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:
Canada: Royal Assent, lingering questions for Bill C-9
EU: Consumer protection package
France: Cabinet approves pension reform bill
Hong Kong: Minimum wage bill passed
New Zealand: Employment law package
UK: Consultation on ending annuity requirement
US: Financial reform bill passed; Interim rules on fee disclosure
New PIT/fringe benefits law
The Nation, Seychelles Weekly, IBFD
The Revenue Commission has posted full text of Income & Non-Monetary Benefits Tax Act, 2010 (IH 02/18/10), which went into effect on July 1. It identifies those non-cash benefits that are and are not taxable as income, providing instructions on calculating liability for the former.
New capital standards proposed for insurers; Various
AIR, AFR, Xinhua
The Australian Prudential Regulation Authority (APRA) has issued the Discussion Paper Review of capital standards for general insurers and life insurers accompanied by two technical papers. The proposed changes are designed to help insurers convert to risk-based capital requirements. The consultation closes on August 12 for the discussion paper and on October 29 for the technical papers.
In other news:
The Corporations and Markets Advisory Committee (CAMAC) has released Executive Remuneration: Information Paper as part of the promised follow-up in the government’s response to the Productivity Commission report on executive remuneration (IH 04/21/10). It surveys various models for executive pay package designs and disclosure requirements, soliciting input through August 13.
The Tax Office compliance program for the year ending June 2011 will check on observance of a low profile rule that came into force last year. The withdrawal of the foreign income earnings exemption now requires Australian citizens posted overseas to report their foreign remuneration as income taxable in Australia.
The Health Minister announced that the imminent Myhospitals website will provide a wealth of data on performance and quality of care for hospitals throughout Australia.
President signs law on compulsory industrial accident insurance
Azer-Press, TNA, ABC
The new law on compulsory industrial accident insurance (IH 01/07/10) will introduce an employer tariff of up to 2% of payroll for a workers’ compensation insurance scheme that will cover income replacement, medical care and survivor benefits for workers injured on the job.
Minimum wage bill passed; Independent Insurance Authority
SCMP, GIDA, AIR
The Legislative Council has now passed the Minimum Wage Bill (IH 07/14/10), and the Labour Secretary expects the Provisional Minimum Wage Commission to propose a minimum wage level next month. The new law has provisions on renewing the minimum wage every two years. Implementation is penciled in for the first half of next year.
Also, the Financial Services Secretary has posted the Consultation Paper Proposed Establishment of an Independent Insurance Authority. It has determined that an independent Insurance Authority (IA) would meet international standards for insurance regulation and that it would also regulate brokers and agents who have largely been self-regulating. The IA should debut in 2013.
Cashless Claim Crisis
Times of India, Business Standard, AIR
On July 1, a 10.2% service tax came into effect for cashless medical claims paid by Third Party Administrators (TPAs). Patients with the liquidity to pay the hospitals themselves and submit the claims directly to the insurers will be spared this tax. It is exacerbating a conflict between the health insurance industry and hospitals over inflated medical claims. Most prominently, state-owned insurance companies have dropped more than 150 hospitals from their new Preferred Partner Network (PPN) over excess claims and it has become commonplace for insurers to have private eyes investigate hospital charges. Patients are frequently saddled with the extra costs. Stakeholders are moving on several fronts to remedy this situation. Most notably, insurers are pressing to have the service tax rescinded.
Sex discrimination bill
NST, Malaysia Sun Sun2Surf
The Deputy Human Resource Minister has delivered D.R. 25/2010 Employment (Amendment) Bill 2010 to Parliament. The bill would:
Set maternity leave entitlements for women who deliver prematurely or miscarry
Fine employers up to RM 10,000 (US $3,125) for failing to follow new standard procedures in response to sexual harassment complaints
Close loopholes in the law on employment protection during maternity leave
Establish Malaysia Day, September 16, as a public holiday.
Employment law package; Experience rating for ACC levies
RNZ, NZH, Scoop
A flurry of weekend press releases presented the Prime Minister’s “fair and balanced employment law package.” Among the highlights:
The 90-day trial period, now in effect for enterprises with fewer than 20 workers, would be in force at all companies.
Holidays Act amendments would allow employee/employer agreements on cashing in the fourth week of leave or exchanging public holidays for a different leave day.
Employers would be entitled to proof of sickness or injury within the first three days of sick leave, provided they cover any associated costs.
An “average daily pay” formula would be used to calculate entitlements for people who work variable hours.
The Employment Relations Authority would attempt to field personal grievances more expeditiously.
