Scheme
The Times, Swazi Observer
The Minister of Labour and Social Security said that the Swaziland National Provident Fund (SNPF) will be converted to a pension scheme by January 2013. This is a retirement plan that could be extended to the informal sector and is part of the process of developing a full-service social security system, including unemployment insurance and national health insurance.
New law on company car valuation; Draft measure on extending temporary loss relief
LTN, Mondaq, Daily Mercury
Tax Laws Amendment (2011 Measures No. 5) Bill 2011 (IH 06/08/11), which features a more environmentally friendly formula for valuing personal use of company cars, quickly passed in both houses of Parliament and recently received Royal Assent.
Also, the Treasury has posted the Exposure Draft, Three Month Extension of the Temporary Loss Relief for Merging Superannuation Entities, for a brief consultation that closes on 11 August. The relief, introduced in response to the financial instability of late 2008, was to have wound down on 30 Jun 2011, but regulators were made aware that some of the large superannuation mergers targeted by the relief were too complex for quick completion, so the draft legislation would continue the temporary regime through 30 September.
401(k) model eyed
Global Pensions, Dow Jones, Market Watch
Unnamed officials have told the local press that the government is looking into a voluntary occupational defined contribution scheme similar to the US 401(k) model. Among the possible options mentioned:
- All listed companies may be required to issue dividends.
- A tax incentive for investment in domestic securities is under consideration.
- The 401(k) EET (exempt-exempt-taxed) regime is cited as part of the proposal's appeal.
Significant economic reforms would be necessary before this would be viable, so it is in the middle distance at best.
Reprieve for FNPF reform challenge
RNZ, ABC, GIDA
The Fiji National Provident Fund (FNPF) reform package (IH 06/15/11) includes a measure that would reduce the annual benefit from 15% of a pensioner's total contribution to 8.7%. A pensioner challenged the proposal in the High Court and the justices rebuffed the government's request that the case be dropped. The court did, however, find that the plaintiff had not adequately documented his case and bumped the hearing to 30 August to give him time for adequate preparation.
Pension market monopoly flagged; No labour law relief for NIMZs
PTI, AIR, RTNSIN
The Insurance Regulatory and Development Authority (IRDA) is concerned about the stability of the pension sector with a single company holding a 90% share in the market for individual pension plans. It has asked pension funds to offer life annuity schemes and has requested that all pension products have a capital guarantee. The IRDA has not committed to a regulatory solution, but one option under consideration is a reinsurance exchange.
Also, following last year's consultation (IH 04/14/10) on a wide range of labour law exemptions for National Manufacturing & Investment Zones (NIMZs), the Labour Ministry convinced the interministerial committee on NIMZ policy that there should be no concessions on labour laws. The business sector plans to lobby the ministry on this matter. The Department of Industrial Policy and Promotion (DIPP) has proposed an independent trust to operate as a parallel social security system for NIMZ workers. The Labour Ministry, which manages the Employees' Provident Fund Organisation (EPFO), is wary of this approach but will withhold judgment until the consultation document is released.
Curbs on early withdrawal of severance pay
Yonhap, Arirang News
A new set of amendments to the Employee Retirement Benefit Security Act, 2005 (ERBSA) will severely limit the early withdrawal options in a Severance Pay Scheme (SPS). The amended act will still allow urgent withdrawals for hospital treatment and home purchase, but will protect the SPS's primary role of generating retirement income. The amendments will make early withdrawal rules consistent with other retirement schemes. The action is part of an administration effort to make occupational pension schemes more appealing than SPS. Another provision will allow workers to participate simultaneously in both a defined benefit and a defined contribution scheme. The measure will come into force on 1 Jul 2012.
Extension for foreign worker census
Bernama, Straits Times, The Sun
Employer groups balked at the 31 July deadline for completion of the Foreign Workers Biometric Registration Programme and, as they had predicted, the ambitious project overwhelmed the registration centers while processing less than a quarter of the workers. The Home Minister has now relented, extending the deadline "indefinitely" but adding that "employers should not delay."
Yet another delay for PERA
ABS, Business World, Philippine Star
The Commissioner of the Bureau of Internal Revenue (BIR) told reporters that final implementing regulations for the Personal Equity Retirement Account (IH 03/16/11) missed another deadline – 30 June – because officials had been alerted to the danger of unintended consequences. The provisions on granting a larger tax credit to overseas Filipino workers (OFWs) would be too easy for non-expats to exploit. The commissioner said he hopes to have the implementing order completed in early August but refrained from setting a date.