Employment Relations (Probationary Period Repeal) Amendment Bill, which would repeal the existing 90-day probation period law, was recently pulled in the random drawing of private member’s bills for plenary debate. Draft amendments to the Holidays Act and the Employment Relations Act are due by the end of the year.
Also, the Accident Compensation Council (ACC) divulged plans to introduce an experience-rating system for workplace levies. The formula would include adjustments to ensure that small employers are not disproportionately penalized for a single injury. The scheme is expected to launch next April.
Two-tier pay system; Universal health plan previewed
PDI, Manila Bulletin
The new head of the Department of Labor and Employment (DOLE) has consulted with the National Wages and Productivity Commission (NWPC) on a variable wage formula that would pay a basic minimum wage and complement it with performance-based pay increases and bonuses.
Also, the new Health Secretary made passing reference to plans for universal health care within three years. This will take a massive cash infusion during a time when the government is financially strapped. The administration aims to recoup much of what it needs by revising its standards on who can afford to pay the P 1,200 (US $25.93) per year Philhealth contribution without government subsidy.
Regulatory framework to support captive insurance
MEIR, LTN, Gulf Times
The Qatar Financial Centre Regulatory Authority (QFCRA) has opened a consultation on Proposals to Further Develop the Captive Insurance, Protected Cell Companies and Insurance Intermediary Regimes in the Qatar Financial Centre. QFCRA reviewed existing laws on captive insurance and other insurance intermediaries to draft amendments creating more robust and flexible rules. A very brief consultation closed yesterday.
U-turn on foreign workers
Two weeks after the entry into force of an English language test (IH 02/03/10) and higher foreign worker levies (IH 03/03/10), as part of a program to erect new barriers to foreign workers, the Prime Minister announced that an influx of 100,000 foreign workers – still down a bit from the peak years – will be essential for maintaining the current economic boon.
Draft rules on dispatched workers
Taiwan Today, China Post
The Council of Labor Affairs (CLA) has unveiled draft amendments to the Labor Standards Act that would set tighter controls on the employment of dispatched workers (IH 01/07/10). These workers would be banned in six broad industries where insufficient training could prove dangerous, including aviation, mass transit, medical services and mining. The standard cap on dispatched workers would be 3% of the workforce, but social partners would be able to negotiate 5% and a union could agree to 20% in collective bargaining. The firms that dispatch these workers would have to sign permanent contracts with them and they would not be allowed to replace striking workers. The CLA is reviewing the legislation with social partners and relevant government agencies this week.
Social Insurance Code amendments
Sofia Echo, Novinite, BTA
The Social Ministry will present a set of draft amendments to the Social Insurance Code to the Cabinet by the end of this month. Some provisions have already been leaked to the press:
The retirement age would not change, but the contribution history would rise from 34 years to 37 for women and from 37 to 40 for men.
People who are up to three years short on contributions when they reach the retirement age of 60 for women and 63 for men would lose 2.4% of benefits per year. The maximum retirement credits one may purchase in a contribution period shortfall would drop from five years to two.
People who exceed the contribution period for a full pension would receive 3% more per year.
The vesting periods for maternity, unemployment and sickness benefits would be one year. That would double the qualifying period for sickness benefits and add three months for unemployment benefits.
PIT amendments provide clarification on pension contributions
IBFD, Croatia Times
Additional analysis of the new Personal Income Tax (PIT) Law amendments (IH 07/14/10) and publication of the revised PIT Law have provided a broader picture of the tax regime for pension contributions:
There will no longer be tax relief for premiums on life insurance products with retirement savings components.
Employer payments to voluntary third pillar pension funds are deductible from corporate profits tax, up to the qualified limit of HRK 6,000 (US $1,075) per year.
Workers are exempt from personal income tax for the employer contributions to third pillar schemes subject to the same limitations.
Tax exemption on unit-linked life insurance lost
Parliament has passed a new set of amendments to the Income Tax Act that are due to take effect on January 1, 2011. One would phase out the tax exemptions on payouts from the popular unit-linked life insurance contracts. The profits are currently tax exempt, provided they are paid out at least 12 years after conclusion of the contract. Existing contracts will be allowed to keep the tax break as long as they wind up by December 31, 2023.