Parental, paternity leave measures; Harmonization process for blue and white-collar rules
A recently passed measure (French only) that went into effect on 30 July reinforces dismissal protection for workers on paternity leave. If an employer dismisses a worker within three months of leave notification, statutory severance pay is supplemented by three months' salary. Another measure (French only) that took effect on the 30th affords greater protection when a maternity leave has been converted to paternity leave. The protected period extends to a month after the leave is completed and the dismissal penalty is six months' salary. One Employment Ministry bill that hasn't reached Parliament yet would extend the 15-week parental leave that follows maternity leave (also 15 weeks) to 20 weeks. The administration wants the measure passed in time to take effect by 1 Jan 2012.
Another Employment Ministry press release (French only) charts the course for harmonization of blue- and white-collar labor laws in response to last month's Constitutional Court ruling (IH 07/20/11). The task is assigned to the social partners via one of their collaborative bodies, either the National Labour Council or the Group of 10. If the deadline approaches and no agreement has been reached, the government will step in to revise the rules.
Compulsory retirement ruling; Pay disclosure in banking sector; Various
Financial Times, BBM, Reuters
A recent European Court of Justice (ECJ) decision is viewed by stakeholders as giving companies a loophole for compulsory retirement. The judges concluded that there are legitimate justifications for a German law requiring state prosecutors to retire at age 65. Factors cited approvingly in the ruling include "establishing a balanced age structure" and avoiding "possible disputes concerning employees' fitness to work."
Meanwhile, a circulating draft of the European Commission's proposal for a reform of banking regulation gives the national authorities of member states a role in monitoring executive remuneration. They would be responsible for collecting data on the salary components of every banking sector employee earning over £1million. This material would be channeled to the new European Banking Authority (EBA).
In other news:
- There are more signs that the Schengen acquis and the worker mobility rules are slowly fraying under the pressure of the economic crisis. The European Commission's assessment of border checks set up this spring in France and Italy found that they did not breach the Schengen rules but they did violate the "spirit" of the agreement. The commission raised a legal challenge to Spain's announcement (Spanish only) of a temporary ban on new Romanian workers but later backed down on it. The ban started on 1 August and does not yet have a closing date, but Spanish officials are in discussions (Spanish only) with their Romanian counterparts who have been assured that Romanian citizens applying for work in Spain will have a more favorable ranking than non-EU workers.
- The Dutch Treasury has been advised that pension funds will be spared participation in the private sector's rescue of the Greek economy. The Greek government bonds involved in this arrangement are shorter duration than is advisable for pension funds.
Ruling on foreign language benefit documents
ILO, AFP, TFI
The 1994 Loi Toubon (French only) states that employment contract documents written in any language other than French are not binding on French workers. There has been some flexibility for multinationals under this law, but a recent Supreme Court ruling (French only) raised the bar for compliance. A French worker was part of a multinational's incentive compensation plan that was based on group performance in more than one country. After his dismissal, the worker claimed the maximum bonus (40%) under this program because its explanation of how the bonus level would reflect performance was written only in English. The court awarded him the maximum payment for each year despite the revelation that he was proficient in English. Also, the Constitutional Council has determined (French only) that it is not unconstitutional that only married partners are eligible for survivor's pensions. It reasoned that civil partnership and cohabitation are different regimes from marriage, so unequal treatment is not unconstitutional.
IHT, Katimerini, The Independent
Amidst all the unrest and brinksmanship, Parliament did manage to narrowly pass an austerity package (IH 06/15/11):
- Social security benefits would be means-tested and there is mention of additional unspecified benefit cuts.
- Medical care cost-shifting would include a cut in drug subsidies.
- Some elements of last year's pension reform (IH 07/08/10) that have yet to be implemented, including the minimum 40-year contribution and the retirement age hike for women, turned up in this package.
The relevant ministries were given until the end of this month to produce reports fleshing out social security and health system reform plans.
Draft Labour Code
HATC, BBJ, MTI
The National Economy Minister has posted a draft Labour Code (Hungarian only) for stakeholder consultation. Evidently, the major package of amendments that cleared Parliament last month (IH 07/20/11) was just an appetizer. Among the first provisions to elicit strong reactions to a document that was broadly greeted as both provocative and hard to fathom in places:
- Employees would be accountable for behaving "in an expected way" outside of the workplace.
- Dismissal protection for pregnant women, those on maternity leave, workers within five years of retirement, those in voluntary military service and people on sick leave would be relaxed (eliminated, by one account).
- The severance pay formula would be reduced and people working past retirement age would no longer be eligible for it.
- The formula for increasing the annual leave period as a worker ages would be modified.
- Overtime premiums for night shifts and Sunday work would be reduced.
Critics are assured that this is a working document and that a finished draft won't reach Parliament until this fall.
JLC reform; Civil partner bill passed
Tax Analysts, Irish Independent, Irish Times
The Jobs Minister has unveiled a blueprint for reform of the Joint Labour Committee wage-setting system (IH 07/20/11). Most of the changes are consolidations in a process that had become too complex, but there are controversial elements. Salaries are likely to be lower for many of the workers affected and premiums for Sunday work – covered in existing legislation and soon to be addressed in a Labour Relations Commission code of practice – will no longer be part of the package.
Also, Finance (No.3) Act 2011 (IH 06/15/11) was signed into law on 27 July. The Irish Revenue marked the occasion with a press release featuring an FAQ on changes to the tax regime for civil partners.
IMF review of occupational pensions
The International Monetary Fund's Financial Sector Assessment package for the Netherlands includes Technical Note on Pension Sector Issues, which reviews the impact of the financial crisis on the funding levels of occupational pensions. Recommendations include revising the Financial Assessment Framework and refining risk management policy.
Retirement age hike proposal
RIA Novosti, BBC, Bureaucracy Today
After months on end of the administration assuring the press that it has no intention to raise the retirement age, the Deputy Finance Minister has expanded on the refrain. They don't plan to raise it "immediately." Now 60 for men and 55 for women, the retirement age is seen as gradually rising at a rate of four to six months per year until it reaches 65.
President signs revised Labor Code
SITA, TASR, Xinhua
Having determined that it harbors no serious violations of the Constitution, the President signed the amended Labor Code (IH 07/20/11) last week. A few more interesting provisions have surfaced in recent press coverage:
- A non-compete clause would have to replace at least half of an employee's salary and would not last more than a year.
- One of the flexible hours provisions would allow 14 nights in a row on the night shift.
- The annual overtime cap will rise to 400 hours, 550 for management.
A decree (Spanish only) that went into effect on 30 June features some significant amendments to the Immigration Regulations:
- "Large Business Unit," a category of enterprise that qualifies for expedited hiring of skilled foreign workers, has had its minimum staff size halved to 500.
- The restrictions on intracompany transfers and direct hire work permits are tightened.
Annual overtime limits relaxed
A measure that came into effect on 1 August removes the 150 hour per year cap on working overtime. Instead, employers must be able to provide a compelling explanation of some workflow problem that will only be solved by a temporary rise in overtime. The 50 hour per month overtime cap remains in place.
One more hurdle for pension reform
Ukrainian News, IPE
Before the pension reform legislation reaches the President's desk (IH 07/14/11), the parliamentary regulation committee must approve it and the speaker of parliament may then submit it to another plenary vote next month. This extra step was inserted after a small group of legislators submitted a draft resolution on repealing the bill.
Pension reform consultation results; Lifetime allowance, age 75 annuity regs published; Money purchase benefits re-defined; Goods and services provision under salary sacrifice; Various
Tax Analysts, Professional Pensions, IPE
The Department for Work and Pensions has published the Summary of responses to last April's consultation, A State Pension for the 21st Century (IH 04/06/11). The responses were fundamentally positive, but some cautioned about the impact on defined benefit schemes of ending the state second pension and its contracting out arrangement. There was also widespread resistance to a proposal for an automatic longevity peg for the retirement age. The feedback will be consulted when ministers draft a more detailed proposal for state pension reform.
Also, HM Revenue & Customs (HMRC) has issued a flurry of implementing rules for key pension reform measures. Taxation of Pension Schemes (Transitional Provisions) (Amendment No. 2) Order 2011 and Registered Pension Schemes (Miscellaneous Amendments) Regulations 2011 amend regulations on the pension lifetime allowance level and end the requirement to annuitize by age 75. Registered Pension Schemes (Lifetime Allowance Transitional Protection) Regulations 2011 afford some transitional protection to those people who amassed a lifetime pension within the earlier lifetime allowance limits.
In addition, a recent Supreme Court judgment significantly expanded the definition of money purchase benefits. As a result, certain defined benefit schemes with money purchase features could fall outside the definition of plans subject to defined benefit scheme funding and benefit protection legislation. The DWP responded to the ruling with a press release on its intent to draft regulations, stating that any benefits that could be affected by a funding deficit may not be defined as money purchase benefits.