Consumer protection package; Various
GIDA, IBFD, Euractiv
The Commission has outlined a package of proposals to restore consumer confidence and improve consumer security in financial services. The commission has adopted the White Paper On Insurance Guarantee Schemes, which calls for minimum standards on member state laws protecting insurance contracts. Only 12 of the 30 EU-EEA states now have Insurance Guarantee Schemes. An FAQ accompanies the White Paper. Investor Compensation Schemes would be significantly strengthened under proposed amendments to the 1997 Investor Compensation Scheme Directive.
In other news:
The EU Fundamental Rights Commissioner has advised Parliament’s Committee on Women’s Rights and Gender Equality that a proposal on gender quotas on corporate boards is under consideration, but that the commission would monitor board staffing trends through 2011 before resorting to legislation.
The Nordic Convention on Social Security is being renegotiated to ensure that the scope of its coverage at least matches the new EU rules on social security coordination.
To complement the proposed directive on intra-company transfers (IH 07/14/10), the European Commission has proposed common procedures for admission of non-EU seasonal workers. A six-month cap on seasonal jobs, rules on equal treatment and a process for easy renewals would be standardized while other matters would be left to the states to decide.
Cabinet approves pension reform bill; Various
AFP, NYT, Le Monde
The Labour Minister has evidently survived a political scandal and has been placed in charge of the President’s pension reform initiative (IH 06/30/10). Last week, he presented the bill (French only) to the Cabinet, which quickly endorsed it. He then delivered it to the lower house of Parliament. Plenary debate is scheduled for September 7 and final passage could come in October. Under the draft legislation:
From July 2011, the retirement age would rise from age 60 to 62 in four-month increments for people born after 1950. There would be exemptions for people who started work at age 18 or younger and those whose health was compromised by their work (“professional wear and tear”).
The minimum contribution period for a full pension would rise from 40.5 to 41.5 by 2020. Those with a contribution shortfall could defer retirement to age 67 – up from 65 – without penalty.
Public sector plans would harmonize contributions – but not benefits – with the private sector by 2020.
To help restore social security solvency, the levy on employer stock option contributions would rise from 10% to 14% and the charge on employee contributions would jump from 2.5% to 8%.
In other news:
A five-year plan (French only) on improving occupational health is notable for this month’s creation of ANSES, a super agency that consolidates food safety, environmental and occupational health bodies to ensure that emerging threats are flagged wherever they have an impact.
Financial Market Authority AMF has published its annual report (French only) on corporate governance and director remuneration, which concludes that many companies fell short on compliance with voluntary private sector codes (IH 01/22/09) on executive compensation. Transparency on severance pay was singled out as a common problem.
Also, the Tax Administration recently ruled against allowing tax benefits in the case of a US company that awarded stock options to employees of a French company for a period of 10 years. There are provisions allowing a board of directors to obtain shareholder permission for a stock option grant exceeding the 38-month maximum, but 10 years was determined to be beyond reasonable.
Justice ministers agree on more women in management
Spiegel, Deutsche Welle
When the Justice Minister met with her state counterparts, they were in accord on prodding the private sector to accelerate the appointment of women to management and director positions. The federal Justice Minister is willing to give employers a chance to comply with a revised Corporate Governance Codex, but her 16 state counterparts have created a study group to consider a proposal to set boardroom quotas for women. Hamburg and Bavaria recommend gradually reaching a 40% quota.
Health funding report
The Report of the Expert Group on Resource Allocation and Financing in the Health Sector offered some interesting ideas on public health system funding and allocation of resources, but analysts have warned that a proposal to phase out the tax relief on private health insurance threatens a huge customer shift to the public health system before it has a chance to significantly improve quality, funding and access.
Code of employee participation
Last year, the Labor Ministry and the social partners decided to try a “soft law” approach to worker participation in company profit rather than enacting legislation to mandate it (IH 09/03/09). The Labor Ministry has now published its Code of employee participation in corporate results (Italian only), which combines selected legislation with best practices models on profit sharing to guide social partners in their collective bargaining. It asks Parliament to give the voluntary approach a year before drawing up any new legislation on mandatory profit-sharing.
Council of State approves budget and anti-crisis measures, gay marriage bill
The Council of State is a legislative body that casts non-binding votes delivered in an advisory role to the unicameral Parliament. Following first readings in Parliament, the council approved a set of notable measures, including budget (IH 05/19/10) and anti-crisis provisions on July 9 (French only):
The tax deduction on severance pay would now be limited to €300,000.
There would be a standard workers’ accident insurance levy of 1.25%, raising the premium in sectors like financial services to grant some relief to the generally small enterprises in fields like construction.
Several laws would be amended in a redefinition of marriage that includes two people of the same sex.
Ruling on employer-paid medical services
The Supreme Administrative Court recently delivered a controversial ruling on the tax treatment of medical benefits. The employer had contracted with a medical center to provide services to its employees for a monthly lump sum. The court determined that it is a “gratuitous benefit,” hence a taxable benefit-in-kind, even to workers who had not used the services. The business sector sees this as shaky logic affecting many companies, often with tax liabilities retroactive to 2004 or earlier. The Polish Confederation of Private Employers (PKPP) has urged the administration to reform the fringe benefits law for greater clarity and consistency.
Rules on financial reporting for pension funds
Last month, the Insurance Institute of Portugal (ISP) released Regulation No. 7/2010-R (Portuguese only) setting financial reporting requirements for different kinds of pension plans. Following a standard format for financial statements and adhering to the principles set out in International Accounting Standard (IAS) 1 should increase transparency.
Job guarantees for returning conscripts
The chair of the Federal Council’s defense and security committee aims to eventually return to an all-volunteer army. In the interim, he plans to make the one-year mandatory service more viable for conscripts. The Federation Council has drafted Labor Code amendments that would oblige employers to give conscripts their jobs back after service. This would work very much like the job protection for a woman on maternity leave and the job entitlement would end if the conscript did not claim it within three months of leaving the service.
Pension reform options
Global Pensions, Bloomberg, Toronto
As soon as labour reforms got through Parliament (IH 06/23/10), the Prime Minister started discussing the urgent need for pension reform. In his State of the Nation Address (Spanish only) last week, he touched upon a recently prepared menu of tough options, including a higher retirement age, a longer contribution history and basing benefit calculations on more years of contributions. He said that gradually raising the retirement age from 65 to 67 is essential. He is aiming for the “widest possible consensus” in the parliamentary commission that will develop a pension reform plan.
Consultation on ending annuity requirement; Various
Professional Pensions, The Telegraph, IPE
HM Treasury has opened a consultation on a proposal to end the requirement to take out an annuity by age 75. It includes a flexible drawdown plan that would allow a person to withdraw more than the maximum annual limit, provided a minimum income requirement (MIR) is met. The consultation closes on September 10, 2010, the legislation is due this fall and the measures are expected to take effect in April 2011.
There were a few close seconds this week:
The Pensions Regulator (TPR) has published a draft revision of its guidance on transfer incentives. The consultation is accompanied by a TPR/FSA (Financial Services Authority) joint statement on transparency and full disclosure in transfer exercises. The consultation will run through October 5, 2010.
The Pensions Minister has made explicit commitments to staying on track with auto-enrolment, but he continues to signal that he will take pension reform in new directions (IH 07/08/10). A “strong state pension” as the “foundation for modern pensions” is a recurring theme, and he is openly musing about being more flexible on early withdrawals from private pension. This would be limited to “financial emergencies.”
There is growing concern about the new administration’s plans for the National Health Service (NHS). The White Paper Equality and excellence: liberating the NHS sets out to improve quality of care and allocation of health funds, in part by giving general practitioners more control over finances. The plan’s detractors note that managing budgets may not be every doctor’s strong suit.
Analysts have expressed concern that the proposed switch to the consumer price index (CPI) as an inflation peg for occupational pensions (IH 07/14/10) could be held up by the absence of CPI-linked instruments for investors. The change would also require revisions to existing pension legislation, including a provision in Pensions Act 1995 that bans “detrimental changes to accrued benefits.”
Health insurance reform proposal
Bermuda Sun, Bernews
The Bermuda Health Council (BHeC) announced the release of Enhancing the Regulatory Framework for Health Insurers: Public Consultation Paper. It proposes a new set of rules for the health insurance sector that would establish a standard health benefit package, ban coverage denials and use community rating. Risk-based capital rules modeled after the EU’s Solvency II would help stabilize the industry. Comments are welcome through August 30.
Royal Assent, lingering questions for Bill C-9; Resources for new funding regulations
Toronto Star, CBC, LTN
Bill C-9 Jobs and Economic Growth Act (IH 06/03/10), omnibus tax legislation including many measures in the minority government’s current budget, was quickly passed in the Senate while a handful of opposition Senators were off-premises. There have been complaints over this tactic, but no legal challenges so far. The content of the bill is not certain until the Royal Assent version is published, but charges of inadequate debate suggest that its pension provisions passed without major alteration. There are provisions on:
Using a letter of credit for pension funding relief
Raising the 10% pension surplus threshold to 25%
Immediately vesting new plan participants
Restricting annuity purchases from an underfunded plan
Setting more detailed disclosure obligations
Requiring full funding on plan termination
Calculating preretirement death benefits
Incidentally, the Office of the Superintendent of Financial Institutions (OSFI) has published new FAQs reflecting changes to funding rules under the final regulations (IH 06/30/10) published last month. A new Mercer Communiqué also elaborates on these regulations.