Meanwhile, HMRC's Revenue & Customs Brief 28/11 interprets the implications of ECJ (European Court of Justice) ruling C-40/09 for the provision of employer goods and services to employees via a salary sacrifice arrangement. The ruling had determined that the retail vouchers supplied to employees must be subject to value-added tax. HMRC assesses its implications for company cars, subsidized meals, childcare vouchers, cycle to work schemes and other perks. Where the regulator has determined that VAT should be accounted for, companies will have to comply from 1 Jan 2012.
In other news:
- The draft guidance on self-certifying schemes under auto-enrolment (IH 07/27/11) proved to have a major concession to employers. The definition of basic pay for testing one's scheme leaves out "variable elements" including overtime pay and bonuses.
- A set of economic stimulus proposals attributed to the Prime Minister's strategy director has been leaked to the press. It was roundly condemned for proposals to end paid maternity leave, ignore EU rules on the rights of temporary workers and farm out the role of jobcentres to community groups.
Antigua and Barbuda
Social Partnership Agreement
Caribarena, Antigua Observer
The Minister of Labour convened union and business sector representatives to start work on a Social Partnership Agreement that will foster a more collaborative approach to resolving industrial strife. Social partners will meet regularly and will ultimately have a role in developing the laws and policies affecting the workplace.
Tighter exec comp disclosure rules
Toronto Star, GFS, CHRR
The Canadian Securities Administrators (CSA), the coalition of provincial and territorial securities regulators, has adopted amendments to Form 51-102F6: Statement of Executive Compensation that will take effect on 31 Oct 2011. Companies will have to provide new disclosure about the risk management associated with compensation policies, the hedging of stock ownership by executives and directors and fees paid to outside compensation consultants.
New Afores investment caps
Dow Jones, Reuters, BNamericas
Pension regulator Consar has taken another step in its liberalization of investment rules for private pension fund managers (Afores). The new set of investment caps for the five portfolios (Siefores) all saw their equity investment limit raised by 5-15%. The fund for workers under age 26 may now invest up to 40% in stocks.
Probation period extension bill
Caribbean Business, Daily Sun, EIU
The business sector has long complained that a three-month probation period before new workers are entitled to full benefits and job protection is too short. A measure on extending the length of probation to one year was revised in the Senate to double the period. The Senate forwarded the bill to the House and the Senate President then took it back because it wasn't going to pass there. Stakeholders are not yet clear on whether the measure is being cut back down to one-year probation or getting shelved until after the next election in November 2012.
FASB agreement on multiemployer plan disclosure
SNS, P&I, Compliance Week
The Financial Accounting Standards Board (FASB) has completed its deliberations on revised disclosure standards for employers participating in multiemployer pension plans (IH 09/09/10). New disclosure requirements will include a summary table of information about material plans, listing:
- The plan's identifying information
- The amount an employer contributes to each multiemployer plan it has joined
- Whether its share of contributions to any scheme is above 5%
- The plan's most recent certified funded status
- Identification of any schemes subject to funding surcharges or a funding improvement or rehabilitation plan
- The expiration dates for collective bargaining agreements
The statements must also show total contributions to all multiemployer pension plans that are not individually material. The board decided against mandating an estimate of withdrawal liability. The final draft will be published in September and will first apply to public entities in fiscal years ending after 15 Dec 2011.
In other news:
- The head of the Employee Benefits Security Administration (EBSA) confirmed her commitment to draft regulations broadening the definition of plan fiduciary (IH 04/06/11) in the face of industry opposition at a House subcommittee meeting.
- The US Court of Appeals for the DC Circuit backed a challenge against a Securities and Exchange Commission (SEC) rule that would have allowed institutional investors to submit their own nominees for board of directors' positions.
- The Equal Employment Opportunity Commission (EEOC) reached a record settlement with a company that had made no accommodations for disabled employees in its "no fault" attendance plan.
- The debt ceiling agreement (IH 07/27/11) expressly includes no changes to the Social Security and Medicare programs. A bipartisan committee now has a 23 November deadline for drafting another $1.5 trillion in debt reduction.
Risk-based supervision, pension investment safe harbor
O Globo, BNamericas
The closed pension regulator Previc is aiming for less onerous oversight of some aspects of the sector. It has been pursuing a risk-based supervision approach and recently consulted with company and sectoral plans that use risk-based supervision. The regulator has approved a measure that would give pension funds greater flexibility in high risk/high reward investment without undue fear of coming under investigation for their investment policies. For its part, securities regulator CVM is looking into alternatives to institutional investor overreliance on rating agencies.
Comments or queries may be directed to Patrick Sweeney at +1 212 345 2462. Click here to find your local Mercer office.