Life insurance reform bill passed
Congress has passed an insurance market reform bill (IH 05/27/10), most notable for banning unregistered foreign life insurers. The foreign companies are welcome to do business in Guatemala by establishing local branch offices. The law will come into effect on January 1, 2011.
NIS benefit increase approved, contribution ceiling start date
Last week, the House of Representatives gave final approval to a pair of bills raising various National Insurance Scheme (NIS) benefits by as much as 33.5%. The increases were retroactive to July 1. Also, the deferred introduction of a new NIS contribution ceiling (IH 06/23/10) has been reset to August 2. An accompanying measure will raise the NIS flat rate contribution from $20 (US $0.23) per week to $50.
Divisive measures suspended
Following a bloody national strike, the government has agreed (Spanish only) to a 90-day suspension of labor legislation that was allegedly rushed into law without social partner consultation. Under the affected measures:
Workers would no longer be required to pay union dues.
Employers would be allowed to fire striking workers or hire replacement workers.
Police would be mobilized to protect companies during an industrial action.
A tripartite commission has been convened to review the measures.
Financial reform bill passed; Interim rules on fee disclosure; Various
Plan Sponsor, P&I, LA Times
Congress has passed and the President will sign Dodd-Frank Wall Street Reform and Consumer Protection Act (IH 07/14/10). Among the highlights:
Public company top executive compensation and golden parachutes will be subject to non-binding shareholder votes. Shareholders would decide on how frequently to hold these votes.
Management compensation based on false financial information would be subject to clawback.
There are new independence standards for compensation committees.
Additional compensation disclosure requirements would illustrate the basis for performance-linked pay and compare CEO compensation to the company’s median salary.
Also, The Employee Benefits Security Administration has posted the interim final rule Reasonable Contract or Arrangement Under Section 408 (b) (2)-Fee Disclosure, covering the service provider fee disclosure requirements for occupational defined benefit and defined contribution plans. Part of a plan sponsor’s fiduciary responsibility is to ensure that fees are reasonable and that has been a difficult thing to check in the absence of disclosure rules. The comment period will end on August 30 and the final regulation should come into effect on July 16, 2011.
In other news:
Signs of impending social security reform efforts include both the House Majority Leader and its Minority Leader speaking of the need to raise the retirement age. The Senate Finance Committee held a hearing last week to consider making social security more hospitable toward phased retirement and other post-retirement employment arrangements.
The Department of Health & Human Services has issued the interim final regulations mandating a variety of free preventive care and diagnostic procedures for all new health insurance plans and all group health insurance plans. Those group health plans that use networks will not be required to provide free care out of network. A comment period will close on approximately September 18.
The unemployment extension bill (IH 07/08/10) is expected to finally pass today.
The US District Court of Massachusetts issued a pair of rulings on July 8 that declared the Federal ban on same-sex marriage unconstitutional. The Department of Justice has not indicated whether it will appeal the decisions.
Overtime exemption tightened; Gay marriage law; Minimum pension hike advances
BA Herald, The Economist, NYT
Law 26 597 (Spanish only), passed last month and effective July 1, amended the law on working hours to end the overtime pay exemption for anything above 48 hours per week for workers in supervisory roles. Only management and directors now maintain the exemption. It will be left to case law to clarify the definition of “management.”
Also, the Senate narrowly passed the gay marriage bill (IH 05/27/10) last week and the President – a strong advocate of the measure – is certain to sign it. In addition, legislation that would link the minimum pension to 82% of the minimum wage (IH 07/08/10) has now cleared the Senate Budget Committee and may be set for plenary debate as early as this week. The Economy Minister and the head of social security agency ANSES have both warned that the pension system would “default” if this unfunded obligation is approved.
Foreign investment limit rises again
Global Pensions, BNamericas
Seems like only yesterday (IH 06/30/10) that the ceiling for AFP private pension fund foreign investments rose to 26%. The Central Bank has now determined (Spanish only) that a 28% limit will be safe.
Mercer International Headlines is published by the US international consulting practice library of Mercer. Comments or queries may be directed to Patrick Sweeney at +1 212 345 2462. Click here to find your local Mercer office.